Best Practices: Accrual of Government Rebate and Chargeback Liabilities

It’s time for you to update your accruals around all your government financial liabilities... What should you do?

While every brand is different, there are best practices that will keep your accrual rates reflective of what is actually happening in the channel. You want to make sure you always account for the changes in your reported government pricing results, as well as the shifts in volume over time. As your brand goes through its lifecycle, rebate rates can change, and your contracting and pricing strategy impacts the quarterly government pricing calculations. At the same time, payer mix shifts can impact your total rebate and chargeback liability as a percentage of sales quarter-to-quarter.

The Woven Data playbook focuses on three core tenets that align your accrual rates to your current brand sales:

  • Know your data availability and timing. Government rebate and chargeback data is available by period, product and customer, and leveraging this granularity helps achieve accurate accruals. It’s also key to align your internal accrual updates to the timing of government data (here is a handy GP calendar).
  • Know the driver for each rebate and chargeback. Knowing which calculation influences each rebate or chargeback is key. For example, you can watch the trends in your monthly AMP calculations and get a feel for where your quarterly URA is going to land. Another key factor is understanding how your government pricing calculations are capturing your commercial contracting strategy. GP is a "consumer" of all your transactional data, so knowing how that influences the calculations and how the calculations in turn drive liability is crucial to forecasting your accrual rates.
  • Set management expectations. Work cross functionally so the entire team is aware of financial liability drivers, timing and when it is ok to release reserves. Having a consistent set of management reports that are easily available and regularly reviewed can be critical in maintaining correct rates. It’s always better to be proactive in driving this process.

The three building blocks above are helpful to develop your work instructions and process, but what should you do operationally? Based on my experience, as well as that of our clients, I recommend the following for each government program:

  • Medicaid: Update your accrual rate on a quarterly basis; factor in changes in quarterly URA as well as any shifts in program volume from the previous quarter.
  • TRICARE: Update your accrual rate annually; volumes tend to be consistent in TRICARE, so make sure you update your accrual rate based on any changes in pricing in the annual Public Law submission.
  • Medicare CGDP: Update your accrual rate quarterly; there is no “calculation” for Medicare CGDP rebates, so it’s best to use historical rebates as a percentage of sales to develop your accrual and make sure you account for the historical quarterly change in rebate liability quarter over quarter.
  • PHS Chargebacks: Update your accrual rate on a quarterly basis; factor in the changes in quarterly PHS (don’t forget the two-quarter lag) as well as any shifts in chargeback utilization from the previous quarters.
  • FSS Chargebacks: Update your accrual rate annually; account for any changes in pricing in the annual Public Law submission as well as increased chargeback volume from the previous 12 months.

Published on Sept. 21, 2021 by Scott Hoffman

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