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CMS Has Issued a Final Rule Updating
Medical Loss Ratio to Account for ICD-10
Conversion Costs
The Version 5010
and ICD-10 transitions require
significant changes to software and
database systems, and may necessitate
training for these updated standards and
new coding sets. The Centers for
Medicare and Medicaid Services (CMS)
understands these system conversions can
be costly to implement. To help
alleviate this financial concern, CMS
has released a final rule which
addresses medical loss ratio (MLR),
which now includes provisions for ICD-10
conversion cost considerations.
What is MLR?
MLR is the ratio of total losses paid in
insurance claims divided by the total
earned premiums collected by insurers.
Regulations of MLR mandate that insurers
may only spend 15 or 20 percent of
revenue from premiums on expenses that
are non-clinical, such as administrative
costs, in order to reduce excessive
spending. A minimum level of 85 percent
of revenue for large group markets and
80 percent for small group markets has
been set to be spent only on clinical
costs.
How Does this Change Affect ICD-10?
Under this final rule, insurers may
shift some of the costs associated with
the ICD-10 conversion to the category of
clinical cost, which will be considered
as quality improvement activity.
This will allow up to 0.3 percent of
earned premiums in the relevant state
market to be counted as quality
improvement activity. This specification
of how the MLR is calculated will help
covered entities cover some of the cost
of ICD-10 implementation. ICD-10
maintenance costs and claims
adjudication system costs are still
considered to be administrative, and
thus will fall under the MLR restriction
on non-clinical spending limits.
This
final rule will be effective on
January 1, 2012, and will be open for
public comment until January 6, 2012.
The final rule addresses comments made
in the interim rule published in January
2011.
Keep Up to Date on Version 5010 and
ICD-10.
Please visit the ICD-10
website for the latest news and
resources to help you prepare, and to
download and share the implementation
widget today!
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ICD-10