By Dr. Suman
(Dr. Suman is a clinician with Masters in Healthcare Administration with over 5 years of experience in medicine and Healthcare IT domain.)
Around the country there is a deep concern. With an exponential rise in the medical cost do the consumers of healthcare get a high valued coverage for the money that they pay to their insurers towards accessing care services? As an answer to this long standing question- The PPACA (Patient Protection and Affordable Care Act) directed MLR (medical loss ratio) mandate seems to assure the Americans that now the bulk of the premium dollars spent towards the access of healthcare services are no more going for bureaucracy, profits and executives pay but, will be incurred towards providing them with quality care services. A failure to achieve the mandated thresholds (large group insurers to spend at least 85 percent of premium on medical care and quality efforts, and small group and individual plans to spend at least 80 percent of premium on medical care and quality efforts) will further bind their payers in offering them substantial rebates.
But, this may not be the end…. If one deep dives into this concept, the unaddressed minimum MLR requirement might even lead payers to experience compromised revenue margins, gross administrative inefficiencies, reduction in market shares, drift in the enrollment curve, rise in premiums, budgetary constraints to support reform centric capital business projects and even challenges to offer better product and services. Such numerous unfolded implications will ultimately make payers (both short term aggressive and long term strategist) to change their operational model and way to compete in this market.
Certainly, commercial and government payers alike have been long looking for ways to stem the amount spend towards their administrative functions (like payment reviews, broker commissions etc). However, within an existing complex fiscal environment the recent challenge to attain the directed MLR threshold is never going to be an easy-to-fix problem. This new playbook needs to be dealt with a comprehensive approach such that Payers can scrutinize to cut their overhead administrative costs, invest more in quality medical services and simultaneously achieve higher margins within a minimum MLR environment. Focus should be on adopting processes and methodologies or streamlining the existing operations in a way that brings down the cost involved in enrollment, brokerage, claims adjudication, provider credentialing, contract negotiation. Simultaneously these processes/methodologies should help in improving the utilizations of the care services, preserving functions like protocol-based clinical services, tracking of the hospital readmissions and unwanted procedures performed, reducing the instances of fraud and abuses etc, all that will result to a operational cost prohibitive but quality optimized business function.
Payers also have to understand and adopt the right strategic model to approach and engage consumers evaluating the correlations of factors that indicates how one of them is more amenable to an intervention than another. This can only be accomplished by leveraging some very refined data mining, predictive analytics and modeling tools that helps to transform information into strategic assets facilitating better decision making, building a competitive advantage through appropriate financial delegations for quality care services. Agreed, that this is not an un-attempted task by health plans. But what remained unaddressed is the actual ability to bring…share information and establish the best practices, identify the right cohort, and create the communication so that right action is taken at the right time and the overhead cost that is spent in handling the unwanted situations through executive interventions are rationalized. All of that was missing; needs to be addressed today for the mandated MLR.
Payers must begin to understand the financial and operational ramifications MLR will have on their organization. Traditional business models will require reevaluation, as redefining medical spending to make the mandated percentiles attainable is just one way insurers might adapt to this new legislation. Additionally, there is also a need to assess each of the existing pricing levers that will help to reduce their operational cost, use any triggers that will help them in understanding the preventive action needed to be implemented to offset the implied impacts of the law, monitor any metric that will be an indicator for their MLR non-compliance and will require further investigation or invocation of an immediate action plan. The intention will be to create the right mix and balance of services which in long term will allow in controlling the potential trend in the growth of administrative cost – finally building a quality care incentive, sustainable, consumer centric, competitive business model. Realizing that the potential premium refunds kick starts this year, it is essential that plans begin to understand and strategize to address the short term and long term impacts of this requirement.
And.. in case you haven’t seen it yet, Medical Loss Ratio Explained: