Consider the following data and make your best analysis of per member per month (PMPM) rates, considering reductions in utilization or pricing.

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:

 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.

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?

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