Gross-to-Net Estimates and Accruals - Master Class

Transcription

1 Gross-to-Net Estimates and Accruals - Master Class Mike Makovec, Audit Senior Manager, Deloitte & Touche LLP Walt Worsham, Senior Manager, Deloitte & Touche LLP Brad Schulte, Senior Manager, Deloitte & Touche LLP

2 Disclaimer This presentation contains general information only and Deloitte Risk and Financial Advisory is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte Risk and Financial Advisory shall not be responsible for any loss sustained by any person who relies on this presentation. Copyright 2017 Deloitte Development LLC. All rights reserved. 2

3 Agenda Sharpen focus on Gross-to-Net (GTN) process, estimates, and controls Topic Content Speakers Timing Models and approaches for estimating GTN accruals Defining the GTN landscape and key challenges Establishing a common governance board Brad Schulte Walt Worsham 3:30 4:15 Enhanced modeling and managing data Panel: Enhancing GTN communication and controls Taking control of the process Industry insights and audience discussion Moderator: Mike Makovec Panelists: 4:15 5:00 David Levi, Bristol-Myers Squibb Larry Breen, Sunovion Jeffrey Miller, Impax Labs Copyright 2017 Deloitte Development LLC. All rights reserved. 3

4 GTN maturity continuum Based on Deloitte s experience helping clients, many companies are living with incremental improvements in predicting GTN Value Low High Clients get forecasting done Many small/ mid-size companies GTN results are based on standardized model, defined control, and predictability Many large companies Clients manage GTN to free up cash, reinvest, improve shareholder value Foundational Mature Advanced Spreadsheet model Limited automation Limited scenario modeling Algorithms standardized across business units Forecast correctly, predicts GTN Siloed functional input, aligned via meetings Continuous improvement in algorithms and model Governance defined Discretionary spend, improved based on integrated, Rx-level commercial data Copyright 2017 Deloitte Development LLC. All rights reserved.

5 Understanding the complexities of GTN Pharmaceutical companies are exposed to internal and external challenges impacting their ability to effectively manage GTN Internal External People & process Models & algorithms Data & technology External pressures Siloed decision making and broken communication channels Lack of ownership across the organization Difficulties balancing organizational burden and level of precision in GTN estimation Time constraints caused by preparation focused close process with limited analysis Establishing Sarbanes-Oxleycompliant processes Manually intensive calculations Lack of standardized methodologies and sophisticated forecasting tools Forecasted to actual variances Limited access or validation to required inputs Managing the product life cycle including loss of exclusivity (LOE) and product launch Application of claims rates Establishing unit of measure Disparate system landscape Spreadsheet-based forecast and validation calculations Inability to manage volume and sources of data Data integrity issues Untimely access to data inputs Outdated systems and limited exposure to technology enablers Lack of historical data Additional complexity due to changes in the revenue recognition standard including revenue reallocation, variable transaction pricing, and contract consideration Pricing pressures caused by the changing payer landscape Increased regulatory scrutiny and Health Care reform Increased number of mergers and acquisitions and integration challenges Increased auditor scrutiny of management s assumptions Copyright 2017 Deloitte Development LLC. All rights reserved. 5

6 Cross-functional governance is a key to a sustainable solution Companies should start by assessing their current governance model, identifying key stakeholders and objectives Establishing a common governance board can help companies mitigate common process inefficiencies: Minimal cross functional coordination Unclear accountability Non-integrated source data & systems Lack of effective data management and governance across functional areas Finance & Forecasting Claim Processing Revenue Accounting Governance Board Supply Chain & Distribution Government Operations Pricing & Contracting Copyright 2017 Deloitte Development LLC. All rights reserved. 6

7 Estimation accuracy is rooted in data management and tested methodologies Predictability Continuum Foundational Advanced Data Data is housed in disparate systems and is limited to historical claims Data is integrated in a common data warehouse; historical claims validated by third-party claims data Models and algorithms Multiple spreadsheet files that lack consistency and version control and have limited ability to explain variance Coordinated modeling capabilities with feeds from data warehouse; actionable variance analysis Technology/Solution Limited to spreadsheet modeling with manual file management Automated GTN solution with real-time feeds from data warehouse Copyright 2017 Deloitte Development LLC. All rights reserved.

