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Contract Incentive Programs
National account contracting is often used as a tactic to gain or defend share in competitive markets. When effective, rebates are well worth the expense as they translate into higher share and higher revenue. However, all too often the experience is less positive. Savvy customers will play one company off another, generating offsetting rebates from all parties to the benefit of none. Furthermore, incentives can have unintended consequences; even simple contracting methodologies can lead to rebates not linked to performance goals.
Successful contracting is complex and requires an understanding of market differences, customer economics, account differences, and competitor behavior. Trinity has experience designing, implementing, and measuring performance in a wide variety of settings. This ranges from traditional payor and PBM strategies to non-retail customer contracts such as GPOs and physician group practices.
Examples of contracting insights that are derived from Trinity experience include:
- Each market is different. The impact of contracting will depend on a number of factors including the presence of generic competition, the extent a therapeutic class is "managed" by payor (or hospital) formularies, the interchangeablity of products, etc.
- Control matters. Not all customers have the same ability or willingness to influence prescribing patterns. A tightly managed, "closed" HMO may have more ability to partner effectively than an employer group with an "open" formulary.
- Follow the money. In the case of PBMs, it is important to design contract structures that make economic sense to both the PBM and their member plans.
- The importance of pull-through. GPO or PBM contracts are only optimized when the end customer (hospitals or MCOs respectively) are aware of the contract and are actively attempting to realize its benefits.
CASE EXAMPLE 1
Situation
A new competitor had "changed the rules" by offering payor and PBM contracts with rebates well above traditional levels for this therapeutic class. During the first 3-6 months of this new environment, brand Rx share fell markedly within the top two PBMs.
Approach
Trinity participated in a strategic review of contract strategies for the brand. This included account segmentation, PBM/MCO valuation and targeting, contract terms and tactics, appropriate rebate levels, P&L projections and ROI tracking mechanisms.
Result
Clear share trend reversals were seen in new and re-negotiated contracted customers. Processes for measuring rebate ROI were developed and incorporated into the negotiation process. Within two quarters, higher rebates were shown to be ROI positive and were important contributors to the brand exceeding ex-factory national forecasts. Importantly, our client did not meet its competitor's high rebates but executed a strategy to create the highest return at a reasonable cost. Follow-up analyses included an identification of best practices and a fine-tuned strategy for the next calendar year.
CASE EXAMPLE 2
Situation
Key hospital customers needed protection against new competitor entering market.
Approach
Trinity conducted an 80/20 analysis to define key customers. After establishing a target universe, we performed multi-year sensitivity scenarios to determine appropriate measurement parameters and incentive rebates. After a program rollout, Trinity created monthly performance reports for sales representatives to discuss with customers.
Result
The competitor's market share is lowest in hospital the segment, as compared to other segments of business. Higher market share erosion is evident in non-qualifying accounts vs. qualifying accounts. The estimated protected market is approximately $60 MM+.
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