Can implementation costs related to interoperability be classified as Quality Improvement Activity (QIA) expenses rather than administrative costs for purposes of Medical Loss Ratio (MLR) calculation?

Yes, for Qualified Health Plan (QHP) issuers on a Federally-Facilitated Exchange (FFE), if the criteria described in section 2718(a)(2) of the Public Health Service Act and its implementing regulations at 45 CFR part 158 are met, implementation costs related to interoperability may be classified as QIA expenses rather than administrative costs for purposes of MLR calculation. There are similar standards required for QIA treatment that are applicable to Medicaid Managed Care Plans (MCOs, Prepaid Inpatient Health Plan [PIHPs], and Prepaid Ambulatory Health Plan [PAHPs]) under 42 CFR 438.8(e), ^[15] Children’s Health Insurance Program managed care entities under 42 CFR 457.1203(f), ^[16] MA organizations under 42 CFR 422.2430, and Part D sponsors under 42 CFR 423.2430. ^[17] An entity’s MLR is generally calculated as the proportion of revenue spent on clinical services and QIA. There are specific criteria an expense must meet to qualify as a QIA expense, such as being designed to improve health quality and health outcomes through care coordination.

QHP issuers should work with their Plan Management contacts for additional information and to submit MLR reports. Medicaid managed care plans should work with their state partners to ensure expenses are accurately reflected in their MLR reports in accordance with their contractual requirements. Additional guidance regarding the MLR calculation and reporting requirements for MA organizations and Part D sponsors is available at: https://www.cms.gov/Medicare/Medicare-Advantage/Plan-Payment/MedicalLossRatio.html.

Footnotes

• ^[15] Expenditures for health care quality activities may be included in the MLR numerator if they are in at least one of three categories specified in 42 CFR § 438.8(e)(3), which includes expenditures that (i) meet the requirements of 45 CFR § 158.150(b) that are not excluded by 45 CFR § 158.150(c) or (ii) are related to Health Information Technology and meaningful use, meet the requirements placed on issuers found in 45 CFR § 158.151, and are not considered incurred claims, as defined in the regulation.
• ^[16] CHIP managed care entities must calculate an MLR using the same standards as used for Medicaid managed care plans at 42 CFR § 438.8.
• ^[17] The MA MLR regulations do not fully track or overlap the MLR requirements of the other programs for QIA so plans and organizations are strongly encouraged to review the MA regulation.