Bay Pines Medical Center estimates that a capitated population of
50,000 would have the following base case utilization and total cost
characteristics:
Inpatient Days Average Cost
Service Category per 1,000 Enrollees per Day
General 150 $1,500
Surgical 125 1,800
Psychiatric 70 700
Alcohol/Drug abuse 38 500
Maternity 42 1,500
Total 425 $1,367
In addition to medical costs, Bay Pines allocates 10 percent of the total
premium for administration/reserves.
a. What is the PMPM rate that Bay Pines must set to cover medical costs
plus administrative expenses?
b. What would be the rate if a utilization management program would
reduce utilization within each patient service category by 10 percent?
By 20 percent?
c. Return to the initial base case utilization assumption. What rate would
be set if the average cost on each service were reduced by 10 percent?
d. Assume that both utilization and cost reductions were made. What
would the premium be?
We have been provided with the information as under,
| Service category | Inpatient days per 1000 enrolees | Average cost per day |
| General | 150 | 1500 |
| Surgical | 125 | 1800 |
| Psychiatric | 70 | 700 |
| Alchohal | 38 | 500 |
| Maternity | 42 | 1500 |
| Total | 425 | 1367 |
a)
Now first of all we will calculate Per member Per month as under
| PMPM (Per member Per month) rate | |||||
| Category | Annual usage per member | Average medical cost | Admin exp | Total rate | Capitation rate PMPM |
| General | 0.15 | 1,500.00 | 166.67 | 1,666.67 | 20.83 |
| Surgical | 0.13 | 1,800.00 | 200.00 | 2,000.00 | 20.83 |
| Psychiatric | 0.07 | 700.00 | 77.78 | 777.78 | 4.54 |
| Alchohal | 0.04 | 500.00 | 55.56 | 555.56 | 1.76 |
| Maternity | 0.04 | 1,500.00 | 166.67 | 1,666.67 | 5.83 |
| PMPM rate | $ 53.80 | ||||
b-1)
What would be the rate if a utilization management program would
reduce utilization within each patient service category by 10 percent
Answer:
| Rate if utilization reduce by 10%: | |||||
| Category | Annual usage per member | Average medical cost | Admin exp | Total rate | Capitation rate PMPM |
| General | 0.14 | 1,500.00 | 166.67 | 1,666.67 | 18.75 |
| Surgical | 0.11 | 1,800.00 | 200.00 | 2,000.00 | 18.75 |
| Psychiatric | 0.06 | 700.00 | 77.78 | 777.78 | 4.08 |
| Alchohal | 0.03 | 500.00 | 55.56 | 555.56 | 1.58 |
| Maternity | 0.04 | 1,500.00 | 166.67 | 1,666.67 | 5.25 |
| PMPM rate | $ 48.42 | ||||
b-2)
What would be the rate if a utilization management program would
reduce utilization within each patient service category by 20 percent?
Answer:
| Rate if utilization reduce by 20%: | |||||
| Category | Annual usage per member | Average medical cost | Admin exp | Total rate | Capitation rate PMPM |
| General | 0.12 | 1,500.00 | 166.67 | 1,666.67 | 16.67 |
| Surgical | 0.10 | 1,800.00 | 200.00 | 2,000.00 | 16.67 |
| Psychiatric | 0.06 | 700.00 | 77.78 | 777.78 | 3.63 |
| Alchohal | 0.03 | 500.00 | 55.56 | 555.56 | 1.41 |
| Maternity | 0.03 | 1,500.00 | 166.67 | 1,666.67 | 4.67 |
| PMPM rate | $ 43.04 | ||||
C)
Return to the initial base case utilization assumption. What rate would
be set if the average cost on each service were reduced by 10 percent
Answer:
| Rate if average cost on each service reduce by 10%: | |||||
| Category | Annual usage per member | Average medical cost | Admin exp | Total rate | Capitation rate PMPM |
| General | 0.15 | 1,350.00 | 150.00 | 1,500.00 | 18.75 |
| Surgical | 0.13 | 1,620.00 | 180.00 | 1,800.00 | 18.75 |
| Psychiatric | 0.07 | 630.00 | 70.00 | 700.00 | 4.08 |
| Alchohal | 0.04 | 450.00 | 50.00 | 500.00 | 1.58 |
| Maternity | 0.04 | 1,350.00 | 150.00 | 1,500.00 | 5.25 |
| PMPM rate | $ 48.42 | ||||
d)
Assume that both utilization and cost reductions were made. What
would the premium be?
Answer:
| Rate if average cost and utilization, both reduce by 10%: | |||||
| Category | Annual usage per member | Average medical cost | Admin exp | Total rate | Capitation rate PMPM |
| General | 0.14 | 1,350.00 | 150.00 | 1,500.00 | 16.88 |
| Surgical | 0.11 | 1,620.00 | 180.00 | 1,800.00 | 16.88 |
| Psychiatric | 0.06 | 630.00 | 70.00 | 700.00 | 3.68 |
| Alchohal | 0.03 | 450.00 | 50.00 | 500.00 | 1.43 |
| Maternity | 0.04 | 1,350.00 | 150.00 | 1,500.00 | 4.73 |
| PMPM rate | $ 43.58 | ||||
