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Perspectives

Building a gross-to-net strategy in a fast-changing market

How evolved is your approach?

In the evolving life sciences industry, how can a gross-to-net model help organizations navigate challenges and build value?

The bottom line

Gross-to-net calculations are a growing challenge for life sciences companies as they navigate complex supply chains, a changing regulatory environment, population shifts, market expectation pressures, and the enhanced negotiating power of consolidated payers, providers, and distributors.

Further complicating this process are the internal challenges—evolving product portfolios, pricing and contracting strategy changes, and uncertainty with regard to non-integrated data.

Translating the collective impact of these variables to the net effect they may have on the bottom line is a science in itself. And there’s growing scrutiny among company stakeholders and executive committees who desire better forecasting and profitability analysis with each quarterly report.

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Governance and process

Gross-to-net efforts often encounter a familiar roadblock when multiple business units that impact the processes and calculations operate independently, namely a lack of collaboration. This lack of collaboration and coordination across the various business units is not deliberate, but it can result in real costs. Companies may duplicate efforts, fail to standardize, allocate resources inefficiently, and potentially miss out on more lucrative contract terms.

To address these challenges, a leading practice is to create an integrated, enterprise-wide gross-to-net model that goes beyond the basic accounting and finance functions. By identifying silos and establishing a common governance board, companies can mitigate common process inefficiencies such as minimal coordination, unclear accountability, and non-integrated source data and systems.

An integrated governance board helps develop clear and consistently applied processes. Business units are connected cross-functionally, and everyone understands and abides by a set of systematic controls and procedures.

What strategic questions can a gross-to-net model help me answer?
  • How will price increases impact my commercial and government rebates?
  • What is the optimal contract strategy to increase demand without decreasing profitability?
  • Are we offering duplicative discounts on the same products, causing revenue leakage?
  • Do we have reasonable and supportable forecasting methods for various pricing and contracting scenarios?
  • Can we anticipate the impact of product life cycle events and regulatory changes?

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Modeling and methodology

Gross-to-net forecasting may be “good enough” if it satisfies regulatory reporting requirements, but it becomes a source of value if it helps a company understand its commercial spend and improve its product investment. It’s a shift from simply preparing data used for internal or external financial reporting to creating a model that supports new product launches and forecasts revenue. A gross-to-net model can also contribute to the understanding of customers and commercial levers by identifying customer dynamics that influence pricing and contracting.

As change continues to impact the industry from multiple directions—ongoing health care reform and the complexity of commercial and government payers—it can be difficult to pin down the true profitability of each product. A company’s approach to gross-to-net modeling should include the means to provide guidance on interpreting pricing and contracting decisions, allowing various business units to look ahead and estimate the impact of those decisions in future years. An effective model also provides analytics that help drive strategy, predict performance, and improve forecasts.

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Data and technology

The volume of data used in a gross-to-net model can post challenges. Such data may reside in non-integrated systems that are slow and cumbersome or decentralized. External data has to be sourced and verified. Claims and rebates might be processed in different systems that require electronic data interchanges to exchange information between internal systems and obtain external data.

If data is decentralized and inconsistent, it can be difficult to carry out enterprise-wide calculations, much less to automate them. In some cases, the result is to reconcile the differences by using offline manual spreadsheets.

As part of the gross-to-net model, companies need analytical tools supported by correct data that can not only test outcomes for a single set of variables, but also compare outcomes across a range of scenarios able to be disaggregated to a product level. Along with governance and methodology, data and technology can help analyze, predict, and create actionable insights that help enable strategic and operational decision making.

The gross-to-net maturity continuum

Identifying leading practices is not difficult in the abstract. Fitting them to a specific operation and making them work efficiently and in a cohesive manner is another matter. But by taking a broad view of where different industry peers have been and where they are today, it is possible to define a maturity continuum for gross-to-net forecasting capabilities and practices.

That continuum provides a reference point companies can use to diagnose and improve their own practices. By identifying a starting point along a continuous maturity curve, companies can plan the enhancements they need and move forward with confidence.


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Driving business value

An integrated and strategic gross-to-net model, built on a foundation of reliable data, can be one of the most effective analytical tools within a life sciences company. It can not only help detect potential compliance and pricing risks but also guide the company toward new areas of profitability. It can also contribute to making a company’s operations more efficient, while simplifying the ever complicated and expanding requirements of finance and compliance regulators.

As companies move along the gross-to-net maturity continuum, they can improve their ability to forecast more accurately, identify trends, aid in more timely financial closes, and understand commercial profitability that can drive business value.

Download the full PDF to learn how a gross-to-net model can help create strategic value for your organization.

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