3 strategies for payers to curb increasing medical loss ratios

As health plans benefit from continued enrollment growth in 2024, particularly in the Medicare Advantage space, they’re also experiencing a convergence of several pressures that are driving higher medical loss ratios (MLR). In the most drastic scenarios, some payers have seen their stock prices tumble as their MLRs have soared above 90%, which is well above the statutory requirement of 80–85%.  

In my direct conversations with health plans, the pressures they most often cite include: 

• Inflation: Healthcare is no exception to ongoing cost increases squeezing the entire U.S. economy, with private payers and Medicaid bearing the heaviest burden.
• Greater chronic care incidence: As seniors continue to flock from traditional Medicare to Medicare Advantage, plans are now caring for a population with a larger illness burden.
• Provider consolidation: As individual providers and hospitals continue to join large health systems to improve their financial sustainability, providers attempt to increase negotiating leverage over the health plan network when it comes to pricing and other factors such as payment integrity measures.
• Reimbursement: Payers are seeing lower reimbursement rates in Medicare Advantage and inadequate rates in Medicaid even as they care for larger and higher severity populations.
• Utilization: The sharp bounce-back from the COVID-19 pandemic that occurred in 2023 continues to persist as healthcare consumers become increasingly comfortable seeking preventive care and catching up on backlogs in elective procedures.

As they look to avoid drastic measures such as layoffs or cutting benefits to improve their sustainability and continue to provide their members with high-quality care, here are three strategies for health plans across all lines of business to consider in the second half of 2024 and beyond.

Invest (or reinvest) in prepay integrity measures

You likely already have some kind of prepay claim editing system in place to help ensure compliance with your claim policies—but what’s slipping through the cracks? Adopting a second-pass or final-filter claim editing system has consistently proven to deliver significant value from avoiding payment of inappropriate claims. On top of this, adopting expert-driven coding validation for prepay review of complex coding errors helps ensure that scenarios such as abuse of Modifiers 25 or 59 don’t slip through your system.

For one large Medicaid payer, this approach reduces inappropriate claim spend by $200 million per year incremental—with zero upfront cost due to Cotiviti’s shared savings model. Notably, the client sees Cotiviti’s service model as the primary differentiator over other vendors, forming strong, collaborative relationships with client medical directors and payment integrity executives to select payment policy appropriate for their plan.

Contain rising pharmacy costs

Prescription drug costs rose more than 8% in 2023—and drugmakers’ profits continue to rise. While prescription drug claims are often paid by separate pharmacy benefits, specialty drugs, which are among the most expensive, are typically paid through the health plan’s medical benefit. Ask your payment integrity vendor what policies and solutions they have specifically targeting rising pharmacy costs to ensure these increasingly expensive medications are paid for appropriately and accurately. In addition, ask your vendor about using paid pharmacy claims to inform medical drug claim editing.

Pair AI with clinical expertise

Artificial intelligence (AI) is neither a catch-all solution to every problem nor something that should be feared. It’s simply one of many advanced tools that a health plan should look to deploy as part of its toolbox for controlling inappropriate healthcare costs. For example, it can be used to help payers reduce the number of medical record requests sent to providers by narrowing the focus to only charts that are likely to yield value back to the health plan. This benefits providers by reducing the number of medical record requests they need to respond to and benefits the health plan by enabling its clinical resources to be used much more efficiently and effectively.

By seeking out payment integrity solutions that deliver not only value, but also innovation and a commitment to collaboration, payers can overcome the historic financial pressures they’re currently facing to help ensure their long-term sustainability, ultimately delivering better benefits and a better experience for their members.