When Your Contract Management (EDI 845) Hits a Catch-22:

Every industry has its hiccups with contract administration, but Life Sciences is, shall we say… special in this regard. The deep level of complexity and ever-moving targets of GPOs, manufacturers, and wholesaler distributors (WDS) management plus the maintenance of customers, pricing and contract eligibility 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 Contract Management process?

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

1. Dirty Data

Approximately 15% to 20% of chargeback errors stem from inaccurate customer IDs, especially when there are several customer IDs for one customer, such as DEA, HIN, or GLN. If the manufacturer is not aligned with the WSD as to who the customer is, chargeback claim discrepancies will be incurred until the customer is validated by the manufacturer. 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.

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, manufacturers, and wholesaler distributors managing, maintaining and updating their members’ varied tier eligibilities can lead to a minefield of chargeback claim errors.

3. Class of Trade Disputes

When a vendor negotiates pricing with a customer, depending on the manufacturer’s pricing strategy, the customer’s Class of Trade may be taken into account. The WSD will often do its own review of the customer’s eligibility for the contract. For instance, the WSD might deem the customer as an alternate care facility as opposed to the vendor’s classification of hospital. The WSD may refuse 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

he Health Identification Number (HIN) is an identifier in instances when the customer does not have a Drug Enforcement Agency (DEA) license number. An example would be a customer that does not sell controlled substances. Furthermore, not all manufacturers and WSDs may utilize HIN numbers as a customer identifier or be able to match a customer to the correct HIN number. These HINs are assigned to brick-and-mortar facilities, linked solely to a specific address. Imagine the contract chaos, if or when a customer moves down the street! To add to the complexity, some manufacturers and WDS may utilize GLN numbers.

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. Timing delays

If a manufacturer’s contract is effective 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 WSD’s agreements with the end customer agreement, there may be language agreed to that the WSD is only able to go back 30-90 days to the point of the original sale to recoup monies. The WSD puts the onus on the manufacturer if they cannot collect money from their customer. The Life Science WSD may deduct for all of the sales transactions from that five-day lag, since the manufacturer took too long with the contract notification. The WSD will not want to lose that revenue. This matter is further compounded by manufacturer’s and WSD’s that are unable to submit and receive EDI 845 Bid Award notifications.

Vistex is known among Life Science industry leaders for simplifying, automating, and managing the full life cycle of the contract process, from creation to execution, allowing for reduction in chargeback claim errors and revenue leakage. For more information on how Vistex software solutions can improve your contract administration accuracy and efficiency, please visit https://www.vistex.com/industries/life-sciences/.

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.

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