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New IDC Health Insights Research Shows Pharmaceutical Manufacturers Lose $11 Billion through Channel Inefficiencies Each Year
New Study Identifies Channel Leakage Points, Quantifies Revenue Loss, and Examines What Companies Are Doing to Reduce Leakage Exposure
FRAMINGHAM, Mass., December 15, 2009 – According to a new IDC Health Insights research study, Business Strategy: Revenue Leakage Pharma's $11 Billion Problem, revenue leakage causes pharmaceutical companies to lose approximately 4.4% of overall revenue on an annual basis. For 2009, most forecasts predict U.S. pharma sales will be roughly $252 billion. That means as an industry, pharma manufacturers will collectively lose approximately $11 billion through channel inefficiencies – the equivalent to total revenue for a top 20 pharma simply disappearing each year.
"IDC Health Insights recently surveyed 151 industry leaders and conducted in-depth interviews with 23 pharmaceutical companies to identify channel leakage points and quantify revenue lost," said Eric Newmark, research manager for IDC Health Insights commercial life science practice. "Our study results illustrate a troubling reality for manufacturers, but there's good news – short-term leakage can be reduced, and over the longer term, largely eliminated."
Key findings from the study include:
- 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.
- Major leakage points include chargeback discrepancies, duplicate chargebacks, omitted reverse chargebacks, rebate errors, return discrepancies, and concealed shortages.
- 63% percent of manufacturers believe chargeback-related revenue leakage is a serious problem. This is up nearly 25% from a similar survey in 2006.
- On average, manufacturers overpay managed care rebates by 5.5% (with some cases exceeding 10%), and overpay Medicaid rebates by 4.5% (with some cases exceeding 8%).
Over the last 18 months, revenue leakage has attracted attention at the C-level, which should help chargeback and rebate teams secure the funding they need to improve system capabilities through IT upgrades, IDC Health Insights research shows. Many pharmas currently use systems more than six years old for claims management and drug reconciliation. The proliferation of fee-for-service agreements, inventory management agreements, and impending drug pedigrees has triggered an upsurge in the types of data available to manufacturers from wholesalers regarding sales, inventory, returns, and product movement. The ability to intelligently receive, process, analyze, and act upon this data is still a major challenge, yet it is instrumental to channel management success. IDC Health Insights recommends manufacturers that have not recently evaluated their capabilities should reassess current system limitations and invest in functional enhancements where appropriate.
The IDC Health Insights report, Business Strategy: Revenue Leakage Pharma's $11 Billion Problem (Document #HI220793), examines process inefficiencies surrounding claims management and drug reconciliation within the pharmaceutical sales channel, discusses the primary pain points causing revenue loss, and provides actionable advice on how pharmaceutical companies can reduce their exposure. Questions answered within this document include: What is causing revenue leakage? What are companies doing to reduce leakage exposure? How large is the problem? Where is this money going?
For additional information about this study, or to arrange a one-on-one briefing with an IDC Health Insights analyst, please contact Sarah Murray at 781-794-3214 or sarahbethmurray@gmail.com. Reports are available to qualified members of the media.
For information on purchasing reports, contact info@idc-hi.com.
For more information, please contact:
Sandra Collinsscollins@idc.com
508-988-6746
Sarah Murray
sarahbethmurray@gmail.com
781-794-3214
