Accurate government pricing calculations are a cornerstone of operational excellence in Life Sciences. Missteps can be serious, leading to financial penalties, compliance risks, and reputational damage. As Sarah McClure, Vice President of Knowledge Management at RLDatix Life Sciences, highlighted in our recent webinar on Government Pricing Best Practices: Compliance Strategies from Start to Finish, the foundation for compliance needs to be laid well before the first calculation begins.
Drawing from that webinar, let’s talk about five of the critical steps you should take before calculating government pricing to set yourself up for success. Think of this as your checklist for ensuring your data, processes, and teams are ready to support compliant and efficient operations.
Step 1: Keep Your Product Master Up to Date
Your product master is the backbone of compliance, and inaccuracies here can ripple through your entire system. Before diving into calculations, review your product master against the FDA database. Verify attributes like:
- Baseline AMPs (Average Manufacturer Prices): Ensure these are accurate for all products.
- Product Categorization: Check for accuracy, including line extension, single-source, and multi-source classifications.
- Termination Dates: Remove legacy products no longer in use to prevent unnecessary rebate payments.
This proactive approach helps maintain alignment with regulatory requirements and prevents downstream calculation errors.
Step 2: Conduct a Government Liability Assessment
For new products or acquisitions, conducting a government pricing liability assessment is non-negotiable. This involves:
- Modeling potential liabilities under Medicaid, PHS (Public Health Services), and FSS (Federal Supply Schedule) programs.
- Evaluating the impact of legacy baseline AMPs and price concessions.
- Identifying risks, such as acquiring products with unfavorable baseline AMPs.
Integrating these assessments into your commercialization strategy empowers your pricing committee to make informed, outcome-driven decisions.
Step 3: Manage Classes of Trade with Precision
Customer class of trade (COT) designations directly impact your government pricing calculations. To ensure accuracy:
- Assign and Review COTs Regularly: Scrub customer databases routinely to account for changes.
- Document COT Schemas: Clearly define inclusions and exclusions for each calculation type.
- Avoid Common Pitfalls: Ensure contracts and locations are properly categorized and not misrepresented.
Proper customer and COT management ensures compliance and reduces the likelihood of errors in calculations and reporting.
Step 4: Scrutinize Contracts, Rebates, and General Ledger Codes
Contracts and rebates are integral to your pricing strategy but can introduce complexity. Review them periodically to ensure:
- Accurate Exclusions and Inclusions: Align contracts and rebates with your pricing model.
- Bona Fide Service Fee (BFSF) Reviews: Test admin fees against the four-part test to determine if they qualify as bona fide service fees.
- General Ledger Codes: Confirm the appropriate configuration for rebates and transaction codes.
Establishing these reviews as part of your routine processes can prevent discrepancies and streamline your calculations.
Step 5: Reconcile Transactions and Maintain Documentation
Reconciliation is a critical final step before calculating government pricing. Cross-check transactional data in your government pricing tool with your accounting system to identify variances. Key actions include:
- Reconciling direct sales, direct sales adjustments, chargebacks, and rebates monthly.
- Documenting reconciliation outcomes, including the causes of variances.
- Addressing incomplete data before calculations begin.
Accurate, reconciled data ensures calculations are based on a solid foundation, reducing the risk of unnecessary recalculations or hefty civil monetary penalties.
The Bigger Picture: Building a Compliance-First Culture
Achieving compliance isn’t just about ticking boxes—it requires collaboration across teams and functions. Effective communication between sales, finance, legal, and regulatory departments ensures everyone understands the impact of their actions on pricing and compliance.
By treating compliance as a shared responsibility and integrating these pre-calculation steps into your operations, you can mitigate risks, enhance accuracy, and drive organizational success.
Want to learn more about the best practices for Government pricing? Be sure to watch our full Government Pricing Best Practices: Compliance Strategies from Start to Finish, where Sarah McClure provides strategies on reviewing and understanding your calculations, post-calculation best practices, and navigating recent regulatory changes.
For a deeper dive into Government Pricing Best Practices and the next steps in government pricing calculations, register to watch the full webinar here.