A Happy 2015 For Biopharma Industry? Put It In The Contract

By Louis Garguilo, Chief Editor, Outsourced Pharma

 

Is it too early to move from confetti to contracts? Perhaps, so let's ease into one of this year's most important topics.

A lawyer finds herself in Heaven. "This must be a mistake," she says. "I'm only 55." Saint Peter says, "According to our calculations, you're 88." "How'd you get that?" she asks. "We added up your time sheets," he replies.

That'll nudge most of us into a better frame of mind to discuss the contracting ecosystem that now makes up the global biopharmaceutical industry.

In other words: Welcome to 2015, the year of contract management.

Notwithstanding the above, contract management today is less about legal personnel than compatible and comparable software systems and databases with spider-web integration and flexibility. Today, contract management must provide biopharma executives a panoramic view of the company's complete landscape; those executives must have the intellectual agility to understand each component's relationships to the whole.

Here's why. First, government further spread its tentacles throughout healthcare in 2014. Biopharma is dealing with politically driven and systemic structural market changes (i.e., growing size and influence of HMOs), and keeping up with mounting compliance and requirements. To protect profitability, there is an acute need to accurately execute pricing strategies and reimbursement processes on the commercial drug side of the business.

Second, last year brought biopharma more supply chain relationships, business partnerships and overall complexity (despite its singing from the hymnal of simplification). Biopharma is learning that even a contract with an early discovery service provider must take into account compliance and future market pricing strictures. Any upstream contract now seems destined to affect downstream outcomes. In turn, outcomes feed back through the entire organization.

Spotlight On Contract Management

The challenge is twofold and compounding: Data proliferates at every level of healthcare and also gains complexity as it becomes more interrelated.

Jon Smith, vice president, Alliances and Business Development, Revitas Inc., a leading biopharma supplier of contracting, revenue management, and compliance solutions, says, "Now, if you look at what has occurred particularly with the federal government, regulatory compliance has taken on a deeper level of importance. Biopharma is figuring out how to get a more sophisticated, holistic and effective view of their contract management."  

One group in particular has been affected. "2014 was the year pharmaceutical manufacturers faced shifting sands and uncertainty around regulations," says Smith. "They're concerned about driving revenues with business channel partners. According to Smith, the need to align contracting with revenue management has never been clearer, and it requires "a fluid process enabling strategic decisions to help pharma manufacturers grow profitably."

For example, when baseline pricing and deliverables change, how do you manage that across an organization as big as pharma? Add that pharma outsources even more services and manufacturing worldwide. This requires a system that segments business contracts by unit, division and geographic markets, and then rolls the data up to demonstrate systematic impact and influences.

Smith picks up on the subject of outsourcing specifically. "Let's face it," he says, "drug discovery and commercialization is such a high stakes proposition. Folks are looking at ways to contain and control some of that inherent risk. More are approaching this with risk-sharing contracts where payments are milestone-based and tied to specific outcomes." The ability to predict, adjust, capture and then relate those milestones and outcomes to other parts of the business is essential.

A More Perfect Management System

Revitas, which lists such customers as AstraZeneca and Allergan, Boehringer Ingelheim and Baxter, GSK and GE Healthcare, published a top ten checklist for an effective contract management system. I've boiled it down to three main attributes.

First the nuts-and-bolts: A contract repository (internal or cloud-based) employing metadata, real-time search and reliable milestone management, and particularly in light of recent highly publicized global breaches across industries, robust and tiered security.

Next is global scalability and flexible deployment (to a diversifying employee population) in support of user-defined workflows and negotiation management.

And finally, the panoramic view mentioned above: Integration with all business and revenue management systems with enterprise-wide reporting and applied analytics.

"The first thing that is apparent is just the need to keep up to survive," says Smith. He says Revitas itself has adapted its corporate direction to mirror the changes in the healthcare industry the past decade. When he started, pharma contracts were singularly focused on defined tasks, such as how to manage the rebate to an outside partner, or how to get a handle on a charge-back process to avoid unauthorized reductions. "Isolated procedural aspects," he says. Today, few contracts if any can be viewed safely as one-offs or outside the interdependent contract ecosystem.

Pfizer Was A First

The need to elevate contract management didn't start last year. Contract law itself dates back to the ancient Greeks and Romans. But a tipping point—when individual insights become a collective practice—for the global centrality and connectivity of contracts in healthcare particular to biopharma seemed to occur in 2014.

Pfizer is thought to be the first pharmaceutical manufacturer to implement a comprehensive solution on a single platform that formally integrates all contracting-related business functions, including government pricing.

Amidst its integration of Wyeth and King Pharmaceuticals a few years ago, Pfizer was faced with the highest volumes of data ever experienced by a single pharma company. To meet this challenge, it launched the PACE Program—Pfizer Achieving Commercial Excellence—to select and implement internal solutions for contract, chargeback, rebate, and master data management across all lines of business – including branded, generic, and managed care. According to a case study Pfizer did with Revitas, "Over time, this would decrease operating costs and create consistent, predictable outcomes."

In theory, there should be two additional outcomes: Utilizing a holistic contract management system effectively should obliterate remaining silos within a pharma organization, and should promote (or spawn) employees who can best grasp component contracts and data and how each relates or helps sets overall corporate strategies. The latter point shouldn't lead to an exclusive group of employees; it should rather ensure more people across the organization understand the need to get involved.

Smith says, "Everybody across the enterprise is a stakeholder in an integrated contracting process and could be an influencer in larger decisions." Influencers include the sales organization, always looking for a process that is accelerated, more transparent and workable no matter the customer or business area. Legal wants to maintain consistency, control over terminology and policies for all contracts that go out. Finance wants a tighter connection to revenues and forecasting based on contract execution, deliverables and pricing. "And of course," concludes Smith, "the C-suite wants to affect all decision-making as it relates to strategic alliances, growth initiatives and company directives, changing markets and profitability."  

So as we head into 2015, we should witness the biopharma industry raise the ante on managing contracts in a more relational and effective manner for the healthcare ecosystem it finds itself within.

And by the way, New Year's resolutions, too, are considered (self-)binding contracts that relate to the other parts of our lives. Here's hoping 2015 contract management works better for everybody.