One of the less glamorous business processes in the life sciences, yet one that carries significant weight in terms of financial risk to the enterprise, is the processing of chargebacks. For years, revenue leakage surrounding chargebacks has been a little recognized threat, but inefficiency in this area can mount to the tune of millions lost annually. With so many areas of the business under pressure to cut costs, even a few million here and there could have a substantial impact. And in many companies, the damage could stretch well into the tens of millions. It is for this reason that chargeback outsourcing has been a topic on which many companies have wavered back and forth.
With roughly 15-20% of the industry outsourcing chargeback processing, there is no shortage of service providers. Cardinal SPS, IMS, ICS at AmerisourceBergen, and Dohmen Life Sciences Services are just a few names that come to mind, and with outsourcing in general on the rise in the life sciences, many more names are likely to continue to join the list. Historically, mid and smaller size companies made up the bulk of companies who outsourced their chargebacks, both due to a lack of internal resources to adequately handle the job, as well as lacking funds to purchase the necessary software to manage the process well internally. In recent years, this has somewhat changed due to the advent of cloud applications, which has made COTS applications in this space more easily accessible and affordable for SMB businesses. Likewise, the spectrum of business processes that companies now consider non-strategic and fair game for outsourcing has broadened immensely, leaving the processing of chargebacks up for grabs. However, while many companies that initially outsourced chargebacks had plans to later bring it back in house, the jury is still out on which way many companies will choose to go. On one hand, a significant number of companies thought that once item level serialization became widespread, it would make sense to bring this process back in house since the availability of this data would drastically simplify and reduce the margin of error in chargeback processing. However, with item level serialization now likely still a decade away, that impetus has evaporated, and in many cases, companies are happy to outsource chargeback processing to relieve themselves of its enormous administrative burden. However, the most important criteria in the decision of outsourcing vs in-sourcing should be the financial results. While out of sight out of mind might seem attractive to some, how much is that really costing your organization? The only way to truly find out is to perform an audit and compare the results. Whether you do it yourself, or enlist a third party's assistance, I'd encourage companies currently outsourcing chargeback processing to take their last 6 months worth of chargeback data, process it themselves internally, and compare the results with that of your outsourced operation. If the margin is negligible, then outsourcing remains the way to go. But if a more substantial deviation is discovered, the audit exercise will have proved well worth its weight.