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Final rule updating MLR to factor in ICD-10 conversion costs

HIM Connection, December 23, 2011

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CMS released a final rule to address the medical loss ratio (MLR) by including provisions for ICD-10-CM/PCS conversion cost considerations. This is intended to alleviate financial concerns associated with the costly implementation of the HIPAA 5010 transaction standard as well as ICD-10-CM/PCS, which both require significant changes to software and database systems as well as extensive training for the new code sets.

MLR is the ratio of total losses paid in insurance claims divided by the total earned premiums collected by insurers. Regulations of MLR mandate that insurers may only spend 15–20%of revenue from premiums on non-clinical expenses (e.g., administrative costs) to reduce excessive spending.

The provisions in this final rule allow insurers to shift some of the ICD-10-CM/PCS conversion costs to the category of clinical cost, which will be considered as a quality improvement activity. This will allow insurers to count up to 0.3%of earned premiums in the relevant state market as quality improvement activity.

This specification of how the MLR is calculated will help covered entities address some of the costs of ICD-10-CM/PCS implementation. CMS still considers costs associated with ICD-10-CM/PCS maintenance and the claims adjudication system to be administrative. These costs will fall under the MLR restriction on non-clinical spending limits.

This final rule will be effective on January 1, 2012, and will be open for public comment until January 6, 2012.

This article originally appeared on JustCoding. View the complete final rule on the Federal Register website.

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