True Master Plan Coaching Notes 1 Managed Care

True Master Plan: Coaching Notes 1

Managed Care – the Facts n n Companies usually pay a managed care plan a monthly premium, based on the number of employees. Managed care plans use the premium to cover payments to health care providers, administrative costs, and profit. TMP’s current contracts with providers involve fee-for-service payment. n n Physicians and hospitals are paid their asking fee for each patient visit or service. For physician visits, employees only pay the deductible, which is currently $15/visit. 2

Question 1: Table 1 Data Has spending on physician services really gone up much more than in other areas? n Calculate Percent Change for each category: = (New Value – Old Value) Old Value n 3

Question 1: Allocation of Premium $ n The managed care plan allocates premium income across functional areas. n Hospital services may involve different claims and payment procedures. n Managers in these areas set up different budgets and use different mechanisms to control the use of services. n Calculate the % of total costs for each category – how do these compare to the allocations? 4

Question 2: Sample Statistics and Scatter Plot n n n Create two new variables: visits/employee and cost/visit. How do these compare over time? Calculate means and standard deviations: consider confidence intervals for these variables. Scatter Plots: n n Instructions for making scatter plots with Excel are on the Materials section of BUS 302 web site. There are instructions for Excel 2003 and Excel 2007. Be sure to use the appropriate instructions. 5

Question 3: Regression Analysis n Evaluate the time trends in visits per week and cost per visit. n Use regression. n n Instructions are in the Materials section of the BUS 302 web site for both Excel 2003 and Excel 2007. Be sure to correctly indentify the X and Y variables. 6

Question 3: Regression Analysis n Coefficient of Determination – (R 2) n n Regression Coefficients n n The percent of variation in the dependent variable (Y) accounted for by variation in the independent variable (X). The closer to 1 the better. Coefficient on x-variable measures the slope of the trend Line. (Positive Sign - Positive Relationship, Negative Sign – Negative Relationship) t-statistic and p-value are used to indicate the observed level of significance. 7

Question 4: Elasticity of Demand n Calculate the Arc Price Elasticity of Demand n Is demand for physician services elastic or inelastic? Explain. See the discussion of elasticity on the course website: LDC-Microeconomics Review n 8

Question 4: n Note: a change in the deductible has two effects: Reduces the number of visits per employee n Reduces the cost per visit by $5 n Estimate new level of visits for each n 9

Question 5: Evaluation of Alternatives How much of a rate reduction (%) is required of physicians, to meet your target? n Consider the pros and cons of each approach. n 10

Question 6: Rationing? Consider the ethical implications of restricting the use of services. Compare to expected results of the other possible approaches. n Why not just increase the premium? n Other considerations? n 11