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Tony's Reflections on WAG-ABC Alliance is Posted on VCIQ!

2013-03-25T21:59:03Z

To read the article in full, please click the image above, or here.

Register to Hear Tony and Others Speak in May!

2013-03-21T22:11:10Z

The ever-changing dynamics of the healthcare landscape present pharmaceutical manufacturers with a series of challenges and opportunities. It has never been more important to create an innovative and efficient distribution strategy for your organization that both mitigates unnecessary costs and provides the product to more patients.

Below are key issues that will be discussed at the conference:

Explore strategic distribution models including direct-to-pharmacy, direct-to-patient and specialty opportunities
Understand how the ACA and Patent cliff will impact your distribution strategy
Redefine relationships with wholesalers, retailers and 3PLs
Determine the most effective channel configuration for your product
Effectively prepare for changes on the horizon

To register or learn more about the conference, please click on the banner above or click here.

Tony's VCIQ Blog on Optimizing Returns Management is Posted!

2012-11-07T01:46:17Z

Tony's second blog entry, Optimizing the Returns Mangement Process Can Create Better Demand-Driven Signals, is up! Here's a portion of his blog post:

Too often do we discuss the process of managing change versus actually leading change. As leaders, the burden falls upon us to lead change. It is up to leaders to show the “why” of change. So many initiatives fail, not because they are not properly executed against, but because the people living with the results of the initiative never accepted the premises of the initiative to begin with. While the bottom-line is an important driver in all change, understanding how that change will affect individuals, processes, organizations, and shareholders is just as important—and in some cases, more important.

Throughout my career, one common thread comes through clearly: I have had to lead change. From my time at West Point, to my various corporate positions, change has been a constant companion. When I joined the pharmaceutical industry, I learned this industry has a different mindset for change: change is usually driven by regulatory bodies. When change comes through those channels, it usually costs an organization millions of dollars. When professionals within organizations try to unilaterally push change in this industry, it’s like a salmon swimming up river; it’s a very frustrating process to manage so many stakeholders, all of whom have different incentives for not wanting to change, but one thing still holds true: the philosophies of leading change are valid for individuals, corporations, and all industries. Change must occur at the speed of culture.

In keeping with the theme of my initial blog topic: creating a demand-driven supply chain, I would like to discuss returns. This, arguably, is one of the least understood aspects of the pharmaceutical supply chain. Most companies will say that they are doing a good job managing returns—that they have a handle on it: it’s roughly a predictable 2% of sales. First of all, I believe any return should be viewed as an opportunity to increase the efficiency of your supply chain. Returns cost organizations money throughout the supply chain. The entire supply chain—from the manufacturer to retailer—should view returns as a negative event—not a profit center.

To read the entire blog entry, please click here!

A New Pharma Supply Chain Blog!

2012-08-30T18:12:09Z

Linear B Exchange's, Tony Jackson, is part of a new blog! Here are some words about it from Tony, along with the direct link to the blog:

The team at Linear B Exchange has been given an extraordinary opportunity to have a forum to ensure our message has industry-wide reach; ValueCentric recently announced that the portal,ValueCentric, is LIVE!!!!! VCIQ is a new and innovative portal, created for pharmaceutical-industry professionals, to be a unique focal point for industry information, news, and opinions; it is designed as a single repository to track important industry news and events, healthcare insights, and unique services that will bridge the world of general business information with specific healthcare channel management metrics. VCIQ is a healthcare intelligence online destination, designed to enhance the awareness of, and access to broad media content (traditional and social), along with original content from guest industry bloggers that impact business activity.

In keeping with our belief that the pharmaceutical industry has to change, our first blog topic is titled, “Creating a Demand-Driven Pharmaceutical Supply Chain: Phase I – Ensuring Market Access” and can be found here. Over the next few months, I will continue to outline my thoughts and opinions on how to go about creating a demand-driven supply chain, as it relates to the pharmaceutical supply chain. As always, I welcome comments and can be reached at ajackson@linearbx.com.

Critical Industry Information that May Affect Your Distribution Services Agreement

2012-01-17T23:04:21Z

Brand Rx manufacturers are under pressure industry-wide to help reduce the cost of healthcare.  Unfortunately, healthcare seems to be primarily defined as the drugs patients take versus the total cost of healthcare.  Where possible, brand Rx manufacturers are being challenged around their drugs’ cost.  Case and point, there is a class-action lawsuit aimed at the very source of compensation between a brand Rx manufacturer and wholesaler.  While these Fee-for-Service agreements have provided stability in governing the interaction between both parties, they are also problematic in how the distribution services compensation is calculated.

The lawsuit states “Beginning no later than 2004, Defendants and the pharmaceutical industry’s wholesalers began executing and implementing distribution services agreements (‘Service Agreements’).  Service Agreements provide for a new trade structure known as ‘fee-for-service.’  Service Agreements generally obligate manufacturers to pay a fee to wholesalers (also referred to herein as ‘distributors’) in exchange for services the wholesalers provide (the ‘Service Fee’).  The Service Fee is typically an amount equal to a set percentage of the wholesalers’ gross purchases of the manufacturers’ products.”