8 Elements leading to GTN model creation Product Details Customized GTN Model Brand vs. Generic Specialty vs. Retail Pricing strategy Channel Considerations Distribution Service Arrangement Fees, Services, Data, Accounts Receivable, Days inventory on hand, Pick- Pack-Ship Costs Inventory data and flow Government Programs Develop customized GTN Model Strategic tool Variance Analysis Net Price Calculation Reserve Forecast Copyright 2017 Deloitte Development LLC. All rights reserved. 8

9 Industry example: GTN for Medicaid Product Profile Branded drug launched in January 2015 Average shelf-life of three years Product Detail Pricing and Contracting Annual price increases of 5% in past 2 years Moderate competition in therapeutic area Heavy commercial contracting Medicaid GTN Model Channel Distributed via big 3 wholesalers Retail pharmacies Copyright 2017 Deloitte Development LLC. All rights reserved. 9

10 Medicaid Rebates Overview of amounts paid Products are either classified as New Drug Application (NDA) or Abbreviated New Drug Application (ANDA). NDA = innovator / brand ANDA = generic version For each participating product, AMP and Best Price are calculated: Average Manufacturer Price (AMP): The average price paid to a manufacturer by customers for a drug, taking into account rebates, chargebacks, discounts or other pricing adjustments. Excludes certain governmental contracts. Medicaid Best Price (BP): The lowest price paid to a manufacturer by a customer for a drug, taking into account rebates, chargebacks, discounts or other pricing adjustments, excluding nominal prices. Based on the type of drug, the amount paid to the state is as follows: Unit Rebate Amount (URA) (Brand) Greater of 23.1% of AMP or AMP less BP + CPI- U penalty URA (Generics): 13% of AMP + CPI-U Penalty Copyright 2017 Deloitte Development LLC. All rights reserved

11 Medicaid Product Flow Patient with Prescription 1. Medicaid patient brings prescription to pharmacy Retail / Outpatient Setting 2. Pharmacy dispenses product State Medicaid 3. State reimburses pharmacy 4. State submits invoice to manufacturer (Number of units times URA) Manufacturer 5. Manufacturer pays invoice (38 days) Copyright 2017 Deloitte Development LLC. All rights reserved. 11

12 Elements of Medicaid accrual methodology Medicaid Rebates Represent quarterly reimbursement rebates paid to state agencies by manufacturer for Medicaid program Claims utilization estimate is based on a trend of claims paid lagged to prior quarters sales Claims utilization by program and state is often validated by subscription third-party data purchased by manufacturer Pipeline Inventory Pipeline is the inventory in the distribution channel that has not been scripted Inventory on Hand at Wholesaler / Distributor Inventory on Hand at Retail Pharmacy Medicaid lag Medicaid lag is the time period between the original sale of the product and the date that rebate is paid to state by manufacturer Time from original sale to prescription filled varies by nature of the product Typical Medicaid Lag is two to four quarters Copyright 2017 Deloitte Development LLC. All rights reserved. 12

13 Medicaid variance drivers Analyzing sources of variance ensures the accrual methodology is appropriate and accurate Key Sources of variance: Estimated Quarterly Claims Utilization Estimated Rebate Rate (URA) Factors affecting Medicaid Utilization Nature of product Therapeutic Area Channel design/inventory Days on Hand Product Life Cycle Factors affecting the Medicaid Rebate Rate Commercial contracts setting Best Price (BP) Price increases Consumer Price Index (CPI) *The analytics above are illustrative in nature only Copyright 2017 Deloitte Development LLC. All rights reserved. 13

14 Medicaid analysis considerations Companies should consider channel specific factors when calculating accruals; this requires disciplined organizational alignment, systems and data governance, and continuous monitoring of methodology. Channel lag Consider the time it takes for the inventory to move as a whole through normal course of business and then add to it the Medicaid lag time Regulatory changes - Center for Medicare & Medicaid Services (CMS) mandated changes to MCO program requirements and billings, - New government budget URA calculation - BP - AMP - Price Increase - Generic Inflation Penalty Individual state updates Summarize the information from package insert summaries from state Medicaid agencies. Changes in models of service State Medicaid agencies shift from Fees For Service to Managed Medicaid Organizations Copyright 2017 Deloitte Development LLC. All rights reserved. 14

