Life Sciences Revenue Management Benchmark Survey Reveals Concerns about Emerging Contracting Trends, Growing Contract Volume and Complexity

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Eighth-Annual Model N/HighPoint Solutions Survey Underscores Industry Focus on Deal and Sales Effectiveness, Targeted IT Spend, and Growing Acceptance of SaaS for Contract to Compliance Processes

Data in this year’s survey results points to more targeted investments in analytics that deliver operational and strategic insights and enable smarter decision making, including deal management and offer analysis; rebate accrual, validation, and payment

A majority of Life Sciences companies see increasing contract volume and complexity on the horizon, according to a recent Revenue Management Best Practices Survey by Life Sciences leaders Model N, Inc. and HighPoint Solutions. Now in its eighth year, the survey provides Biopharma and Medical Technology companies with an opportunity to better understand critical industry trends and assess their Revenue Management practices against industry competitors and peers. The 2012 survey provides invaluable insights into industry segment-specific organizational and process dynamics, emerging customer and market drivers, and Business Intelligence and technology trends. Preliminary results from the survey were discussed in a joint Model N/HighPoint Solutions session earlier today at RAINMAKER 2012.

The 2012 survey focused on contracting and deal effectiveness, analytics integration to measure financial accuracy, contract performance, and regulatory compliance. Systems upgrade plans were also examined, including Software as a Service (SaaS) evaluation and adoption. Sixty companies participated, representing a cross-section of Life Sciences, including Generics, Branded ,and Specialty manufacturers as well as Medical Device, Durable Medical Equipment ,and Medical Surgical companies. Revenue among participating companies was spread evenly, ranging from companies reporting less than $100M in annual revenue to those reporting more than $3B in annual revenue.

Key Survey Takeaways

Growing Volume and Complexity

  •     Sixty-five percent of Biopharma respondents expect retail contracting to be more complex and Managed Care contracting and related utilization-data driven programs to consume more resources
  •     Med Tech companies overwhelming see the institutional market creating the greatest burden on manually intensive operations with 88% of respondents stating that GPO, IDN, and local contracts will increase substantially in scope and volume
  •     In a significant shift from previous survey results, Med Tech and Branded Pharma companies reported distributor and wholesaler contracts as high focus areas while Generics companies reported government programs as the area of greatest risk

Revenue Loss from Contract Non-Compliance

  •     55% of Generics companies and nearly one-third of Med Tech and Branded Pharma respondents are unable to determine what percentage of contracts are compliant to committed market share or dollar purchase commitments
  •     The average estimated non-compliance rate was 18% of annual committed contract revenue with high-end estimates approaching 35%
  •     Spreadsheet and custom tool use for membership management, contract eligibility, commitment management, and contract compliance was high

Revenue Erosion from Customer and Channel Incentives and Settlements Overpayments

  •     Respondents reported that the number of pricing and incentive structures uniquely developed for negotiation or contracting is increasing, leading to large number of year-over-year variation
  •     Branded companies see the highest incidence of these structures in Managed Care contracts with a related increase in scope across monitoring, execution, and administration processes
  •     Med Tech companies moving to more of an indirect sales model see channel pricing models and distributor rebates increasing in volume
  •     Companies reported as many as 25 different pricing strategies in use by sales organizations
  •     More than 60% of respondents stated they have not automated key settlements processes with channel and customer incentives the least automated

Analytics and Business Intelligence

  •     The vast majority of respondents stated their organizations are actively implementing targeted analytics initiatives or considering them, with one in five seeing these as a pressing priority
  •     Key analytics project drivers include gaining visibility to under-performing customers and products, enhancing sales pull-through via consistent pre-deal analysis, and eliminating low margin performance resulting from poor data controls, price checking, and incentives management

System Upgrades and SaaS

  •     Companies overwhelmingly said new product launches, platform upgrades, and responses to health care reform and other regulation would drive the bulk of IT spend, upgrades, and investments over the next 12-18 months
  •     Fifty percent of all companies stated they were actively implementing or evaluating SaaS solutions across various components of the revenue life cycle
  •     Key SaaS adoption drivers included improved scalability, operational efficiency, process centralization, and better access and distribution of contract reporting and sales performance data

“The data in this year’s survey results points to more targeted investments in analytics that deliver operational and strategic insights and enable smarter decision making, including deal management and offer analysis; rebate accrual, validation, and payment analysis; and price and contract performance assessment,” said Gopkiran Rao, Senior Director of Marketing at Model N. “In such an environment, organizations will need to change their approach from ad hoc deal execution to a holistic Revenue Management approach that balances the need for quick wins with long-term engineering of sales, pricing, and channel strategies to address emerging trends such as risk sharing and new contracting paradigms.”

“This survey shows that a broad spectrum of Life Sciences companies are concerned that they will be expected to do more with less as both contract volume and complexity continue to grow,” said Robert Matsuk, Chief Strategy Officer at HighPoint Solutions. “Eroding brand advantage, lower global barriers to competition, and expectations of return from customers demanding partnerships with suppliers underscore the industry’s highly competitive nature as well as the need for manufacturers to aggressively recalibrate how deals are done.”

Participate in a Custom Benchmark Study with Model N and HighPoint Solutions

With minimal time investment, this valuable benchmarking exercise will provide Biopharma and Med Tech manufacturers with a deep understanding of how their organizations compare with world-class companies in their industries across more than 40 distinct operational metrics relating to process, organizational and operational revenue management best practices. For more information on this unique offer, contact grao(at)modeln(dot)com.

About Model N
With over $150B in annual revenues across 50 countries managed in our Revenue Management systems, Model N leverages its deep industry expertise and best practices, highly configurable applications, and comprehensive services to support Life Sciences and High Tech organizations on premise or in the cloud. Whether you are an emerging business or a global leader, Model N results in revenue.

About HighPoint Solutions
HighPoint Solutions solves the toughest IT challenges facing companies in the highly regulated Life Sciences and healthcare industries by providing our clients with practical IT strategies and solution implementations and giving them direct access to the people and technology that get things done. Since 2000, our 400 consultants have provided business consulting and technology solutions that continue to deliver business value and competitive advantage to more than 140 clients nationwide.

Model N is a mark of Model N, Inc. All other company names mentioned are the property of their respective owners and are mentioned for identification purposes only.

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