Third-party payments

Markets for pharmaceutical products worldwide are less than well balanced. Markets dominated by the monopsonistic (single-buyer) power of government can exercise undue power over the supply side of the market and depress prices to dynamically inefficient levels. At the other extreme, markets with an ill-informed and typically feeble demand side, weakened further by moral hazard inherent in health third-party payment, are unduly dominated by the supply side. What is needed instead are markets with more evenly balanced of power, in which both sides of the market are accurately informed about the prices, clinical effectiveness, and cost effectiveness of the rival products being offered for sale. Creating such markets is one of the major challenges confronting health care policy makers around the globe. 

This shift toward more third-party payment for prescription drugs has had a significant impact on pharmacy management. Pharmacies determine what price they want to charge private-pay patients, but as will be discussed in more detail later in this chapter, third... 

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. 

Most important to this discussion on hospital revenue is the fact that the true economic cost of a medical service seldom is reflected by its charge. Because hospital accounting in the United States has been designed for the purposes of maximizing third-party payment and thus hospital reimbursement, the charge for a service may be very different from the true costs of the resources that are actually consumed in providing it. Hospital overhead and other shared expenses usually are allocated systematically and are not necessarily allocated according to the way the overhead is actually used. 

Lastly, it must be remembered that vice versa CROs are business entities, and they have a right to ask questions of prospective sponsors. Be ready to disclose your company s financial situation and third-party payment history. 

Ellen S. Smith, M. B.A., Woodcliff, New Jersey. Third Party Payment for Unapproved Uses of Approved Drugs and for Medical Care Associated With Drug Clinical Trials, January 1991. 

The data obtained from the aforementioned sources may be difficult for the average functional manager to interpret (this where the finance managers will indeed be helpful, if not essential). However, the importance of asking sensible questions of a CRO cannot be overemphasized the responses to these questions are essential to completing the overall picture of a CRO s financial situation, and may actually be more revealing than the bald, old audited accounts. Questions to ask would include those listed in Table 42.6. It must be remembered that CROs themselves also have a right to ask questions about their prospective sponsor s financial situation and third-party payment history. 

In relation to consumer goods markets, the healthcare market possesses some unique features. First, as Nahata et al. (2005) point out, the demand for health care is inelastic at high prices, is elastic for middle price range, and becomes inelastic again at low prices. The third-party-payment system such as health insurance is the primary reason for this unusual behavior in the demand function, according to these authors. The authors propose an inverse demand function of the type, p = 2D — lOD + 50, that meets this requirement. 

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