Healthcare reform will undoubtedly bring its share of challenges, but meeting the new medical loss ratio requirements doesn't have to be one of them.
Wasteful spending is one of the primary targets of healthcare reform. Defined as costs that can be avoided without impacting the quality of care, some estimate that it accounts for more than half of healthcare's annual $2.2 trillion annual price tag. More specifically, a PricewaterhouseCoopers Health Research Institute report, “The Price of Excess, Identifying Waste in Healthcare Spending,” blames wasteful spending primarily on the practice of defensive medicine ($210 billion), patient non-adherence ($100 billion) and unnecessary emergency room visits and admissions ($39 billion).
One of the primary ways reform seeks to address the wasteful spending epidemic is by revising medical loss ratio (MLR) mandates throughout the system. Get used to hearing and reading the term MLR, because it's poised to be one of the industry's biggest hot-button issues as reform takes hold. Specifically, it is the minimum percentage of premiums health plans must devote to clinical services and quality-improvement efforts (as opposed to executive salaries and/or other overhead). Starting this year, the reform law requires large group insurance plans to spend at least 85% of premiums on claims and quality improvements; for small group and individual plans, the spend is capped at a minimum of 80% of premiums. And if these ratios aren't met, insurers are required to refund the difference to policyholders beginning in 2012.
Initially, the revised MLR standards — which, ultimately, are designed to promote coordinated care through more thorough medical management — would seem counterproductive. Some fear that they'll increase administrative costs and lower the amount paid for activities that promote healthcare quality — particularly in light of the fact that reform is expected to bring around 50 million currently uninsured people into the ranks of those with coverage. It's not a stretch to conclude that the sheer volume of newly insured will drive costs through the roof while care quality suffers even further.
Thankfully, the Department of Health and Human Services (HHS) has devised a plan to address this. HHS has adopted uniform definitions of the specific activities considered to be clinical and/or quality related within the MLR mandates. It has delineated these activities into five distinct categories intended to:
Improve health outcomes;
Improve patient safety and reduce errors;
Increase wellness programs; and
Utilize health information technology for quality improvements.
To a large degree, the new MLR regulations are built on a belief that keeping people healthy is less expensive than treating them when they're ill. Again, it comes down to more coordinated and proactive care management to address the inordinate numbers of chronically ill, the overabundance of duplicative and unnecessary services and the rampant provider overutilization that accounts for most of today's wasteful spending. Fully understanding the factors like these that contribute to waste now is as important as formulating strategies to remedy them in the future.
So, what options are there for health plans that might be facing MLR issues in this aforementioned future?
First, members need to be more active in their care. Too often, chronically ill patients have little or no understanding of their responsibilities in the care process. This is where poor drug and protocol adherence exists. Thanks to e-mail, text messaging, mobile phone applications and other communications advancements, health plans can interact with members today more easily than ever. And as these exchanges evolve, health plans will increasingly need more actionable, clinically validated data. This will enable more effective case management and drive demand-side wellness programs.
It's also necessary to deliver information to the point of care. Most patients see more than one provider, something even more prevalent among the chronically ill. Making each clinician aware of the procedures, medications and tests the others have implemented focuses and improves care. It also addresses the problem of duplicative services and helps eliminate waste. Through health information exchanges, real-time data can be delivered to providers in virtually any format and through a multitude of devices to provide a consistent and more complete view of each patient's medical situation.
We must also start better aligning incentives for payers and providers to address the problem of provider utilization. As reimbursement models shift from the traditional fee for service to patient-centered medical homes and accountable care organizations (two other concepts strongly advocated in the reform law worth noting), providers will be encouraged to proactively engage with patients because providers will share in generated savings. Value-based insurance design concepts will have a similar impact. All of this will require advanced technology that can simply and easily identify and reach those patients most in need of help, and task management tools to link multiple providers and health plans so that care can be optimally and appropriately coordinated.
Excessive costs, particularly those generated by the chronically ill, can also be controlled through medication management therapy (MTM). In this approach, analytics technology is applied to the available medical information for individual patients to enable better therapy adherence, avoid drug interactions and identify proper usage of generics. It has been shown to help identify and enforce the best use of drugs and decrease ER visits and admissions. In some cases, it has produced a 4:1 return.
Together, each of these methodologies can help foster more coordinated medical management. And, under reform, the cost of implementing them can be attributed to MLR.
Healthcare reform will undoubtedly bring its share of challenges, but meeting the new MLR requirements doesn't have to be one of them. With the right technology, it can actually be an opportunity.
Eric Demers is executive vice president and chief strategy officer at MEDecision.
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