7.5 Bay Pines Medical Center estimates that a capitated population of 50000 w

7.5 Bay Pines Medical Center estimates that a capitated population of
50000 would have the following base case utilization and total cost
characteristics:
Inpatient Days Average Cost
Service Category per 1000 Enrollees per Day
General 150 $1500
Surgical 125 1800
Psychiatric 70 700
Alcohol/Drug abuse 38 500
Maternity 42 1500
Total 440 $1374

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?