Third Party Payers Flashcards
What is two-way flow with respect to paying for health services?
The patient or consumer pays the actual price (Pa) of the products received (value of services bought is fair, drives improvement in quality)
- Most closely reflects the competitive market
The patient is able to assess the benefits received for the money spent
What are some characteristics of pre-paid plans for healthcare expenses?
Some mitigation of risk, but works primarily by spreading costs over a specified time
Insurers mitigate their own risk by pooling the premiums of multiple plans and by adjusting premiums in subsequent years (minimize costs by limiting benefits to those meeting plan-specified criteria using lower-cost healthcare goods and services)
What is three-way flow with respect to paying for healthcare services?
Individuals pay taxes or premiums to a third-party (insurer) who agrees to pay the provider
What is the impact of the three-way flow of payment for health services on the patient and provider relationship?
Reduced or no direct financial relationship between the patient and the provider
Subsidized prices also result in product demand that exceeds the demand that would exist based on the actual price/cost
See slide 12 for a diagram of four-way flow
What is four-way flow with respect to paying for health services?
Insured services have detailed criteria and substantial non-monetary transaction costs such as pre-authorization process to constrain demand.
Health fund managers manage these health benefits to separate want from need
What is the specific role of pharmacy benefit managers in the supply chain?
Adjudicate prescription drug claims (ensure prescribed drugs conform with conditions of individual plan contracts)
Set pharmacy reimbursement contracts (set rates as a condition of pharmacy participation in the PBM’s network)
Negotiate rebates with drug manufacturers (increased size of negotiating power = increased potential of getting a better deal)
What are some manufacturer rebates negotiated by PBMs?
PBMs negotiate confidential rebates with manufacturers in exchange for preferred formulary listings (private price, market failure)
Keep a portion of the rebates they negotiate or to collect fees from the insurers
Rebates create perverse incentives as PBMs tend to favour higher-priced drugs that offer higher rebates over low-priced options
What is the market health of PBMs?
3 PBMs accounted for 80% of drug claims by 2021 (oligopoly gives them power, and often region-based)
What is the impact of consolidations in the pharmacuetical business with respect to pharmacy benefit managers?
Significant vertical integration of PBMs with insurers, as well as with mail-order and community pharmacy networks
PBMs are now negotiating with themselves and steering patients to their pharmacies (eroding competition and increasing value extraction)
What are the implications of PBM consolidation towards pharmacies?
Lower reimbursement rates for pharmacies in exchange for network membership
Ever larger rebates from manufacturers for more expensive drugs
What are the implications of PBM consolidation towards patients?
A higher portion of the professional fee not covered by insurance, with the difference passed on to patients
Higher co-pays as favourable listings tend to be more expensive
How are PBMs benefiting from market failure?
Although created to create efficiencies in resource allocation at return them to the third-party payer or patients, they have instead profited off these efficiencies (very profitable and start to vertically integrate)
Why is payer-directed care problematic?
Payer-directed care interferes with the established and trusted relationship between pharmacists and their patients
Patients must be able to access a full range of medications and treatments from their pharmacy and pharmacist of choice
