ABSTRACT
In most managed care organizations, covered medical and re lated services are usually rendered, and payments are based upon a prospective budget allocated as a percentage of the pre mium collected by the health plan and are often referred to as a “target medical cost index” on a per-member, per-month basis. Usually actuaries assist both managed care payers and providers in the measurement of risk exposure by statistically analyzing historical utilization data supplied by organizations such as the Health Insurance Association of America (HIAA). The data is derived by encounters reported via claims for payment of medical and related services. A problem with this system of measurement is that the data is somewhat skewed for at least three reasons:
1. Data extrapolation-Data is prepared into reports by various software programs that organize the data into nonstandard formats.
