question archive Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics: Service Category Inpatient Days per 1,000 Enrollees Average Cost 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

Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics: Service Category Inpatient Days per 1,000 Enrollees Average Cost 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

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Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics:

Service Category Inpatient Days
per 1,000 Enrollees		 Average Cost
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.

What is the PMPM rate that Bay Pines must set to cover medical costs plus administrative expenses?

What would be the rate if a utilization management program were to reduce utilization within each patient service category by 10 percent? And by 20 percent?

Consider the initial base case utilization assumption.

What rate would be set if the average cost on each service were reduced by 10 percent? Assume that both utilization and cost reductions were made. What would the premium be?

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Answer:

Part A)

The PMPM rate is calculated with the use of following table:

Service Category Annual Usage Per Member (Inpatient Days per 1,000 Enrollees) [A] Average Cost Per Day (B) Administration Expenses (Average Cost Per Day – Average Cost Per Day/(90%)) [C] Total Rate (B+C) PMPM (Total Rate*A/12)
General 0.15 1,500 166.67 1,666.67 20.83
Surgical 0.125 1,800 200 2,000 20.83
Psychiatric 0.07 700 77.78 777.78 4.54
Alcohol/Drug Abuse 0.038 500 55.56 555.56 1.76
Maternity 0.042 1,500 166.67 1,666.67 5.83
PMPM Rate         $53.80

__________

Part B)

If Reduction is by 10%

Service Category Annual Usage Per Member (Inpatient Days per 1,000 Enrollees - 10%) [A] Average Cost Per Day (B) Administration Expenses (Average Cost Per Day – Average Cost Per Day/(90%)) [C] Total Rate (B+C) PMPM (Total Rate*A/12)
General 0.135 1,500 166.67 1,666.67 18.75
Surgical 0.1125 1,800 200 2,000 18.75
Psychiatric 0.063 700 77.78 777.78 4.08
Alcohol/Drug Abuse 0.0342 500 55.56 555.56 1.58
Maternity 0.0378 1,500 166.67 1,666.67 5.25
PMPM rate         $48.42

____________

If Reduction is by 20%

Service Category Annual Usage Per Member (Inpatient Days per 1,000 Enrollees) [A] Average Cost Per Day (B) Administration Expenses (Average Cost Per Day – Average Cost Per Day/(90%)) [C] Total Rate (B+C) PMPM (Total Rate*A/12)
General 0.12 1,500 166.67 1,666.67 16.67
Surgical 0.10 1,800 200 2,000 16.67
Psychiatric 0.056 700 77.78 777.78 3.63
Alchohal 0.0304 500 55.56 555.56 1.41
Maternity 0.0336 1,500 166.67 1,666.67 4.67
PMPM Rate         $43.04

__________

Part C)

If Average Cost is Reduced by 10%

Service Category Annual Usage Per Member (Inpatient Days per 1,000 Enrollees) [A] Average Cost Per Day (B) Administration Expenses (Average Cost Per Day – Average Cost Per Day/(90%)) [C] Total Rate (B+C) PMPM (Total Rate*A/12)
General 0.15 1,350 150 1,500 18.75
Surgical 0.125 1,620 180 1,800 18.75
Psychiatric 0.07 630 70 700 4.08
Alcohol/Drug Abuse 0.038 450 50 500 1.58
Maternity 0.042 1,350 150 1,500 5.25
PMPM Rate         $48.42

____________

If Reductions in Both were Made by 10%

Service Category Annual Usage Per Member (Inpatient Days per 1,000 Enrollees) [A] Average Cost Per Day (B) Administration Expenses (Average Cost Per Day – Average Cost Per Day/(90%)) [C] Total Rate (B+C) PMPM (Total Rate*A/12)
General 0.135 1,350 150 1,500 16.88
Surgical 0.1125 1,620 180 1,800 16.88
Psychiatric 0.063 630 70 700 3.68
Alcohol/Drug Abuse 0.0342 450 50 500 1.43
Maternity 0.0378 1,350 150 1,500 4.73
PMPM Rate         $43.58

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