chargebacks validation – keys to improving the … · pharmaceutical supply chain complexities...
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Chargebacks Validation – Keys to Improving the Bottom Line Chris Bott
Principal
IMS Managed Market Services 2
Agenda
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Recent Audit Findings
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Pharmaceutical Supply Chain Complexities
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Impacts of Problem Chargebacks
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Improving the Process
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Realizing the Value
IMS Managed Market Services 3
Recent Audit Findings Through our chargeback audits, we have found that accuracy is highly dependent on process effectiveness.
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Errors and disagreements are often the result of the lack of (or lack of clarity in) an agreement between the manufacturer and wholesaler.
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Key terms known to clarify typical disconnects are often not included in the agreement
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Internal resources are not fully educated or provided with the tools to ensure that downstream impacts are not created due to a lack of timely data exchange.
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Errors are often “resolved”
without the root cause being addressed.
IMS Managed Market Services 4
Recent Audit Findings Problem areas identified in our audits can be placed in three categories
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Customer Errors
− Invalid reference ID and/or DEA number
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Pricing Errors
−Contract price missing, incorrect, inserted, or corrected
−Unit (Catalog) price missing, incorrect, inserted, or corrected
−Extended CB amount incorrect or corrected
−Quantity invalid or not supplied
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Eligibility Errors –
customer not covered, expired, or not yet eligible
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Recent Audit Findings Further examples of audit findings demonstrate issues exist at both the manufacturer and wholesaler that extend beyond “the obvious”.
Error lines are classified as “Correct as Submitted
Commercial contracts are unknowingly expiring
Duplicate chargeback transactions are not consistently identified
Chargebacks with zero dollars paid are transmitted to wholesaler without rejection reasons or comments
Eligibility is forced to have 1 day overlap
System is unable to provide unit of measure conversions (i.e., “Each” to “Case”) at time of chargeback validation
Auto-correct functionality could be more comprehensive to review multiple factors
Submission of invalid HIN for PHS contracts
Submission of duplicate chargebacks
Negative chargebacks may not be generated or submitted when appropriate
Deduction lines do not contain data elements necessary to link them back to original transactions
No automated controls to prevent a customer from existing on more than one tier within a contract at a given time
Credit/Rebill resolution process permits modification of invoiced units field
Summarized resubmission and deduction transactions impede reconciliation
Manufacturer Wholesaler
IMS Managed Market Services 6
Agenda
•
Recent Audit Findings
•
Pharmaceutical Supply Chain Complexities
•
Impacts of Problem Chargebacks
•
Improving the Process
•
Realizing the Value
IMS Managed Market Services 7
Pharmaceutical Supply Chain Complexities
The sale and movement of products within the pharmaceutical supply chain is complex and involves multiple information exchanges and processing of multiple financial transactions.
IMS Managed Market Services 8
Pharmaceutical Supply Chain Complexities
Chargeback transactions can represent upwards of 50% of contracted sales that go through wholesalers and therefore require key attention…
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Pharmaceutical Supply Chain Complexities
The industry has standard and customized validations available to help manage the process, but there are limitations.
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The Healthcare Distribution Management Association (HDMA) has defined 26 individual validations designed to help manufacturers consistently and effectively identify and resolve issues in submitted
chargeback data
−Error codes can be classified as critical/fatal to informational
−Errors are dependent on information stored in manufacturer’s contracting system
−Action taken by manufacturer is individually defined•
Codes don’t account for submission accuracy/completeness through cross validation
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Codes don’t account for manufacturer specific business rules and tolerances
IMS Managed Market Services 10
Agenda
•
Recent Audit Findings
•
Pharmaceutical Supply Chain Complexities
•
Impacts of Problem Chargebacks
•
Improving the Process
•
Realizing the Value
IMS Managed Market Services 11
Impacts of Problem Chargebacks Why are accurate G2N accruals important?
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Regulation S-X’
Rule 5-03 (b)(1); 45 FR 63671, Sept. 25, 1980, as amended at 45 FR 76977, Nov. 21, 1980; 50 FR 25215, June 18, 1985 states that they are important
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At year end, G2N reserve balances will come under scrutiny by internal and external auditors
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G2N elements must be reported accurately in the financial statement
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Accrual amounts directly affect the bottom line
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External auditors are focusing on these reserves due to their materiality and significance to the P&L and Balance Sheet
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Audits have revealed that manufacturers have historically over accrued for G2N elements that vary from millions -
to tens of millions -
to hundreds of millions of dollars
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G2N reserve deductions can make up as much as 30%-50% of branded drug sales; and up to
90% of generic sales….of which chargebacks typically represent 15% of the total deduction
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The process for managing G2N accruals and reserves is very complex
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Many of the G2N processes are still performed manually, increasing the risk of inaccuracy, timeliness, unauthorized transactions, and proper reporting.
