Third-party Financing Research Articles

Amid a Bleak Credit Environment, Flexible Techniques Aid PE Buyers

This article explores how private equity firms, facing an era of diminished credit and the ascendant influence of strategic buyers, are departing from the highly leveraged, all-cash buyout model that prevailed during the 2004–2007 boom period in order to complete deals. Making use of flexible forms of deal consideration, financial acquirers appear to be increasingly incorporating earnouts and seller financing into the considerations they offer targets to boost the “headline value” of their bids and reduce the amount of the purchase price required to be financed by third parties. In addition, private equity buyers are, with mounting frequency, employing a broad range of flexible investment strategies, which are also designed to lessen the need for up-front third-party acquisition financing. These strategies include requesting that sellers “roll over” significant stakes in target companies, the purchase of minority equity positions in target companies, and making all-equity investments.

Third-Party Financing Contracts Between Energy Users and Energy Saving Companies

Third-Party Financing Contracts Between Energy Users and Energy Saving Companies

Eliciting Willingness to Pay Without Bias: Evidence from a Field Experiment

Concern exists that hypothetical willingness to pay questions overestimate real willingness to pay. In a field experiment, we compare two methods of removing hypothetical bias, a cheap talk approach and a certainty approach, with real purchases. We find evidence of hypothetical bias for unadulterated contingent valuation. Contingent valuation with certainty statements removes the hypothetical bias, but the cheap talk approach has no significant impact. Our findings suggest that willingness to pay can be accurately estimated by adding a simple follow-up question about the certainty of responses and that cheap talk is not a generally effective approach. Information about the willingness to pay for non-market goods is crucial for understanding the welfare implications of different policies. Ideally we would like to rely on actual choices for inferring willingness to pay. But for many public programmes, especially those in the environmental and health area, revealed preference information is limited. This limitation can arise from the lack of markets or third-party financing. Researchers have therefore tried to estimate willingness to pay based on stated preferences that are hypothetical choices. This methodology, known as contingent valuation, typically involves a survey or experiment in which there is a detailed description of the good being offered, a description of how the good would be provided, a method for eliciting preferences for the good, follow up debriefing questions and questions about socioeconomic characteristics (Portney, 1994; Carson, 2001). Contingent valuation is still somewhat controversial in economics (Diamond and Hausman, 1994; Carson et al.,

AGENCY COSTS OF THIRD-PARTY FINANCING AND THE EFFECTS OF REGULATORY CHANGE ON UTILITY COSTS AND FACTOR CHOICES

ABSTRACT**** Résumé en fin d'article; Zusammenfassung am Ende des Artikels; resumen al fin del artículo. : Beginning in 1999, the Canadian Province of Ontario undertook restructuring and tried to implement performance based regulation for local electricity distribution utilities. Regulatory parameters were based on productivity research covering 1988–1997 that found little productivity difference by size, but wide variations in costs, factor mix, financing, and returns to capital among utilities. While some utilities questioned their ability to improve efficiency, other observers maintained many utilities were over-capitalized, especially from third-party financing paid by customers for connection/development charges; these observers noted that rates, profits, and valuations would be inflated. Despite its pervasive use, we can find no literature dealing with the implications of third-party funding. We assess the effects and adjustment dynamics of regulatory and financing changes on costs, factor mix, and performance.

The Curse of the Medicare "Psychiatric Reduction"

In the ongoing effort to achieve parity for third-party financing of the treatment of mental illness, one of the most tragic failures has been the inability to correct the discriminatory 50% co-payment for outpatient services under Medicare. The resulting eyesore, sitting starkly in the middle of the scene of otherwise receding stigma against patients with mental illness, is a grave injustice and humiliation to our patients and our profession. How the damage is done Medicare calculates the discriminatory co-payment in steps. Each year the allowed fee scale is published. Medicare determines whether the charged fee is an allowed fee, then applies to it or the maximum allowed fee, whichever is less, a 37.5% “psychiatric reduction.” The resulting amount, now 62.5% of the allowed fee, is subjected to the standard 20% co-payment that applies to all Part B outpatient services. The net effect is that Medicare pays 50% of the allowed fee instead of 80% as it would for any other medical service. This arrangement applies to all outpatient psychiatric services except CPT 90801, Psychiatric Evaluation, which is paid at 80%. The patient’s diagnosis is the deciding factor: a diagnosis of “mental, psychoneurotic, or personality disorders” invokes the discriminatory process. Apparently the discrimination applies even if a primary care physician uses a general Evaluation and Management code to file a claim with Medicare for treatment of a patient with a diagnosis of mental disorder. Example: If Mrs. Jones’ allowed Medicare fee for CPT 90807 is $100 (which is substantially lower than prevailing fees for the service), the “psychiatric reduction” brings it to $62.50, 80% of which is Medicare’s payment of $50. Mrs. Jones is then liable for the remaining $50, which the practitioner is obligated to try to collect lest he or she be accused of fraudulently billing $100 while only expecting to be paid a fee of $62.50.

