As private payers explore ways to cut health care costs and reduce utilization, they are increasing their use of contracts with third-party administrators (TPAs) to perform utilization management (UM) and utilization review (UR) of the physical therapy services.
This increasing use of UM/UR services is due in part to growth in physical therapy expenditures, but it also is a result of a provision of the Affordable Care Act called the medical loss ratio (MLR). The MLR is intended to limit insurer profit by requiring that payers spend a minimum percentage of dollars from insurance premiums on medical care, as opposed to administrative costs. Midsized insurers (individual insurers and businesses with 1 to 100 employees) are required to maintain an 80/20 ratio—meaning that at least 80% of premium dollars is spent on medical care, and no more than 20% is spent on administrative costs. Large-group plans (employers with more than 100 employees) must maintain an 85/15 ratio. If an insurer does not achieve the ratio, it must pay a penalty in the form of customer rebates.
While rebates to consumers may be viewed as beneficial, the MLR also has produced unforeseen consequences, such as the outsourcing of UM/UR. When a payer perform its own UM/UR, the expense is considered administrative under the MLR. If, however, the payer outsources UM/UR to an external vendor that offers quality-improvement services including prospective and concurrent review, UM/UR is considered a medical expense, which can be included in the medical care portion of the MLR. Given this ability to transfer the cost of UM/UR from administrative to medical, the trend toward UM/UR outsourcing can be expected to continue.
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