Payers—and providers for that matter—need access to better data to help them participate in a healthcare system that ensures fair payment of claims and a rapid return of their claimants to a healthy, productive lifestyle following an injury. Data are needed to better forecast loss trends, manage effective claims operations, and intervene in hard and soft fraud.

Medical cost and utilization data derived from closed claims and bill review systems prove an excellent source of information to mine for operational and financial insights. To date, though, the complexity and fragmentation of these data have made them difficult to exploit for analysis purposes. What has been needed is a clearstandard for structuring claims information and a method to aggregate data across the industry.

The Mitchell Medical Price Index (MPI) is a new tool derived from national claims databases to help insurance carriers forecast loss development trends, enhance medical reserving practices—a/k/a incurred but not reported (IBNR)—and understand the specific medical care drivers of cost. Carriers watch trends, such as those shown in MPI, to predict the future growth rates of loss costs for claims that have been reported already, but the loss is still developing and they need to know whether the development trend will continue consistent with prior periods, is accelerating or decreasing. Unlike existing internal sources, the MPI provides not only retrospective insight, but also predicts future loss trends using current industry trends.

In addition, the MPI is useful for better managing claims operations and controlling costs. By understanding and pinpointing the areas of medical care driving loss costs, claims managers can better allocate resources, educate and inform policyholders, and assist SIU and fraud investigations.

Medical Price Index

The MPI was developed to monitor non-hospital facility charges incurred by auto casualty insurers for first party payments, PIP, and MedPay coverages. It enables insurance payers to easily compare auto casualty, workers' compensation and personal health insurance markets at a national, regional and state level, monitoring medical charge trends by coverage state and medical service group. The MPI provides measures of cost per procedure and reports summary statistics at a service group level, such as:

• Emergency services
• Evaluation and management
• Major radiology
• Minor radiology
• Major surgery
• Nerve testing
• Pain management
• Physical medicine.

Its main use is to monitor trends in medical charges by coverage state and medical service groups so claims leaders have a more complete understanding of how billing and treatment patterns are impacting expenses. Because the MPI is updated continuously, it is a unique signal detection tool for evaluating and acting on new emerging cost trends. Figure 1 shows the state trends in medical cost inflation from 2006 to 2010 as measured by MPI. The results track to Bureau of Labor Statistics Medical cost inflation measures, but also provide more specific measurement of change rates the service group and procedure code levels by controlling for the effect of provider utilization independent of per procedure charges.

The MPI is a unique resource because it leverages actual summarized claim, bill, and bill line-level data covering the vast majority ofUSauto casualty claims. This helps minimize measurement errors often encountered in traditional survey data and generates insight at an extremely detailed procedure level.

Figure 1. The MPI Tracks Medical Cost Inflation at Multiple Geographic Levels.

Note: BLS-All Urban refers to the CPI-U.S. Medical Services Index, adjusted by Mitchell to reflect an Index of 100 for Q1 2006. Source for the CPI: U.S. Bureau of Labor Statistics, adjusted. Available at http://data.bls.gov/cgi-bin/surveymost?cu

Medical Utilization Index

Used in conjunction with the MPI, the Medical Utilization Index (MUI) controls for per unit charge rates to better explain the role of provider utilization in increasing costs. It is based on a closed claim analysis set to a 2006 benchmark and is updated quarterly. The MUI identifies the prevalence and frequency of procedures at small areas of geography and then aggregates those data to a regional level. Figure 2 shows the MUI results for utilization of services including massage therapy for first party claims inFloridafrom 2006 through 2010. It effectively confirms and quantifies a common perception that the Medicare Fee Schedule update in 2008 resulted in an explosion in massage therapy across provider types. This new ability to quantify trends helps explain unanticipated effects of regulatory changes and may be useful for insurers and state agencies in predicting the impact of future fee schedule updates.

Figure 2. The MUI Tracks the Impact of Medicare Fee Schedule Changes on Cost and Procedure Utilization.

Using MPI and MUI in Finance and Medical Management

There are numerous opportunities to leverage medical price information to enhance financial and operational performance. Below are three examples.

• MPI for IBNR. A regional carrier sets IBNR based on astandard calculation implemented through an enterprise planning system developed by a systems integration partner. While the calculator works well, the carrier felt an independent metric would provide a secondary validation point and improve clarity and credibility with auditors. The Medical Price Index was trended over the prior five years, by quarter, to establish a benchmark comparison for loss trending.
• MPI for Operating Managers. A large multiline carrier wanted to understand why claim performance was substantially different across upstate and downstateNew Yorkcounties. The MPI data was segmented at the procedure level and comparisons made across counties. The data clearly showed higher cost procedures geographically concentrated around major medical centers.
• MPI for State and Industry. A state likeFloridathat considers regulatory change like implementation of a fee schedule could use the MPI/MUI in combination to model the potential impact on health care insurance system costs. By examining utilization estimates at a service group level against fee schedules, government analysts have a new tool to simulate and predict the impact of their decisions during the planning process.

In conclusion, the use of medical claim data to map, track and attack loss trends can be of great benefit to insurance carriers. Applying this insight can help to proactively analyze trends and assess their impact on medical costs, an important consideration in today's ever changing insurance market.