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

CASE 5 8/18/09 Student Version Copyright 2010 by FACHE BLUE POINTE HEALTHCARE Premium Development This case illustrates the development of a premium rate by a managed care plan for submission of a bid to furnish healthcare services to employees of a buyer consortium. This model differs from most models in that much of the input data required is in the MODELGENERATED DATA section. All input values in the student version have been replaced with zeros. Thus, students must enter the appropriate input data into the red cells containing a zero or hyphen. When this is done, any error cells will be corrected and the base case solution will appear. However, the model does not contain any scenario analyses, so students will have to create their own if necessary. Furthermore, students must create their own graphics output (charts) as needed to present their results. Note that the historical cost input data for facilities services is the per deim reimbursement rate for inpatient acute care, the daily cost for skilled nursing facility care, the daily cost for inpatient mental health care, the per case cost for hospital-based surgery, and the per visit cost for emergency room services. The historical utilization input data for facilities services is days per member for acute care, nursing home care, and inpatient mental health care; cases per member for inpatient surgery; and visits per member for emergency room care. KEY INPUT: KEY OUTPUT: Inflation adjustment Administrative expense percent Profit/reserves percent 5.0% 15.0% 5.0% PMPM bid Premium rates: Single Family $129.48 $157.45 $434.54 OTHER INPUT AND MODEL-GENERATED DATA: PMPM Calculation: Historical Cost Data I. Medical Expenses Facility Services: Inpatient: Acute Skilled nursing Mental health Substance abuse Surgical procedures Emergency room Outpatient procedures Historical Utilization $1,100.00 650.00 740.00 0.4250 0.0252 0.0644 1,800.00 250.00 0.0417 0.1320 Total facility services PMPM amount Base Copay Adjustment Factors PMPM Cost Cost Utilization $38.96 1.37 3.97 0.41 6.26 2.75 3.43 0.9777 1.0000 0.9768 1.0000 0.9231 0.9429 1.0000 0.9600 1.0000 1.1520 1.0000 1.0000 0.9850 1.0000 $57.14 Physician Services: Primary care Specialist care Office visits Surgical services All other services Adjusted PMPM Cost $36.57 1.37 4.47 0.41 5.77 2.55 3.43 $54.57 $14.17 0.8593 0.9500 0.7795 0.9544 0.8659 0.9460 1.0000 0.9100 $57.30 $11.57 11.58 9.00 23.67 Total physician services PMPM amount Inflation Adjusted PMPM Cost 8.54 8.59 18.65 $47.35 $49.71 $107.01 Total medical PMPM amount II. Other Expenses Administrative Reserves $16.05 5.35 Total other expenses $21.40 Total PMPM amount $22.47 $129.48 III. Premium Rates Rate factor Monthly premium rate Single 1.216 $157.45 Family 3.356 $434.54 END CASE 5 8/18/09 Student Version Copyright 2010 by FACHE BLUE POINTE HEALTHCARE Premium Development This case illustrates the development of a premium rate by a managed care plan for submission of a bid to furnish healthcare services to employees of a buyer consortium. This model differs from most models in that much of the input data required is in the MODELGENERATED DATA section. All input values in the student version have been replaced with zeros. Thus, students must enter the appropriate input data into the red cells containing a zero or hyphen. When this is done, any error cells will be corrected and the base case solution will appear. However, the model does not contain any scenario analyses, so students will have to create their own if necessary. Furthermore, students must create their own graphics output (charts) as needed to present their results. Note that the historical cost input data for facilities services is the per deim reimbursement rate for inpatient acute care, the daily cost for skilled nursing facility care, the daily cost for inpatient mental health care, the per case cost for hospital-based surgery, and the per visit cost for emergency room services. The historical utilization input data for facilities services is days per member for acute care, nursing home care, and inpatient mental health care; cases per member for inpatient surgery; and visits per member for emergency room care. KEY INPUT: KEY OUTPUT: Inflation adjustment Administrative expense percent Profit/reserves percent 5.0% 15.0% 5.0% PMPM bid Premium rates: Single Family $142.49 $173.27 $478.19 OTHER INPUT AND MODEL-GENERATED DATA: PMPM Calculation: Historical Cost Data I. Medical