“Class of Trade”: Murky Element of Contracts and Channel Analytics

Methodology & Process

Have you ever wondered what is covered by the term “Class of Trade”? It is oftentimes a murky element of contracts and channel analytics that can have important legal implications. In this article published in the January 2012 issue of Pharmaceutical Commerce, I cover the basics to know, plus share a couple of case studies to hightlight the perils of misclassification.

Class of Trade (COT) is simple to identify in a general way, but complicated in its use in contracts, marketing programs and—most significantly—how pricing data are reported to the federal government. The simple sense is the various channels by which pharmaceuticals and other healthcare products flow into the market: retail pharmacies, hospitals, clinics, mail order and the like. In their contracts, some pharma companies have a handful or so of definitions; others have dozens or more.

In a legal sense, COT is a “term of art”—a phrase used in legal documents that has a defined meaning; outside of contracts, everyday people don’t usually walk around talking about COTs. But when contracts are written—and when data-collection systems are set up—COT becomes an important factor. This is especially true for Government Pricing (GP) systems. A critical point consistently raised is the utilization of COT to determine which transactions will be included and/or excluded in the GP calculations to support government reporting requirements.

Expanding the discussion to include stakeholder perspectives and distribution channels provides additional insight into the complexities. It helps understand the impacts, appreciate the complexities, and expand the COT discussion.

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