3 MLR Questions Payers, Providers Should be Asking

On the surface it may seem to hospital financial leaders that the medical loss ratio (MLR) regulation doesn’t really impact hospitals and health systems, however, as I noted in last week’s column, there’s more to this policy than meets the eye for providers.

MLR, which took effect Jan. 1 has broad implications for federal and state healthcare expenditures. This policy addresses the amount of premium dollars spent on a member care by payers and the ripple effect will affect providers.

Under the Patient Protection and Affordable Care Act there is now a mandated minimum threshold that insurers must comply with regarding spending on member care. For instance, the amount of the premium spent on member care would be 85 cents on the dollar for large groups and for smaller groups it would be 80 cents on the dollar. A large group would be an IBM or a General Electric vs. a smaller group would have approximately 20 members or less.

Three important questions are emerging from this policy:

1. Where will payers look to find ways to cut costs to compensate for the losses from MLR? 
2. What are the broader implications of this policy for providers?
3. What can providers and payers do to comply with this regulation?

Brenda Snow, executive vice president of strategic planning, for the Kentucky-based Firstsource, a global provider of revenue cycle management services, works with both payers and providers and she offers her thoughts on these critical questions.

1. Where will payers look to find ways to cut costs to compensate for the losses from MLR?
   They’ll have to review areas where there are administrative functions that can be cut, as opposed to medical expenses. This could possibly be their call centers or their claims adjudications areas. Also, they’ll need to look at how they spend in those areas and determine if these are areas of core competency or can they improve them through automation, such as creating patient portals so patients can better manage their own care. Lastly, the payers are really going to need to make a paradigm shift regarding how they manage patient’s care—instead of managing chronic care, now they need to focus on wellness and preventative care.
   
   
2. What are the broader implications of this policy for providers?
   Payers are going to need people with different skill sets to work with patients on preventative care, such as life coaches and nutritionists. For insurers this hasn’t traditionally been something they offered as member care—but they’ll need to now. Also, payers are also going to have to work with patients and providers to improve the quality of care and try to prevent illnesses or disease. 
   
   The potential ripple effect of this for providers is if the payers are using more funds toward member care then ideally over the long-term it should result in members being healthier. That in turn would result in a loss of inpatient admissions … in theory hospitals should see a decline in those, and it would directly impact their volumes.
   

3. What can providers and payers do to comply with this regulation?
   Hospitals and payers will need to continue to look at new mechanisms for reimbursement and shift away from episodic and disease state care. They will have to work toward prevention and wellness. They also need to look at different reimbursement models and changes that can be made to current models to incentivize prevention and wellness.
   
   Providers and payers are going to have to start a real dialog around this topic. A number of payers and providers are experimenting with this [different approaches to reimbursement for wellness care] already and they’ve become very creative, using approaches like group appointments. In the future, payers may reimburse more for group appointments than they’ve done in the past to achieve the long-term goal of prevention and wellness. The payers new goal is to keep patients healthier and out of the hospitals, and that’s should cost them less in the long-term.

Of course, Snow is right: If the payers reduce their costs long-term then that’s better for them, but also better because it means healthier patients. Moreover it’s a good reminder that providers also need to think differently now in order to stay ahead of the curve too. Hospitals and health systems need to invest more of their attention and dollars on outpatient and preventative care programs; lest they suffer financial losses when their inpatient volumes dwindle. It’s truly the circle-of-life for the patients, payers and providers—everyone’s ultimate health or demise depends on the other person moving in the same direction to stay healthy.