By Brian Cotter
Actuarial report every plan sponsor should read: Milliman says “% of Medicare” has no default definition. Your contract uses a denominator nobody defined.
“While stakeholders may assume that ‘Medicare’ only has one definition in terms of provider payments, there are many components of Medicare payments.
It is important to clearly define how each Medicare payment component is considered.”
That is Milliman’s actuarial team confirming what the CMS data already shows.
The problem is well documented. The industry just has not caught up.
Here is what their report confirms.
- No default definition. The denominator requires explicit decisions
about which payment components to include. - Scope matters. – Geography, line of business, performance period, and non-Medicare-covered services all move the number.
- The numerator is not clean either – Rebates, supplemental payments, capitation, and pay-for-performance arrangements change the top of the fraction.
- IPPS alone has multiple components – Base payment, IME, DSH, Uncompensated Care, Outlier. Each one is a separate decision point in the denominator.
- States are already acting on this – Oregon, Washington, Indiana, and Colorado
each cap at “% of Medicare.”Every one of them had to define the denominator.
Their definitions are not the same.
The math breaks at the hospital level. Milliman documented it at the contract level.
State regulators are legislating around it.
The same risk applies to every self-funded plan, every Taft-Hartley fund, and every TPA adjudicating claims today.
Your contract uses “% of Medicare.” Nobody defined what that phrase means.
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Glossary:
CMS — Centers for Medicare and Medicaid Services
DSH — Disproportionate Share Hospital
IME — Indirect Medical Education
IPPS — Inpatient Prospective Payment System
TPA — Third Party Administrator
