Insurers that own medical clinics may be able to use these relationships to game medical loss ratio requirements, according to a new analysis.
The Health Affairs Forefront article, written by experts at consulting firm Bailit Health Purchasing, notes a recent study found that across several states in 2023 there was a significant increase in payments that were not related to specific claims, particularly in Medicare Advantage (MA).
Generally, the consultants said, this is viewed as a positive as it indicates that value-based care models are making an impact and shifting payments away from traditional fee-for-service paradigms. However, they warned it could signal that vertically integrated companies are also leaning on these relationships to "weaken" the impact of MLR requirements.
Under the Affordable Care Act, insurers are required to spend at least 80% of premium revenue on medical care in the individual and small group markets, and the ratio rises to 85% in large group coverage. In 2024, the Centers for Medicare & Medicaid Services also established an MLR requirement of 85% in MA and Part D.
If they can't meet these thresholds, insurers must rebate the excess revenue to the feds.
The paper, however, outlines a scenario where a vertically integrated insurer treats a patient at one of its in-house clinics, and then a patient covered by a different payer also visits that location for the same care. The provider charges a $300 cost for the services rendered to the outside payer.
However, the integrated insurer pays the provider $500 for that service. That $200 does not account for enhancements to care or additional services, but makes progress toward the medical loss ratio despite the revenue remaining within the same overall company.
"There is no MLR requirement for providers," the analysts said. "This creates an incentive for the insurer to direct spending to these affiliated provider entities, which may charge inflated prices, allowing the insurer to increase its reported MLR without delivering more care or improving quality."
They added that alternative payment models could make it easier to mask these types of actions as prices are reported differently than in fee-for-service; for instance, as a full episode of care rather than by individual service rendered.
The analysts note that there aren't currently standards in place to track whether vertically integrated firms are engaging in practices to skirt MLR requirements. However, as the industry becomes more consolidated, it's key to ensure stakeholders are keeping a critical eye on the behaviors of these firms.
For example, a Stat report in 2024 found that UnitedHealth Group, the parent company of UnitedHealthcare and thousands of doctors part of Optum Health, pays its own physicians more than others in the same markets. And a Wall Street Journal story from September 2023 found insurers and pharmacy benefit managers overcharge for generic drugs when they're purchased within their own networks.
Policymakers are taking notice of these trends, especially as overall medical costs and spending continue to rise. Bipartisan requests to both the Federal Trade Commission and the Government Accountability Office seek greater insight on whether vertically integrated companies are gaming MLR.
In addition, the analysts said policymakers should be thinking about whether existing guardrails are enough in the current market.
"Policymakers should also reassess whether, given these market dynamics, current regulatory tools such as the MLR are adequate," they said. "Addressing these issues will be essential for maintaining the integrity of cost containment efforts and ensuring that healthcare dollars are spent on delivering meaningful care."