Posted by: Ethan Smith on: January 25, 2011
As 2011 gets into full swing, I can’t help but think about the impending federal regulations forcing pharmaceutical companies to document, track and report payments to physician and physician owned entities, set to begin at the end of the year. In its annual Predicts 2011 series, Gartner recently published a list of predictions for the Life Science industry — Predicts 2011: Life Science Companies Will Need to Defend Their Base and Adapt to New Business Realities, by Steven Lefebure and Dale Hagemeyer, November 2010. After reading the report several times, two predictions stand out:
What is most striking to me about the 2011 predictions is the disastrous nature of the consequences that Gartner cites – all of which can be tied back to a lack of focus on process. Over the past year, I have become concerned about the rapid pace at which companies in the industry have been consolidating. How does a company fully understand the value of a potential merger or acquisition – let alone realize its true value when events are happening this quickly? I agree with Gartner on this one. Without significant investment in technology to document, harmonize and optimize processes, a merger or acquisition is bound to fail.
What’s especially frustrating for me in particular is that software, services and industry expertise exist (from companies like Metastorm) to help in these situations, and far too often we find organizations either are not able or willing to listen and invest. Rather than ignoring the problem, what organizations should do, as Gartner clearly states, is “consider business process management tools to create agility and the rapid deployment of reorganized processes” and “evaluate processes together.” Not surprisingly, the analysts recommend strongly examining compliance and governance functions to “ensure scarce resources are focused on ‘material’ risks.”
In today’s era of heightened regulatory scrutiny and fines it is shocking that compliance seems to be both overlooked and understaffed. In addition to overall process improvement, solving compliance burdens is an area in which Metastorm has a long track record of client success.
Metastorm recommends that Life Sciences companies take a 3 pronged approach to process understanding and improvement:
Business processes not only drive company operations, but they also are a key element of compliance. Back to Gartner’s 2011 Predicts report – the other prediction I find almost equally compelling (given the hard dollars associated with it) is that, “By 2012, a life science company will pay a $1 billion-plus fine for noncompliance with government contracting/rebating rules.” I can’t tell you how often clients ask me for Return on Investment (ROI) models to justify process analysis and business process management software – while almost every day news headlines cite yet another pharmaceutical company paying a massive fine. There is the ROI right there – often hundreds of millions of dollars.
The numbers are no longer trivial in terms of fines, and the negative publicity can be even more damaging in a market that is becoming increasingly competitive.
The other side of this is pretty simple as well – fines are a source of income for the government. I don’t think that requires further explanation, but suffice it to say the industry is going to pay one way or another. I addressed the government contracting and rebating rules component of this prediction, in a blog post last year.
I don’t know any other area of Life Sciences where such complex, yet bottom-line-impacting processes, activities and controls are so far behind the curve. I understand this is a highly complicated process and area of regulation. My response (similar to Gartner’s recommendation) is simple – the impact is huge (to the tune of an $11B a year loss for the industry) so– this is where you should be investing heavily in controls, processes, and technology to ensure you are compliant and also agile enough to adapt to on-going changes. I also recommend taking it a step further, which some of our most mature clients have done, and layer process controls and automation through Metastorm BPM on top of the core infrastructure of revenue management. We have multiple clients who have taken this approach and literally saved millions of dollars on an annual basis – providing more than adequate ROI justification and case study proof points to get your organization moving.
I think it’s clear that things are going to get much worse for some Life Sciences companies, with potentially disastrous consequences. While those that do take the time now to develop process visibility, understanding, optimization and control will be poised to not only survive this industry storm, but emerge as the market leaders. The best approach to survival in 2011 and to prepare for the future is for Life Science companies to invest in a strong, flexible software suite that allows them to fully understand their organizational capabilities, while providing features allowing them to track and manage change. The question is – are you ready to step up and make this investment now or are you going to wait and risk the fallout?
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