Back to the Future: The Managed Care Revolution

I INTRODUCTION Revolutions that result in sudden and radical change to a society's essential attributes are rare occurrences. Rather, from biology to social policy, the present is the result of an evolutionary progression of interrelated phenomena. The forces that prompt a period of rapid evolution are often not apparent, except in hindsight. The evolutionary process, once begun, is difficult to orchestrate, and the results hard to predict. The evolution of the managed care industry is a case in point. Initiatives by the private sector and government to make medical care accessible to a larger percentage of the population exacerbated, rather than ameliorated, the costs of health care services. The market-based reforms that followed were intended to provide consumers with information and financial incentives to make wise economical choices, but instead gave rise to a clamor of consumer complaints, while posting only temporary gains in controlling health care costs. The nation is once again faced with calls for reform of its patchwork system of health care delivery and financing. This article provides an overview of the interrelated events that led to the present-day managed care system. We begin with the stimuli for change to the longstanding medical model status quo. A paradigmatic shift from a physician-dominated professional model to a market-based system characterized the revolutionary period that followed. Before that shift could occur, however, Congress had to abandon its regulatory zeal to create a political climate in which policy-makers perceived market-based reform as a viable alternative to both regulatory fiat and professional control. Equally important to legislative willingness was the elimination of systemic impediments to market reforms, principally the organized resistance of the professionals who controlled the system. These events opened the way for suggestions about the direction that market-driven evolution should follow and the translation of scholarly insight into political reality. In this article, we revisit these events, describe the system that evolved, and conclude with some suggestions for future directions. II THE PAST AS PRELUDE The story of the pre-managed care era is one of miscues and well-intentioned missteps. Although the stirrings of the health care revolution became readily apparent shortly after the enactment of the Medicare and Medicaid programs, both the events that gave rise to the need for change and the form that change took had much earlier origins. The years that preceded the managed care era were remarkable for the juxtaposition of the relative stability and lack of diversity among the organizational arrangements for the delivery and financing of health care services, and the rapid changes in society and medical science. As third-party financing grew and physicians expanded their sphere of influence to include payment mechanisms as well as health care delivery, attempts to expand access to health care services without fundamentally changing highly prized practice patterns led to unsustainable levels of health care spending. The health care delivery system had long been static. Most physicians were self-employed, predominantly in solo practice, and the ratio between capital and labor in the typical practice was low. (1) Vertical integration of individual and institutional providers was rare. The result was a non-system of independent small business bereft of any means to coordinate the delivery of medical services to ensure their continuity, quality, or cost-effectiveness. The efforts to finance health care services exhibited only slightly more variation. In the early years of the twentieth century, medical services were a market good. As with all market goods, an individual's access to health care services was based primarily on her ability to buy them. …

Investment Retuns and Opportunities for Hotels in Asia

The outlook for the Asian lodging industry appears positive for the long term, although some management companies perceive the short-term outlook as somewhat negative due to overbuilding in gateway cities, the changing terms of management contracts, and increased competition for those contracts. Nevertheless, in this study of investors, developers, and management companies, hotels were perceived as favorable investments over other types of real estate. Hotel-management companies tend to use lower discount rates than other equity investors in most Asian markets. The findings suggest that mature markets like Singapore, Hong Kong, and parts of Indonesia benefit from a low perception of risk as indicated by debt-to-equity ratios that are higher than soft markets such as the Philippines and the People's Republic of China, where hotels' frequent inability to generate sufficient cash to meet debt payments lowers lenders' support for high leverage. Third-party financing appears to be the most popular method of financing hotel projects in Asia, with typical interest rates defined as cost of funds plus .75 percent to 2.5 percent. A notable exception is Indochina, where the interest rates are high to reflect the greater risk associated with those countries. The lenders surveyed were equally likely to provide project or construction financing and long-term debt. A majority of the respondents indicated that they are planning new hotel developments and reported that mid-market properties will provide the highest investment returns in the short term relative to other types of hotel development. Management companies and lenders showed more involvement in properties located in cities than did investors. Some stakeholders seek high returns in the emerging markets of Indonesia, PRC, and Vietnam, where the growth potential is tremendous. Other investors prefer the mature markets of Singapore and Hong Kong where large, stable markets reduce risk. Both lenders and investors indicate strong aversion to countries like Myanmar, Cambodia, and Laos, which tend to be characterized by political risk and lack of investment security.

