Is Whistleblowing the New Path to Financial Independence in the Pharma Industry?

Every year we survey drug manufacturers to benchmark their ability to manage revenue for optimal financial gain and minimize regulatory risk. Here are some disturbing data points:

• For the second year, 33% of companies surveyed track compliance less than once a year or never
  
• 35% of companies monitor compliance on less than 50% of contracts
  
• 17.4% of contracts are non-compliant
  
• 42% of companies cannot determine compliance %
  
• The most common tool to track compliance is still Excel spreadsheets
  
• Most respondents are confident in their ability to comply with government programs and their ability to respond to audits
  
• Over the last couple of years, fines levied by the OIG are nearing $10B in aggregate 

Ergo: If there is an audit, odds are discrepancies will be found.

 

Govt. will pay $102M to 6 whistleblowers that helped False Claims Act investigation against Pfizer

This could become a disturbing trend for drug manufacturers. With 50% of all revenues coming from government business, this lack of visibility and control over pricing and contracts represents a huge exposure for drug manufacturers. If you search for whistleblower cases on Google, it is interesting to note that whistleblowers are considered to be courageous and often lauded for doing the honorable thing. Couple this with the promise of a financial windfall, and CFOs, CROs, and  Audit Committees cannot be sleeping easy these days.

Insiders claim that drug companies accrue millions of dollars on their balance sheet for such audits and the almost inevitable fines and settlements. In other words – settlements are acceptable cost of doing business. Really? How do you quantify the impact on your brand equity when the headline on WSJ includes “fraud”, criminal, and felony” next to your company’s name? Or worse, put in the same category as AIG.

At a time when reform is top of mind for the entire health care value chain and legislators, manufacturers do not want to be made an example by Department of Justice to deter the rest of the industry.

Options: Fix it. Get the help of experts who can address the people, processses, and technology issues spanning pricing, contracts, channel incentives, and regulatory programs and deploy systems that provide visibility, control, and auditability. The result is not only reduced risk from audits, but more importantly improved margins from best-in-class Revenue Management. Check out the case study by Gartner on Astellas Pharma. There are several more examples of companies who have turned Revenue Management into a strategic imperative and are reaping the benefits.

Last week, DOJ gave 2.3 billion more reasons for drug manufacturers to do the right thing.

Will it have an impact? What do you think?