Question
VIP-MD is a health maintenance organization (HMO) located in North Carolina. Unlike the traditional fee-for-service model that determines the payment according to the actual services
VIP-MD is a health maintenance organization (HMO) located in North Carolina. Unlike the traditional fee-for-service model that determines the payment according to the actual services used or costs incurred, VIP-MD receives a fixed, prepaid amount from subscribers. The per member, per month rate (PMPM) is determined by estimating the health care cost per enrollee within a geographic location. The average health care coverage in North Carolina costs $361 per month, which is the same amount irrespective of the subscribers age. Because individuals are demanding quality care at reasonable rates, VIP-MD must contain its costs to remain competitive. A major competitor, National Physicians, entered the North Carolina market early in the current year with a monthly premium of $318. VIP-MD wants to maintain its current market penetration and hopes to increase its enrollees in the current year. The latest data on the number of enrollees and the associated costs follow:
Age | Enrollment in Current Year | Projected Enrollment Next Year | Average Monthly Cost in Current Year | |||||||||
14 | 44,988 | 48,277 | $ | 11,147,172 | ||||||||
514 | 81,756 | 83,963 | 10,058,932 | |||||||||
1519 | 95,173 | 95,187 | 8,436,124 | |||||||||
2024 | 65,546 | 67,182 | 9,538,724 | |||||||||
2534 | 132,796 | 131,854 | 26,431,508 | |||||||||
3544 | 166,176 | 174,746 | 38,881,408 | |||||||||
4554 | 84,796 | 90,189 | 22,741,236 | |||||||||
5564 | 98,524 | 101,223 | 28,691,012 | |||||||||
6574 | 155,588 | 160,859 | 49,517,444 | |||||||||
7584 | 67,195 | 71,765 | 33,432,060 | |||||||||
85 years and older | 22,799 | 26,149 | 24,285,775 | |||||||||
1,015,337 | 1,051,394 | $ | 263,161,395 | |||||||||
Required:
1. Calculate the target cost required for VIP-MD to maintain its current market share and profit per enrollee in the current year.
2. Costs in the health care industry applicable to VIP-MD and National Physicians are expected to increase by 8% in the coming year. VIP-MD is planning for the year ahead and is expecting all providers, including VIP-MD and National Physicians, to increase their rates by $25 to $343. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in the current year.
3. Identify the critical success factors for VIP-MD. How can the HMO maintain its market share?
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