In healthcare, the classification of trade channels—known as Class of Trade (COT)—plays a pivotal role in the distribution and pricing strategies of pharmaceutical products.
As healthcare systems continue to evolve and expand, understanding COT’s impact on these systems becomes increasingly critical. This article covers the fundamental aspects of COT, its benefits, challenges, and why it matters to healthcare organizations, especially hospital health systems.
Watch this 3 minute intro to learn more:
What is Class of Trade?
Class of Trade refers to the distribution channels through which pharmaceutical products are purchased. These can include retail pharmacies, hospitals, long-term care facilities, and more. The process of COT assignment involves categorizing pharmaceutical purchasers based on their role in the supply chain to maintain accurate customer records. This classification is crucial for commercial contracting, pricing strategies, and identifying government contracts and pricing tactics.
Why is COT a Hot Topic?
COT has become a hot topic primarily due to its significant impact on government pricing calculations and the lack of defined industry standards. With no clear guidelines, the assignment of COT is left to the discretion of manufacturers, leading to inconsistencies in the healthcare market.
Impact on Healthcare Organizations
COT directly influences healthcare organizations by determining access to pharmaceutical products at potentially lower prices, affecting how contracts and services are negotiated and executed within the industry.
Access to Products and Services
One of the significant benefits of COT is the potential discount price access it grants to certain medications, volumes, and specialized services, which might not be available under different classifications. This access can significantly benefit healthcare providers by allowing them to offer better care at more competitive prices.
Challenges with Healthcare System Expansion
As healthcare systems expand, particularly into the non-acute market, the traditional classifications of COT become outdated and inaccurate. For example, hospitals that grow by setting up physician practices under the same umbrella face challenges. These expansions necessitate multiple COT assignments, which can complicate discount access and pricing consistency across the system.
Lack of Standardization
The absence of clearly defined industry standards for COT assignment leads to significant variability and discretion among manufacturers. This lack of standardization can result in inconsistencies in drug pricing and business practices, impacting the financial viability of healthcare systems.
Impact on Drug Pricing and Business Viability
COT can lead to different pricing for the same drug within various clinical settings. This inconsistency can affect the business viability of healthcare systems, as they may struggle to manage costs effectively across different parts of the organization.
Conclusion
Class of Trade is a complex yet crucial element of the healthcare industry that significantly impacts the operational and financial aspects of healthcare organizations. While it offers specific benefits such as targeted access to drugs and services, the challenges posed by the lack of standardization and the issues arising from healthcare system expansions are significant. These challenges underscore the need for more defined guidelines regarding COT assignments.
As the industry evolves, it is imperative for healthcare leaders and managers to stay informed about COT. To learn how you can better navigate the complexities of COT, connect with the HealthTrust Pharmacy team at healthtrustpg.com/ihp/resources or reach out to Jason Braithwaite, PharmD, AVP Clinical Pharmacy Operations, at Jason.Braithwaite@healthtrustpg.com.
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