Out of Network Claims Cost Containment Strategy : Don’t Damage MLR

Out of network health care claims are the poster child for inefficiencies in healthcare.   Health care insurance firms (“health plans” or “payors”) always provide incentives for their insured members to use an in-network health care provider at a contractually negotiated lower rate.  When members choose to go out of the contracted network, the patient / member may usually do so but at a stiff pricing penalty.   Usually health plans will only cover fifty percent to seventy percent of the billed charges, and the member must make up the difference in out of pocket cash.  This is expensive for all parties.

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hospital system and heatlh plan benefit as well as self-insured employer

Inefficiencies in Claim Reimbursement

One overlooked area is the length of time required for health care providers who are out of the network to get reimbursed.  Average reimbursement time for such claims can be 90 days, with most falling within 58 to 120 days.

Recession and Regulations Will Increase Demand for Claims Settlement and Cost Containment Solutions

During the recession, solutions have focused more on cost take out rather than increasing the top line revenue with companies.  Out of network claims settlement solutions have gained traction as a way to assist in lowering the cost of healthcare while increasing speed of reimbursement.  In general, immediate cash is more important now than ever for health care providers who operate on thin margins with long receivables for claims.

New regulations such as HIPAA ICD-10 and HIPAA 5010 tend to at least temporarily slow claims adjudication and reimbursement, further increasing the demand for solutions that address these issues.

Affordable Care Act Mandates Compliance to Medical Loss Ratio

The Affordable Care Act requires health insurance issuers to submit data on the proportion of premium revenues spent on clinical services and quality improvement, also known as the Medical Loss Ratio (MLR).  Unfortunately, most of the vendors providing these solutions charge the health plan a fee for this service which must be considered an administrative expense rather than a medical expense.  This creates another problem for health plans who are required to adhere to Medical Loss Ratio (MLR) rules.  By these rules, a health plan must pay out eighty five percent (85%) of the member premiums paid in.  In other words, health plans can only take 15% of their revenues off the top for operating, IT expense, wages, etc.  If health plans fall below 85% MLR they must pay rebates to their members.

Since most of the cost containment and settlement solutions vendors do charge the plan, this actually works against the health plan’s ability to manage their expenses and comply with regulations.

Best Practice Strategy

Health plans should look to solutions that support the MLR calculation and regulations, and maximize the speed and the amount of reimbursement to the provider.  Claims settlement solutions that support these regulations do not charge the health plan for their services.

Health care providers should seek to maximize the speed of reimbursement, while limiting the discounts to accelerate cash flow.

Our firm can recommend a solution that achieves both goals.


Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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