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Stop the bleeding: a prescription for rebate validations.

Article Excerpt
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In today's competitive business environment, the pressure to reduce operational costs while simultaneously maximizing revenue and shareholder value is a challenge for executives in every industry. In the pharmaceutical industry, one area of significant loss--and opportunity--is managed care rebate programs.

The rise in participation in managed care programs in the US is staggering--from 40 percent in 1990, the rate has skyrocketed to 90 percent today. Much of this growth can be attributed to the government's use of managed care programs through Medicare Part D. In addition, since 1990, consistent fiscal pressures have increased the role of PBMs and other managed care organizations as principal negotiators with pharmaceutical manufacturers for complex rebate agreements.

Because pharmacy benefit managers (PBMs) oversee formulary development, managed care rebates have become the essential tool for pharmaceutical manufacturers to influence market share. Yet because most manufacturers don't have the necessary data on rebates, they lose billions of dollars each year in overpayments to trading partners.

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Fortunately, manufacturers can adopt a series of "best practices" in this area, which will mitigate revenue leakage. By gaining access to granular, prescription-level sales data, manufacturers can identify the discrepancies that are responsible for rebate overpayments, address the issues with their trading partners, reclaim lost revenue, and, eventually, stop the bleeding.

Flying Blind

Manufacturers enter into contractual relationships with PBMs, who in turn sell prescription medications to their constituents. Because patients pay different rates for a prescription based on their program's negotiated price, the actual price of the prescription isn't known until the drugs are distributed. This situation has resulted in a highly complicated rebate process in which PBMs submit invoices to manufacturers for rebate payments based on criteria such as sales volume or market share. These invoices typically include a summary of sales data representing what the PBM believes has been sold. Typically, the manufacturers review the summaries and pay the invoices.

This use of summarized data was sufficient when the volume of prescriptions paid through the rebate process was relatively low in comparison to the total number of prescriptions. But with more and more prescriptions being purchased via managed care plans,...