Designing and Managing the GTN Process

We often hear of issues from pharmaceutical manufacturers about GTN getting out of control, with issues such as forecast variances, lack of data management, time constraints, and difficulties meeting audit requirements. However, manufacturer’s Finance and Accounting teams can largely resolve or avoid these issues altogether by implementing, continuously improving, and documenting their GTN process design.

Throughout this paper, we will provide expert insights, best practices, and guidance to help you take control and improve your GTN Process to increase efficiency.

Key Areas of focus for GTN Process Design

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1. Financial Reporting Timeline Management

Managing the financial reporting cycle is challenging for both new and mature companies due to multiple stakeholders, the need for extensive data reconciliation, and strict deadlines. Whether responsibilities are handled by one team or split between financial forecasting and revenue accounting, aligning the forecast and financial close processes is vital for transparent information flow and meeting reporting deadlines. Additionally, adherence to a documented timeline supports business process controls and auditor reviews.

While a reporting timeline can contain multiple tasks and subtasks, we show a high-level roadmap below, with callouts for some key considerations. 

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2. Data Governance: GTN Process Mapping

Pharmaceutical Manufacturers operate in a complex environment, often dealing with intricate data across numerous systems and service providers.  As such, creating a visual mapping of data flows from their respective source to GTN tools across the entire GTN process, and incorporating essential business process controls to ensure the completeness and accuracy of data can improve efficiency, enhance transparency, and help identify gaps and unnecessary complexities that may stall the productivity of Revenue Management. 

These visuals can help management define methodologies essential in conducting GTN calculations and facilitate GTN forecasting and revenue analytics. 

The process of GTN modeling can be challenging due to the vast amount of data required from various sources, such as third-party vendors, distributors, payers, and internal systems. Challenges and proposed solutions for effective data governance may include:

• Data Extraction: Ensure manually downloaded data and/or data from the automated data feed is complete and accurate
• Data Aggregation: Ensure data from multiple sources is structured and combined appropriately for use in GTN calculations
• Data Validation and Reconciliation: Ensure data used in GTN calculations reconciles to the General Ledger
• Data Audibility: Ensure data is mapped throughout the GTN process and the data extraction, aggregation, and reconciliation is documented thoroughly to comply with the audit requirements

The diagram below is a high-level example of the data flow between numerous parties involved in the GTN accrual process. Behind each part of the diagram are carefully managed relationships that follow their established methodology and ultimately support the company’s GTN accrual calculations.

king. For example, does offering a prompt pay discount still make sense, or does the potential BP implication outweigh the benefit? Prompt pay discounts are currently very common to have in full-line wholesalers, distribution arrangements, and other agreements where the channel partner takes title. As shown in the example above, in a world where every discount offered on a single product is stacked, this may no longer be an optimal way to contract.

Key Takeaways on Data Governance and GTN Process Mapping:

• Improves GTN process efficiencies
• Promotes data integrity and transparency
• Helps to identify gaps and unnecessary complexities
• Supports timely analytics and decision-making
• Enables data automation
• Ensures audit-readiness

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3. Stakeholder Roles and Responsibilities

The GTN process involves multiple stakeholders across Finance & Accounting, Market Access, Government Pricing, Trade, and Commercial Operations, just to name a few. Often, interactions between these groups can be ad-hoc, information flow is reactive rather than pre-defined, and tasks may be duplicated along the way leading to multiple versions of “truth.”

To break down silos and ensure a high-functioning GTN process, companies should assign roles and responsibilities across each stakeholder and outline these responsibilities with the reporting timelines described in Step 1.

Following the “Golden Rule of RACI” is an excellent way to ensure that each task has a single individual accountable for its completion. This principle fosters an environment of ownership and accountability among team members and guarantees that there is no confusion about who oversees a particular task.