15 Key learnings and industry progress Our clients are focused on improving predictability, transparency, and market strategy to enhance GTN management and increase profitability Focus area Predictability Streamlining data inputs, sources and integrity into common warehouse Coordinating analysis and models with real time data feeds and reduced ad-hoc reports Automating GTN calculations and forecasting in a common technology platform Impact Confirmed inputs, clearly defined data ownership and increased accuracy through automation Transparency Understanding stakeholders in the end-to-end process and aligning to one common goal Integrating transactional and review controls to improve data accuracy and establish clearly defined processes Early assessment of impacts of changing accounting standards Standardized methodologies to decrease earnings volatility Market Strategy Improving analytical capabilities to explore causality and drive decision making Understanding plan spend levels, copay data, monitoring channels and ROI to enhance pricing strategies and coupon programs Enhanced contract strategies to drive improved ROI on existing rebate spend Copyright 2017 Deloitte Development LLC. All rights reserved. 15

16 Some fundamental success factors Many of our clients are addressing the challenges of GTN by taking a comprehensive approach at aligning the inputs, outputs and key stakeholders of the end-to-end (E2E) process Complete, accurate, and automated data sets One source of truth for assumptions, decisions, and algorithms Cross-functional governance and process Continuous monitoring, scenario, and causality analysis Robust and integrated control systems Copyright 2017 Deloitte Development LLC. All rights reserved. 16

17 Panel: Enhancing GTN communication & controls Copyright 2017 Deloitte Development LLC. All rights reserved.

18 Today s panel Moderator Panelists Michael Makovec Senior Manager Deloitte & Touche LLP David Levi Bristol-Myers Squibb Larry Breen Sunovion Jeffrey Miller Impax Labs Copyright Deloitte Development LLC. All rights reserved. 18

19 Taking control of GTN Effective GTN management requires consistently applied controlled processes Update actuals Update forecast Update financials 1. Process Claims 4. Import Chargeback Units 7. Update Channel Mix 10. Review Model with BU Finance & Revenue Accounting 2. Refresh Actual Utilization by BU 5. Update Overall Units 8. Update Rebate Rate 11. Update BU P&L Forecast 3. Analyze Forecast vs. Actual Units 6. Update Pricing 9. Manage Unreported Amount 12. Update Balance Sheet Accruals Effective risk assessment and control mapping Control Enhanced focus on the validation of inputs Clearly identified decision rights and communication Consistency Consistently applied methodology Automated algorithms and calculations Copyright 2016 Deloitte Development LLC. All rights reserved. 19

20 Panelist insights How does your organization Key questions Reduce siloed decision making to define ownership across the entire organization? Develop an integrated governance structure and clearly define communication channels? Streamline processes that depend on high volumes of data and the complexities of contract administration? Manage auditor expectations and maintain SOX compliance? Copyright 2017 Deloitte Development LLC. All rights reserved. 20

21 How we can help We understand the complexities of GTN and are developing a technology-driven, managed services approach to help clients make informed estimate actuals, accruals, forecasts, and more We provide: Guidance on governance structure and process mapping Risk and internal controls assessments for enhanced compliance and processes Guidance to pricing and contracting teams with business considerations and sensitivity analysis Guidance to finance teams with GTN forecasting Guidance to accounting teams to accelerate and streamline the monthly and quarterly close cycle for financial reporting Enhancement of GTN spend with focus on rebate and coupon ROI and script-level profitability Copyright Deloitte Development LLC. All rights reserved. 21

22 As used in this document, Deloitte Risk and Financial Advisory means Deloitte & Touche LLP, which provides audit and risk advisory services; Deloitte Financial Advisory Services LLP, which provides forensic, dispute, and other consulting services; and its affiliate, Deloitte Transactions and Business Analytics LLP, which provides a wide range of advisory and analytics services. These entities are separate subsidiaries of Deloitte LLP. Please see for a detailed description of our legal structure. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2017 Deloitte Development LLC. All rights reserved. 36 USC