$100.00 $86.48 $96.09 $1,037.75 $95.13 General Hospital is considering entering
ID: 2775971 • Letter: #
Question
$100.00
$86.48
$96.09
$1,037.75
$95.13
General
220 inpatient days per 1,000
$1,700 cost/day
Surgical
150 inpatient days per 1,000
$3,000 cost/day
Psychiatric
85 inpatient days per 1,000
$950 cost/day
Maternity
70 inpatient days per 1,000
$1,900 cost/day
Assuming that General Hospital needs to receive a premium that allows for administrative costs and a profit (risk) margin equal to 10 percent of the final PMPM premium, what is the minimum PMPM that General Hospital would be willing to accept? (Points : 2)
Explanation / Answer
To calculate the PMPM premium, we first need to determine the total amount for all plans on annual basis. After that we need to convert the amount on the monthly basis.
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Step 1) Calculate Total Amount on Annual Basis (Per 1,000):
Total Amount on Annual Basis (Per 1,000) = (Sum of Number of Inpatient Days*Per Day Cost for Different Service) = (220*1,700+150*3,000+85*9,50+70*1,900)/1,000 = (1,037,750)1,000 = $1,037.75
___________
Step 1) Calculate PMPM on Monthly Basis With Adjustment for Profit Margin:
The formula for calculating minimum PMPM can be derived as follows:
Minimum PMPM = (Annual Amount/12)*1/(1-Profit Margin %) = 1037.75/12*1/(1-10%) = $96.09 (which is Option C)
_________
Notes:
We divided by 1/(1-Profit Margin %) because the final amount of PMPM includes 10% margin.
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