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12 Cards in this Set

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Medical Cost Assumptions are Used by whom?
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.
THE TWO METHODS USED BY HMOS TO PROJECT MEDICAL COSTS:
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
Comparison of Budgetary and FFS Methods:
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.
SOURCES OF UTILIZATION (U) AND COST (C) DATA:
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Out of date
Reasons to Look to External Data Sources
 for small HMO’s
 when switching from Ffs to capitation (HMO’s U and C don’t apply)
 As a benchmark for utilz, expenses
Considerations in Using External Data Sources:
 How was utilization computed? (what was included?)
 How were costs computed? (at what discount?)
 Effect of inflation
The three key medical service categories (making up 95% of costs):
 Hospital Inpatient,
 Physician Office Procedures, and
 Ancillary Services.
Sources of Hospital Inpatient utilization and cost data:
 American Hospital Association
 Medicare Reports
How an HMO should determine its hospital utilization target:
 age/sex / industry/ location of enrollees
 comprehensiveness of plan benefits
 UM initiatives used
 Compare itself to the industry norm
How an HMO should determine its hospital cost target:
 Negotiable rates (lower if membership is high)
 Avg. LOS lower  cost per day higher
Sources of Medical Group (Physician) utilization and cost data:
 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.
Other factors affecting costs (C) and utilization (U)
 Technology
 Utilization trends
 demographics
 number of specialists (fewer outside referrals)
 plan benefit richness

Done.