Healthcare reform is changing how everyone transacts business in the industry, and that’s not just providers but also payers. Of course, when payers’ profits diminish, providers can expect to feel it too. Now that 2011 has arrived, payers will start to feel the pain of the medical loss ratio taking effect, which means hospital and health system financial leaders should prepare themselves for contract negotiations that may require them to think outside the norm, and work with payers.
Under the Patient Accountability and Affordability Act, the MLR is an attempt by the government to discourage insurance companies from spending a substantial portion of consumers’ premium dollars on administrative costs and profits, including executive salaries, overhead, and marketing. The reasoning is that consumers should receive more value for their premium dollar.
Starting this year, regulations require health insurers to spend 80% to 85% of consumers’ premiums on direct care for patients and improving quality of care, rather than on administrative costs. If payers fail to do so, they must provide a rebate to their customers starting in 2012. The Department of Health and Human Services released the regulations in November along with a fact sheet.
Insurers have to make up their loss in funds somehow, and that’s the question: How? Note, that payers do have a possible way out. The MLR percentage can vary from state to state if the Federal secretary of state approves an adjustment to the standard. The only way to get that adjustment is if the secretary deems that meeting the 80% standard would destabilize the individual state market and that it would result in fewer choices for consumers.
Most healthcare experts believe that getting a state adjustment in most instances is unlikely, which means that payers need to recoup these losses in order to maintain the status quo. While you can certainly anticipate that your contract negotiations will be more rigid this year, payers are also inclined to find other ways to tighten their belts—and that’s where providers can actually help.
Karen Van Wagner, Ph.D. and executive director for North Texas Specialty Physicians in Fort Worth, TX, agrees that the MLR regulation has the potential to improve the relationship between payers and providers. She should know. The 600-physician, independent physician association is both a payer and a provider. NTSP offers a Medicare PPO through a wholly-owned subsidiary named Care N' Care.
“As a payer we're planning on complying [with MLR] by first evaluating our benefit set. We’ll take a look at the regulation to see what other activities we can do to meet MLR … such as improving care management, quality improvements and electronic health exchange,” she says.
As payers begin to look within for ways to save money on their administrative costs, they may find that they need to look to providers to help them (a point of negotiating leverage which providers should keep in mind). You see, if payers work with providers to improve claims processing by encouraging the use of technology for swifter and more accurate exchange, then payers would be able to save money on the cost to process claims (and so would providers).
“Prior to the health information exchange, if we wanted details on a claim, we had to go to the claims files or the physician. The big change for us is having the ability to get a real-time slice of the data and it combines claims and clinical information,” she says.
Payers could take things a step further, too, as NTSP has already done. In 2007 they founded Sandlot, anotherwholly owned subsidiary, which offers providers three technology services: e-prescribing, electronic medical record-keeping, and an integrated and flexible data and information exchange system for sharing medically related information.
Currently 1.5 million people use their system and it enables them to process at a minimum 50,000 clinical transactions a day. But one of the key features of the system is the point-of-care prompts.
Point of care is another area where payers may be looking to providers to work with them, says Van Wagner. The process is actually quite simple. When patient X arrives for any routine appointment, if there is another routine preventive care procedure needed, then the payer’s system can prompt the provider to schedule it.
“Before medical loss ratio, payers had looked into this but they weren’t all that interested. As soon as medical loss ratio regulation came out, however, they [payers] started to perk up and ask questions. Now there’s a reason to participate and that’s a good thing,” says Van Wagner. “I view this as a nifty opportunity; we think the use of a point-of-care model is where there is the greatest return for the patient, and it’s transforming how we do things.“
Indeed point-of-care models do have the potential to be a very good thing for payers, providers and patients. It is certainly an idea that’s long overdue (especially when you consider that the automobile industry has been manufacturing cars for nearly a decade that remind drivers to get routine maintenance). The takeaway in all of this for hospital and health system financial leaders is to remember that the MLR regulation has the potential to make your payer negotiations sour or sweet. It really depends on how willing you are to work with your payers to help them control their costs without cutting your reimbursements.
See next week's finance column for tips on MLR.
Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
