Managing Concerns and Complexities with Drug Pricing and Contracting Regulatory Compliance


It’s no secret that pharmaceutical companies conduct some of the strictest compliance practices when compared to other industries – whether it’s evaluating through the clinical, medical or promotional aspects of the business. Getting new products approved is a rigorous undertaking including clinical studies, complex submissions and lengthy discussions with government authorities before the new product can reach consumers. Strict guidelines towards medical practitioners also exist, after the spotlight was put on pharmaceutical companies doling out lavish gifts for decades to doctors, in order to build awareness of new or competing products.

While these aspects of compliance all have their challenges, one often-overlooked area for many companies is regulatory compliance for government pricing and contracting. With a constant barrage of amendments and new reporting methods, government agencies make it increasingly difficult for manufacturers to keep up to date, and force companies to process mounds of data and undertake complex calculations to ensure their business remains compliant. Companies can face heavy penalties, not to mention reputation loss, if case they misreport prices (either in accuracy or timely reporting) or if they make any error in government pricing calculations.

In the United States, there is a perfect storm of increased government scrutiny, an ever-complex regulatory environment, and constant new reporting and payment requirements that pharmaceutical companies must track to remain compliant. Federal and state governments have produced a complex array of drug pricing regulations. For instance manufacturers have to calculate and reports a variety of data on a regular basis, including Unit Rebate Amount, Average Manufacturer Price (AMP), Best Price, VA/DoD/PHS Prices, all of them involving sometimes very large data collection, cleansing, processing and calculation steps.

And naturally, increased legal scrutiny and resulting fines have brought a sense of urgency to the issue of government compliance.

Pharmaceutical professionals in the government contracting space are aware that the only constant in this industry niche is change. Since 2004, dramatic new legislation has been passed and clarifying guidance on existing legislation has been published in the areas of Medicaid, Medicare, FSS, and 340B pricing calculations and administration. Each new piece of legislation, clarification, and guidance has a cumulative effect. It is atypical for new regulatory requirements to completely replace old ones; typically new requirements are implemented in addition to existing ones. For example the Deficit Reduction Act (DRA) did not introduce Monthly AMP instead of Quarterly AMP. Rather, Monthly AMP was added in addition of Quarterly AMP.  Coverage Gap rebates were not introduced instead of more traditional Managed Care Part D rebates, but rather in addition to them. The process will only get more complex as more pharmaceutical sales are done through the government – whether it’s Medicaid, FSS, or other regulated channels.

For global drug companies, it’s imperative to implement a solution that can adapt to change. However, it is important to note that systems – while a large piece of the puzzle – are not the entire picture. Several ways pharmaceutical companies face difficulty in complying with government requirements despite having a system or multiple systems in place include:

  • Several disparate, non-integrated data sources
  • User error
  • Poor quality data going into the system
  • Lack of user training and/or underlying understanding

The case of a company having too many systems is becoming more prevalent, with this historically arisen due to the repeated acquisitions in which the government reporting function is centralized but where there is a long delay in combining the different systems used by the merged companies. With more than $9 billion in pharmaceutical M&A at the beginning of 2015, up 165 percent from the same time period, the “too many systems” phenomenon is more pronounced than ever, as companies are left with duplicate systems that make it difficult to manage and report as a single entity.

The questions that a pharmaceutical company needs to consider when assessing its processes and systems are:

  • Does it enable the company to flexibly and easily create new price types and formulas that adhere to government pricing regulations?
  • Can it preview the effect of regulatory changes on pricing and rebates through a robust set of financial analysis tools?
  • Does it stay compliant while optimizing the gross-to-net lifecycle by seamlessly integrating the set of modules operating on a single source of truth?
  • Is the software being used to its full capacity, and is there a backup plan to ensure that data is always readily accessible?
  • Are there standard operating procedures and in-depth training built around the systems?

Global pharmaceutical companies face stiff competition from overseas markets, an ever-increasing baby boomer population putting additional strain on government healthcare regulations and ongoing changes to government pricing mandates and regulations. For companies to maintain compliance, decrease audit risk, and reduce revenue leakage, it’s essential for them to cultivate a full and harmonious ecosystem of integrated processes, policies and systems. Systems, however, are only as good as the team who runs them and the data that is injected into it. A pharmaceutical company that is able to successfully understand and manage government compliance will benefit from accurately and effectively calculate government prices, minimize revenue leakage, gain insights into its business operations and optimize the company for growth.