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Chris Mattingly, Director, Life Sciences
1. We have been conducting much of our business under contract for quite some time and it seems to be working fine. Why should I be concerned about changing the way we do contracting?
Since 2000 the Federal Government has imposed over $5B in fines for improprieties, or irregularities at companies who do business with them. In June 2005 the Office of the Inspector General reported that they have in excess of an additional $2B of investigation now underway. With fines as large as $875M being handed out (individual fine values have increased dramatically over the last decade) the need to ensure your books are in order is growing by leaps and bounds. It is also important to remember that fines are only part of the cost of OIG actions. Most include some kind of Corporate Integrity Agreement (CIA) that can span from revising Standard Operating Procedures (SOPs) to extensive, ongoing educational programs. There is no way to know just how much of an impact these agreements have on a company’s bottom line, but it is safe to assume it is considerable, and potentially greater than the fine itself over the life of the agreement.
2. There are a lot of new regulations we have to be thinking about, like Medicaid Part D and Sarbanes-Oxley. Won’t reconstructing the way we do contracting be a distraction from these requirements?
Not if you address them concurrently. Because these regulations are intertwined with contracting, now is the best time to review and revise the way you contract with customers. Revising contract management processes with the requirements of these regulations can help ensure compliance with them while streamlining the business. And if you build the requirements for Part D into your processes and systems, your customers will be confident that they have everything they need from you to be compliant – which can be parleyed into a competitive advantage. The only way enhancing your Contract Management processes will be a distraction is if it is done as a separate, disconnected project.
3. If Contract Management is so important, why haven’t I heard much about it?
As with most supporting functions, Contract Management has historically been an afterthought. Business keeps going while a group of people perform super human feats to ensure compliance with government regulations, and to attempt to keep customers on track with their commitments. Sure it could be done better, but there are so many other opportunities to focus your attention on that it never seems to get much priority. And when you do hear about Contract Management it is usually regarding procurement or service contracts. That’s because in these areas you’re the customer, and we all want to make sure we’re getting the best deal possible from up the supply chain. However, recent changes in the policing of sell-side contract management by the OIG, combined with shrinking margins in both pharmaceuticals and medical devices, there is a new sense of urgency for improvement of sell-side contract management. The key to getting more attention in this area is in covering both compliance requirements (mitigating risk) and managing customer compliance (growing the top line). When you put the two together the case becomes quite compelling.
4. While I’m certain we have room for improvement in our processes and systems, I don’t think there’s enough room to justify a big-dollar project. Is there an easy way to evaluate just how much benefit we might receive from a project in this area?
The answer isn’t in making a large investment in a giant system, it’s in uncovering the areas that introduce risk into the system, and understanding how well you’re managing your current contracted accounts. Once you’ve gained this insight, an appropriate solution (in both scope and financial terms) can be developed. It may be minor process tweaks, it may be a massive system upgrade, but you have to answer some basic questions before you can meet both current and future compliance requirements. With the right solution, you can gain a direct competitive advantage in the marketplace.
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