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?