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.
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?