18. (7 points) The Bedford Group is renegotiating 2004 provider contracts. The contracting
unit is proposing reimbursement increases to Hospital ID2 of 15% for Medical and
Surgical and 10% for all other services. In addition, the Medical Director has reviewed
Hospital ID2 Medical and Surgical charts and determined the following:
Chart Review Results
•5% of admits are unnecessary
•15% of days are unnecessary
•Excess admits and days are evenly distributed between Medical and Surgical
services
Using Tables MC-2, MC-3, MC-4, and MC-7
(a) (3 points) Calculate the reimbursement for unnecessary care provided at Hospital
ID 2 for 2003. Show your work.
(b) (3 points) Forecast 2004 payments to Hospital ID 2 for medical and psychiatric
services that reflect:
•proposed hospital reimbursement increases,
•all potential utilization savings from the chart review,
•budgeted utilization changes for psychiatric services
Show your work.
(c) (1 point) Describe issues regarding hospital claim submissions faced by MCOs
and claim review methods used to identify and address these issues.
COURSE 8: Fall 2004 - 14 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
Questions 17 – 19 pertain to the Case Study
19. (7 points) As the CFO of the Bedford group you are concerned about the volatility of
Earnings Before Taxes as shown in Table MC-1. In addition to the information Table
MC-1, you are provided the following:
Membership Change None for 2004 or 2005
Expected 2004 Premium Increase 6%
Paid Claims Trend 10% per year for 2004 and 2005
IBNR Estimate 2.0 months of prior 12 months paid claims
Admin Trend 3% per year for 2004 and 2005
Average Premium Tax 1% of premium for 2004 and 2005
Investment Income Rate 3% per year for 2004, 4% for 2005
Corporate tax rate 0% for 2004 and 2005
Surplus at end of 2003 $350,000,000
Assume no changes to the 2003 Income Statement and Balance Sheet other than those
listed above.
(a) (6 points) The Board is expecting 2005 Operating Earnings to be 5% of premium.
Develop the overall 2005 premium increase needed to meet this goal.
Show your work.
(b) (1 point) Describe sources other than premium that can be used to increase
Operating Earnings.
COURSE 8: Fall 2004 - 15 - GO TO NEXT PAGE
Managed Care Segment
Afternoon Session
20. (3 points) You are the chief actuary for XYZ managed care company. You have
observed a very high trend in ambulatory care services and want to implement a series
reports to analyze and address this issue. Your Chief Medical Officer is concerned about
the reaction of providers to being profiled.
(a) List statistical considerations when choosing an ambulatory case mix system.
(b) Describe general types of reports you would develop for plan management of
provider costs.
(c) Define provider profiling, identify its uses, and list the principles your provider
profiling system will follow to ensure that the reports are fair and useful.
21. (4 points) You are an actuary for a health carrier that wants to add a disease management
program to help control costs and attract more self-funded employer business.
(a) Describe characteristics that contribute to a successful disease management
program.
(b) Describe barriers and drivers for implementation of a disease management
program.
(c) List the features that distinguish disease management from conventional medical
management.
(d) Explain potential risks involved with using the Internet as a disease management
tool.
COURSE 8: Fall 2004 - 16 - STOP
Managed Care Segment
Afternoon Session
22. (3 points) You are a consulting actuary assisting a group of physicians to determine
whether the group should form a fee for service or prepaid practice.
(a) Compare major risks for a prepaid practice relative to a fee for service practice.
(b) Outline alternatives the group could use to manage prepaid financial risk.
**END OF EXAMINATION**
AFTERNOON SESSION