Reimbursable contract

To protect both parties in a contract arrangement it is good practice to make a contract in which the scope of work, completion time and method of reimbursement are agreed. Contracts are normally awarded though a competitive tendering process or after negotiation if there is only one suitable contractor. 

Cost Plus Profit contract all costs incurred by the contractor are reimbursed in full, and the contractor then adds an agreed percentage as a profit fee. 

At an early stage of the development of the Inspection Management approach it was recognised that the currently employed commercial arrangements would not be appropriate for the long term commitments envisaged (ref 3). At that time contracts were largely time and materials or reimbursable, which experience had proven in many circumstances to be adversarial by there very nature At its crudest, the objective of the... 

Entities involved in long-term contracts with electric utihties, such as fuel supphers and NUGs selling power to utihties, also have concerns that some utihties or industrial customers will not be able to honor their contracts under the new, more competitive system. Einahy, some utihties are concerned that they wih not be adequately reimbursed for opening up their transmission systems to competitors. The potential competitors in turn are concerned that utihties whl not provide unbiased access to their transmission systems if the utihties themselves are also in business of marketing power. There has also been some debate regarding which transmission facihties are eligible for open access. This is because some facihties are considered local distribution systems by utihties, which feel they should not be opened to competitors. 

In some mainly rural areas the doctor may also dispense the medicines prescribed, but more usually the patient takes the prescription to a community pharmacist, also under contract with the NHS, who dispenses the medicines and claims reimbursement at predetermined rates. Unless they are exempt, patients pay a prescription charge at the time of dispensing. 

The present contract calls for reimbursement of all allowable expenses, excluding contractor costs disallowed by the federal acquisition regulations, such as business development costs. A small base fee was negotiated as profit. The disallowed expenses must be covered by the base fee. The contractor receives a base fee during execution of the contract, and only in the most unusual circumstances is any part of this fee denied. An additional 3 percent of the contract value is set aside as an incentive fee that can be earned by superior performance. The federal acquisition regulations that govern procurement and acquisition procedures undertaken with federal funds are applicable to both materiel and contract services for closure of JACADS... 

Because the scope of work for JACADS closure is too uncertain to permit fixed-price competition, contracts for services under a cost-reimbursable contract with an award fee will be used (Bushman, 2000). The entire process of chemical demilitarization has been a novel experience, both for the Army and its contractors. Consequently, a fixed-price contract for the first closure of a disposal facility was not practical. Fixed-price contracting for JACADS closure... 

Contract Type Typically Reimbursable Typically Lump Sum... 

The question is what is the institution able to do if faculty do not fulfill their corporate contracts. There is no recourse. The universities are simply not inclined to fire tenured faculty for violations of that kind. In some cases the institution reimburses the corporation. In other cases the institution negotiates some exit strategy that both parties can live with. In some cases real legal recourse is taken. This is a major problem. 

Although community pharmacists pay close attention to the types of third-party payer contracts to ensure that they understand the reimbursement timetables, in many instances they are not able to influence the... 

Marcie Hawkins, a pharmacist who was promoted recently to pharmacy manager at Good Service Pharmacy, opens her mail and sees that Better Health Insurance has sent a new contract. Better Health is the insurer for about 20 percent of the patients at Good Service Pharmacy, so Marcie is anxious to see what the new reimbursement rates will be. As Marcie reads the new contract, she is dismayed to find that the new Better Health rates are average wholesaler price (AWP)... 

Would Good Service Pharmacy be better off financially by accepting or declining the contract How do you determine whether it is worse to accept a very low reimbursement rate or lose about 20 percent of your prescription volume ... 

A significant concern in pharmacy is the level of reimbursement specified in these contracts. In 2000, the average third-party reimbursement for a prescription was 15 percent lower than what a patient would pay for the prescription without third-party reimbursement (USDHHS, 2000). This difference may have increased in recent years because third-party payers have continued to decrease their reimbursement rates. There also are substantial differences in reimbursement rates across third-party payers. For example, many state Medicaid programs reimburse at far better rates than private third-party payers. 

Lower third-party reimbursement combined with higher third-party cost of dispensing means that average net profit is lower for third-party prescriptions than for private-pay prescriptions. This implies that pharmacy owners and managers need to evaluate carefully the financial impact of accepting third-party contracts. Tools for this evaluation are discussed later in this chapter. Pharmacy managers also need to consider many nonfinancial factors when making a third-party contract decisions, and these factors will also be discussed in this chapter. 

