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Why Embrace Innovative Contracting?

September 4, 2020

By Jim Holland, Sr. Product Marketing Manager

As pharmaceutical markets have become more competitive, and public and legislative scrutiny increases, manufacturers are looking for new ways to drive demand and sales. One innovative approach to contracting has been to offer the right mix of pricing and discounting to entice customers to purchase or represent more of your products. 

By definition, these types of innovative contracts often come with some level of risk. A key concern with innovative contracting strategies is how to make them feasible and profitable. 

Simply put, an innovative commercial pharma contract is structured in a way that influences customer behavior. These strategic offerings are used to encourage providers and payers to drive more demand for your products and less for your competitors. 

However, contracts aren’t easy and can range from basic to extremely complex arrangements that include multiple upfront discounts as well as numerous back-end rebates. By creatively approaching how you structure initial pricing and discounts on the back end, you can potentially increase sales and market share. Additionally, depending on the terms and conditions, you may be able to demonstrate cost-effectiveness as it relates to patient outcomes. 

What impacts innovative contracts and what can be done? 

There are several impacts that affect manufacturers. First, there’s no standard format. How do you ensure the contracts you offer can be executed efficiently, drive results, and don’t eliminate your margins? 

Second, calculating innovative contracts is difficult. This challenge is especially evident with value-based contracts, which require you and your customer to agree on a clinical endpoint or financial metric for drug assessment. 

Third, you need accurate data to properly calculate contracts. Accurate sales data is crucial so that you fully understand current contract performance and profitability before extending new offers. If you do reach an agreement on a value-based contract, data must be shared to determine the findings. 

Fourth, HIPAA concerns surrounding the data must be addressed because you’re potentially dealing with protected health information (PHI). In the case of value-based contracting, you must be prepared to address compliance for data security. 

Finallyregulations adds another level of complexity. Federal and state regulations can quickly render these contracts unprofitable or
impractical. 

From our industry expertise and years working with top pharmaceutical companies, Model N believes there’s a better way to innovative contracts. Maximize the Value of Innovative Contracts, a new whitepaper, discusses best practices to help you maximize the value of commercial contracts. In this white paper we:  

  • Explore the top three considerations related to innovative contracts 
  • Offer best practices to help you maximize the value of commercial contracts 
  • Help you overcome your fears of risk and compliance pitfalls 

To learn more and receive a copy of the whitepaper, go here. To learn more about how Model N can bring new and innovative ways to your contracts, click here. 

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