When Your EDI 845 Hits a Catch-22

Every industry has its hiccups with contracts administration, but Life Sciences is, shall we say… special in this regard. Customers, pricing and customer eligibility for specific pricing tiers are the three key drivers. According to a recent Experian report, an estimated 32% of US companies do not have clean data (the very foundation upon which contracts are built), and that data management efforts are falling short too often. That number escalates when factoring in how errors and issues with the other contract participants can go awry.

And since you are still reading this, it begs the question: are you satisfied with your organization’s EDI 845 price authorization acknowledgements and status data?

In the Life Sciences ecosystem, we’ve identified the slight provocations that can cause contract success to go off the rails. Here are seven key areas to keep in mind and scrutinize while watching a contract progress in your company’s value chain:

1. Customer Identification

15- to 20-percent of chargeback errors stem from inaccurate customer IDs, especially when there are several customer IDs for one customer, as in a Group Purchasing Organization (GPO).

2. Tiered Pricing Contracts

GPOs add to the complexity of validating any contract. These contracts are suspiciously frequent flyers whenever we see contract interruptions. Depending on the amount a GPO member purchases, it could shift them in a month’s time from a Tier 2 to a Tier 1 customer. For the GPOs, managing, maintaining and updating their members’ varied tier eligibilities can lead to a minefield of errors.

3. Class of Trade Disputes

When a vendor negotiates with a hospital, the wholesale distributor (WSD) will often do its own review of the agreement. The WSD might deem it an “alternate care facility” instead of a hospital, and then refuse to give the vendor the negotiated rate or even add the alternate care facility to the hospital contract. This will drag out the process. The manufacturer and the WSD often view eligibility differently. EDI 844s and EDI 849s begin flying back and forth. Headaches ensue.

4. Contracts with HINs

The Health Identification Number (HIN) is an identifier in instances when the customer does not have a Drug Enforcement Agency (DEA) license number. These HINs are assigned to brick-and-mortar facilities, linked solely to a specific address. Imagine the contract chaos, if or when the contracted pharmacy moves down the street!

5. Contracts with DEA Numbers

Since DEA numbers expire after four years, contracts that use them as the contract identifier can get disrupted when the DEA number reaches retirement. Many government contracts will use a more evergreen identifier called a 340B, or the Global Location Number (GLN), but the GLN still has a lower industry adoption rate.

6. Dirty Data

If master data such as the product and customer information are inaccurate, not cleansed, or the data has poor controls, those are all areas for disruption. Dirty data will result in chargeback claim errors like indicating the customer is invalid, unidentified, or not eligible for the contract.

7. Timing Delays

If a manufacturer’s contract is loaded via EDI on July 10 and doesn’t get received by the WSD until July 15, imagine the potential for confusion if there is a price increase during that time. All of the sales might be under $8 instead of $10, so now from the WSD’s perspective, they’ve undercharged the customer. They will process invoice adjustments to their customer, so the customer gets irritated. In the contract, it may say they go back 30-90 days to the point of the original sale. The WSD puts the onus on the manufacturer if they cannot collect money from their customer. The Life Science manufacturer will be hit with penalties for all of the transactions from that five-day lag, since the manufacturer took too long with the contract. The WSD will not want to lose that revenue.

Tom Kowalski
Business Advisor

Tom is a Life Sciences business professional spanning more than 25 years of chargebacks and commercial contracting operational experience, in both a wholesale distribution and generic manufacturing capacity. Tom is experienced in leading client business advisory engagements, system implementations, wholesaler compliance audits, and class of trade schema development.