The intricacies of pharmaceutical manufacturers’ day-to-day operations are vast. From contract management to chargeback processing to EDI maintenance and operations, having every facet run smoothly is essential to profitability. Unfortunately, far too many pharma manufacturers today are losing money to human error, communication failure, technology breakdown, and more.
Avoidable chargeback mistakes are not only eating away at already thin profit margins, but they are putting manufacturers’ relationships with wholesalers at risk. As such, the ramifications of these issues are enormous. And when it comes to handling chargebacks, efficiency must be applied to each and every step.
Understanding what can (and often does) go wrong in dealing with chargebacks is the first step to making changes that reduce revenue leakage and increase efficiency. Today, we highlight 5 chargeback mistakes that cost pharma manufacturers money.
1. Contract Notification Errors
Any change to a contract needs to be communicated to the wholesaler’s contract department. This is ideally done through an 845 EDI document, however, they will accept changes via email as well. It is important to have multiple people QA the price change notifications that are being sent to the wholesalers to avoid mistakes.
If a mistake is made on the notification, that incorrect price will be loaded in the wholesaler’s system. Then, the chargebacks will come through with incorrect pricing as well, which has many negative ramifications. It will cause the line to error out and require extra time to review and correct. A dispute on price might be denied as the wholesaler does not care that the notification was incorrect and will most likely expect the manufacturer to honor the price they sent. All of these result in lost profit for the manufacturer.
2. Untimely Contract Notifications
After contracts have been finalized and executed, the changes need to be sent to the wholesalers as soon as possible for updating on their end. Ideally, contract changes should be sent 2 weeks prior to the effective date whenever possible. The wholesaler needs at least a few days to load these changes into their system, so the more time you give them the better.
If the changes are not loaded in the wholesaler system prior to the effective date, it will most certainly lead to price discrepancies on the chargeback lines that follow. This will create extra time to handle the chargebacks and for the manufacturer to decide whether to override the price and pay the wholesaler what they requested or to dispute it. If disputing the amount, there is no guarantee that the wholesaler will agree since they do have notification timelines outlined in their Terms & Conditions. Both scenarios lead to lost profit.
3. Delayed Chargeback Responses
Most wholesalers require a chargeback response within 5 days of receipt. Wholesalers do not wait for chargeback responses. In fact, most post the chargeback to the manufacturer’s account upon creation of the chargeback. This means that if the manufacturer has any hope of recouping money related to a chargeback error they must do it as soon as possible.
It is highly recommended, regardless of company size and volume, that all manufacturers process chargebacks daily. In addition, if errors are encountered they must be resolved within 2 days. This will help ensure all responses are getting to the wholesalers within 5 days of receipt.
4. No EDI Capabilities
The big 3 wholesalers (ABC, Cardinal, and McKesson) all strongly prefer 844/849/845 EDI documents to be traded over email and spreadsheets. In fact, most of their Terms & Conditions specify penalties for non-EDI communications regarding chargebacks and other business areas, which go well beyond the costs of implementing EDI. If EDI is not setup then the manufacturer usually receives a spreadsheet via email. They then have to take that spreadsheet and manually pull it into their chargeback system or review it manually.
All chargebacks received are required to have a chargeback response sent back to the wholesalers whether you approve what they request or have some disputes. If an EDI 849 document is not being traded then the manufacturer has to populate the wholesaler’s pre-defined chargeback response template. This is extremely time consuming and if the data is not right it will be rejected. On top of that, each wholesaler has a different template, which requires management and adjustment for each of them. Clearly, lacking EDI capabilities is a massive hindrance to a manufacturer’s workflow and overall performance.
5. No Chargeback System
Without a system to manage contracts and validate chargeback lines, you are relying on the wholesaler’s data to pay chargebacks. If mistakes are made or a product is sold on the wrong contract you would not be able to tell without a system to validate the information. Manual scans of the data, even with low volume, are risky and time consuming.
Additionally, any manufacturer doing this manually is most likely not sending back proper chargeback responses to the wholesalers. This means even if you encounter a discrepancy it is not being properly communicated to the wholesaler. No chargeback response also means the credit memo numbers in your ERP system are not being sent, which makes reconciling remittances harder because they will only reference the wholesaler’s debit memo number.
Chargeback Management to Avoid Revenue Leakage
Contrary to popular belief, profit margins in pharma manufacturing are not very high. This is especially true for generic manufacturers. Therefore, it is important to streamline and automate as many areas of the business as possible. For chargebacks in particular, make sure you setup EDI, have a good chargeback system to validate chargebacks and send timely responses, and ensure that contract notifications are timely and accurate.
At EmpowerRM, we have crafted a comprehensive solution for pharmaceutical chargeback management and our revolutionary software is built to save manufacturers money. Would you like to learn more our 100% web-based technology? Contact us today for a free demo.