eProcurement, Health Plans and Cost Control
Posted on Mon, Nov 28, 2011 @ 02:25 PM
Federal and State programs to implement Health Care Reform (HCR) are now being implemented. Medical Loss Ratio or MLR requirements, the requirements for Health Plans to spend 80-85% of premiums on care, are fully in force. This impact is hugely significant and will require all health insurance companies to closely track and control their medical, quality and member education spending and aggressively reduce administrative expenses which now must be paid for out of the remaining 15 to 20% of revenue.
In many states this same level of cost detail with auditable assignment of costs to products and channels of sale will also be required as justification for any plan rate increases. The Procurement Department, with the right processes and system, can be the point of control for correct administrative expense approval and cost center assignment while at the same time be an engine for real spend reduction.
How to Meet the New Requirements?
Health plans are finding that these mandates greatly increase the complexity of cost tracking.
- Plans must spend at least 80 to 85 percent of premium dollars on medical care and health care quality improvement, rather than on administrative costs. If they don’t, health plans will be required to provide a rebate to their customers starting in 2012.
- Plans must calculate their costs market segment by market segment, unable to average out high cost in one market or product with low cost in another
- Plans must report total earned premiums, reimbursement for clinical services, spending on activities to improve quality; and spending on all other non-claims costs in each state in which it operates
Many insurers are not meeting these requirements according to a report issued by PriceWaterhouseCoopers in May. HHS estimated that rebates will total $ 2 billion to $ 4.9 billion from 2011 to 2013 with some analysts predicting an even higher number. To all health plans, proper control and allocation of administrative expense to product line and sales channel under these circumstances is now of critical importance.
Fortunately, the health Insurance industry can move quickly to not only control but also to significantly reduce administrative cost, and at the same time improve spend value by requiring all administrative spending to follow a single automated requisitioning, purchase and payment workflow, through procurement. The new environment of increased regulation is here and many are realizing that the time to transform the procurement process is now.
For more information about Health Plan cost control and procurement, download the white paper: Controlling Health Plan Costs with eProcurement.
