Bluefield Health Plan:

Coaching Notes

Managed Care the Facts

Companies usually pay a managed care plan a

monthly premium, based on the number of
employees.
Managed care plans use the premium to cover
payments to health care providers, administrative
costs, and profit. Bluefields current contracts with
providers involve fee-for-service payment.

Physicians and hospitals are paid their asking fee for

each patient visit or service.

For physician visits, employees only pay the

deductible, which is currently $15/visit.
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Question 1:
Table 1 Data
Has spending on physician services
really gone up much more than in other
areas?
Calculate Percent Change for each
category:
= (New Value Old Value)

Old Value
3

Question 1:
Allocation of Premium $
The managed care plan allocates premium

income across functional areas.

Hospital services may involve different claims and

payment procedures.

Managers in these areas set up different budgets

and use different mechanisms to control the use

of services.

Calculate the % of total costs for each

category how do these compare to the
allocations?
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Question 2:
Sample Statistics and Scatter Plot

Create two new variables: visits/employee and

cost/visit. How do these compare over time?
Calculate means and standard deviations:
consider confidence intervals for these variables.
Scatter Plots:

Instructions for making scatter plots with Excel are on

the Materials section of BUS 302 web site.
There are instructions for Excel 2003 and Excel 2007.
Be sure to use the appropriate instructions.
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Question 3:
Regression Analysis
Evaluate the time trends in visits per week

and cost per visit.

Use regression.

Instructions are in the Materials section of the BUS

302 web site for both Excel 2003 and Excel 2007.
Be sure to correctly indentify the X and Y variables.

Question 3:
Regression Analysis

Coefficient of Determination (R2)

Regression Coefficients

The percent of variation in the dependent variable (Y)

accounted for by variation in the independent variable (X).
The closer to 1 the better.
Coefficient on x-variable measures the slope of the trend
Line. (Positive Sign - Positive Relationship, Negative Sign
Negative Relationship)

t-statistic and p-value are used to indicate the

observed level of significance.
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Question 4:
Elasticity of Demand

Calculate the Arc Price

Elasticity of Demand

Q
1
(Q1 Q2 )
ed 2
P
1
( P1 P2 )
2

Is demand for physician services elastic or

inelastic? Explain.
See the discussion of elasticity on the
course website: LDC-Microeconomics
Review
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Question 4:

Note: a change in the deductible has two

effects:
Reduces the number of visits per employee
Reduces the cost per visit by $5
Estimate new level of visits for each

Question 5:
Evaluation of Alternatives
How much of a rate reduction (%) is
required of physicians, to meet your
target?
Consider the pros and cons of each
approach.

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Question 6:
Rationing?
Consider the ethical implications of
restricting the use of services.
Compare to expected results of the
other possible approaches.
Why not just increase the premium?
Other considerations?

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