County Health Plan (CHP), an HMO with 40,000 members, has proposed a new contract that would capitate a hospital for all inpatient services provided to CHP's commercial enrollees whose primary car physicians are affiliated with the hospital. The proposal calls for a capitalization payment of $35 PMPM for the first year of the contract The hospital's managers must decide whether to accept the proposal.

Why does utilization management play such an important role in pricing ad service decisions under capitilization?

County Health Plan (CHP), an HMO with 40,000 members, has proposed a new contract that would capitate a hospital for all inpatient services provided to CHP's commercial enrollees whose primary car physicians are affiliated with the hospital. The proposal calls for a capitalization payment of $35 PMPM for the first year of the contract The hospital's managers must decide whether to accept the proposal.

Why does utilization management play such an important role in pricing ad service decisions under capitilization?