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4. Defining Methodologies

Layout the Logic

In the pharmaceutical industry, GTN calculations are often complex and heavily depend on management’s judgment. It’s crucial to identify where judgment is needed and how it may affect the accuracy and reliability of GTN forecasting and accrual calculations. This involves assessing market dynamics, regulatory changes, and historical data trends. By closely examining these elements, companies can enhance the precision of their GTN estimates, thereby improving financial planning and reporting accuracy.

Document GTN Methodologies

Frequent changes in GTN methodologies can cause volatility in estimates and create business process control risks. Thorough documentation of methodologies and changes is essential for transparency and alignment among stakeholders. Clear and comprehensive documentation can help companies navigate GTN management complexities and strengthen the credibility of the financial reporting. Below showing an illustrative example how to document GTN Methodologies.

Implement GTN Methodologies

It is challenging to cover all scenarios when implementing GTN Methodologies as they may vary significantly across different channels and business structures. Below is an illustrative checklist for the key GTN Methodologies that need to be defined, followed, and monitored throughout the reporting process:

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5.Risks and Controls

Like any other business process, the GTN process carries certain risks, which, if not adequately addressed, may result in a material misstatement of the company’s financials. To mitigate these risks, companies establish business process controls outlining process owners and those performing the control. The risks are assessed following defined qualitative, (e.g., the degree of judgment and complexity of estimation used by management in the GTN process), and quantitative thresholds, (e.g., the materiality of the GTN Accrual / Expense to the company’s Financial Statements).

GTN reserves calculated based on Direct Sales such as Cash Discounts and Distribution Fees are objective and do not have an extensive estimation component; hence, they require less judgment from management and present a lower audit risk. On the other hand, reserves calculated using Indirect Sales (by wholesalers), like Chargebacks and Group Purchasing Organization Rebates may present a higher audit risk in connection with management’s estimate of the unprocessed chargebacks and reserves for products in the pipeline.

The accrued liability reserves (e.g., Returns, Medicaid, Managed Care rebates, etc.) are calculated based on product demand. They typically have an extensive estimation component for products in the pipeline, and months, or even multiple-quarter lag of outstanding claims, requiring more judgment from management to develop reasonable assumptions used in the accrual calculations. These factors increase the audit risk as management can manipulate and adjust the estimates to achieve desirable revenue metrics.

Risk and Control Matrix (“RCM”) is a tool widely used by companies to document and provide a snapshot of identified risks and mitigating controls as they relate to GTN processes.

Key Takeaways

• Establish a timeline for GTN documentation preparation/review/approval 
• Establish process owners and their responsibilities
• Consider implementing a checklist for each of the GTN Processes
• Assess the complexity of your GTN Methodologies
• Identify risks applicable to your GTN Methodologies. 
• Establish business process controls to mitigate risks. 

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6. Establishing the Foundation: GTN Revenue Policy

While optimizing the GTN process, companies may encounter a common roadblock when established timelines, methodologies, roles, and responsibilities (as discussed throughout this paper) are not appropriately documented but must be followed as intended across the organization. The lack of adherence can result in significant costs to the business due to duplicate efforts when completing tasks, control deficiencies, and potentially material misstatements to the company’s financials.

To address these challenges, pharmaceutical manufacturers may implement an integrated, enterprise-wide Revenue Policy, a foundation for the company’s commitment to successful GTN practices, transparency, and financial integrity. 

The Revenue Policy encompasses critical details of the company’s GTN process, including detailed documentation of GTN methodologies as they relate to each material revenue deduction type and their accounting considerations, data integrity, service organizations, process owners, and their responsibilities, monthly/quarterly close timeline and associated procedures, identified risks and internal controls over financial reporting mitigating those risks.

This “living and breathing” document is a GTN framework, aligning the company’s functions and objectives with the pivotal business changes. Some examples may include but are not limited to, transitioning from pre-launch to the commercial stage, subsequent new product launches, the addition of new GTN channels, and the overall industry’s evolving demands while ensuring audit compliance and transparency.

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