True Payer Mix

At Woven Data, we use a concept of "True Payer Mix", which is instrumental at all stages of the product life cycle, from acquisition due diligence, commercialization, to ongoing brand management.

The term "payer mix" is commonly understood to describe the retail portion of your business, and include cash, commercial and government payers, e.g. Medicaid, Medicare and TRICARE. Those elements are important, but a richer understanding emerges when you include purchasers, as they also pay for the product. We call this integrated view the True Payer Mix.

This analysis leverages all transactional data to incorporate all of your units, starting with how many units you sold, and where those units ultimately end up before reaching a patient. (This also happens to be the first step in my recommended GTN approach, which we'll cover in an upcoming post).

Let's start with how to get to Contracted Sales from the top line:

  • Ex-factory Sales. In my experience ex-factory sales is the ideal starting point as that is generally how you recognize revenue. I have seen people start with a combo of 852/867 data, but I find those datasets more suited for other purposes.
  • Direct Contract Sales. These are the first units "carved out" in the mix. You generally see these grouped with your Ex-factory Sales and identified by a contract ID, and typically a difference in price.
  • Chargebacks. While 867 data is valuable, I have always found chargeback data to be ideal for downstream analytics. This data shows exactly where a product ended up as well as how much it cost. Any lag is typically not material for business analytics.
  • Contracted Sales. This is Ex-factory Sales, less Direct Contract Sales, less Chargebacks.

The goal up to Contracted Sales is to stack all the data reflective of actuals, which is easy to reconcile and explain. It is more "science" than "art". The second phase of our True Payer Mix analysis incorporates a mix of projections and actuals:

  • Retail Payer Mix. You will want to allocate the remaining units based on the retail payer mix, generally available via IQVIA or Symphony. If there are government or commercial contracts, you will want to validate the accuracy of the payer mix against rebated units, before applying any allocation percentages.
  • Government Rebates. You always want to utilize Medicaid and Coverage Gap units and compare them to the results of the Retail Payer Mix. While the Retail Payer Mix data is projected, it is usually directionally accurate for retail-based products. If you have any glaring differences here, you will want to reconcile any major unit disparity.
  • TRICARE. One thing to note is that TRICARE is generally not well defined in the Retail Payer Mix, so if the federal market is a key channel, you will want to get transactional data and organize that aside as its own bucket.
  • Commercial Rebates. Similar to government rebates, you will generally want to apply actual transactional data here based on your commercial contracts. The key complexity here is that not all of the commercially covered units in your Retail Payer Mix are rebated (more to come on that later in the Blog). Your actuals generally will not reconcile to your payer mix percentages. That is expected and gets us to the last point.
  • Retail Units. After you have subtracted all of your government and commercially contracted units, what you have left is considered Retail Units. The terminology here does not mean that these units are dispensed through a pharmacy. Depending on the product, they could be going to a clinic or hospital; however, no matter the channel, they are not incurring any contractual price concessions from the manufacturer.

Once you understand the True Payer Mix of where the units are going, it becomes much easier to get at the larger financial or strategic questions at the core of brand management or M&A. We will explore those in future posts.

Published on Feb. 5, 2021 by Scott Hoffman

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