Pharmaceutical companies deal with a wide variety of players along the supply chain. Drugs are manufactured by a businesses, sold to wholesalers, potentially purchased by buying groups, and finally bought by consumers. Because such drugs often fall under insurance and medical assistance programs, insurers and government agencies are also often involved in payment. With so many parties involves, transactions are not a sure thing for pharmaceutical companies, which leads to a chargeback.
Chargeback
A pharmaceutical chargeback can occur in two similar situations. In the first situation, a wholesaler buys drugs from the pharmaceutical company according to a contract price, and sells them to consumers according to another contract price. When the consumer contract price is lower than the pharmaceutical version, the wholesaler avoids losses by charging the pharmaceutical company for the difference. In the second case, the chargeback is the result of a failed transaction in which the entire payment must be returned to the consumer.
Financial Result
Chargebacks always resulting in a loss of some kind for the pharmaceutical company. While the companies try to minimize chargebacks through accurate supply chain contracts, some chargebacks are necessary to make room for mistakes and differences in purchasing prices. Drug manufacturers may deal with thousands of contracts per year, each with a chargeback clause.
Approval
Chargebacks are typically based on approval by the pharmaceutical company when a wholesaler submits the request. This can become complex, since most chargeback submissions do not include information on the sale that created the chargeback, only the amount. This leaves room for duplicate chargebacks and unauthorized submission, among a variety of other problems. To minimize the issues, pharmaceuticals attempt to link chargebacks directly to individual sales, giving wholesalers something to link back to.
Specialization
Because chargebacks are such a vital part of the pharmaceutical business, specialization is common. Companies have dedicated software to deal with chargebacks while interfacing them with sales software. Many companies create positions dedicated to managing chargebacks and negotiating chargebacks in contracts.
