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C-Suite Execs: Revenue Management Prospects Grow, but Modernization is Needed

by Gail Dutton March 24, 2021

2020 was rife with revenue management opportunities for biopharma companies, despite the pandemic, according to Model N’s 2021 State of Revenue Report. Opportunities to optimize the revenue activities that maximize growth will continue to be abundant in 2021, too, as organizations deploy ever-more technology to gain granular insights. None-the-less, modernization is needed.

In this survey of 300 C-suite executives, 68% said the past year gave them more opportunities for revenue management. For companies with $5 billion or more in revenue, even more – 82% – reported increased opportunities. Examples included updating pricing strategies, managing rebates and incentives, discounting and managing contracts.

More than 90% of executives say revenue management needs to modernize in the digital era, and almost all companies (96%) report adopting new business models, changing processes (98%) and seeking out innovative technologies for revenue management (99%).

The increased use of technology – such as cloud computing, SaaS applications and AI – drove those opportunities.

“They increased because of the technology we have today. It provides visibility across organization (and into the supply chain) to access more information and perform more detailed analyses,” Melonie Warfel, VP general manager of life sciences for Model N, told BioSpace.

None-the-less, a surprising 96% still rely on traditional spreadsheets for some revenue execution tasks, according to the report.

Among new technologies, “Blockchain is a hot topic,” she said.  Nearly half (46%) of the respondents are using or are considering using blockchain or other distributed ledger technology.

“A number are looking at it for contract chargebacks, and also in manufacturing and distribution to fight drug counterfeiting via track and trace,” Warfel said.

The MediLedger Network, for example, is composed of 10 big pharma companies and distributors – including Bayer, Genentech, Amgen, McKessen and Cardinal Health – and 10 technology partners. The Network’s goal is to standardize cross-industry blockchain tools on a network while avoiding vendor lock-in.

At least half the respondents in the Model N survey reported pricing as their leading challenge. Specific issues included volatile pricing and market demands, calls for increased transparency, and global pricing management.

In the past year, the number of C-suite executives who cited pricing discrepancies among departments, regions and channels rose 60%, from 20% in 2020 to 32% in 2021. Some 57% reported conflicting pricing occurs at least occasionally. The issue is greater in the medical device industry than in pharma, she said, possibly because of the high numbers of customer representatives on the ground.

In pharma, Warfel said, “Pricing is super complex, and pricing a drug incorrectly is one of the biggest mistakes a drug developer can make. If it’s priced too high, payers are unwilling to reimburse and physicians are unwilling to prescribe it, but if it’s too low, they may think it’s less effective than the alternatives.”

The emergent challenge for pharma is value-based pricing.

“Payers are looking to reduce their risks,” Warfel noted. During the past two years, 57% of respondents said they had adopted value-based pricing, “but pharma companies have difficulty executing on value-based pricing.”

The reason is that different pricing models are needed for different types of therapies and different reimbursement systems. The pricing strategy, therefore, will vary for a cure versus a treatment, and for single- vs multi-payer reimbursement systems, as well as for various countries.

When it comes to improving their revenue management opportunities, C-suite respondents cited the need to better manage business continuity (39%) and regulatory change (34%).

“Business continuity is tied to regulatory change,” Warfel said. “To do better, they need to be able to respond quickly.”

Model N has a center of excellence that monitors regulatory issues and changes along with other elements, she added, to help customers adapt quickly.

“Having the technology to respond quickly to unrelenting pricing pressure in a changing environment is absolutely essential,” she said.

Pharma executives in particular link government regulatory compliance to lost revenue, with 98% noting losses as a direct result of regulations. Some 60% are concerns about new health care policies and 33% are preparing for additional changes from newly-confirmed Secretary of Health and Human Services Xavier Becerra.

Losses, they said, come in the form of lower price points (59%), delayed commercialization (56%), and not bidding on potentially lucrative contracting arrangements because of regulatory concerns (55%). Approximately 47% will refuse to engage with new customers because of regulatory concerns.

“Global standardization and commercial excellence is another issue. Companies need to ensure employees working on specific initiatives have technology that is leveraged globally, rather than different solutions for various regions or offices,” she said.

The need for standardization applies to pricing management, too.

“We’re seeing customers leverage the same pricing solutions across the globe,” Warfel said.

Regardless what happens to the most favored nation strategy promulgated under the Trump Administration, companies must become more concerned about what other countries are paying to implement harmonized pricing policies.

The steps during the COVID-19 pandemic to dramatically speed vaccine and therapeutic development will have a long-term effect on revenue management processes, according to 54% of the life sciences executives responding. Telecommuting posed additional challenges, with 61% saying that work-from-home mandates made revenue management more difficult.

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