Sunshine Medical Group is a medium size, multi specialty medical group practice. Sunshine’s practice manager has been approached by their local Blue Cross provider to provide services to their managed care members. Sunshine would be responsible for all outpatient medical services for their population. (It would not include inpatient stays, drugs or behavioral health.)
Blue Cross estimates that their enrollment would be 25,000 members. The practice manager was able to get information on historical service utilization patterns for this population.
For every 1,000 members, utilization of the services has been:
Routine Office Visits: 1500
Orthopedic visits: 250
Accounting has informed the practice manager what it costs Sunshine, on average, to provide their various services, (including an estimate of overhead and fixed costs): $100 for a routine office visit; $150 for an orthopedic visit; $75 for an imaging service and $90 for an Ob-Gyn visit.
a) What PMPM should the Practice Manager propose to Blue Cross if his desire is to just break even?
b) Would the practice manager ever consider accepting a PMPM contract from Blue Cross that is less than the number you calculated above? Why or why not? (Hint: think strategically, long versus short term, market conditions, etc.)
c) What is the risk to Sunshine Clinic if the utilization is higher than anticipated or their costs go up? What might the practice manager do to mitigate the risk to Sunshine Clinic when entering this contract?