You are going to create the three scenarios now by calculating the Adjusted PMPM Cost (column H) and Inflation Adjusted PMPM Cost (column I) for each item Case study 5

Case Study 5 Instructions

 

Blue Pointe Healthcare: Premium Development

This week, we focus on pricing as it applies to an HMO. Here, Blue Pointe is trying to determine premiums to present to a buyer consortium. As the marketing analyst, you have been asked to prepare three scenarios: low premium, moderate premium, and high premium.

 

Follow these steps (this will ensure consistency):

 

At the top of the spreadsheet, input the following:

Inflation Adjustment: 5%

Administrative Expense Percent: use the value presented in the case (p 42)

Profit/Reserves Percent: use the value presented in the case (p 42)

In section III of the spreadsheet, input the Rate Factors presented in the case (p. 43).

Next, develop base PMPM costs from historical data, without copay adjustment factors (columns C-E on the spreadsheet):

Facility Services

HINT: You must convert utilization from ‘1000 members’ to ‘per member’ BEFORE entering data in the historical utilization cells (Column D). This applies to ALL facility services, except substance abuse and outpatient procedures where no input is required.

Inpatient:

Acute: use $1100/day/member and 425 days/1000 members – this seems reasonable, since they are the midpoints between the values that Blue Pointe's survey data reported –

Skilled Nursing and Mental Health: use the values presented in the case (Exhibit 5.3)

      

Surgical Procedures: use the values presented in the case (Exhibit 5.3)

Emergency Room: use the values presented in the case (Exhibit 5.3)

Physician Services

Primary Care: relevant case data includes physician salary of $200,000/yr.; visits per physician/yr.; and visits per member per year at the $5 copay level. Your goal is to define a base PMPM PCP cost; you can enter a formula in the cell that achieves the goal, or you may enter a value you calculate manually. (p 44)

Specialist Care:

Office Visits: calculate the base PMPM specialist cost using the values presented in the case - relevant data here are specialist visits/per member/yr. (at the $0 specialist and PCP copay levels) and cost per specialist visit. (p 44)

Once you have reached this point, duplicate the spreadsheet you’ve been working on two times. You now should have three identical, partially-completed worksheets. Please label each worksheet ‘moderate’, ‘high’ and ‘low’ (in that order, for consistency purposes).

Here’s the fun part. You are going to create the three scenarios now by calculating the Adjusted PMPM Cost (column H) and Inflation Adjusted PMPM Cost (column I) for each item. You will do this by inputting the copay adjustment factors (columns F and G) presented in the case, based on various assumptions. HINT: For all scenarios, you might find it easier to go through Exhibit 5.2 in the case and mark ‘high’, ‘moderate’ and ‘low’ copay amounts. This should make it easier to find the adjustment factors when it comes time to fill in the relevant cells.

In the first worksheet, create the ‘moderate premium’ scenario. These will be the rates most likely to be put forward to the business consortium.

Use the following assumptions:

     Mental Health Coverage limited to 60 days.

     Copays are as follows:

                

                 Acute Inpatient Care                        $150/admission

                 Mental Health Inpatient Care            $150/admission

                 Inpatient Surgical Services                $100/procedure

                 Emergency Care                               $ 25/visit

                 Primary Physician Care                    $ 15/visit

                 Specialist Physician Care                 $ 10/visit (at $10 PCP copay level)

In the first duplicate worksheet, create a ‘high premium’ scenario using the following assumptions:

Mental Health Coverage limited to 90 days.

There are no copays with this plan.

In the last worksheet, create a ‘low premium’ scenario using the following assumptions:

Mental Health Coverage limited to 30 days.

     Copays are as follows:

                

                 Acute Inpatient Care                       $250/admission

                 Mental Health Inpatient Care           $250/admission

                 Inpatient Surgical Services                $250/procedure

                 Emergency Care                                $ 50/visit

                 Primary Physician Care                     $ 25/visit

            Specialist Physician Care                $ 15/visit (at $20 PCP copay level)

At this point, you should have two premium rates – single and family – for each of the three scenarios. When done, please answer the following questions in a separate document or within each worksheet:

1. Calculate the total amount that will be received from the consortium in each scenario, given 75,000 members.

1. Assume that the consortium wants employees to pay one half of the final premium. Furthermore, the consortium wants to limit the family coverage premium to twice that of the individual coverage premium. What are the resulting costs to employees under individual and family coverage? Do the calculations for each scenario.

HINTS: You will have to drag out some (very simple) algebra for this one! Also, remember that there are 12,000 employees who have single coverage, and 18,000 employees who have family coverage.

1. Which plan(s) should Blue Pointe Healthcare offer to the buyer consortium? Why? Think sales strategy.

 

DEADLINE: April 6, 2014. Be sure to turn in your 3-worksheet workbook plus the answers to the questions. And, for God sakes, have fun!