Boise Park Health Care Foundation (B)

Topics: Balance sheet, Cash flow, Generally Accepted Accounting Principles Pages: 8 (2449 words) Published: March 16, 2011
THE CRIMSON PRESS CURRICULUM CENTER THE CRIMSON GROUP, INC. Boise Park Health Care Foundation (B) Earlier, we were concerned that many state employees would be left high and dry if Boise Park went under. Now that many have joined, and chosen physicians for themselves and their family members, BP is asking for a rate increase, which will drive up everyone’s premium. The request seems totally out of line with BP’s needs, and I think you should deny it.

Lawrence Kern, Executive Director of the Idaho Consumer Health Advocacy Program, was speaking at a meeting of the Idaho Insurance Commission, the regulatory body charged with approving, denying, or amending premium rate increases by the state’s healthcare plans. A few year ago, Boise Park Health Care Foundation (or BP) was a new health plan being offered to the state’s 48,000 employees as a health insurance option. Several thousand employees had changed from another plan to join BP, which offered premiums that were significantly lower than those of its competitors. In the intervening years, many more employees had joined, giving BP a significant share of the Idaho managed care market. Now, however, BP was asking for a rate increase that would bring its premiums above those of most of the other health plans. Because many of the BP physicians did not have affiliations with other health plans, a significant number of state employees would be forced to choose between either paying the higher premiums or changing medical providers. For most employees, the latter was an unpleasant prospect. Joe Pearlman, BP’s chief financial officer, responded to Mr. Kern’s remarks: Without a rate increase, we will definitely go under, and then everyone will need to find a new physician. Our liabilities exceed our assets, and, as far as I’m concerned there is no better technical definition of bankruptcy. We have been able to survive for a while because of some positive cash flows, but, in time, with continued operating deficits, cash flows will turn negative, and then it’s only a short while before the coffers are empty.

BACKGROUND Boise Park was an independent practice association (IPA)-type health maintenance organization (HMO). IPAs are HMOs with membership open to physicians whose practice habits are sufficiently cost-effective to meet its standards. Member physicians are not salaried by the IPA. Instead, they “join” it by paying a one-time membership fee and agreeing to abide by its policies and procedures. A successful IPA must set realistic yet competitive premiums. If its premiums are too high, it will not attract subscribers; if they are too low, it will incur operating deficits and possible resignation of the member physicians. Most IPA members are primary care physicians (PCPs), who act as “gatekeepers” to care. Subscribers (patients) are required to see a PCP initially for all illnesses, and are not covered for care provided by physicians outside the IPA’s physician “network.” The PCP, is responsible for determining whether to (a) treat the patient without referrals or a hospitalization, (b) refer the patient to a specialist, or (c) place the patient in a hospital. Overall, the PCP is responsible for assuring that medical treatment and hospital costs do not exceed the IPA premium revenue. An IPA negotiates fee arrangements with specialists and charge arrangements with hospitals. Usually, this entails obtaining favorable per-unit rates. In the case of specialists, the rate usually is a fee for a visit. For hospital care, the IPA must negotiate rates for a wide variety of services, such as per-diem rates for inpatient care, per-test or per-procedures rates for laboratory and radiological services, per-minute rates for operating room use, and per-visit rates for emergency room use, occupational therapy treatments, and so forth. Increasingly, IPAs are negotiating “bundled” or “global” rates for a single hospitalization. The bundled rate puts the hospital and the specialists at...
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