MLR: Don’t Miss Your Target
As the ink dries on 2016 bids for Medicare Advantage (MA) plans, one important question remains…What to do with summer vacation? Drinks by the pool or a family trip to Disney?
Reality check!
The long hours spent on the bid submission included many spreadsheets with financial projections of loss ratios, per member per month (PMPM) trends, along with cost and utilization drivers. These projections required endless discussions on how to improve contracting and cost strategies as well as benefit designs and medical management programs. Executive assumptions were made to create a rosy picture that would result in an acceptable bid and optimistic market share!
However, the real agenda this summer is to take a hard look at those assumptions based on current trends for membership and utilization. An in-depth financial assessment of your medical and pharmacy claims over the most recent 24 months is an important step toward achieving financial success in the Medicare world.
Waiting two years for the Centers for Medicare & Medicaid Services (CMS) to respond to risk adjustment strategies and quality measures may be too late to ensure financial performance. Let Gorman Health Group (GHG) review your medical and pharmacy drivers across the operations. Our financial and subject matter expertise can help you determine long- and short-term strategies to maintain the required medical loss ratio (MLR) of 85% and build the operational infrastructure to support the bid proactively.
While CMS audits are time-consuming and threaten fines and lost productivity, the threat of missing your MLR target is just as real. If you underpriced your bid to get market share, the excess claims will bleed your bottom line. The MLR regulations require MA and Part D Plan Sponsors to spend at least 85% of combined Medicare contract revenue on clinical services, prescription drugs, quality improvement activities, and direct benefits to beneficiaries in the form of reduced Part B premiums. Plan Sponsors who fail to meet the 85% threshold must remit payment to CMS for the product of:
- The total revenue under the contract for the contract year, and
- The difference between 0.85 and the contract’s MLR.
So an MLR including medical, pharmacy, and quality costs of 83% means returning 2% of the revenue back to CMS. It also means justifying the quality improvement activities.
The margins are thin as is the tolerance by CMS to balance quality and financial performance. If organizations are unable to meet the minimum MLR for three consecutive years, they will also be subject to enrollment sanctions and, for failure over five consecutive years, contract termination.
An assessment now will pay back in performance and visibility across the operations.
Unsure where to start? Contact us here.
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MLR requirements pose new challenges for payers. Gorman Health Group can help your organization interpret the drivers of MLR, and the tactical and strategic decisions a health plan should consider in managing to an MLR that is “just right.” Contact us today >>
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