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Problem 1

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT 5/1/10
Chapter 17 -- Capitation, Risk Sharing, Pay for Performance and Consumer-Directed Health Plans
PROBLEM 1
Families First is a managed care plan that has been asked to submit a premium bid to ABC Company, a large
manufacturer in its service area. The premium bid includes the primary care for all of the ABC employees.
ABC has provided information about the age and gender of its employees, and Families First has identified
average primary care utilization rates from its own databases. This information is shown below:
ABC Company Average primary care
Number of Number of visits per year
Age Band males females Males Females
20-29 285 325 2.10 3.18
30-39 96 100 2.60 3.52
40-49 53 57 3.28 3.93
50-59 36 36 4.14 4.43
60+ 7 5 4.98 5.04
Each primary care physician can handle about 3,000 patient visits per year, for which he or she is paid
$180,000. What primary care rate (PMPM) will Families First propose to ABC Company?
ANSWER

Problem 2

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 17 -- Capitation, Risk Sharing, Pay for Performance and Consumer-Directed Health Plans
PROBLEM 2
All America HMO pays its primary care physicians (PCPs) by capitation, but a percentage of the total
capitated amount is withheld and distributed to individual PCPs based on aggregate PCP performance. The
financial goal of importance to All America is to achieve total actual specialty care and hospital costs less
than budgeted. To this end, All America provides a financial incentive to its PCPs to encourage careful
referral of patients to these services. The financial incentive is based on the referral gain or loss, defined
as the difference between the actual and budgeted specialty care and hospital cost. More specifically, All
America uses the following risk sharing rules:
If a total referral gain, then all of the total withhold is returned to the PCPs
If a total referral loss < total withhold, then the difference (withhold - referral loss) is
returned to the PCPs based on the number of patients per PCP
If a total referral loss > total withhold, then none of the withhold is returned to the PCPs
Last year, All America's capitation payment to the PCPs was $20 PMPM, but 15 percent of this amount was
placed into the PCP risk pool. The budgeted amount for specialty and hospital costs was $50 PMPM. At
the end of the year, the following data were recorded for the four All America PCPs:
Dr Smith Dr Barney Dr Wells Dr Fargo
Number of patients 600 800 1,000 1,600
Actual referral costs $504,000 $470,000 $590,000 $880,000
a. Calculate the total compensation of each PCP at the end of the year.
b. Were each of the PCPs fairly compensated? What incentives does this single risk pool based on aggregate
PCP performance present to the individual PCPs? What should be investigated to assess the fairness of
the PCP compensation?
ANSWER

Problem 3

UNDERSTANDING HEALTHCARE FINANCIAL MANAGEMENT
Chapter 17 -- Capitation, Risk Sharing, Pay for Performance and Consumer-Directed Health Plans
PROBLEM 3
Sunnyvale Primary Care (SPC) is considering a P4P program to increase preventative care for its
diabetic patients. HbA1c is a blood test used to determine how well diabetes is being controlled. The
state medical asociation recommends that diabetic patients have this test a minimum of two times per
year. In addition, because patients regularly enter and leave primary care practices, the association
considers that a level of 90 percent of diabetic patients have a HbA1c test two times per year is a
reasonable goal for most primary care practices. In the state where SPC is located, currently only 80
percent of diabetic patients actually have a HbA1c test two or more times per year.
SPC decided on HbA1c as a process measure for its P4P program and is now considering three methods
of allocating rewards. A physician receives a bonus of $5000 if:
- the percent of their diabetic patients that had at least two HbA1c tests in the past six months is greater
than the state average of 80 percent (relative performance).
- the percent of their diabetic patients that had at least two HbA1c tests in the past six months is greater
than the state goal of 90 percent (benchmark performance).
- the difference in the percent of their diabetic patients that had at least two HbA1c tests in the past six
to the previous six months months is greater than 10 percent (improvement performance).
The percent of diabetic patients that had at least two HbA1c tests in the past year for each SPC physician
is shown below:
Physician Jan-Jun Jul-Dec
A 60% 76%
B 70% 81%
C 80% 81%
D 90% 91%
a) For the Jul-Dec period, what would be each physician's P4P if rewards were allocated based on
relative, benchmark, and improvement performance?
b) Which method(s) of allocating rewards would you recommend?
ANSWER