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Impacts of Problem Chargebacks Furthermore, manufacturer’s financial reporting accuracy is significantly dependent on accurate accruals of all deductions from gross sales dollars.
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Largest dollar representation of deductions include:
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Rebates:•
Medicaid Rebates •
Medicare Part D Rebates•
MC Commercial Rebates•
Other Rebates
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Chargebacks •
Federal Government chargebacks•
Commercial Customer chargebacks
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Returns•
Expired products returns•
Others (shipping errors, damaged, etc.)
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Fees•
IMA Fees•
Admin Fees•
Other Fees
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Impacts of Problem Chargebacks Submission timing presents challenges in proper adjudication
Deduction Typical Timing Lag
Expired Products Returns
Up to 2 years (depending on shelf life)
Medicaid Rebates 2-3 quarters
Commercial Rebates 1-2 quarters
Chargebacks 80% within the reporting month & qtr
15% within 3-4 weeks; 1-5% in dispute
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Impacts of Problem Chargebacks Returns create additionally complex challenges with respect to reconciliation of credit/rebills and negative chargebacks
•
Returns transactions lack pertinent information about the original sale –
“No Receipt”
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Returns processed in financial system−
no direct linkage to chargeback processing system−
difficult to confirm receipt of negative chargebacks
related to returns
1/07 8/07 8/08 8/108/09
Manufacture date Sale date
~8Mo
Patent Expire Date
Shelf life
Returns intensive period
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Impacts of Problem Chargebacks Generally problematic chargeback processes continue to create operational and financial issues.
Resource inefficiencies
Lack of visibility to missing negative chargebacks for associated credit/rebills
Increased risk for manufacturer to issue credit memo and grant deduction for same chargeback
Chargebacks for contract sales after price increase may be paid based on an incorrect basis price (WAC, List, etc)
Increased risk for manufacturer to remit overpayment to wholesaler on a single chargeback line
Increased risk for pricing errors
Potential loss of customer if contract is not extended/renewed on a timely basis
Resource inefficiencies
Credit/Rebill transactions submitted may contain incorrect invoiced units
Price used for contract return may not always be accurate and may not generate a negative chargeback when appropriate
Inability to access A/R records electronically compromises the validity of wholesaler audit trail
Inaccurate pricing extended to contract customers
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Primary identifiers can be set at the customer level, but can not vary by manufacturer
Manufacturer Wholesaler
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Agenda
•
Recent Audit Findings
•
Pharmaceutical Supply Chain Complexities
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Impacts of Problem Chargebacks
•
Improving the Process
•
Realizing the Value
IMS Managed Market Services 17
Improving the Process Today’s chargeback are broken in many places resulting in many feedback loops, manual steps, and significant inaccuracies.
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Improving the Process To fix the broken connections, manufacturers and wholesalers must focus on improving core process elements
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Lines of communication must be opened
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Accurate data must be received in a timely fashion
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Errors need to be identified and reconciled timely
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Error identification capabilities in systems must be improved
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Data received across key EDI transactions should be leveraged to reconcile chargebacks to shipments and returns
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Policies and procedures should be implemented that support required contract notification lead times to trading partners
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Formal written contract and chargeback policy agreement should exist between wholesaler and manufacturer
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Systems capabilities to reconcile transactional data with A-P/A-R should be improved
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Regular meetings should be scheduled to discuss issues requiring escalation and upcoming events
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Agenda
•
Pharmaceutical Supply Chain Complexities
•
Recent Audit Findings
•
Impacts of Problem Chargebacks
•
Improving the Process
•
Realizing the Value
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Realizing the Value Accuracy in chargeback data is the result of effective processes
and leads to improved business insights…
Manual Intervention
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Data Validation•
Data Correction•
Data Reconciliation
Process Efficiency
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Data Confirmation•
Trading Partner Process Alignment
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Reliable Operational Reporting
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Reliable Financial Reporting
Business Insights & Planning
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Customer Performance•
Trading Partner Performance
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Contractual Benefits Analysis
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Predictive Modeling•
Reliable Business Forecasting
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