Data-driven decision-making and analytics capabilities can be the difference between success and failure in pharmaceutical operations. But many companies are missing opportunities to leverage available data.
A recent industry revenue report from Model N reveals several significant trends in the pharmaceutical manufacturing industry, including data management strategies, organizational priorities, and factors impacting innovation. According to the survey, pharma executives recognize the importance of collecting, synthesizing and analyzing data to identify revenue optimization prospects and compliance challenges, but many have doubts about their information.
By examining the survey findings, we gain valuable insights into the current state of the industry and the steps needed to ensure a successful future.
Data-backed decision-making
Only 45% of pharma executives report using data in all their revenue management decisions. Why aren't most manufacturers leveraging data to its fullest potential? Nearly all executives (97%) cited concerns about their internal data, including worries related to:
- data privacy (40%)
- data accuracy (37%)
- data completeness (15%)
Many pharma manufacturers (55%) have responded to these concerns by establishing a center of excellence (COE) — the highest percentage of any surveyed industry (medtech, pharmaceutical and high tech).
External data, including information from competitors, group purchasing organizations, peers, health plans and the industry, provides critical insight into market opportunities. Most pharma companies (96%) leverage external sources, predominantly channel data, analyst data, reports from industry organizations and market research.
Nearly all executives (99%) identify benchmarking data as critical for revenue management insights, and 64% purchase this data to support decision-making. Survey respondents are also willing to share data in exchange for receiving industry benchmarks. Nearly six in 10 are “very willing” to share said data, the highest of any surveyed industry, and 36% are “somewhat willing.”
Data management
Despite advancements in relevant technologies, spreadsheets for revenue management remain ubiquitous, with 99% of executives reporting their team employs them for this purpose. In fact, Model N observed a minor increase in the general frequency of spreadsheet use YoY. In 2024, only 8% indicated that spreadsheets were “rarely” used, versus 16% in 2023. For the first time, more executives in the pharma industry indicated they “always” use spreadsheets (41%) for revenue management than those in any other surveyed industry.
In 2024, more than two-thirds (68%) of pharma companies plan to use advanced analytics. This static represents an optimistic development for the industry. Data and analytics solutions purpose-built for the pharmaceutical industry improve efficiency and outcomes related to several essential processes, including pricing, rebating, compliance, and channel programs. Additionally, 59% of executives plan to use AI this year, representing the potential for increased revenue optimization.
Factors influencing business
Operational improvements are the top priority for pharma executives this year. Over one-fourth of life sciences executives (which includes pharma) are focused on process efficiency in particular. Macroeconomic concerns, including inflation, variable consumer demand and persistent staffing shortages, all contribute to the outsized importance of this focal area.
Pharma executives believe the biggest factors impacting innovation in 2024 are:
- customer demand
- supply chain and logistics
- material availability
- regulatory compliance
Customer demand topped the list despite not being in the top four concerns last year, demonstrating the increased influence of shifting buying habits, price sensitivity, inventory volatility and increased market competition.
Supply chain disruptions and materials availability made the list again this year. This recurrence indicates the long-term ramifications of supply chain disruptions. Of note, supply chain concerns were echoed across all surveyed industries.
The pharma industry is staring down a significant staffing problem. More than half of pharma companies (56%) are struggling with a shortage of qualified talent, and only 2% report experiencing no issues related to staffing or experience. Compare that to 8% and 9% of medtech and high-tech executives, respectively. In light of persistent staffing issues, pharma companies can improve business performance and maintain their process efficiency — even improve it — by redoubling investment in automation and AI-based solutions as well as seeking business product outsourcing (BPO) arrangements for operational aspects of their businesses.
Regulatory challenges
Regulatory compliance entered the list of top factors impacting innovation in 2024 as manufacturers grapple with the unknowns of the Inflation Reduction Act (IRA) and other policy changes. More than nine in 10 executives are worried about additional regulations this year, and 94% of those respondents plan to upgrade their revenue management program to keep pace. The specific regulations that concern executives include:
- Medicaid (44%)
- the IRA (40%)
- Medicare (38%)
- state price transparency (28%)
Model N observed significant variance in these concerns this year versus last. Now that negotiations between drug companies and Medicare under the IRA have begun, executives expect to see a more significant impact on their revenue management programs than last year. Half of manufacturers are bracing for impact on this front, up from 22% in 2023.
While not as prominent as last year, executives are still concerned about state price transparency. As more states propose and pass legislation for drug price transparency, pharma companies must determine how to manage reporting requirements efficiently. Nearly half of states have passed these laws, and more regulations are under consideration. Variations in legal requirements across states mean pharma companies must create multiple reporting processes, necessitating extensive time and resources. Two-thirds of companies are turning to technology as a means of ensuring compliance, and three out of five are outsourcing some or all of their state price transparency processes.
Other obstacles include formulary compliance, which 94% of respondents cite as impediments to their revenue management program's success. According to Model N research, formulary contract noncompliance and incorrect rebate administration can cost individual pharma manufacturers between $25M and $75M. Nearly half of pharma executives (49%) cite manual auditing as the primary hurdle to formulary validation, 48% cite limited access to formulary data, and 47% cite limited resources.
Customer and membership data management is another area of concern, with only 52% of pharma executives characterizing their membership management process as highly effective. An outdated customer master database can lead to duplicate customer records, incorrect pricing, rebate and chargeback overpayments, government price reporting noncompliance, missed revenue opportunities, and strained partner relationships. Manufacturers report that data accuracy and updating data are the main challenges in customer management.
The steps to success
The pharma industry has taken several strides toward leveraging data and analytics to achieve operational excellence, including integrating AI and other innovative tech into their revenue management workflow. However, many opportunities for progress remain.
Concerns around data quality, evolving compliance regulations, and consumer demand combined with industry-specific challenges like staffing shortages have prohibited many organizations from capitalizing on their data. In 2024, instead of placing data and analytics capabilities on the back-burner to these pressures, pharma companies must recognize data’s capability to solve them. Overcoming lingering adoption challenges will be critical as pharma companies strive to turn information into insights, improve efficiencies and optimize revenue.