The Road to Reform: The Future of Health Care in America

Eli Ginzberg, a senior and respected health policy analyst, has written<i>The Road to Reform</i>"specifically to inform the concerned public, not a handful of experts" about the need and the prospects for health care reform in the United States. The book is a lucid, brief, and credible review of the current state of the American health care system, how it got where it is, and what reforms are needed. Interested citizens will enjoy reading it; two or three hours of attention will provide them with the background needed to understand the current policy debate. Physicians and others who have followed the debate will find little new but may be interested in a distinguished expert's viewpoint. Like other analysts, Ginzberg attributes the health care cost spiral in major part to the growth of third-party financing mechanisms, which interpose between the consumer and the cost of health care services. He gives

US health services employment: a time series analysis.

The growth of health services employment in the United States is modelled using ARIMA analysis, and related to the growth in total U.S. employment. It is argued that specific features of the medical care sector (licensed professional manpower, non-profit firms, third-party financing) create institutional rigidities which delay adjustment to macroeconomic conditions and other shocks. Tests of Granger causality and the pattern of coefficients in the cross-correlation function show that health services employment does lag other sectors of the economy by an average of 2 to 4 years. A Box-Jenkins transfer-noise function model between total and health employment is constructed and evaluated, and the impact dynamics of adjustment to Medicare and Medicaid are estimated.

Energy service company investments in energy-efficient lighting in Hungary

Severe shortages of capital impose severe restraints on the implementation of cost-effective efficient lighting technologies in Eastern Europe. The article examines whether third-party finance provided by energy-service companies can help improve energy efficiency in lighting by providing the necessary capital and technical expertise. Twenty third-party-financed projects for street lighting efficiency improvements have already been undertaken in Hungary. The capabilities of existing and potential lighting energy service companies are examined. The potential role of other actors in the development of third-party finance for lighting efficiency in Hungary is also discussed. Those actors include banks, the European Community, and Western energy service companies.

Expenditures on Health Care for Children and Pregnant Women

The chronic health care crisis in the United States is primarily the result of rapidly rising health care costs which leave millions of children and pregnant women without health insurance, with restricted access to health care, and at risk for poor health. A better understanding of the current system is key to any reform effort. The authors analyze estimates of annual expenditures on medical care services for children covering the period from conception through age 18 years, including expenditures on pregnancy and delivery. They focus their attention on the distribution of health care expenditures by type of service and source of payment, on how expenditures differ for children of different ages and for adults, and on the rate of growth in expenditures on health care for children. The authors suggest that, because there has been a decline in the relative share of expenditures accounted for by children, efforts to expand third-party financing of their health care will be less likely to overwhelm the system than would efforts to expand coverage to other groups. Families who are especially in need of extended health care coverage are those of children with major illnesses who are exposed to catastrophic costs. Efforts at cost containment may be most effective if focused on pregnancy and newborn care, areas in which expenditures have grown extremely rapidly in recent years. Finally, the authors conclude that, if expansion of health insurance coverage for children in the near term were to be incremental, expanded coverage for children 3 to 12 years old would probably have the smallest budgetary impact of any expansion in access to care.

A Methodology for Measuring the Financial Vulnerability of Charitable Nonprofit Organizations

This article defines a charitable nonprofit organization as financially vulnerable if it is likely to cut service offerings immediately when a financial shock occurs. It discusses why the vulnerability of the nonprofit sector is of interest to researchers, explores the destabilizing role of third-party finance, considers the reasons for the lack of research on vulnerability, and presents a conceptual framework for identifying finan cially vulnerable nonprofits. Four vulnerability criteria are defined and applied to a 1983 national sample of tax returns filed by 4,730 U.S. charitable nonprofits. The financial data of at-risk organizations are then analyzed to discern the characteristics of vulnerable and other nonprofit organizations.

