Forecasting in the Age of Value-Based Agreements

The pharmaceutical industry faces a host of increasingly complex challenges and critical decisions when attempting to manage and predict their products’ plausible revenue patterns.

The mishandling of revenue forecasting and evaluation can result in substantial financial liabilities, which has become more of an issue for manufacturers as products, disease states and additional factors that previously existed in a somewhat predictable space have progressively become more nuanced and idiosyncratic.

Over time, the industry has begun to trend toward a more value-based or outcomes-based focus rather than largely centering around creating as much patient access as possible.

This creates a more complicated process for manufacturers as there is much more pressure to substantiate the value of a product, its funding and mutual risk sharing with other stakeholders.

As a result, contracts have become more intricate while companies attempt to address and alleviate uncertainties about their products’ prospective financial performance and overall efficacy. Throughout the past several years, there has been a tangible shift away from using “access based” contractual agreements as the default option.

For example, rather than offering a flat percentage of revenue for purchased or dispensed units as a form of reimbursement, pharmaceutical manufacturers may instead suggest more elaborate performance mechanisms to their contracted entities to determine reimbursement. These may include measurements of adherence or discontinuation of therapy, clinical markers of efficacy, treatment outcomes, or patient spend, all of which require more robust systems, procedures, and people to support. This not only creates a more complicated contracting landscape, but also within the downstream processes affected by that altered language.

Claims processing, rebate calculation, price modeling, and financial forecasting all become intricate as the contracting variables become more nuanced and unpredictable. From a forecasting perspective, when the price concessions or rebate liabilities are based on a static set of values, like a fixed dollar amount per unit or percentage of sales, it is much easier to reliably predict future financials. By contrast, when having to forecast payments that are tied to product efficacy, patient behavior, and therapeutic outcomes, a larger and more complex set of variables must be considered which can make predictions less certain.

This evolution in contracting complexity precipitates several other challenges.

Manufacturers must ensure that their forecasting and accruals personnel not only have experience in general financial forecasting but also must become familiar with the many nuances of pharmaceutical contracting. This creates operational concerns as manufacturers must dedicate time and effort to hire and train multi-disciplinary analysts to support their changing needs, as these processes can have tremendous impacts on their bottom line.

Additionally, a more elaborate panel of contract scenarios begets an investment in more robust tools to support the resulting accruals, forecasting, and modeling. Many manufacturers have historically utilized various simple tools, such as Excel, to effectively forecast product performance. These can be serviceable for more basic scenarios, but as contracting strategies continue to become more involved and individualized within various therapeutic areas, their inherent limitations create an abundance of barriers for successful forecasting.

Concurrent with this shift to a more value-based contracting focus, the last several years have seen a steady stream of legislation, regulation, and rulemaking, both state and federal, that dictate the way in which manufacturers are permitted to price and reimburse their products.

These provisions are often additive with one another and can have long cycles of review and revision prior to application. Many never make it out of this window of consideration and into actual practice or enforcement. As a result, manufacturers are compelled to make long-term financial predictions and plans with several “What-If” scenarios built out based on the potential effects of these laws and mandates. This requires employees who understand the various idiosyncrasies of government pricing, in addition to forecasting, as well as technologies that support the maintenance of increasingly more elaborate models.

As a result of all these factors, traditional financial procedures have become much less viable in properly predicting revenue and liability patterns. Due to the challenges present in creating processes and platforms that can support their needs, manufacturers are finding it critically important to bring in outside partners to help oversee these operations and advise on how to set up models that can implement effectual strategies for their organization and products. EVERSANA has the technical capabilities, operational capacity, and depth of experience to support manufacturers to meet their needs and realize their goals in forecasting, accruals, projection, and scenario modeling.

To learn more about how you can leverage NAVLIN by EVERSANA and our distinctive data and analytic capabilities, contact [email protected] to speak with one of our global price and market access experts.