Sec. 10.67.04.19-5. MCO Medical Loss Ratio

A. By September 15 of the second calendar year following the MLR reporting year, each MCO shall provide to the Department a completed MLR Reporting Template, including the MCO attestation and any additional documentation supporting the MLR reporting template.

B. The MLR experienced for each MCO in an MLR reporting year is the ratio of the numerator, as defined in §D of this regulation, to the denominator, as defined in §E of this regulation.

C. An MLR may be increased by a credibility adjustment, in accordance with §G of this regulation.

D. Components of MLR - Numerator.

(1) The numerator of an MCO's MLR for an MLR reporting year is the sum of the MCO's incurred claims, the MCO's expenditures for activities that improve health care quality, and fraud prevention activities.

(2) Incurred Claims. Incurred claims include the following:

(a) Direct claims that the MCO paid to providers, including under capitated contracts with network providers, for services or supplies covered under the contract and services meeting the requirements of 42 CFR §438.3(e) provided to enrollees;

(b) Unpaid claims liabilities for the MLR reporting year, including claims reported that are in the process of being adjusted or claims incurred but not reported;

(c) Withholds from payments made to network providers;

(d) Claims that are recoverable for anticipated coordination of benefits;

(e) Claims payments recoveries received because of subrogation;

(f) Incurred but not reported claims based on past experience, and modified to reflect current conditions, such as changes in exposure or claim frequency or severity;

(g) Changes in other claims-related reserves; and

(h) Reserves for contingent benefits and the medical claim portion of lawsuits.

(3) An MCO shall deduct the following amounts from incurred claims:

(a) Overpayment recoveries received from network providers; and

(b) Prescription drug rebates received and accrued.

(4) An MCO shall include the following expenditures in incurred claims:

(a) The amount of incentive and bonus payments made, or expected to be made, to network providers; and

(b) The amount of claims payments recovered through fraud reduction efforts, not to exceed the amount of fraud reduction expenses, and excluding activities specified in §D(3) of this regulation;

(5) An MCO may include or deduct the following amounts from incurred claims:

(a) Net payments; or

(b) Receipts related to State-mandated solvency funds;

(6) An MCO shall exclude the following amounts from incurred claims:

(a) Non-claims costs;

(b) Amounts paid to the State as remittance under §I of this regulation; and

(c) Amounts paid to network providers under to 42 CFR §438.6(d).

(7) Non-claims costs as described in §D(6)(a) of this regulation include the following:

(a) Amounts paid to third-party vendors for secondary network savings;

(b) Amounts paid to third-party vendors for network development, administrative fees, claims processing, and utilization management;

(c) Amounts paid, including amounts paid to a provider, for professional or administrative services that do not represent compensation or reimbursement for State plan services or services meeting the definition in 42 CFR §438.3(e) and provided to an enrollee; and

(d) Fines and penalties assessed by regulatory authorities.

(8) Incurred claims paid by one MCO that are later assumed by another MCO shall be reported by the assuming MCO for the entire MLR reporting year, and no incurred claims for that MLR reporting year may be reported by the ceding MCO.

(9) An MCO shall include activities that improve health care quality in one of the following categories:

(a) An MCO activity that meets the requirements of 45 CFR §158.150(b) and is not excluded under 45 CFR §158.150(c);

(b) An MCO activity related to any EQR-related activity as described in 42 CFR §438.358(b) and (c); and

(c) Any MCO expenditure that is related to Health Information Technology and meaningful use, meets the requirements placed on issuers found in 45 CFR §158.151, and is not considered incurred claims.

(10) Excluding expenses for fraud reduction efforts in §D(4)(b) of this regulation, an MCO shall include expenditures on activities related to fraud prevention as adopted for the private market at 45 CFR part 158.

E. Components of MLR - Denominator.

(1) The denominator of an MCO's MLR for an MLR reporting year shall equal the adjusted premium revenue. The adjusted premium revenue is the MCO's premium revenue minus the MCO's federal, State, and local taxes and licensing and regulatory fees and is aggregated in accordance with §F of this regulation.

(2) Premium revenue includes the following for the MLR reporting year:

(a) State capitation payments, developed in accordance with 42 CFR §438.4, to the MCO for all enrollees under a risk contract approved under 42 CFR §438.3(a), excluding payments made under 42 CFR §438.6(d);

(b) State-developed, one-time payments, for specific life events of enrollees;

(c) Other payments to the MCO approved under 42 CFR §438.6(b)(3);

(d) Unpaid cost-sharing amounts that the MCO could have collected from enrollees under the contract, except those amounts the MCO can show it made a reasonable, but unsuccessful, effort to collect;

(e) All changes to unearned premium reserves; and

(f) Net payments or receipts related to risk sharing mechanisms developed in accordance with 42 CFR §438.5 or 42 CFR §438.6.

