Sachin H. Jain: How MLR is often a stat that is juked in the ‘value-based’ care world

Sachin H. Jain shared a post on LinkedIn:

”A brief thread on how MLR is often a stat that is juked (h/t to The Wire) in the ‘value-based’ care world.

The medical loss ratio (MLR) is a financial metric used in health insurance and managed health care to measure how much of a premium dollar an insurer uses to pay medical claims and quality improvement activities.

The MLR is also known as the medical care ratio, medical cost ratio, or medical benefit ratio (cite).

Many so-called value-based care models cite their impact in the form of medical loss ratio improvement.

Most innocently assume that such improvement is generated by better medical management (I did when I first started working in the field).

While this may be the case in some models—it is importantly to note that another way to improve a medical loss ratio is be increasing revenue capture in the form of coding.

Said another way, to improve MLR, one can reduce the numerator or increase the denominator.

Therefore, when someone cites a major medical loss ratio improvement—the key question to ask is: did the MLR improve because of true medical utilization reduction or because of better revenue capture?

Most will glibly (and sometimes dishonestly) say ‘both.’

At which point it’s important to ask, what fraction of Medical Loss Ratio improvement arose from better medical management and what fraction from better revenue capture.

Usually, what we will find is that most dramatic improvements in MLR are a function of improvements in revenue capture—and only marginal improvements in medical cost-management.

In that way, the so-called ‘value’ produced by many value-based care models isn’t true value.

It’s better revenue capture.

And many ‘value-based’ care models have been granted undue recognition for medical cost management—citing filthy MLR improvements—that are associated with minimal true improvement in medical expense.

This kind of short-cut taking sets back the whole value-based care movement which (while appropriate revenue capture is necessary) should be about overall better cost management and reducing total cost of care—not better revenue capture alone.”

Source: Sachin H. Jain/LinkedIn

Sachin H. Jain is the President and CEO of SCAN Group and Health Plan and an Adjunct Professor of Medicine at Stanford University School of Medicine. He also serves as a Board Member at The Paul & Daisy Soros Fellowships for New Americans, an Academic Hospitalist (WOC) at the U.S. Department of Veterans Affairs, and a Board Member at America’s Health Insurance Plans (AHIP).