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Regulatory Issues

Reform’s new MLR mandates: Challenge or opportunity?

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.

By Eric Demers

asteful spending is one of the primary targets of healthcare reform. Defi ned as costs that can be avoided without impact- ing the quality of care, some estimate that it accounts for more than half of healthcare’s annual $2.2 trillion annual price tag. More specifi cally, a Pricewater- houseCoopers Health Research Institute report, “The Price of Excess, Identifying Waste in Healthcare Spend- ing,” 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).


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.

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. Specifi cally, it is the minimum per- centage 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 counter- productive. Some fear that they’ll increase administrative costs and lower the amount paid for activities that promote

8 June 2011

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 defi nitions of the specifi c activities considered to be clinical and/or quality related within the MLR mandates. It has delineated these activities into fi ve distinct categories intended to: 1. Improve health outcomes; 2. Prevent readmissions; 3. Improve patient safety and reduce errors; 4. Increase wellness programs; and 5. Utilize health information technology for quality im- provements. 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 over- abundance 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 under- standing 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.


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