“Defendants use these Service Fees to artificially lower their reported AMPs, which enables them, in violation of law, to materially underpay rebates to the state Medicaid programs.  Each of the Defendants execute this fraud through one of two schemes: a) the ‘Discount Scheme,’ or b) the ‘Service Fee Scheme’.”

So what is the problem? Paying more fees to continue to fund a model that is close to being unsustainable, especially when product is being sold at “WAC-minus” pricing. So what is the solution? Migrate current agreements to a cost-per-unit model that is a true value-based agreement.

This has been the cornerstone of Linear B Exchange's approach. In our white paper, "A Practical Roadmap to Evolve FFS Agreements to a Cost-per-Unit Model," we outline a strategy to achieve this objective. While Linear B Exchange cannot help manufacturers with the past, we can help you protect your organization from future lawsuits related to these types of claims.

To view the lawsuit, please click the following link: http://www.impetusforchange.org/storage/class-action-lawsuit/Case%20208cv05135ER%20Doc%2045.pdf. You can also access the lawsuit at http://www.paed.uscourts.gov/us01001.asp, and login to PACER. While your organization may not be named, this lawsuit has the potential to open Pandora's Box for additional class-action lawsuits. The most troublesome situation is the wholesaler “Cost Minus” business model for selling brand Rx drugs downstream; this practice will inevitably lead to additional trouble in the industry, from a sustainability standpoint to potential government rebates issues.

If you are interested in learning more about Linear B Exchange and would like a courtesy copy of our white paper, "A Practical Roadmap to Evolve FFS Agreements to a Cost-per-Unit Model," (an organizational value of $1,000) please e-mail Alex at alefrancois@linearbx.com.

Please note, our white paper, "A Practical Roadmap to Evolve FFS Agreements to a Cost-per-Unit Model," is intended for branded Rx pharmaceutical manufacturers, and we reserve the right to decline sending an individual a copy if they’re not a branded Rx pharmaceutical manufacturer.

Trade Practices need to be updated to reflect the reality of today's environment: Cash Discount vs. Managing A/R

2011-10-24T20:11:26Z

Manufacturers need to change the dynamics of their downstream relationships, especially as it relates to Best Price Calculations--a crucial component for setting the price for your government contracts. The crux that causes manufacturers the most issues is the inclusion of Wholesaler Cash Discount in the Best Price Calculations, which results in a 2% reduction in your AMP.

Linear B Exchange firmly believes this situation can be corrected. Cash Discounts/Prompt Pay Discounts are given to customers, but when an entity is paid to provide a service, that means they are a service provider, and should be paid a service fee—not a cash discount. Also, rebates and pricing discounts should be given based on volume purchases.

Wholesalers--are they a true customer or a service provider? It is hard to classify this relationship because it has migrated over the years. Pharmaceutical Wholesalers in the past acted like traditional wholesalers and truly were customers, but with the advent of Fee-for-Service, the wholesaler relationship evolved. Pharmaceutical Wholesalers became your service provider. This relationship became convoluted because of Prompt Pay Discounts. Manufacturers have traditionally paid 2% 30 Net 35 to have a predictable revenue stream, but is this really a Prompt Pay Discount? In other industries, a prompt pay discounts might be 2% 10 Net 30.

All you have to do is look within your four walls and ask one of your Supply Chain colleagues what their definition of Prompt Pay means.

It is time to evolve your relationships downstream with your wholesaler partners. Financial pressure will ultimately lead you, as a manufacturer, to create viable alternatives. While this is an option for some products, the majority of your products designed for primary care would see a cost increase for normal distribution. You have to demand changes in your current trade practices if both you and the wholesalers want to sustain the current distribution network. While Linear B Exchange advocates that the current model is not sustainable because of the changing dynamics of Generics vs. Brand Rx distribution, we do believe it can be stabilized for a while longer.

If you are not already a client of Linear B Exchange, talk to us and let us help you evolve your relationship with your wholesaler partner.

Quick Summary

Wholesalers are not customers. They are service providers.
Prompt Pay Discounts are designed to incent customers to pay their obligations earlier. Your relationship with wholesalers is about managing receivable risk. 2% 30 Net 35 is not prompt pay. It is the cost of managing receivables risk. Make your agreements reflect such.
Cash Discounts vs. Managing Receivables are exclusive of each other. Let us help you evolve your relationships to reflect that.
Stop being penalized in your Best Price Calculations because your Trade Practices need to evolve. Linear B Exchange is your solution.

Returns Management/Reverse Logistics

2011-05-20T16:55:52Z

Why does the pharmaceutical industry need extended dating in this age of supply chain efficiencies? The goal of all participants in the pharmaceutical industry should be to reduce cost. Too much capital is tied into wasted inventory. Surplus inventory creates a liability for the Branded Rx manufacturers. With the cost of bringing new and innovative drugs to the market, this capital can be better deployed instead of dealing with unexpected returns.