Sn 601-05 Chpt 3 Development Of Health Care Cost Assumptions

Front 1

Medical Cost Assumptions are Used by whom?

Back 1

By HMO’s:
 for ratesetting
 to develop capitation rates
 for budgeting

By capitated providers:
 to evaluate a capitation rate.
 to set a target utilization level.

Front 2

THE TWO METHODS USED BY HMOS TO PROJECT MEDICAL COSTS:

Back 2

The Budgetary Method
 U represents demand
 C represents cost of resources needed.

The Fee-For-Service Method
 U represents expected utilization
 C represents the normal fee-for-service reimbursement
Main Use of Ffs method:
 to develop a capitation rate.
 C set at 85% of Ffs, to encourage utilization control.
 U set lower than current, to anticipate utilization drop

Front 3

Comparison of Budgetary and FFS Methods:

Back 3

Fee-for-Service Method:
Adv:
 Easier for a Medical Group to understand
Disadv:
 Fee-for-service charges not representative of true cost in resources
 understimates physical services costs; overestimates ancillary costs

Budgetary method: The opposite.

Front 4

SOURCES OF UTILIZATION (U) AND COST (C) DATA:

Back 4

Data Usefulness:

Best: HMO’s own experience
Split up by segment
All on same basis
Up-to-date.

Worst: State / National data
Lumps population/care type
segments together
All on different basises
Out of date

Front 5

Reasons to Look to External Data Sources

Back 5

 for small HMO’s
 when switching from Ffs to capitation (HMO’s U and C don’t apply)
 As a benchmark for utilz, expenses

Front 6

Considerations in Using External Data Sources:

Back 6

 How was utilization computed? (what was included?)
 How were costs computed? (at what discount?)
 Effect of inflation

Front 7

The three key medical service categories (making up 95% of costs):

Back 7

 Hospital Inpatient,
 Physician Office Procedures, and
 Ancillary Services.

Front 8

Sources of Hospital Inpatient utilization and cost data:

Back 8

 American Hospital Association
 Medicare Reports

Front 9

How an HMO should determine its hospital utilization target:

Back 9

 age/sex / industry/ location of enrollees
 comprehensiveness of plan benefits
 UM initiatives used
 Compare itself to the industry norm

Front 10

How an HMO should determine its hospital cost target:

Back 10

 Negotiable rates (lower if membership is high)
 Avg. LOS lower  cost per day higher

Front 11

Sources of Medical Group (Physician) utilization and cost data:

Back 11

 Other prepaid plans
 adjust for different practice patterns
 split data by procedure code
 not all visits include a procedure
 not all procedures are done by a doctor.

Front 12

Other factors affecting costs (C) and utilization (U)

Back 12

 Technology
 Utilization trends
 demographics
 number of specialists (fewer outside referrals)
 plan benefit richness

Done.