GP1 Report - Group Number 8 (final)- Checked

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University of Texas, Rio Grande Valley *

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6350

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Finance

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Apr 3, 2024

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Group Number 8 Group Project 1 Mini-Case 1: Payment to Providers This case shows how Managed Care pays its primary care physicians by capitation, but a percentage amount is withheld and distributed based on performance. This is to show the importance of the financial goal that Managed Care is trying to achieve from specialty care and costs less than budgeted. Therefore, Managed Care provides a financial incentive to its PCPs to encourage the careful referral of patients to other services. The financial incentive is based on the referral gain or loss which is defined as the difference between the actual and budgeted specialty care and hospital cost. The 3 risk-sharing rules are as follows:  If there is a total referral gain, then all of the total withhold is returned to the PCPs based on the number of patients per PCP.  If there is a total referral loss that is less that the total withhold, then the difference (withhold – referral loss) is returned to the PCPs based on the number of patients per PCP.  If there is a total referral loss that is greater than the total withhold, then none of the withhold is returned to the PCPs Based on the calculations and the information gathered the PCP capitations payment PPPM was $20, from which 15% was placed into the PCP risk pool. The specialty/hospital budget PPPM was $50 and this data was recorded at the end of the year, considering that the number of months per year would be 12. A. Calculate the withhold returned to each PCP at the end of the year. The results were that Dr. Adams was the only one who didn’t receive his withhold due to the referral losses that didn’t match the number of patients he referred. While the other three doctors did get their withhold returned from being paid by capitation. B. Calculate the total compensation of each PCP at the end of the year. To calculate the total compensation of each PCP at the end of the year, we take the initial allocation they started and, if they met the risk-sharing rules performance, add their withhold returned at the 15% withhold rate used for the risk pool. C. Was each of the PCPs fairly compensated? To answer this question, we must look at the following data recording for the four PCPs at Managed Care at the end of the year. Dr. Adams referred to 600 patients with the referral costs being $504,000. Dr. Baker referred 800 patients with a referral cost of $470,000. Dr. Cage referred to 1,000 patients with $590,000 costs of referral, and lastly Dr. Dove referred the greatest number of patients which was 1,600 and the referral costs being $880,000. The $20 PPPM is a good amount out of the $50 of the specialty/hospital budget. This incentive is seen as a payment that’s seen as very reasonable. Although PCPs sometimes can’t control the losses that happen in referring patient, this is something that should be investigate so there can be more

Group Number 8 accommodations for PCPs as they have the potential to be rewarded from the risk pool based on their performance of encouraging PCPs to be careful in referring patients to services. D. What incentives does this single risk pool based on aggregate PCP performance present to the individual PCPs? The incentives that this single risk pool based on aggregate PCP performance present to the PCPs is that they can get back the withhold that was used by capitation. Capitation helps to reduce high costs that are associated with overspending on unnecessary services. E. What should be investigated to assess the fairness of the PCP compensation? What should be investigated to assess the fairness of the PCP compensation are the losses that cost the hospital and the reasons they happened. For example, in the case of Dr. Smith, he had to lose his withhold of $21,600 because his referral loss did not meet the performance needed. Dr. Adams would’ve gotten his withhold if he had a higher number of patients, but other factors must be considered for the reason why he had fewer patients and why his referral loss was greater than the other PCPs. Mini-Case 2: Financial Risk and Required Return From this mini-case we are assumed that as financial planners our first assignment is to invest $100,000 for a one-year holding period. There are 5 investment stock companies that show their probabilities and outcomes. From the information gathered from the expected rate of return, standard deviation, coefficient variance, and beta; we conclude that the stock that should be invested in and has less risk would be T-Bills. Even though T-Bills have the lowest expected rate of return meaning that not much will be gained, there is strong data to indicate that the money invested won’t be at risk if the market economy ends up going into a recession or fluctuates. The highest expected return was Alta Ind which was at 17.40% though it has the greatest loss if a recession occurs but has the greatest profit when the economy is booming. T-bills, on the other hand, has the lowest expected return rate which stays the same no matter what the state of the economy is. Repo men have the greatest chance to be able to succeed when the economy is in a recession at 28.0% but it’s at its worst when the economy is booming from 20.0%, which this company has the greatest outliers out of the other potential stock investment. This may be due to which this company’s purpose is to collect debt which is the reason why they do so well during the recession period. The expected return is a speculative financial metric investment tool that can be used to determine where to invest money. By calculating the expected rate of return on an investment, investors get an idea of how that investment may perform in the future. This financial concept can be useful when there is a robust pool of historical data on the returns of a particular investment. Investors can use historical data to determine the probability that an investment will perform similarly in the future.

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