A vast majority of the pharma supply chain is now governed by contracts. But simply handing over operations to a third party isn’t enough. With cash flow optimization top of the priority list and compliance and ever-evolving regulations permeating every aspect of the industry, effective contract management has become vital to success.
I-Many have been pioneers in the contract management and compliance automation marketplaces for almost two decades, continuing to deliver innovative and flexible solutions that respond to evolving customer needs and define market direction. NGP spoke with David Blumberg, Executive Vice President of Fulfillment Services at I-Many, to find out what companies should look out for before they sign the dotted line.
NGP. Cash flow optimization is on the top of the agenda right now for C-level executives in the pharma industry. What is the best way for them to maximize their ROI when automating this process?
DB. As it pertains to the contract space, when I see the words cash flow optimization my sense is that what we’re really talking about is the best use of any given dollar, and how it is efficiently handled through the organization so the pharmaceutical company gets the best value and the most efficient process flow. Within that, if a pharma company enters into an agreement with somebody else in the supply or demand chain, such as a wholesaler or a hospital, it is critical that they a very good understanding of what the third party expects from them and want they want from their partner. They are being offered some kind of economic incentive but it’s essential that the whole agreement, both its structured and non-structured components, are tracked and linked to ensure performance. The benefits of this are avoiding unnecessary or inaccurate payments, a much better ability to ensure that performance is met, understood and articulated, and that there are the right incentives in place to make it happen.
Additionally, we believe it’s important to understand what various channel partners are able to accomplish in the market place. Very frequently you see a contract that is based on different performance tiers. If you know what channel partners are able to perform, you can tailor those tiers or the incentives around that to get the maximum benefit. To accomplish any or all of this, you must have a richly functional contract management tool – a systems software tool – as well as the appropriate processes in place to be able to manage it. If you have these things, then you can work towards cash flow optimization.
NGP. What are the factors that pharmaceutical executives should take into consideration when weighing the constantly changing regulatory hurdles of the industry and their operational policies?
DB. You’ve accurately noted that regulations are changing fairly dramatically and the pace and depth of the changes doesn’t appear to be slowing down. What this implies is that compliance is a fact of the go forward business model and is not to be avoided.
What I have been pleased to see is the emergence of a much more rigorous compliance culture, everything from the designation of chief compliance officers to the spirit of compliance starting to embed itself in every major department in every business function. That’s the first step and the industry has done well in embracing it. Along with this spirit, it’s necessary to have a certain degree of flexible business processes and supporting solutions to be able to address this. No longer can you create this monolithic, unchanging, locked-in solution that is assumed will work for the next X number of years. What the industry is starting to do, and this goes from the proudest giants to the newest upstarts, is to realize that a packaged approached – outsourcing the development of the software solution to people whose business it is to develop that – is the right way to proceed.
Behind this, if you know standards are going to change and you’re looking for a software solution to support you then you have to be committed to always being on top of those standards, always having a development effort to quickly get around those standards and to communicate and explain those standards, and then propagate those changes into the functionality. The industry is best served by a software solution that is that is dedicated to the pharmaceutical and life sciences space, dedicated to understanding the regulatory changes as they occur, and dedicated to rapidly getting those into the software and getting them out to the community. It’s important for the industry to seek out software and hardware partners that have an active collaborative approach.
With I-Many, you can see our user group function, our user communities, and the experts we bring on board to help us interpret and reach out to calibrate how we understand standards with the community – all very important in getting this right and staying up and flexible with changing requirements. If you look at DRA for instance, our experts perceive that the requirements are understandable and some are yet to be defined. But new as it is, we are already in the process of creating a release to address the ones that can be understood. We are also launching a series of tools to make sure the software upgrade process is not onerous but is very time and cost efficient. We perceive ourselves as a utility for the industry.
NGP. What are the key influences behind the unprecedented rise of contracts service management in recent times?
DB. Many of the traditional methods of spiking demand are starting to disappear. For example, there was a time when script writing behavior was almost directly proportional to detailing effort. If a company had a drug and needed to drive more revenue, it would increase the size of the sales force, expecting more profit. Those days are, to some degree, over. It is much harder to drive revenues in this way and because of that, and because of the rapid increase in patent expiration and the drying out of some research pipelines, companies have become increasingly aware of the dollar. Another influence is the government is increasingly becoming the single largest, and in some cases more important payer.
Whereas before there was a view that discounts and managed care was just a cost of doing business, it is now seen as one of the last tools to really encourage the right aligned channel behaviors to drive share and profitability in the most effective way. And that’s drawing a lot of attention towards the way we manage contracts. Also, business has become more competitive and you need every aspect of the business chain to be more efficient, and a big piece of the chain is the relationships with outsiders, such as CROs, which are governed by contracts.
NGP. How important are contract analytics and scoring systems in end-to-end contract management?
DB. If you have higher end analytics that can draw from all your contracts – proposed, existing and previous – it can give you insight into a number of areas. Firstly, before someone is going to strike a contract you can rapidly see the potential impact. For example, would that violate a government best price or if they max out on performance can I afford the deepest level of tiers? etc. On the back end, you can start to measure what actually happened – did I get value for money, was the discount worth it, did I get the performance, were the right people rewarded and the people who made mistakes reproved? etc. That is very critical for optimizing what is in flow as well as informing to the future.
The concept of scoring is very interesting. It means you can look at past performance and get a better sense of the probabilities to assign to a particular channel partner, and start to see whether or not that partner deserves a preferential level of treatment depending on the likelihood of being able to provide you with what you need to be successful. This process helps you segment your channel base and determine the right level of agreements to enjoin on them. I see that as an important augmentation to the standard level of analytics.
NGP. What advice would you offer to companies looking to set off on the road to contracts management?
DB. I sense they would benefit by going to the objective third parties for advice such as industry analysts and some of the more reputable consultants to get a sense for the right players they should be considering.
For the smaller organizations, trying to do too much in-house, too much customization or too much creating from scratch is going to be an increasing difficult road for them. Regulations are changing to quickly and what may at the time seem like a penny-saving internal program will rapidly become a maintenance nightmare as the next generation changes comes along. Even though adopting an industry standard solution might seem a bit of extra work because it will force processes on you, the chances of staying compliant are much greater and that is a much better road to take.
Lastly, they’ve got to find companies to work with that have a large enough client-based dedication to the industry, but also some sensitivity to smaller companies that will work to their benefit. What works for big pharma may not be flexible enough for a new biotech, so they need to appreciate their unique needs.