Hospitals in the Year 2000: A Scenario

Hospitals came into the twentieth century as creations of local, usually altruistic, interests and wrestled with accelerating change throughout the decades. Their success brought third-party financing, employee health plans, and government guarantees for charity care. Success seemed to breed success, and they raced ahead with capital investment in bricks, mortar, and high technology, only to find themselves in increasing trouble as 1990 approached. Writing from the precarious perch of the year 2000, the author views the worsening hospital situation and raises questions about the contradictions of federal interventions, the efforts to create "systems," the plight of small hospitals, and the love-hate role of medical staffs. Offered for consideration is a scenario of a health care crisis in the early 1990s comparable to the savings and loan crisis of 1988. However, this time the federal intervention is not simply in dollars, but, instead, brings on a "health for all" program with national financing and decentralized "district health" management. As in other nations of the world, hospitals become an integral part of the commitment to attack the root causes of ill health.

The Welfare State: Ethical Foundations and Constitutional Remedies

In 1935, the United States Congress enacted and President Franklin D. Roosevelt signed into law the basic titles of the social security system, thus taking the revolutionary step into the welfare state. Yet, there was hardly a sense of revolution anywhere in the United States. Although there was some fear in that summer that violence might erupt if Congress remained inactive, there were no deep social class or sectional divisions over the welfare state despite the novelty or the scale of commitment. The political struggle in Congress was not over whether to have a welfare state but over what kind of program it would be. In 1965, Congress adopted Medicare and Medicaid. These were the two largest expansions since 1935, and they were going to continue expanding very fast because of the method of third-party financing whereby the doctor and the patient agreed on the service and the government underwrote the charges. In 1969, Congress expanded the food stamp program and made it a regular, rather than experimental, part of the system of comprehensive social support. This meant that three of the largest commitments the United States ever made to the welfare state were made as maturity was approaching (which for any pension or insurance system is thirty-forty years); were commitments to persons structurally outside the work force; and were made at the moment when the ratio of taxpayers to welfare beneficiaries had dropped from 18-1 to less than 4-1.

On direct patient participation in the cost of their psychiatric care. Part I. A review of the empirical and experimental evidence.

In the midst of a sociopolitical debate regarding access to health services, an evaluation is required of the therapeutic impact of the direct participation by some patients in the cost of their psychiatric treatment. Empirical clinical concepts regarding the need for a direct payment of treatment by the patient have evolved. Initial rigorous practice systems have lead to more flexible methods allowing for the recognition of third-party financing. Psychoanalytic theory has addressed the issue most extensively, but other conceptual frameworks have reached similar conclusions as well. The experimental evidence to either support or refute the position that the direct payment of a fee has a beneficial effect on therapeutic outcome remains limited. The focus has been on studying the impact of fee manipulation, but a tested correlation of other motivators such as patient's insight, therapist's attitudes and behaviour and social pressures is mostly lacking. Two patient populations appear to be delineated. Fee participation is of particular value to the financially secure and to the educated while patients in need of less intensive involvement, with reality testing disturbance and limited insight benefit particularly from third party insurance. Different patient populations should have the right to choose different payment options.

Third-party Financing of Low Vision Services: Part I

Third-party Financing of Low Vision Services: Part I

Suit, Settlement, and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs

Suit, Settlement, and Trial: A Theoretical Analysis under Alternative Methods for the Allocation of Legal Costs

Shattuck lecture--the physician and organized medicine.

Abstract There is heavy pressure on today's physician to expand his one-to-one relation of healer to patient by participation in the larger issues that confront organized medicine. These issues include the adequacy of manpower, delivery systems and financing for health care, which were sharply dislocated from the previous equilibrium in the decade after 1960 by vast federal research funds, third-party financing and extensive health legislation coupled with rising influence by consumers. Expansion of the physician's societal role in addition to professional self-regulation can enhance public respect for organized medicine, leading to public insistence on maintained independence for our profession. Desirable as the goal might be to provide the ultimate in medical care to every citizen, our available resources, personnel and material are inadequate for the task. New coalitions are forming between various segments of the power trilogy in health care, involving consumers, providers and government. These political coalitions demand inspired leadership in organized medicine.