How to succeed in the life sciences industry: contract management strategies 101

Product distribution and reimbursement channels for life sciences companies continue to grow ever more complex. This challenge requires sophisticated product discounting strategies and administrative services to better meet patient needs. To succeed in this space, life sciences companies must implement strong contracting and performance management strategies including customer compliance assessments and contract performance reviews performed throughout the year. Additionally, with the regulatory environment continuing their efforts to include more stern enforcement action and price/discount transparency, it is crucial that life sciences companies rise to the occasion.

Before a signature is applied to a negotiated commercial agreement, life sciences companies must:

• Identify the appropriate contract administration process and the related customer data requirements needed to process transactions
• Understand both the current and future impact the contract will have on the pricing and rebates offered to the various government programs
• Assess administrative service fees within the contract to determine if they are bona fide service fees or discounts for both government pricing and financial reporting
• Determine customer and contract expectations and the key metrics used to assess performance throughout the contract lifecycle
• Develop monitoring procedures to ensure contract compliance is being maintained (this includes real-time assessment and exercising contract audit clause)

Despite these challenges, however, life sciences companies that successfully manage this process enjoy increased opportunity in a rapidly growing marketplace. By implementing strong commercial contracting strategies and administrative procedures — including a proactive approach to contract management across commercial and government programs — life sciences companies reduce both their:

• Commercial risk: offering discounts and rebates that do not align with management expectations and/or overpayment due to non-compliance with contractual terms
• Regulatory risk: hefty fines, penalties or even potential debarment from government program participation due to the impacts of certain commercial arrangements

Further, effective contract management strategies can help verify that all transactions are appropriately tracked. With the tight margins that many life science companies face, incorrectly tracking transactions can mean the difference between meeting their financial targets (or not), building a strong brand reputation (or not) and improving sales opportunities (or not). In addition, transactions (i.e., price discounts, rebates and administrative fees) resulting from the contract need to be assessed for financial reporting purposes to ensure proper cost margins are accurately reported.

What does this mean?

Given the above, it is more important than ever to establish contracts that set clear expectations while complying with the rules and regulations that influence government program participation. Due to the number of stakeholders that must be considered — the government, pharmaceutical companies, health plans and the public — the process of contract development and management is complex. While building strength across commercial contract networks, life sciences companies must keep this entire ecosystem in mind.

But that’s not all…

As mentioned above, these commercial contracts impact numerous complex government programs which can make up a significant share of overall product sales. Participation in government programs requires companies to follow strict guidelines and regulations — often including self-reporting on a multitude of complex calculations to remain compliant. To safeguard the future health of their products, it is crucial for life sciences companies to have a clear understanding of what is expected of them and to establish proper steps toward compliance for each government program, implementing strong controls environment and proactive monitoring for potential compliance and ethics risks. This begins before the commercial contract is signed and should be part of the entire contract lifecycle — from negotiations through the contract term.