Target Costing; Health Care VIP-MD is a health maintenance organization (HMO) located in North Carolina. Unlike the traditional fee-for-service model that determines the payment according to the actual services used or costs incurred, VIP-MD receives a fixed, prepaid amount from subscribers. The per member per month (PMPM) rate is determined by estimating the health care cost per enrollee within a geographic location. The average health care coverage in North Carolina costs $368 per month which is the same amount irrespective of the subscriber’s age. Because individuals are demanding quality care at reasonable rates, VIP-MD must contain its costs to remain competitive. A major competitor, Doctors Nationwide, is entering the North Carolina market in early 2010 with a monthly premium of $325. VIP-MD wants to maintain its current market penetration and hopes to increase its enrollees in 2010. The latest data on the number of enrollees and the associated costs follow:
|
| Projected | Average |
| Enrollment | Enrollment | Monthly Cost |
Age | in 2010 | in 2011 | in 2010 |
1-4 | 45,688 | 48,977 | $ 11,147,872 |
5-14 | 82,456 | 84,663 | 10,059,632 |
15-19 | 95,873 | 95,887 | 8,436,824 |
20-24 | 66,246 | 67,882 | 9,539,424 |
25-34 | 133,496 | 132,554 | 26,432,208 |
35-44 | 166,876 | 175,446 | 38,882,108 |
45-54 | 85,496 | 90,889 | 22,741,936 |
55-64 | 99,624 | 101,923 | 28,691,712 |
65-74 | 156,288 | 161,559 | 48,918,144 |
75-84 | 67,895 | 72,465 | 33,132,760 |
85 years and older | 23,499 | 26,849 | 24,086,475 |
| 1,023,437 | 1,059,094 | $262,069,095 |
Required
1. Calculate the target cost required for VIP-MD to maintain its current market share and profit per enrollee in 2010.
2. Costs in the health care industry applicable to VIP-MD and Doctors Nationwide are expected to increase by 6 percent in the coming year, 2011. VIP-MD is planning for the year ahead and is expecting all providers, including VIP-MD and Doctors Nationwide, to increase their rates by $15 to $340. Calculate the new target cost assuming again that VIP-MD wants to maintain the same profit per enrollee as in 2010.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.