Financial Accruals – The Case for Automating the Process

By: Jim Burke, SVP, Contracting & Pricing Solutions

Financial accruals have become a major headache for corporate finance teams in the Life Sciences industry as they are increasingly difficult to manage, and can lead to major business issues if calculated incorrectly.

The problem is that most companies don’t have an automated way of pulling all the data together, and calculating the appropriate accrual rate. Manufacturers do the calculations manually or in an offline tool.  Depending on the company and the kinds of promotional programs they offer, calculations can range from the complex to the extremely complex.

Any calculation errors can have a significant impact. If the accrual percentage is too high for rebates and promotions, funds are essentially being taken away from other areas of the business, such as research and product development, which can help grow revenue.  But if enough isn’t reserved, manufacturers could find themselves in a cash crunch, and money will need to be borrowed to cover obligations. If the amounts get to be too large, it can also be considered a “material impact” item for earnings reports.

There’s another aspect that companies are missing. Many organizations are spending more time and money on the mechanics of the accruals – the number crunching – than on understanding what the data is telling them. They’re missing an opportunity to analyze the accruals to see what promotions and programs are really driving the business, helping them expand market share and drive revenue.

To learn more about automating the process, key considerations, and recommendations, download our white paper on this topic.

Current State of Government Reporting: Will We all Follow Texas?

As medical costs increase and states decide how they will handle Obama’s Affordable Care Act, they will look to the manufacturer to offset these increased costs. Expect more states to follow Texas in enacting new regulations, and revising and expanding reporting obligations.

This will mean that reporting and calculation requirements will vary for many of the states, in addition to the new Federal Government mandates.

The new Texas regulation includes:

1) That the manufacturers submit pricing data for eligible pharmacies located in Texas, if readily available, as opposed to those located in the entire US. In the event a manufacturer does not have a single price point for a product they must report the range of prices (high and low) and then calculate the weighted average for each product each period. Texas is expanding  price reporting to include:

  • Direct Price to Chain Pharmacy
  • Direct Price to Long Term Care Pharmacy
  • Direct Price to Pharmacy
  • Direct Price to Wholesaler/Distributer

2) Manufacturers should not include prices excluded from Medicaid Best Price including prices to 340b covered entities when determining price points.

3) Monthly Reporting:

  • The manufacturer is responsible for the correctness of the AWP, even though they do not play a role in the third-party price reporting compendia’s decision regarding their publication of the AWPs.
  • All price updates must be provided, except, Average Manufacturer Price (AMP) updates, to the Commission by the 10th day of each month.
  • Forecasted price concessions must be included in calculations for a product launch if the manufacturer has this information in its internal business records.
  • Manufacturers must update the Commission with change to formulation, product status, or availability.

One Week In

Welcome to our ALSCG Blog!

I am very excited to take the helm of Alliance Life Sciences and bring it together with the Adjility Health organization. It’s a privilege to serve both groups of employees, and all our customers.

Collectively, we have a lot to offer. We are solving complex problems across a lot of functions. We are doing great work in pricing, HEOR, contract management, clinical operations, and sales operations. We are introducing new algorithms to help our customers compete on analytics, we are creating some great technology and technology capabilities, and so on.

But what is most important in all of this is that we help our customers innovate in their work, and that we innovate in our own work. And by innovate, I mean real productivity gains and real shifts in ways of doing business. This is the source of real gain, this is how cash flow is freed up for the innovation that really matters: the research that brings new health therapies to market.

How do we show decision makers that a global trial can be executed for 3% – 5% less by optimizing site usage globally? How can a mobile app extend a pharmaceutical product into a service that has greater impact on patient outcomes?

We will spend time talking about how we are driving down the cost of our business and our customer’s business, helping manufacturers service patients and physicians better. Its not just solving a skill shortage or helping our clients with areas that are not core skills for them. Those things are nice – but we have to aim much higher, because the pressure to deliver on the industry has never been greater.

There are a lot of “first things” to get done, but one of the very first things we are doing is to get our leadership team up and active on all forms of social media, including our company blog. We have a very talented group with a lot of things to share.

Sharing these ideas with all of you, engaging in a dialogue with everyone more efficiently, is the first step in this process.

I look forward to what comes next!