Question

The Nebraska Medical Center estimates that a capitated population of 50,000 would have the following base case utilization and total cost characteristics:

Service Category	Inpatient Days per 1,000 Enrollees	Average Cost per Day
General	150	$1,500
Surgical	125	1,800
Psychiatric	70	700
Total	345	$1,446

In addition, the medical center allocates 10% of the total premium for administration. Calculate the PMPM rate that must be set to cover medical costs plus administrative expenses:

Answer 1

PMPM Rate is Per member per month rate.

It is calculated by multiplying impatient days and the total rate and then dividing the resulting product first by 1000 to obtain a per member amount and then by 12 to get the PMPM rate.

Category	Annual usage per Member	Average cost per day(a)	Administration Expenses(b)	Total rate (a+b)	Capitalization rate PMPM (Inpatient days × total rate /1000) /12
GENERAL	150/1000 = 0.15	1500	166.67	1666.67	(150 × 1666.67/1000)/12=250.005/12=20.83
SURGICAL	0.13	1800	200	2000	20.83
PSYCHIATRIC	0.07	700	77.78	777.78	4.54
				PMPM RATE	46.2%

Ans is PMPM rate is 46.2%