Contract Management: What it means, What RSM Offers

By - December 15, 2022

RSM solves the complex life science revenue management process by handling contract management, chargeback adjudication, rebate, and fee processing while calculating Gross to Net and Government Pricing, leveraging Microsoft Dynamics.      

Contracts, Rebates, and Fees: 

Pharmaceutical manufacturers maintain two contract types for distribution: Direct – wholesalers, and Indirect – end buyers.  Direct sales are usually sold to wholesalers and distributors. They purchase at Wholesale Acquisition Cost (WAC) and submit chargebacks to the manufacturer when they make an indirect sale. Indirect sales can be to any entity licensed to purchase pharmaceuticals. For example, pharmacies or hospitals in a Group Purchasing Organization (GPO), commercial retailers, government agencies, specialty distributors (SD), or specialty pharmacies (SP), etc.   

Chargebacks are deductions (credits) wholesalers take when the WAC price they paid varies from the end buyer (indirect) contract price. The price difference multiplied by the quantity sold, (WAC – contract price) * quantity, becomes the chargeback amount. Accuracy when matching the chargeback to the contract, order, shipment, return, and accrual is critical to prevent revenue leakage. Since chargebacks are usually submitted to the manufacturer before the payment terms from the direct sale are met, monitoring and managing cash flow is crucial.  

Manufacturers also pay various rebates and fees to wholesalers, buying groups, GPOs, Pharmacy Benefit Managers (PBMs), and state Medicaid programs for instance. 

 If pharma manufacturers sell to the government, various calculations such as Average Manufacturer Price (AMP), Non-Federal Average Manufacturer Price (NFAMP), Average Sale Price (ASP), and Best Price (BP) need to be made and reported to the federal government. They are also used to determine what price the manufacturer can sell products to the federal government and its agencies. 

Managing cash flow is increasingly difficult, as forecasting net revenue due to the complexity of negotiated contracts, posting accruals or adjustments (credits, rebates, discounts, etc.) and variable timing of when each occurs is a challenge. Predictable cash forecasts with profitability by segment, contracts, and product are key business drivers beyond compliance.    

The Solution to your Challenges 

RSM developed our RCM application as a layer to the Microsoft Finance & Supply Chain (FSC) Enterprise Resource Planning software for several reasons.     

  1. Dynamics is an ideal platform for extending the application as it contains the transactions required to verify the chargeback and calculate GTN: Orders, Items, Pricing, Shipments, invoicing, rebates, payables, returns, workflow, division of duties, and integration with the Power Platform for analytics and automation.  
  1. RSM’s RCM inherits Azure features such as 99.9% high availability, robust disaster recovery, SOC compliance, continual updates, and automated regression testing.    


RSM solves for all the above-discussed processes and delivers within Dynamics as an integrated ERP/Contract management system or as a service for clients who can’t replace their ERP with a single solution – yet.  With our history in providing SEC attest services, we built RCM with the auditor in mind, providing real-time transparency – analytics and drill-down transactional level query and reporting.   

Why Partner with RSM? 

RSM has provided implementations for Microsoft applications for more than 35 years with over 2,000 clients across the country. With more than 950 consultants and more than 2,000 clients across the United States, RSM is a dedicated Microsoft Gold Partner. RSM is the trusted advisor to middle market companies for evaluating, selecting, implementing, and supporting your company’s Microsoft investment. With more than 100 offices across North America and a global network with established Microsoft practices, RSM has certified and highly experienced Microsoft resources. Whether raising capital, addressing pricing pressures, or prioritizing development efforts, our Life Science practice helps you meet challenges head-on and resolve your business challenges. 


Definitions to Know 

 BP: best price, lowest price paid by all customers 

 GP (Government Pricing): Government Pricing: Centers for Medicare and Medicaid Services (CMS) and state Medicaid agencies require drug manufacturers to pay a rebate for pharmaceuticals purchased by a Medicare or Medicaid patient.   

 COT (Class of Trade):   Class of Trade; the classification of the buyer (e.g. Hospital, Pharmacy, Prison, etc), used to determine if the sale should be considered as part of the Government Pricing (GP) 

GTN (Gross to Net): the calculation of the true net price from the list minus chargebacks, rebates, and fees.  Used to forecast and optimize pricing strategies.  

 AMP: Average Manufacturer Price calculated monthly and quarterly based on an organization’s gross sales while removing excluded and ineligible transactions to calculate eligible sales. This is the price paid to manufacturers from wholesalers for drugs distributed to the retail pharmacy class of trade. The purpose of AMP is to help with Medicaid drug rebate liabilities.  

RSM Dynamics Life Sciences Business Development Lead, 20+ years in ERP, 90MM+ in new business acquisition in the last 5 years. Focused perfection in sales execution, high win rate, low cost, sales cycles, and developing people.

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