The Centers for Medicare & Medicaid Services has finalized medical loss ratio regulations for Medicare Advantage and Medicare prescription drug insurers, allowing some EHR and ICD-10 set-up costs to be counted as quality improvement and also a range of deductible community benefit expenditures.
CMS is going to apply the Affordable Care Act's MLR to private plans in Medicare Parts C and D -- Medicare Advantage and prescription drug sponsors -- with an 85-15 percent ratio, starting in 2014.
If Medicare Advantage plans or Part D sponsors spend less than 85 percent of premiums on clinical services, drugs, quality improvement or Medicare Part B rebates, the difference will be remitted to CMS. If plans fail to meet the requirement for more than three consecutive years, CMS said they may be subject to sanctions and if they miss the MLR for five consecutive years they may be subject to contract termination.
CMS said that commercial MLR rules were used as a reference point for private Medicare plans, and to a large extent they are, with some differences.
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Commercial plans have been able to count ICD-10 conversion costs of up to 0.3 percent of earned premiums as quality improvement activities in 2012 and 2013. Also included as quality improvement for commercial plans are digital record keeping, technical assistance to providers adopting EHRs, and IT spending "attributable to improving healthcare, preventing hospital readmissions, improving patient safety and reducing errors, or promoting health activities and wellness," as CMS officials wrote in the 2010 interim final rules.
Likewise under the MLR rules for Medicare Advantage and Part D sponsors, plans can count ICD-10 transitions costs up to 0.3 percent of revenue as quality improvement, along with IT expenses that "improve quality, transparency, and outcomes and support meaningful use."
For both Medicare and commercial MLRs, spending on IT used for claims adjudication and processing, is considered administrative or overhead costs under the 15/20 percent category, in addition to activities primarily designed to only control costs, utilization review, fraud prevention and broker fees.
Along with licensing and regulatory fees and federal and state taxes for for-profit insurers, CMS is allowing not-for-profit plans to count community benefit expenditures as deductions from revenue in the MLR for Medicare plans, as it did for commercial health plans.
Community benefit expenditures on health IT for Medicare Advantage plans include EHR incentive payments to Medicare Advantage HMOs, eligible medical professionals or affiliated providers, and EHR payment adjustments for affiliated providers that don't meet meaningful use requirements.
A few commenters on the proposed rules disagreed with the community benefit expenditure deductions, arguing that since Medicare Advantage and Part D plans generally don't pay state taxes on their revenue, federally tax-exempt not-for-profit plans would have an unfair advantage. Others argued that the community benefit category for not-for-profits overlooked non-exempt community investments made by for-profit plans.
CMS responded that deductions for community benefit expenditures by not-for-profits act as a sort of surrogate for tax deductions in the MLRs of for-profit plans. The agency also clarified that under the MLR rules, federally tax-exempt Medicare Advantage plans and Part D sponsors will be allowed to deduct community benefit expenditures up to 3 percent of total revenue or up to the highest premium tax rate in the state they're licensed in -- whichever is higher -- multiplied by the earned premium for the contract.
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In other comments on the rules, some suggested CMS had the discretion to not apply the MLR requirements to Part D plans at all, and that they should be exempted given the volatility of drug plans. CMS countered that an MLR "clearly can be applied to drug costs, as it is under the commercial MLR rule upon which this rule is based." In response to suggestions that the medical and quality expense ratio be lowered to 80 percent, the agency noted that "the 85 percent standard is set in statute."
Organizations sponsoring Part D plans under the Program of All-Inclusive Care for the Elderly (PACE) will be exempted from the MLR, although CMS noted, in response to one question, that drug plans participating in Medicare-Medicaid dual eligible demonstrations have to comply with the MLR unless they are specifically exempted in a states waiver.