How Pharma & Biotech Manufacturers Can Prepare for COVID-19 HCP Distribution Revenue Cycle Fallout

March 31, 2020

As COVID-19 continues to take aim at the United States healthcare system, it is crucial for pharmaceutical manufacturers to understand the challenges being endured by healthcare professionals (HCPs) and their distribution partners who provide specialty pharmaceuticals to HCP offices.  This is especially true for the HCP offices that perform medical procedures in the office utilizing buy-and-bill drugs.  The value of patients being treated by a community HCP office versus a hospital, especially now when hospitals need to be focused on acute issues like COVID-19, has never been higher.

 

HCPs have experienced many significant challenges in just the last few weeks.  COVID-19 has caused a drastic reduction in elective procedures, new patient treatment starts, and, in some cases, existing patient treatments for less severe conditions.  

 

More critical treatments for conditions such as cancer and inflammatory diseases like rheumatoid arthritis and Crohn’s have continued, and the U.S. distribution chain has done an excellent job with supply.  Wholesalers and distributors report they are mostly seeing allocations on more high-profile products like inhalers, (hydroxy)chloroquine, or any Personal Protective Equipment (PPE) like gloves and masks.  

 

Although supply for specialty pharmaceuticals remains strong, demand continues to decline in the wake of the pandemic, and HCPs are struggling with their cash flow.  Reports of payers loosening their requirements have been heard, but delays due to offshore resources also dealing with COVID-19 have increased over the last few weeks.  The challenges have led to offices struggling to pay their bills, furloughing associates, and closing satellite locations while patients, and even those remaining workers, are afraid to enter the office.  Some patients may forgo critical infusions or injections, which can set back successful treatments, and with reduced access to PPEs for the medical staff, the crisis continues to worsen.

 

One of the less appreciated roles of the distributor is that of the “banker.”  HCPs use the distributor’s payment terms as a way to maintain their cash flow with the ultimate goal of paying the distributor’s invoice after they have been paid by the payer and patient for the office-administered drug.  But these offices were also relying on a steady cash flow of current patients to continue to pay past distributor invoices.  Thus, this sudden decrease in patient traffic has resulted in an upside-down cash flow situation.  

 

One could argue that a bank or a short-term SBA loan could assist in times like these, but HCP offices are solely focused on the health and safety of their staff and patients and don’t have time to work with banks or the government to secure a loan.  So, the first call they make is to the distributor asking for payment relief.  Distributors are already working on paper-thin margins so, if they have not already contacted their manufacturer partner for relief, they will soon.

 

It is essential for manufacturers of specialty pharmaceuticals to start considering short-term relief to their distributor partners so they can pass that relief on to the HCP.  Questions manufacturer distribution teams should be asking today include: 

  • Is there a way to strategically and collaboratively extend payment terms to the distributors?

  • How soon should you start payment term extension conversations with distributors?

  • What are the proper steps in offering relief to ensure enough time for operational adjustments to be made at the distributors?

  • Will any short-term extensions of terms now cause multiple invoices to come due at the same time in the future?  

  • How will the pandemic affect HCP buy-and-bill volumes, and will that impact your organization’s approach to offering tier-based pricing? 

  • How will you monitor universal or local payment issues that can affect certain pockets of your HCP customer population?  

  • What effect would abnormally high returns have on profitability? 

 

COVID-19 has created an unprecedented marketplace situation leaving us all working to adjust.  Your organization doesn’t have to solve for these issues alone.  Archbow’s team of distribution experts is available to assist with creative and strategic approaches to working proactively with your distribution partners to aid HCP customers in this time of crisis.  Contact us to get started today.

 

 

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