May 14, 2010

The Honorable Kathleen Sebelius
Secretary
U.S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, DC 20201

RE: DHHS-2010-MLR, Request for Comments Regarding Section 2718 of the Public Health Service Act

Dear Secretary Sebelius:

On behalf of The Hospital & Healthsystem Association of Pennsylvania (HAP), which represents approximately 250 member institutions, including 125 stand-alone hospitals and another 120 hospitals that comprise 32 health systems across the Commonwealth of PA, we are pleased to comment on the medical loss ratio (MLR) provision of Section 2718 of the Public Health Service Act (PHSA), as established by the Patient Protection and Affordable Care Act (PPACA). Currently, the four Pennsylvania Blue Cross plans and health maintenance organizations (HMOs) that are PA licensed insurers file quarterly and annual financial information with the Pennsylvania Insurance Department including the medical loss ratios by lines of business such as commercial, Medicare and Medicaid. These MLRs are made available to the public. We believe that it will be a step in the right direction to have more consistent standards with which insurers have to establish MLRs and for there to be greater transparency in the process.

HAP understands and agrees with the objective of establishing reporting obligations and MLR standards on health insurers such as those imposed by Section 2718 of the PHSA for the purpose of ensuring that a minimum percentage of health insurance premiums are used to pay for health care services or activities that improve health care quality for enrollees. We support the movement toward a system that is more transparent and we concur with the four principles suggested by American Hospital Association (AHA). Therefore we recommend that the following AHA principles be incorporated in the regulations that govern the implementation of the new MLR provision:

• only payments to licensed professionals and entities for health care services should be classified as health care services;
• costs and expenses that are classified as activities that improve health care quality need to meet specific criteria;
• loss adjustment activities should be counted as administrative costs because they do not provide health care services or improve quality; and
• the process for the calculation and reporting of MLR by health insurers should be transparent and subject to oversight.

According to Section 2718 of the PHSA health insurers would be permitted to add their costs for “activities that improve health care quality” to their costs for “reimbursement for clinical services provided to enrollees” for purposes of calculating their MLR under the PPACA. We have concerns about the permission being granted to health insurers in this fashion and we feel strongly that the MLR regulations that are adopted need to provide enough specificity to ensure that health plans cannot subjectively and arbitrarily determine what activities do and do not improve health care quality. As per the AHA’s recommendation we believe that in order for an activity to be deemed one that improves health care quality it has to be distinct from those that are designed to limit services and or reduce expenditures such as utilization management. Strictly cost saving initiatives need to be excluded whereas activities that have been shown to improve patient’s health through measurable outcomes should be included. We would caution that the addition of the health care quality component should not be construed to permit health insurers to reclassify as health care quality costs what the insurers historically considered to be the administrative costs of doing business. Finally, insurers should not be permitted to determine without clear definition and guidance what services are defined as clinical or what activities will improve the quality of health care for an enrollee.

Establishing the new insurance market rules, such as MLR, should be conducted with as much transparency as possible. This is important not only for health care stakeholders but also for health care consumers who may use this information in making their decisions regarding the selection of insurance coverage. As noted in the National Association of Insurance Commissioners (NAIC) consumer representatives April 30 letter, consumers should be able to see exactly how much their insurer is paying on claims and therefore, insurers should be required to report on the payment of claims separately from the total amount they report in their MLRs.

HAP appreciates the opportunity to provide these comments to you and to engage in the development process of revamping our health care delivery system. We look forward to continuing to work with you as you implement health reform. If you have any questions, feel free to contact me at (717) 561-5344 or HAP staff, Pamela Clarke, Vice President of Healthcare Finance and Managed Care at (215) 575-3755 or Michael Strazzella, Vice President of Federal Relations at (717) 561-5352.

Sincerely,

PAULA A. BUSSARD
Senior Vice President
Policy & Regulatory Services