June 23, 2014 Morayea Pindziak

Revenue Enhancement through Rebate Process Improvement

Administrative tasks associated with rebate processing aren’t typically viewed as revenue generators however, when managed effectively, they can provide benefits and contribute to the bottom line.  Left overlooked, a business can encounter compliance issues, misallocate time and resources resulting in financial losses. Standardized rebate calculation processes, validation and analytics become necessary for successful practices.

Maturity Assessment

Many organizations start with one product that can be easily managed with manual
processes, however, company growth soon renders effective management of
submission details impossible to efficiently maintain. Understanding gaps that
require remediation helps develop guidelines for process improvements. Maturation
requires small improvements in stages adding forward-thinking and cumulative
value. Scrutiny is key to the progress making verification of rebate submission
details to be a highly recommended practice.

Assessment of contract strategies, number of products, and transactional volumes are required and consider when moving from simpler to more advanced processes. Stages should be evaluated before moving on to determine if it’s financially viable and realistic given existing resources.

Figure 1 depicts a typical maturity curve when developing a standard rebate processing procedure. Standard progression starts with basic “Pay-To-Invoice” methodology, followed by systematically calculated rebates, then achieving optimization with validations to control revenue leakage.

Figure 1

Exploring the transition, it is important to remember each has its distinct advantages and shortfalls and an optimal state will vary by organization. Understanding the entire spectrum will determine when a change is needed.

Foundational Stage

The pay to invoice methodology is the easiest and least intensive way to meet the terms and conditions set forth in the contract language.  Rebate payment, issued without investigation, based on the Pharmacy Benefit Manager or Managed Care Organization’s invoice interpretation and calculation. Compliance and prompt payment are not issues, but accuracy suffers resulting in the largest amount of revenue loss. Manual analysis overcomes this issue but is impractical when dealing with larger amounts of data.

Invoices vary containing only a few easily scrutinized records or several hundred lines of summarized data. The latter shows an analyst cannot determine the accuracy of the invoice if multiple pricing strategies are being used, like base rebates, price protection, market share rebates, and admin fees.

Operational Stage

Calculations are needed to translate contract terms.  Ongoing maintenance is critical because the precision of not updated calculations deteriorates rapidly.  When contract terms are computed, a basis of comparison is established to measure submitted data. By comparing an invoice to an internally calculated standard, analysts determine the correct payment more efficiently.

Metrics are implemented to systematically gauge performance levels when an operational foundation is established. These measurements provide the analytics to support decisions, launch new projects, allocate resources, and provide insights into revenue trends.  Routine checks of process efficiency is crucial to ensure that standards are effectively keeping up with new strategies. Pushing aside these checks for other tasks provides detrimental results.

Optimal Stage

The most common issue experienced is overbilling with many industry factors being the cause. The most prevalent form of overbilling comes from incorrect invoice data. Performing manual and automated validations are the most effective way to find, reject, and correct these errors.

A typical checklist of validations might proceed as follows:

  • Import into a revenue management system
  • Evaluate detail data to find ineligible plans, incorrect NDCs, ad outdated products.
  • Discard and exclude the above data from rebate payment.
  • Conduct aberrant quantity check.
  • Cross-examine the units against the Rebate Days’ supply.
  • Send request to customer to make the appropriate changes to units not consistent with the correct unit of measure (UOM).
  • Check submitted Prescription ID for validity and run against a list of all valid pharmacies.
  • Evaluate the formularies to determine whether plans are matched to the correct tier.
  • Run a duplicate check to identify data that appears more than once in the current file or any preceding quarters.

Figure 2 below depicts a real example of how a manufacturer appropriately optimized their invoice validation and rebate payments. Although invalid lines can be corrected and resubmitted, the manufacturer has visibility to the rejections and can estimate submissions based on behavior patterns of their customers.  This process allows utilizing dollars for an additional quarter to their advantage rather than prematurely paying an inflated rebate amount.

figure 2

Savings and Continuous Improvement

Quarterly trackers and dashboards, for example, allow data to be collected and measured against performance metrics in real time. Data from submissions and settlements provide useful statistics when properly leveraged. The fuel for continuous process improvement is to properly manage company growth; the insight gained from the available data provides the needed tools.

New contracts, products, and revised payment terms can significantly alter the way a company operates. Successful adaptation to these changes means continuous savings. Failure results in substantial and often unrealized losses.

Figure 3 below presents another real example of validating incoming invoice data excluding a large sum from a quarter of paid rebates. Manufacturers can preserve revenue on a continuous basis each quarter by employing these process techniques.

figure 3

Effective revenue management is about ensuring that optimal controls are in place. Maintaining status quo is easy, but it comes at the expense of ignoring process shortcomings that erode Organizations often miss the opportunities to improve their processes and incur revenue leakage. Therefore, it is critical to determine its place in the rebate processing lifecycle. Exploring the associated optimization strategies initiates growth in a way that is both measured and proactive, augmenting efficiency while yielding significant bottom line results.



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