Price alert: What state transparency laws will mean for pharma companies

by Manjunath Shanabag and Satish Nair

Pharmaceutical and biotechnology companies are under pressure to manage their complex pricing environment in the wake of new state laws on price transparency.

These laws were passed to deal with ongoing concerns about the growing cost of healthcare in the United States. In response, state governments have been taking steps to understand how the cost of healthcare affects people and to determine the causes for drug price increases. With California taking the lead, 22 state governments have passed price transparency laws that will shine a light on pricing changes for drugs and indicate frequency. This greater transparency is the first step toward controlling the price of drugs and working with pharmaceutical companies to deliver more cost-effective healthcare.

These laws will go into effect on July 18, 2019, leaving companies with very little time to address the requirements as well as their own processes.

What exactly do these laws mean for companies?

First, companies will need to understand what each state is asking for, since there is no consistency from state to state. Some want pricing information for only the top 10 prescription drugs sold in their state; some want clarity 6 months before any change is made to drug prices; some have specific rules about how and when reporting must be done.

Further complicating this is that the laws can be changed or modified each year, so any solution that a company implements will need to be flexible enough to address this dynamic regulatory environment.

The transparency laws also could raise commercial concerns. Companies must reveal drug price changes to states well ahead of implementing them, and some states have indicated their intention to make these price changes public. This raises questions about how this will affect wholesalers and pharmacies, which may choose to stockpile products if prices are rising or delay orders if prices are expected to decline. There is also uncertainty over what impact this may have on a company’s bottom line as well as its manufacturing and supply chain.

But perhaps the most onerous challenge is to determine how these laws will affect internal data governance and business processes.

What changes need to happen to prepare?

Major pharmaceutical companies have several layers and systems to manage pricing. Within marketing, there is a function that decides on pricing, which varies state by state, and according to the buyer, such as Medicaid, insurance companies or regular pricing for patients. The function also is involved in any pricing changes once the product is on the market. Next, pricing has to go through the corporate and legal approval process. Once a final price has been decided on, that information has to flow into multiple systems, including product life cycle management systems, enterprise resource planning systems (ERP), and pricing and revenue tools.

Any change needs to be triggered by a business process and, once approved, further processes are needed to carry out reporting. Each step must flow through the various functions: marketing, legal, compliance and finance, and then be sent back to the states.

To prepare for the state laws, therefore, a new set of data governance and business processes needs to be implemented. Reports need to be produced in a timely fashion, reviewed, approved and sent to the states. Not doing so could result in fines to the tune of $200,000 per day per drug.

To ensure that they are properly prepared, companies’ legal and marketing teams must work with state governments to learn what will be required and how reports will need to be submitted. For example: Does the state have a portal? Do reports need to be sent by email, uploaded online, or mailed as printed copies? None of these is easy to find and in addition to that, reporting needs are constantly evolving. It’s up to the company to find out what these are. Systems integrators are also working with states to decipher the laws and ensure that any solution addresses those requirements.

Some large companies are starting to prepare, for example, by establishing teams to document what changes need to be made. However, some small companies aren’t aware of the new laws at all and are at risk of not being prepared when the laws go into effect.

How can the process be made easier?

Each company has its own way of pricing drugs and documenting that information, so any solution will need to cater to these differences.

However, before implementing a solution, companies must ensure that they understand how the pricing business process currently is handled, including the approval mechanism or alert mechanism for drug changes. From there, they need to look at the individual state requirements to see how that process will be affected under the new laws, document the change and consider how to address that change.

All of this will require companies to use master data management, business process and workflow management, and have a configurable dashboard and reporting solution. Any solution needs to integrate with the companies’ ERP systems to address workflow and report generation.

While predicting outcomes from pricing transparency is difficult, artificial intelligence (AI) will provide companies with insight into customer buying patterns and how these influence revenue management. For example, companies can use AI to look at clusters in different regions and from there establish a more accurate forecasting mechanism. In so doing, they can better prepare for the states’ requirements.

The new state transparency laws do have the potential to hurt companies’ bottom lines, but at the same time they are prompting companies to take the necessary steps to tackle rising healthcare costs. Companies will need to prepare carefully, find ways to forecast the effects of the new laws, and work with governments to ensure that they achieve the dual goals of providing affordable medicines while also safeguarding the commercial needs of the organization.

Manjunath Shanabag is a senior principal for digital transformation in DXC’s Life Sciences group. He has more than 20 years of expertise in strategizing and actualizing high-ROI and end-to-end solutions for life sciences clients. Manju helps DXC customers achieve their digital transformation goals by connecting their strategy with practical and executable solutions. He is a thought leader and global relationship manager, savvy in growing accounts through digital transformation, solution accelerators, premium assets and white papers.

Satish Nair is a digital strategist with 19 years of diverse experience in information technology.  He serves as the lead digital solution architect and strategist for DXC’s Healthcare & Life Sciences group. Satish is responsible for driving digital growth, crafting digital solutions, advising senior leadership on digital technology trends, and providing thought leadership to effectively grow client and DXC business.

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