Have you been lulled into complacency by a system-based government pricing solution?

The idea of using a comprehensive, system-based solution for government pricing computations can be appealing. Any tool that promises compliance with complex reporting requirements for various government programs – Medicaid,  Medicare , VA/ Federal Supply Schedule , and Tricare – can, at least at first blush be reassuring.

But what happens when sales data is not carefully scrubbed and categorized? What happens when erroneous information is used? Can you correct history so future computations are correct?  Do you have the ability to understand how the computations were impacted from poor data?  Can you smoothing calculations and account for their impact in your monthly and quarterly AMP values?

System based solutions are designed around a standard. Functionality is determined by what the architects deem “the norm.” When was the last time you owned, ran or were employed by a company that you would consider to be ‘normal’ with no unique or differentiating characteristics?

The people-based process

An integrated people-based process is one that relies on analysts to scrub data ahead of calculations and to decipher the output. People, not software, are counted on to prevent errors in numbers as well as errors in judgement.

The people managing computations can account for any requirement a pharmaceutical company might have. When supported by multiple layers of methodical auditing, you have greater assurance that the data used for pricing computations is clean and accurate. Such a process can accommodate strategic and operational variation.

Most companies are unique. When you have the ability to understand at a granular level how everything works, you will have a greater level of confidence in the results.

If an upstream error is uncovered, like somebody incorrectly submitted package content counts in a compendia filing, the error can be corrected and the computations updated historically, and going forward, to ensure your pricing values are correct and Medicaid Rebate Liabilities are compliant.

Software doesn’t lie on purpose

It’s natural to assume that a system-based approach will always get the numbers right and that human error is real. You might say software doesn’t lie. Unfortunately , systems rely on adherence to a norm and the quality of the material or data they are fed.

What you can’t say is that a system-based approach always achieves what more and more pharmaceutical executives are looking for these days: Accuracy, understanding the details and the ability to course correct when (not if) required.


A lack of transparency and understanding are the key drivers of skepticism surrounding any business process. With government pricing computations, eight factors can set off alarm bells:

  1. Dramatic shifts in AMP values and resultant changes in Medicaid rebate payments.
  2. Suspicion of poor data practices.
  3. Lack of a formal pricing communication process resulting in inaccurate invoicing and/or constant changes to previously issues debits or credits.
  4. No formal Standard Operating Procedure or a disciplined adherence to an existing SOP.
  5. Minimal ability to understand the steps in the computation process and how they impact final results.
  6. Chargeback processing results that intuitively feel off and don’t align with expectations.
  7. Accruals for government discounts and rebates that are regularly off the mark.
  8. Inability to course correct efficiently.

Stakes are high

Mistakes in numbers or judgment can cost a pharmaceutical company dearly in terms of cash flow and profit loss. There is also the specter of regulators assessing interest charges, flagging a labeler as non-compliant, or even imposing penalties under the most draconian circumstances.

Regardless of the solution you favor, people matter. Are the internal or external people responsible for your government pricing up to the challenge of managing every single detail? Are they paying strict attention to coding Class of Trade (COT), chargebacks, Order to Cash (OTC) and credit memo processes, to name a few? As they say, “The Devil is In the Details.”  Missing, overlooked or erroneous data can readily undermine your cash flow and profitability.

Consistent and accurate data is vital and requires discipline, diligence, patience and experience. Accuracy demands a deep understanding of the complexities surrounding pharma contracting, sales data dynamics, discounting programs and pricing, and the issues that arise from unclear government reporting.

It’s also important to have – or have access to – the necessary infrastructure to support internal and external audits.

You can have it all

People have qualities that automated systems don’t: flexibility in thinking and approach, complex problem-solving skills, communication skills and the ability to creatively find solutions to problems. All of these qualities are important to assessing data, turning it into meaningful information and helping you make critical strategic and operational decisions.

Details matter greatly to government pricing computations. Not only is the devil among them, lying in wait, they also show you the best way forward. There is just no replacement for a disciplined process combined with the strength of a creative, capable and experienced analyst.

Dan Piergies Prescription Analytics

Dan Piergies
Chief Analytic Officer