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Indicator
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Calculation
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Purpose
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| Revenue PMPM ($XXX.XX) | Revenue/ Member Months | Measures revenue performance |
| Medical Expense Ratio (%) | Medical Expenses/Rev. | Measures medical expense performance |
| Adm Expense Ratio (%) | Administrative Expenses/Rev. | Measures administrative cost performance |
| Days per 1,000 (XXX) | (Annual Inpatient days/Annualized members)*1,000 | Measures inpatient utilization performance (per 1,000 members) |
In managed care each patient with insurance coverage under a health plan is called a member. Other terms used include enrollees and covered lives.
Each person who has the health plan policy in his/her name, whether the policy is bought just for the individual or for the whole family, is called the subscriber or the insured.
If the subscriber has coverage for other family members, they are called dependents.
Subscribers and dependents are all members. A subscriber with a covered spouse and three
children would equal five members.
Purchasers, providers and others often refer to how many members (how much enrollment) a
health plan has or a provider serves.
Membership is typically classified by type of MCO, such as HMO, PPO or EPO (Exclusive
Provider Organization). Membership is also broken down by Purchaser category, including
Medicare, Medicaid and Commercial. Commercial means non-government program members.
Commercial members with employment-based coverage are called Group members (because they
have group coverage).
Per Member Per Month is the relative measure, the
ratio, by which most expense and revenue, and many utilization comparisons are made. And
when all the data is there, it is certainly straight-forward enough to compute: (total
revenue or expenses or units of utilization for the entire period divided by member months
for the period equals pmpm.)
Member Months: Some people do get hung up on member months. But there isn't any magic to it: whatever period of time you wish to measure (let's take three months for example) you add up the members for each month for the total period of time (so if you have 1,000 members in month one; 1,500 members in month two; and 2,000 members in month three, you get 4,500 member months for the period.) Divide the member months (4,500 in our example) by the elapsed months in the period (three in our example) and you get the average members for the period (1,500 in our example.)
Comparative Effectiveness
Comparative Effectiveness is a rigorous evaluation of the impact of
different options that are available for treating a given medical condition for
a particular set of patients. Such a study may compare similar treatments, such
as competing drugs, or it may analyze very different approaches, such as surgery
and drug therapy. The analysis may focus only on the relative medical benefits
and risks of each option, or it may also weigh both the costs and the benefits
of those options.
Evidence-Based Medicine
The application of scientific knowledge to the diagnostic and treatment
recommendations that medical professionals make for their patients
Clinical Guidelines
A systematically developed statement for practitioners and patients about
appropriate health care for specific clinical circumstances
Quality Management
Quality Management (also referred to as Quality Assurance) involves ensuring members are
getting accessible & available care, delivered within community standards; and
ensuring a system exists to identify and correct problems, and to monitor ongoing
performance. Tools include: profiling of data, audits of health plan and provider records
and facilities, surveys of providers and members and recording of problem incidents as
they occur.
Utilization Management
Utilization Management involves coordinating how much or how long care is given for each
patient, as well as the level of care. The goal is to ensure care is delivered
cost-effectively, at the right level, and doesn't use unnecessary resources. Tools include
authorization requirements to approve services before they occur, concurrent review for
continuing cases, and profiling of cases after they occur for analysis.
Outcomes Management
A program used to determine the clinical end-results according to defined various
categories (by provider, by procedure, by clinical guideline, etc.) and then promote use
of those categories which yield improved outcomes.
Demand Management
A program administered by MCOs or provider organizations to monitor and process many types
of initial member requests for clinical information and services. The program may involve
operating an extended hours nursing telephone triage service for members, or patient
education materials and resources.
Disease Management
Disease management involves aspects of case and outcomes management, but the approach
focuses on specific diseases, looking at what creates the costs, what treatment plan
works, educating patients and providers, and coordinating care at all levels: hospital,
pharmacy, physician, etc.
In Managed Care Organization (MCO) provider contracts, providers often bear some level
of financial risk. In paying providers, capitation and salaries involve the highest levels
of provider risk, and are usually just allowed under HMOs. Episode of Care payments also involve
some risk, as
costs could exceed the case payment.
Capitation: Capitation means paying a fixed amount of money per person (per capita). Capitation puts a lid on payments per person that otherwise might change under a fee-for-service system. Providers are at full financial risk for the services capitated. The provider is paid a fixed amount per member enrolled, regardless of the number of services delivered to that member.
Episode of Care: in which the managed care organization typically pays a provider a set amount per qualifying patient package price for a defined episode of care. There are a number of alternative structures for such payment arrangements.
Other types of risk sharing include withholds, when a portion of the provider payment is held back and only paid later if certain criteria are met. Also, there are shared risk funds, where physician groups share in a portion of the financial risk and potential profit of hospital or prescription costs.
How shared risk funds work: Typically, in a shared risk arrangement, a fund gets "paid" the capitation rate. Medical expenses are paid from this fund, and periodically, profits or losses are distributed to the participants.
Shared risk funds often allocate the risk between physicians and institutional providers, or between physicians and health plans. Occasionally, there are three or more parties involved (Health Plan, Physicians, Hospital and a management company could all be involved). Hospital and Pharmacy services are the most prevalent examples of shared risk funds. However, there are many other types of services that involve shared risk arrangements as well.
Incurred but not reported claims or encounters involve covered services that have been rendered, but have not been received or captured by you to process. You to need to consider this issue when:
Pay for Performance (P4P) involves various types of incentive
reimbursement programs that tie financial rewards to various types of improved
outcomes. This typically means purchasers pay participating providers different
levels of payment, based upon provider performance with specified sets of
measures that often include quality, patient satisfaction, efficiency and
adoption of desired information technology. P4P provider reimbursement can
involve fixed or variable bonus payments, changes to base payments for services
rendered, withholds, and even non-financial rewards.
Premiums drive profits: medical management is critical, but: too low of a premium will not fund even the best managed plan, while a very high premium might fund a poorly managed plan. The cycle is a 40 year old phenomenon.
How the cycle works- during profitable periods:
a downswing results:
Significant Losses: finally enough of the market is
losing money so that several major players break rank and begin increasing rates and
everyone else follows suite
Return to Profits: the increases continue until
profits are being generated, and the cycle begins anew.
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