One of our newer web-based presentation formats here at IDC Health Insights is our live chat format. In addition to the traditional webinar, where we present the results of our research for an hour and then try to leave a few minutes to field questions at the end, we now also offer the live chat format, which is designed to be more open and interactive. Live chats include 30 minutes of open-ended discussion, and are geared specifically toward IDC Health Insights analysts answering questions from members of the life science community. Anyone who is interested in a particular topic can attend and ask questions.

Last week, we held a live chat web conference on revenue leakage in the pharmaceutical industry. After recently finishing a major study that examined revenue loss across the pharmaceutical industry, we received large volumes of inquiries from our customers and the greater pharma community, so we thought holding a live chat forum on the topic would be helpful. In case you weren't able to attend, I've copied in the transcript from the chat session below. If you have any questions on what was discussed, or have additional questions on the subject, feel free to let us know.

1:46
IDCInsights:
Welcome, the event will be starting in 15 minutes!

1:53
IDCInsights:
Starting at 2:00 p.m. EST. Join Eric Newmark for this Live Chat as he answers your questions about revenue leakage, its causes, and trends in implementing revenue management IT systems. Recently, industry focus on reducing leakage has risen substantially, and life sciences companies are searching for answers to questions like: What is causing this leakage? Where is this money going? How can we reduce revenue leakage?

1:57
IDCInsights:
Please submit your questions now for Eric. We will be starting in just a few minutes.

1:59
IDCInsights:
Eric Newmark is a Research Manager for IDC Health Insights Insights, where he manages the Business Systems Strategies program. In this position, he provides research-based advisory and consulting services, as well as market analysis on key topics within the health and life science industry. Newmark's research expertise includes channel management, supply chain evolution, e-pedigree, RFID and identifying emerging technologies and market trends. Link to Eric's online bio: http://www.idc-hi.com/getdoc.jsp?containerId=PRF002542

2:01
IDCInsights:
Eric has just joined us, please continue to submit your questions for him to answer.
Welcome Eric!

2:01
Eric Newmark:
Welcome everyone, glad you could join us today. If you have any questions, please type them in at any time. We will try to answer as many of them as possible during our time today.

2:02
IDCInsights:
Eric has published a report on this topic: "Business Strategy: Revenue Leakage – Pharma's $11 Billion Problem," Document # HI220793. A description is here: http://www.idc-hi.com/getdoc.jsp?containerId=HI220793. List price $4500. Receive a 20% discount if you purchase before Feb. 1! Email us at: info@idc-hi.com.


2:03
[Comment From Sue: ]
For your research, what was your sample size?

2:03
Eric Newmark:
The purpose of the study was to evaluate the shortcomings of claims management, examine reconciliation process pain points, and compare current error rates with previous levels measured by a previous study we conducted three years ago.

2:03
Eric Newmark:
We wanted to collect both quantitative and qualitative information, so we executed research in two separate forms.

2:04
Eric Newmark:
We surveyed 151 industry leaders across over 100 different pharmaceutical companies, and conducted phone interviews with 23 pharmaceutical manufacturers and 4 wholesale distributors.

2:04
IDCInsights:
Did you know: Manufacturers, on average, lose 4.4% of revenue per annum through reconciliation process inefficiencies. Many company-specific factors influence this percentage, but most companies fall into the 3.9–4.7% range.

2:05
[Comment From Michelle: ]
I saw numbers re: chargebacks you published in Pharma magazine before - can you share those #s again?

2:06
Eric Newmark:
Sure. We found that approximately 12% of chargebacks are flagged with errors, but 1/3 of flagged errors are fixed without resubmission to the wholesaler (due to easily correctable errors like a missing DEA number, outdated price, or old contract number).

2:06
Eric Newmark:
So 8% are resubmitted, half of which get resolved, leaving 4% of all chargebacks unresolved.

2:07
Eric Newmark:
Of the unresolved 4%, we found 1/10 get completely written off and nine-tenths are eventually split 50:50 between manufacturer and wholesaler. So the end result is 2.2% of chargeback dollars are lost.

2:08
Eric Newmark:
Here is a quick chart showing how perceptions have changed over the last 3 years.

2:10
Eric Newmark:
So recognition of this problem remains strong, and actually grew substantially over the last few years.

2:11
[Comment From Paul C.: ]
How's the market doing (software purch.) to improve reconciliation for charge backs, rebates?

2:12
Eric Newmark:
From 2004 to early 2008, the market went through a prolonged education phase, with most companies working to increase their understanding of the problem and accumulate information to construct the necessary business case to justify further IT investment (we found the average chargeback system is more than six years old).

2:13
Eric Newmark:
Given this is a nine-figure problem for many companies, revenue leakage as a topic has recently become a CFO-level issue. CFO awareness was actually the best development possible as it has given many revenue management teams the C-level backing they needed to secure funding for IT system upgrades.

2:13
Eric Newmark:
Much of 2008 and 2009 then acted as an evaluation phase, as companies reviewed their existing capabilities and evaluated newer products available on the market. Only recently has a significant portion of the market now begun moving toward a purchase and implementation phase, though this has been somewhat slowed due to the recent economic recession.