(3) Federal, State, and Local Taxes and Licensing and Regulatory Fees. Taxes and licensing and regulatory fees for the MLR reporting year include:

(a) Statutory assessments to defray the operating expenses of any State or federal department;

(b) Examination fees in lieu of premium taxes as specified by State law;

(c) Federal taxes and assessments allocated to MCOs excluding federal income taxes on investment income and capital gains and federal employment taxes;

(d) State and local taxes and assessments including:

(i) Any industrywide (or subset) assessments, other than surcharges on specific claims, paid to the State or locality directly;

(ii) Guaranty fund assessments;

(iii) Assessments of State or locality industrial boards or other boards for operating expenses or for benefits to sick employed persons in connection with disability benefit laws or similar taxes levied by states;

(iv) State or locality income, excise, and business taxes other than premium taxes and State employment and similar taxes and assessments; and

(v) State or locality premium taxes plus State or locality taxes based on reserves, if in lieu of premium taxes; and

(e) Payments made by an MCO that are otherwise exempt from federal income taxes, for community benefit expenditures as defined in 45 CFR §158.162(c), limited to the highest of either:

(i) 3 percent of earned premium; or

(ii) The highest premium tax rate in the State for which the report is being submitted, multiplied by an MCO's earned premium in the State.

(4) The total amount of the denominator for an MCO, which is later assumed by another MCO, shall be reported by the assuming MCO for the entire MLR reporting year and no amount under this section for that year may be reported by the ceding MCO.

F. Allocation of Expense.

(1) Each expense shall be included under only one type of expense, unless a portion of the expense fits under the definition of, or criteria for, one type of expense and the remainder fits into a different type of expense, in which case the MCO shall prorate the expense between types of expenses.

(2) An MCO shall report on a pro-rata basis any expenditures that benefit multiple contracts or populations, or contracts other than those being reported.

(3) Methods Used to Allocate Expenses.

(a) An MCO shall base allocation to each category on a generally accepted accounting method that is expected to yield the most accurate results.

(b) An MCO shall apportion shared expenses, including expenses under the terms of a management contract, pro rata to the contract incurring the expense.

(c) The reporting entity shall bear any expenses that relate solely to its operation and may not apportion its operating expenses to other entities.

G. Credibility Adjustment.

(1) An MCO may add a credibility adjustment to a calculated MLR if the MLR reporting year experience has partial credibility.

(2) An MCO shall add the credibility adjustment to the reported MLR calculation before calculating any remittances if required by the State as described in §I of this regulation.

(3) An MCO may not add a credibility adjustment to a calculated MLR if the MLR reporting year experience has full credibility.

(4) If an MCO's experience has no credibility, it is presumed to meet or exceed the MLR calculation standards in this regulation.

(5) MCOs shall use the base credibility factors CMS publishes on an annual basis that are developed according to the methodology in 42 CFR §438.8(h)(4).

H. Eligibility Groups.

(1) MCOs shall aggregate data for all Medicaid eligibility groups covered under the contract with the Department.

(2) MCOs shall report, and the Department shall calculate, an annual MLR as described in this regulation separately for the childless adult population.

(3) The Department may require separate reporting and a separate MLR calculation for additional populations.

I. An MCO shall provide a remittance for an MLR reporting year if the MLR for that MLR reporting year does not meet the minimum MLR standard of 85 percent.

J. Newly Contracted MCOs.

(1) The Department may exclude an MCO that is newly contracted with the State from the requirements in this section for the first year of the MCO's operation.

(2) Newly contracted MCOs shall comply with the requirements in this section during the next MLR reporting year in which the MCO is in business with the State, even if the first year was not a full 12 months.

K. If the Department makes a retroactive change to the capitation payments for an MLR reporting year where the report has already been submitted to the Department, the MCO shall recalculate the MLR for all MLR reporting years affected by the change and submit a new report.

L. MCOs shall attest to the accuracy of the calculation of the MLR in accordance with requirements of this section when submitting its report to the Department.

M. Notice and Appeal.

(1) Within 30 days of its receipt of the notice of a remittance being due to the Department, an MCO may appeal the remittance as a sanction pursuant to COMAR 10.67.10.02.

(2) An MCO's appeal does not stay the obligation of the MCO to remit the amount owed to the Department.