Bright Form, Inc. (BFI) – Case Analysis

Bright Form, Inc. (BFI)

Bright Form, Inc. (BFI) is a managed care company that provides and finances health care services for employees of 101App, Inc. Approximately 5,000 employees at 101App  currently enroll in BFI’s health insurance plan. The number of enrollees has increased over the past year as 101App continued to expand its workforce. In addition more and more 101App employees have elected to receive this benefit. 101App currently pays BFI the full cost of health insurance for its employees. This insurance provides comprehensive coverage for inpatient and outpatient hospital care. It also provides surgical services, physician office visits, and other services (e.g., x-rays). The only cost to employees is a $15 copayment for each physician’s office visit. Robert Fleming is the Director of Strategic Planning and Forecasting at Bright Form, Inc..

His key function is to direct the overall development and analysis of all strategic financial planning initiatives relating to BFI’s managed care programs. His staff involves in many activities, including preparing periodic reports of the costs incurred under the 101App account. Every time a 101App employee uses health care services, information about the type of service and the relevant costs are recorded in a database. Mr. Fleming recently directed his staff to perform a financial analysis of the current utilization and costs incurred under the 101App account. Bad News Hanna Brooks personally delivered her summary of utilization on the 101App account to Mr. Fleming (See Exhibit 1). The data, he noted, indicated a sharp increase in the number of physician office visits over the past month. He remarked, “The 101App employees’ use of outpatient physician services has been going up for the past six months. What’s going on?”

Further Description

He asked Ms. Brooks to provide him with the enrollment numbers to see if the increase in the utilization of physician services was primarily due to the change in the number of employees enrolled in the health plan. “No problem,” she replied. “I have already put the last six months’ weekly statistics into a spreadsheet.”Mr. Fleming was concerned about BFI’s profitability. Last year, BFI negotiated with 101App to charge a fixed premium of $250 per employee per month. The total premium revenue is allocated as follows: 55%to hospital and surgical services, 30% to physician visits, and 15% for other services, administration, and profit. These allocations are in use to establish budgets in the different departments at BFI. The 101Appcontract would expire next month, at which time BFI would need to renegotiate the terms of its contract with 101App.

Mr. Fleming feared that BFI would have to request a sharp rate increase to remain profitable. BFI’s monthly cost of administering the health plan was fixed, but the increases in the use of health care services were eroding BFI’s profits. He suspects that other health plans were planning to increase premiums by 5-10 percent, which was reasonable given the recent statistics on national health expenditures. A report from 2004, the most recent he could find, indicates that total national health expenditures rose 7.9 percent from 2003 to 2004 — over three times the rate of inflation. Mr. Fleming called in the rest of his staff to assist him in devising a strategy for renegotiating the 101Appaccount. “If possible, I would like to figure out how we can continue providing this service for the rate we established last year.

Additional Information

I am afraid if we attempt to increase the per member premium, 101App will contract with another health insurer. What other options do we have?” John Lucas, who works in Membership Marketing, reported that he recently conducted a survey of cost control mechanisms used by other health plans. His analysis revealed that BFI’s competitors are increasing their use of these mechanisms, which include copayments, waiting periods, pre-authorization requirements, and exclusions on certain health care services.

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