2:14
Eric Newmark:
However, we're finding that as budgets loosen, this purchasing phase should continue for the next 3–4 years, until most of the industry has upgraded its revenue management IT.

2:15
Eric Newmark:
Unlike core systems like CRM and ERP, revenue management systems (such as chargebacks, rebates, and contract management) are an area in which we find companies are not completely averse to a rip-and-replace strategy, since most solutions today are sold in modular fashion, are platform independent, and come pre-built with streamlined integration to SAP and Oracle back-end infrastructures.

2:16
IDCInsights:
Did you know: 63% of manufacturers believe chargeback-related revenue leakage is a serious problem. This is up nearly 25% from a similar survey in 2006.

2:17
[Comment From JRomanello: ]
We're looking at rev. leak. and maybe upgrading softwre. What are some companys we should look at?

2:18
Eric Newmark:
I-Many and Model N are solutions I see widely utilized in the industry. Other vendors I come across as well include Vistex, which is an SAP solution, ValueCentric, IContracts, ROSS Systems, and PharmaMetrics.These are ...

2:19
Eric Newmark:
most of the solutions we saw being utilized throughout our study. We also found that around 15% of companies outsource chargeback and/or rebate processing (mostly all companies use either ICS, IHS, or UPS), and a small percentage of companies (less than 10%) are using ...

2:19
Eric Newmark:
proprietary systems, though this is steadily decreasing as more companies move towards commercially available solutions.

2:21
[Comment From Miriam: ]
Omitted reverse charge backs have been a big problem for us. Do you see others with this problem?

2:22
Eric Newmark:
Yes. Missing reverse chargebacks was the category of leakage that surprised me most.

2:22
Eric Newmark:
We found that 40% of reverse chargebacks are initially missing, 25% are resolved, leaving 15% unresolved. The biggest complaint I heard was that manufacturers felt this problem felt squarely on their shoulders to monitor.

2:23
Eric Newmark:
I've spoken with companies that have moved to monitoring and reporting of missing reverse chargeback funds to their wholesaler on a monthly basis, which they've found cumbersome, but necessary, and has seemed to improve their situation.

2:23
Eric Newmark:
These types of transactions are easy to overlook and can go unnoticed, so improved communication between manufacturers and wholesalers around these is key to improving the situation.

2:24
IDCInsights:
Did you know: Pharmaceutical manufacturers collectively lose more than $11 billion annually through channel inefficiencies. That's equivalent to total revenue for a top 20 pharma simply disappearing each year!

2:25
[Comment From J. Davis: ]
what types of errors are causing the leakage in CBs

2:26
Eric Newmark:
The primary driver of chargeback errors is the lack of item level serialization in the life sciences. Without it, its virtually impossible to be absolutely certain that specific chargebacks are correct, and a lot of inference and deduction is involved. We see...

2:27
Eric Newmark:
problems caused by group purchasing organizations membership rosters constantly changing, and a single change can effect many contracts. GPO's are also often slow to update membership changes which causes discrepancies.

2:28
Eric Newmark:
Here is a quick chart outlining figures around most of the major areas of revenue leakage. This should provide you a good benchmark to use for your organizations.

2:28
Eric Newmark:
We have time for one final question...

2:30
[Comment From JRomanello: ]
earlier I asked about software vendors, how about service vendors?

2:30
Eric Newmark:
Interestingly, we found a lot of confusion in the marketplace around which vendors provide services helping with revenue leakage issues. Across our study, we found very little large-tier consulting firm presence.

2:30
Eric Newmark:
Service firms mentioned by our interviewees included Activus Solutions, Alliance Life Sciences, CSC, IMS Health, Intelligroup, and Mindlance. Also...

2:31
Eric Newmark:
several companies mentioned they used data services from Data Niche, which is an IMS company. Given...


2:31
Eric Newmark:
.. the attention this space is now receiving, and the dollars tied to it, I have seen more large-tier consulting firms looking to enter this market and provide expanded service offerings, but most seem slow to fruition.

2:32
IDCInsights:
Where can you learn even more about the Life Sciences industry? Join IDC Health Insights analysts at the Life Sciences Technology Insight event, February 23-24, 2010 in Boston, Massachusetts. IDC Health Insights is a content partner for this event, which will showcase the latest industry research, market trends and product solutions surrounding the life sciences industry. Qualified executives are eligible for complimentary attendance to this exciting event – More information: http://lifesciencesinsight.com/.

2:32
IDCInsights:
Buy the report before Feb. 1: "Business Strategy: Revenue Leakage – Pharma's $11 Billion Problem," http://www.idc-hi.com/getdoc.jsp?containerId=HI220793 and receive a 20% discount! Email us at: info@idc-hi.com. Become a member of the IDC Health Insights Community and get a free copy of our report, Top 10 Predictions 2010 for the Life Sciences industry, in the "Resources" area of the community ($3500 value!). Use this link to register: http://idc-insights-community.com/join/hi-livechat.

2:33
IDCInsights:
Thanks to Eric for his time today!