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solution

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.

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?

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