The reimbursement rate, or price, for a third-party prescription is based on a reimbursement-rate formula that is specified in the contract between the pharmacy and the third-party payer. The reimbursement-rate formula almost universally consists of two parts the product cost portion and the dispensing fee. The product cost portion is intended to pay the pharmacy for the cost... 

Most third-party contracts state that the reimbursement rate for a prescription is the lower of two prices (1) the price from the reimbursement-rate formula and (2) the usual and customary (U C) pharmacy price. The U C price, also referred to as the cash price, is the price that the pharmacy would charge a private-pay patient for the prescription. 

The only information in the income statement that will change if the pharmacy accepts the new Better Health contract is the prescription sales. Recall that the pharmacy dispensed 56,795 prescriptions last year and that 11,359 (20 percent) of those prescriptions were Better Health. To determine the decrease in prescription sales, multiply the number of Better Health prescriptions by the average decrease in reimbursement per prescription. The average decrease in reimbursement may be obtained from the average net profit comparison in Table 16-4 ( 66.53 - 61.26 = 5.27). The total decrease in prescription sales is 59,862 (11,359 x 5.27). Subtracting this amount from the current prescription sales gives the projected prescription sales of 3,915,788. The rest of the income statement can be constructed using the other information in the current income statement. 

Pharmacies also need to consider the impact of the decision on any remaining private-pay customers. If the pharmacy accepts alower reimbursement rate contract,... 

Two clauses seen occasionally in pharmacy contracts are the most favored nation clause and the allproducts clause. The most favored nation clause requires pharmacies to extend their lowest price or reimbursement rate to that third party. It is customary for third parties to require that the pharmacy charge the third party its U C price if it is lower than the third party s reimbursement formula price. However, having to give the third party the lowest reimbursement rate of all the other third-party rates is not customary The allproducts clause requires pharmacies to participate in all the third party s plans if it wants to participate in one plan. A pharmacy may want to choose only some of a third party s plans depending on the reimbursement rate and number of customers affected. Some states prohibit all-products clauses. These clauses became especially problematic with the advent of discount cards and more recently with the implementation of Medicare Part D. Discount cards are given or sold to people who do not have insurance coverage for prescription drugs. People who have a discount card pay a price that is determined by a reimbursement formula rather than the U C pharmacy price. As noted earlier, the reimbursement price usually is less than the pharmacy s U C price, so pharmacies receive less revenue. Some of the discount cards are administered by PBMs and other third parties, and pharmacies may prefer not to accept a third party s discount card even if they accept patients with insurance from that third party. Pharmacies... 

What now should be apparent is that the decision to accept or reject a third-party contract often is very difficult. Even after the pharmacy manager answered the questions listed in the scenario, she still has to use her judgment about accepting the new Better Health contract with its low reimbursement rate (Table 16-7). It is important to understand and use the tools that were described in this chapter, but they do not necessarily yield an easy answer. Regardless of the manager s decision, the pharmacy faces lower net profit unless it finds other sources of revenue or decreases its expenses. 

In the scenario described at the beginning of the chapter, the pharmacy manager at Good Service Pharmacy (Marcie Hawkins) was faced with the decision to accept or reject a new contract from Better Health Insurance. The reimbursement rates in the new contract were significantly lower than the current rates, and 20 percent of the pharmacy s prescriptions would be affected. 

The pharmacy manager knows that if she accepts the contract, the pharmacy risks sending a signal to other third parties that it will accept low reimbursement rates. The pharmacy may also have to raise its cash prices or decrease its level of service to decrease costs, but this may be necessary in either scenario. If she declines the contract, the pharmacy will lose long-term customers and may get a reputation for being a pharmacy that does not accept insurance plans. It may also have to reduce a pharmacist s hours. It is unlikely that the contract could be renegotiated, although Marcie could decline the contract and see how Better Health Insurance responds. 

It is crucial that pharmacy managers understand the impact of third-party payers on pharmacies as well as understand and use the decision-analysis tools described in this chapter to evaluate carefully third-party contracts. It also is important that pharmacy managers and owners manage expenses carefully and think creatively about developing new sources of revenue. Third-party payment for prescriptions will continue to be an important issue in pharmacy in the future, and pharmacy managers need to be aware continually of changing reimbursement levels and other third-party issues. 

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