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

QUESTION

Consider the following data and make your best analysis of per member per month (PMPM) rates, considering reductions in utilization or pricing. Bay Pines Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics:
In addition to medical costs, Bay Pines allocates 10 percent of the total premium for administration/reserves.

On the basis of your data analysis, respond to the following:

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?

Subject	Nursing	Pages	4	Style	APA

Answer

Part A

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

In this case where the administration cost is 10% of the total rate then the PMPM rate that is set to cover the administration cost will be calculated by finding a 10% of the total rate

PMPM (per member per month) rate
Category	Annual usage per member	Average medical cost	Admin expenses	Total rate	Capitation rate PMPM
General	0.15	1500.00	166.67	1666.67	20.83
Surgical	0.13	1800.00	200.00	2000.00	20.83
psychiatric	0.07	700.00	77.78	777.78	4.54
alcohol	0.04	500.00	55.56	555.56	1.76
Maternity	0.04	1500.00	166.67	1666.67	5.83
					$53.80

Part B 1

What would be the rat if a utilization management program were reduced the program within each patient service category by 10% and by 20%

With a reduction of 10%

Rate if utilization was reduced by 10%
Category	Annual usage per member	Average medical cost	Admin expenses	Total rate	Capitation rate PMPM
General	0.14	1500.00	166.67	1666.67	18.75
Surgical	0.11	1800.00	200.00	2000.00	18.75
psychiatric	0.06	700.00	77.78	777.78	4.08
alcohol	0.03	500.00	55.56	555.56	1.58
Maternity	0.04	1500.00	166.67	1666.67	5.25
PMPM rate					$48.42

Part b 2

With a reduction of 20%

Category	Annual usage per member	Average medical cost	Admin expenses	Total rate	Capitation rate PMPM
General	0.12	1500.00	166.67	1666.67	16.67
Surgical	0.10	1800.00	200.00	2000.00	16.67
psychiatric	0.06	700.00	77.78	777.78	3.63
alcohol	0.03	500.00	55.56	555.56	1.41
Maternity	0.03	1500.00	166.67	1666.67	4.67
PMPM rate					$43.04

Part c

Consider the initial base case utilization assumption what rate would be set if the average cost on each service were reduced by 10%

Category	Annual usage per member	Average medical cost	Admin expenses	Total rate	Capitation rate PMPM
General	0.15	1350.00	150.00	1500.00	18.75
Surgical	0.13	1620.00	180.00	1800.00	18.75
psychiatric	0.07	630.00	70.00	700.00	4.08
alcohol	0.04	450.00	50.00	500.00	1.58
Maternity	0.04	1350.00	150.00	1500.00	5.25
PMPM rate					$48.42

Part D

Assume that both utilization and cost reductions were made what would the premium be

Rate if average cost and utilization were both reduced by 10%
Category	Annual usage per member	Average medical cost	Admin expenses	Total rate	Capitation rate PMPM
General	0.14	1350.00	150.00	1500.00	16.88
Surgical	0.11	1620.00	180.00	1800.00	16.88
Psychiatric	0.06	630.00	70.00	700.00	3.68
Alcohol	0.03	450.00	50.00	500.00	1.43
Maternity	0.04	1350.00	150.00	1500.00	4.73
PMPM rate					$43.58

This question has been answered

References

Mccue, ., Glick, ., & Zelman. (2009). Financial Management of Health Care Organizations – An Introduction To Fundamental Tools, Concepts And Applications. John Wiley & Sons.

Nowicki, M. (2018). Introduction to the financial management of healthcare organizations. Chicago, Illinois: HAP/AUPHA, Health Administration Press ; Washington, DC : Association of University Programs in Health Administration.

United States, (2013). An Act to Name the Department of Veterans Affairs Medical Center in Bay Pines, Florida, as the “C.W. Bill Young Department of Veterans Affairs Medical Center.”. Washington, D.C.] : [U.S. Government Printing Office.

Zelman, W. N., McCue, M. J., & Glick, N. D. (2009). Financial management of health care organizations: An introduction to fundamental tools, concepts, and applications, third edition. San Francisco, Calif.Jossey-Bass.

Answer

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