Expenses Facility Services: Inpatient: Acute Skilled nursing Mental health Substance abuse Surgical procedures Emergency room Outpatient procedures Historical Utilization $1,100.00 650.00 740.00 0.4250 0.0252 0.0644 1,800.00 250.00 0.0417 0.1320 Total facility services PMPM amount Base Copay Adjustment Factors PMPM Cost Cost Utilization $38.96 1.37 3.97 0.41 6.26 2.75 3.43 1.0000 1.0000 1.0000 1.0000 1.0000 1.0857 1.0000 1.0000 1.0000 1.2500 1.0000 1.0000 1.0250 1.0000 $57.14 Physician Services: Primary care Specialist care Office visits Surgical services All other services Adjusted PMPM Cost $38.96 1.37 4.96 0.41 6.26 3.06 3.43 $58.44 $14.17 1.0352 1.0150 1.0000 0.9544 0.8659 1.0000 1.0000 0.9100 $61.36 $14.89 11.58 9.00 23.67 Total physician services PMPM amount Inflation Adjusted PMPM Cost 11.58 8.59 18.65 $53.71 $56.39 $117.76 Total medical PMPM amount II. Other Expenses Administrative Reserves $17.66 5.89 Total other expenses $23.55 Total PMPM amount $24.73 $142.49 III. Premium Rates Rate factor Monthly premium rate Single 1.216 $173.27 Family 3.356 $478.19 END CASE 5 8/18/09 Student Version Copyright 2010 by FACHE BLUE POINTE HEALTHCARE Premium Development This case illustrates the development of a premium rate by a managed care plan for submission of a bid to furnish healthcare services to employees of a buyer consortium. This model differs from most models in that much of the input data required is in the MODELGENERATED DATA section. All input values in the student version have been replaced with zeros. Thus, students must enter the appropriate input data into the red cells containing a zero or hyphen. When this is done, any error cells will be corrected and the base case solution will appear. However, the model does not contain any scenario analyses, so students will have to create their own if necessary. Furthermore, students must create their own graphics output (charts) as needed to present their results. Note that the historical cost input data for facilities services is the per deim reimbursement rate for inpatient acute care, the daily cost for skilled nursing facility care, the daily cost for inpatient mental health care, the per case cost for hospital-based surgery, and the per visit cost for emergency room services. The historical utilization input data for facilities services is days per member for acute care, nursing home care, and inpatient mental health care; cases per member for inpatient surgery; and visits per member for emergency room care. KEY INPUT: KEY OUTPUT: Inflation adjustment Administrative expense percent Profit/reserves percent 5.0% 15.0% 5.0% PMPM bid Premium rates: Single Family $118.32 $143.88 $397.08 OTHER INPUT AND MODEL-GENERATED DATA: PMPM Calculation: Historical Cost Data I. Medical Expenses Facility Services: Inpatient: Acute Skilled nursing Mental health Substance abuse Surgical procedures Emergency room Outpatient procedures Historical Utilization $1,100.00 650.00 740.00 0.4250 0.0252 0.0644 1,800.00 250.00 0.0417 0.1320 Total facility services PMPM amount Base Copay Adjustment Factors PMPM Cost Cost Utilization $38.96 1.37 3.97 0.41 6.26 2.75 3.43 0.9642 1.0000 0.9532 1.0000 0.8077 0.8000 1.0000 0.9200 1.0000 0.8762 1.0000 1.0000 0.9550 1.0000 $57.14 Physician Services: Primary care Specialist care Office visits Surgical services All other services Adjusted PMPM Cost $34.56 1.37 3.32 0.41 5.05 2.10 3.43 $50.23 $14.17 0.6834 0.8900 0.6692 0.9544 0.8659 0.9080 1.0000 0.9100 $52.75 $8.62 11.58 9.00 23.67 Total physician services PMPM amount Inflation Adjusted PMPM Cost 7.04 8.59 18.65 $42.89 $45.04 $97.78 Total medical PMPM amount II. Other Expenses Administrative Reserves $14.67 4.89 Total other expenses $19.56 Total PMPM amount $20.53 $118.32 III. Premium Rates Rate factor Monthly premium rate Single 1.216 $143.88 Family 3.356 $397.08 END 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 Mental Health Inpatient Care Inpatient Surgical Services Emergency Care Primary Physician Care Specialist Physician Care $150/admission $150/admission $100/procedure $ 25/visit $ 15/visit $ 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 Mental Health Inpatient Care $250/admission $250/admission Inpatient Surgical Services Emergency Care Primary Physician Care Specialist Physician Care $250/procedure $ 50/visit $ 25/visit $ 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. 2. 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. 3. 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