One of the questions that we get all the time is if we can help build out a gross to net calculation. While the answer is "yes", I figured that I'd share a sort of intro to the GTN approach that I developed over the years leading a market access team. With this approach we were consistently able to assess our brand performance as well as ensure that ROI metrics were positive for each contracting strategy we implemented. Here are the 3 key critical components in starting out a GTN model:
Starting with your brand's specific market access channels is imperative because that determines how your products are ultimately delivered to the patient, and which contract discounts need to be applied. The discounts associated with specialty distribution are different from the fees associated with a full line wholesale model. Certain channels have more contractual touchpoints than others. If you have a retail product, capturing your copay programs or prior authorization support programs becomes important, whereas for a hospital-based product, those do not matter.
Once you identify your brand's specific channels, you have to determine how you are going to stack your discounts. The goal of stacking discounts is to get the net price by channel. Whenever you are making contracting decisions, the net price per channel effectively sets your floors and ceilings for discounting. For example, the GTN rate on a commercial retail script, versus a Medicaid retail script, versus a Medicare Part D rebate script varies despite all products being dispensed in a pharmacy setting.
In order to stack channel discounts, you need to identify every contracted entity that “touches” the product before it gets to the patient. For example, in the retail channel you generally would start with your wholesaler DSF, prompt pay, add in your PBM rebates and then build in any patient programs.
When you understand your GTN and the True Payer Mix by channel, then you know if your contracts are creating value and can make informed decisions impacting the brand trajectory.
Lastly, it is key to factor your pricing strategy into your GTN model. There are a multitude of pricing "escalators" in both commercial and government contracts. PBM agreements have price protection clauses that can increase rates, while government contracts achieve the same effect through CPI-U penalties. If you do not align your pricing strategy to your contractual terms, you will be in for a surprise later on. I have unfortunately seen manufacturers think they will realize the full effect of a 9% price increase, only to realize that they have actually lost margin due to increasing distribution fees and dollar for dollar price penalties.
Published on March 9, 2021 by Scott Hoffman