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 (PMPM) rate is determined by estimating the health care cost per enrollee within a geographic location. The average health care coverage in North Carolina costs $368 per month which is the same amount irrespective of the subscriber’s age. Because individuals are demanding quality care at reasonable rates, VIP-MD must contain its costs to remain competitive. A major competitor, Doctors Nationwide, is entering the North Carolina market in early 2010 with a monthly premium of $325. VIP-MD wants to maintain its current market penetration and hopes to increase its enrollees in 2010. The latest data on the number of enrollees and the associated costs follow:

Required

1. Calculate the target cost required for VIP-MD to maintain its current market share and profit per enrollee in 2010.

2. Costs in the health care industry applicable to VIP-MD and Doctors Nationwide are expected to increase by 6 percent in the coming year, 2011. VIP-MD is planning for the year ahead and is expecting all providers, including VIP-MD and Doctors Nationwide, to increase their rates by $15 to $340. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in 2010.

3. Identify the critical success factors for VIP-MD.  How can the HMO maintain it’s market share?

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Projected Average Enrollment Enrollment Monthly Cost in 2010 in 2011 in 2010 Age 48,977 $ 11,147,872 1-4 45,688 5-14 82,456 84,663 10,059,632 8,436,824 15-19 95,873 95,887 20-24 66,246 9,539,424 67,882 25-34 133,496 132,554 26,432,208 166,876 38,882,108 35-44 175,446 90,889 45-54 85,496 22,741,936 99,624 28,691,712 55-64 101,923 156,288 65-74 161,559 48,918,144 67,895 33,132,760 75-84 72,465 85 years and older 23,499 26,849 24,086,475 1,059,094| $262,069,095 1,023,437