Healthcare War! Hospitals, Doctors, Insurers Spar Over Defining Medical Expenses

(MoneyWatch)  In the implementation of healthcare reform, the most important battleground for health insurers is the Affordable Care Act's requirement that they spend a minimum percentage of their premiums on medical care -- 85 percent for large-group plans and 80 percent for plans covering individuals and small companies. So the insurance companies are fighting tooth and nail to ensure that the official definition of what constitutes a medical expense is as broad as possible.

If the insurers fail, they'll feel the impact on their bottom lines as soon as the requirement becomes effective on Jan. 1. But it's still unlikely that plans will exit the individual and small-group markets, because those will be major growth areas when the ACA expands coverage to roughly 16 million non-Medicaid recipients in 2014.

The fight over this issue entered a new phase recently when the National Association of Insurance Commissioners (NAIC) issued a proposal defining which insurance company expenses can be defined as patient-care-related. This proposal, which literally fills in the blanks on forms that the plans will have to submit to state insurance departments, must be approved by the U.S. Department of Health and Human Services (HHS). So we can expect one more all-out assault by the insurers before HHS gives the NAIC a green light.

The NAIC proposal, according to American Medical News, would allow insurers to include as patient-care expenses "discharge planning, case management, care coordination, chronic disease management, and health information technology expenses related to preventing hospital readmissions and reducing medical errors."

But insurers wouldn't be able to include efforts to combat fraud and abuse by providers, or expenses incurred in reprogramming their computer systems to accommodate the new ICD-10 diagnostic code set that must be adopted nationally in 2013. In addition, expenses related to concurrent or retrospective review of doctor and hospital services would be excluded from the definition of patient care. (Prospective review, or the pre-authorization of these services, would be included, however.)

Doctor and hospital associations greeted the NAIC proposal warmly, especially the provision barring the inclusion of auditing costs. But America's Health Insurance Plans (AHIP), the industry trade association, sent the NAIC a letter asking it to reconsider some of its decisions. For example, AHIP claimed that fraud prevention and detection are essential to improving healthcare quality because it forestalls harm to patients. Similarly, the association argued that retrospective review should be included to the extent that it "identifies patient safety concerns." Furthermore, AHIP said, the conversion to ICD-10 codes, which will cost the insurance industry $12 per member, should be included because it's related to quality improvement.

Whoa! Why should insurance companies, in effect, have their ICD-10 conversion subsidized, while healthcare providers will have to invest in their own financial system upgrades to handle the new billing codes?

And for that matter, why should insurance companies be allowed to claim fraud fighting as a patient care expense, when it increases their bottom lines? The same could be said of concurrent and retrospective reviews, which, while they have a quality component, are aimed mainly at ensuring that insurers don't pay one more dollar for care than they have to.

Ironically, the minimum patient-care spending provision of the ACA is not designed to improve quality, at all. Instead, the purpose is to make sure that insurers don't pump up their premiums purely to reward shareholders and executives. But in the end, the law will achieve neither goal. Because just as surely as water runs downhill, the insurance companies will find a way to preserve their profits.

Image supplied courtesy of Wikimedia Commons.
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