What Is PMPM?
Per Member Per Month (PMPM) calculates the cost, revenue, or profit for a single customer or a member each month in the healthcare setting.
For example, if you’re running a health insurance plan, you need to know how much revenue you generate per enrolled member. PMPM helps you track how much you’re earning or spending for each member, every month. This, in turn, helps insurance companies budget and set premiums that each member will pay for their plans.
Why Does PMPM Matter?
Healthcare can be an expensive and complicated business. For one, insurance companies and healthcare providers need to keep a track of the costs incurred to make sure they are not losing money. They also need to ensure that people are getting good value from their health plans.
PMPM is an easy-to-use metric to measure these things. It boils down to a single number: how much does it cost, or how much are we earning, for each member per month?
Once the number is calculated, it is used for budgeting, planning, evaluating performance, setting premiums the members pay and even figuring out whether care programs are functioning properly.
How is PMPM calculated?
To illustrate how PMPM is calculated, let’s say a health insurance company has 10,000 members. Over one month, they spend $2 million covering doctor visits, hospital stays, medications and so on.
To find the PMPM cost:
Total cost = $2,000,000
Total members = 10,000
PMPM = $2,000,000 / 10,000 = $200
So, the PMPM cost for that month is $200. That means, on average, each member’s healthcare cost the company $200 that month.
In actuality, this does not mean that $200 worth of services was used by each patient necessarily. Some people may not have gone to a doctor at all, while others could have opted for surgeries and emergency visits. But PMPM helps average it all out for easier comparison and planning.
Who Uses PMPM and How Do They Use It?
PMPM is widely used across different parts of the healthcare system:
| Who Uses PMPM | How They Use It |
|---|---|
| Insurance Companies | Calculate claim costs and assess if premiums are priced correctly. Rising PMPM may prompt premium adjustments. |
| Healthcare Providers | Measure care efficiency. May receive fixed PMPM payments, encouraging better health outcomes and reduced unnecessary treatments. |
| Employers Offering Health Benefits | Track healthcare costs for employee plans. Rising PMPM could lead to switching plans or renegotiating rates. |
| Government Health Programs | Use fixed PMPM payments (e.g., Medicaid, Medicare Advantage) to manage costs while ensuring necessary care for members. |
What are Different Types of PMPM Metrics?
There are several different kinds of PMPM metrics, depending on what’s being measured. Here are some common ones:
- Medical Cost PMPM
This includes all costs for medical care such as doctor visits, hospital stays, lab tests, etc. - Pharmacy PMPM
This tracks the cost of prescription drugs only. - Administrative PMPM
This includes the cost of running the health plan. These include things like customer service, billing systems, and employee salaries. - Revenue PMPM
This is how much money a health plan earns per member per month, usually from premiums paid by members or their employers.
What are the Benefits of Using PMPM?
PMPM is beneficial as a metric for several reasons:
- Simplicity: It’s just one number, so it’s easy to track and compare over time.
- Scalability: It works whether you’re managing a small local plan or a national program.
- Budgeting Tool: It helps teams create accurate budgets and forecasts.
- Performance Tracking: It shows whether care management programs are saving money or not.
- Benchmarking: PMPM allows comparisons between plans or regions.
What are the Challenges and Limitations of Using PMPM?
Some of the issues include:
- Misleading Averages: A low PMPM might look good, but it might mean people aren’t getting the care they need.
- Individual Risk: Someone with a chronic illness may spend more but need more care. PMPM doesn’t adjust for that automatically.
- Short-Term View: It focuses on monthly numbers. Sometimes better care means spending more now to save money later, which PMPM doesn’t capture well.
How PMPM Is Used in Value-Based Care?
In the traditional model, healthcare providers are paid for each service they deliver (called “fee-for-service”). But this can lead to unnecessary treatments and high costs.
In value-based care, providers are rewarded for keeping people healthy and avoiding unnecessary costs. Often, they are paid a PMPM fee to manage the care of a population.
If they keep PMPM costs below a certain level, while maintaining or improving quality, they get to keep the savings. This aligns financial incentives with better patient outcomes.
In Summary
- Per Member Per Month (PMPM) is a key healthcare metric that tracks the average cost or revenue for each member every month.
- It helps insurance companies, healthcare providers, employers, and government programs manage costs, set premiums, and measure care efficiency.
- While PMPM offers simplicity and valuable insights, it also has limitations, especially when used without considering individual patient needs or long-term outcomes.
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