Introduction

Customer classification by Classes of Trade (COT) plays a critical role in several operations of pharmaceutical manufacturers.

Class of trade determines if sales to a customer have to be included into government pricing to calculate Average Manufacturer Price (AMP), Best Price (BP), Non-Federal Average Manufacturer Price (NFAMP) and Average Sales Price (ASP) . Customer class determines the customer eligibility to purchase on certain indirect contracts, and is also an important factor in sales analysis and pricing policies.

Federal Regulations specify which classes of trade have to participate in government pricing calculations: https://www.ecfr.gov/current/title-42/chapter-IV/subchapter-C/part-447/subpart-I/section-447.504 . The COT schema adopted by the manufacturer has to reflect the COT granularity, required for these government calculations.

Maintaining accurate COT assignment is critical. To give just one example: approving chargeback on a PHS contract for a PHS-ineligible customer results in a reduced Best Price, and comes with serious rebate consequences.

Government Pricing requires that all direct and indirect customers be classified, at least monthly.

Pharmaceutical manufacturers usually choose one of the approaches listed below to implement the COT classification.

COT Classification Implementation Options

1. Manual Assignment

A manufacturer researches the customers web pages, or uses a free public NPI Database, and relies on the taxonomy codes,  assigned to the customer in that database. The list of taxonomy codes can be found at nucc.org

This approach has several issues: it is prone to inaccuracies, time consuming and inconsistent.

First, manual search ignores industry identifiers coming in chargeback claim records. NPI identifiers are not used in pharmaceutical chargebacks EDI 844 documents and in file-based submissions.

Second, one entity may have up to 15 taxonomies in the NPI database, which can be corresponding to different COT. Several thousands of entities indeed do have  exactly 15 taxonomies codes! One entity can be classified in NPI as “Community/Retail Pharmacy”, “Mail Order Pharmacy” and “Durable Medical Equipment & Medical Supplies – Customized Equipment” – at the same time!

Each entity has one Primary code, supposedly describing the entity business with the highest accuracy. However, the primary and regular taxonomy codes are specified by the entity owners, and can be changed at any time.

Third, different wholesalers and even different distribution centres of the same wholesaler spell the customer name and address of the same hospital or pharmacy differently. Customer services use different abbreviations, make typos, omit parts of the name, or add comments intended for an internal use. For example, a word “pharmacy” could be spelled as “pharm”, phcy”, “phy”, “phr”. Company names  on the ship-to address may include references to the bill-to organization.

These names and addresses are later used in the chargeback claims. Searching internet by misspelled name and address may result in finding a different entity.

Fourth, same name and address may relate to tens of entities with different NPI codes and primary taxonomy codes and classes of trade. For example, a pharmacy services entity in one location has 10 NPI codes with taxonomies, like “Agencies – Home Infusion”, “Compounding Pharmacy”, “Mail Order Pharmacy”, and more!

Inconsistency in the classification frequently happen when an entity is classified by a taxonomy that may relate to several COTs. The list of taxonomies used by NPI exceeds 800 entries. Manufacturers COT schema usually does not have so many classes. COT assignments made by different members of staff, or even by the same member of staff in different times may vary. A detailed Standard Operating Procedure (SOP) manual covering mapping for these 800+ taxonomies helps with accuracy, but makes the COT assignment even more labour consuming.

Fifth, storing classification results in an internal database and re-using them for future periods will miss COT changes that happen over time to many entities.

 

2. Delegating COT Classification to Government Pricing Companies

Government pricing companies often do not share the results of the customer COT classification with the manufacturer. As the result, the manufacturer cannot verify the COT accuracy.

The COT accuracy is important, because responsibility for the correct government pricing lies with the manufacturer. Some GP companies may have no resources to purchase and timely refresh data subscriptions, and to build proper software solutions. Manual COT assignment is inaccurate, no matter if it is done by the manufacturer, or by a GP company.

Additional problems may raise if the manufacturer decides to validate indirect customer eligibility for particular contracts in chargeback processing, or to run sales and marketing analysis by distribution channels. Then another COT classification is required, doubling the work.

 

3. Developing a COT-Assignment Software Solution In House

Building such a solution has several challenges of its own.

First, industry subscriptions contain millions of records, tens of fields and have formatting inconsistencies.

Second, the subscriptions have to be loaded into the system on a timely basis to keep them up-to-date. Some of these uploads require IT intervention, which might be not possible on a timely basis.

Third, the subscriptions classify their entities based on different schemas. These schemas are different from the one used by the manufacturer. The mapping between the schemas has to be implemented, properly maintained, documented and to provide an audit trail.

Fourth, different subscriptions may classify the same entity differently due  to the different levels of granularity of their COT Schemas. Automated resolution of conflicting COT requires an advanced logic. That logic should reflect specifics of the manufacturer and its drug utilization.

Fifth, the costs of purchasing of certain data subscriptions and costs of development and maintaining the quality software can be high.

 

COT Classification Service by Relasoft

Relasoft developed a solution to overcome all of the issues, listed above.

The solution takes into account all entity information and searches through all main industry subscriptions, including NPI database. It uses specialized logic to detect customers of critical classes, like covered entities, contracted pharmacies, IHS, VA and retail chains, with 100% accuracy.

The solution supports COT schemas used by industry subscriptions and the COT schema of the manufacturer. The solution setup includes building a proper mapping between subscriptions’ COT schemas to the manufacturer’s schema.

A system of COT Classification Adjustments helps resolve cases where different COT are assigned to the same entity by different subscriptions. The solutions also utilizes an Relasoft database to determine the most accurate class of trade.

Obviously, all data subscriptions are updated on the regular basis, and are kept up-to-date.

Relasoft now offers manufacturers this solution as a service. Customer classification results belong to the manufacturer, and could be used in any analytics, chargeback validation and for any other purposes.

To run a free trial, please contact Alexander Werner at 416-783-1027.