Press Release

Publication of the Milliman review of VHI claims costs control

The Department of Health and Children today (25th February, 2011) published a redacted Review of VHI’s claims costs carried out by its actuarial advisors, Milliman.

The purpose of the review was to examine the drivers behind the increase in costs and to identify any possible actions which could be taken by VHI to manage its claims in the future. VHI must be authorised and regulated by the Central Bank alongside other insurers in the market. To achieve authorisation, it must present a viable and sustainable business plan and meet all necessary capital requirements.

The Milliman report suggests that VHI closely analyse its data to see where utilisation management will have the greatest impact in terms of reduced claims costs, and conduct a cost benefit analysis to determine whether an investment in additional administrative costs would be justified by the benefit of reduced claims costs.

Some of the key findings of the Milliman report include:

  • An acknowledgement of the good work that VHI has done in relation to the unit costs of healthcare, including reductions in private hospital charges and reductions in the fees it pays to consultants.
  • The need to introduce “utilisation management” which can ensure that VHI members receive the right treatment, at the right time in the right facility. It is considered best practice in various international health systems, including the Netherlands, South Africa and the UK and can reduce unnecessary care and optimise both quality and efficiency.
  • VHI currently lacks the infrastructure to determine whether it is paying for treatments which have a proven medical value, or whether treatments are taking place in the most appropriate setting from the point of view of cost or quality of care.
  • In practice, through utilisation management, VHI could exercise more control over claims costs by agreeing parameters within which consultants would have the freedom to operate.
  • If VHI pays for healthcare which is inefficient, or for which there is no medical evidence to suggest that the healthcare improves patient outcomes, then the additional costs of those treatments will ultimately be passed on to VHI customers through price increases.
  • Identifying significant variations – such as the differing lengths of hospital stay for the same condition across different hospitals – provides a strong indication of the potential for improving both the quality and the efficiency of care.
  • Building a stronger utilisation management function will naturally result in increased administrative costs, but the potential benefits in terms of reduced claims costs are significant.

The Department noted that Milliman has rejected claims by the VHI that the report’s recommendation for utilisation management would mean a transition to a US style of health care utilisation where the VHI would require steps such as pre-authorisation of treatments. In fact, the report recommends that VHI should review all options for controlling claims costs, including a stronger focus on avoiding unnecessary care, better reporting for providers and patient safety programmes. The Department is working with VHI to address the report’s findings.

Background

The report published today is a redacted version which excludes commercially sensitive information that is not available from other health insurers in the Irish market. The report is redacted to the most minimal level consistent with not releasing this type of information into the public domain.

During the course of a Private Members debate on health insurance in Dáil Eireann on 18th January, 2011 the then Minister for Health and Chldren, Mary Harney, said “The study concluded the VHI has given limited focus to what it is paying hospitals. The VHI could potentially make savings of a minimum of 5% to 10% in this area regardless of the risk profile of the insured population, even though the company has a very high proportion of the older population. The report concluded savings of this order are still possible but acknowledged such an improvement would take some time to implement.

”The Milliman report also concluded the VHI has been concentrating on the issue of risk equalisation to the exclusion of improving its techniques for managing claims effectively. It found that while moving to a more effective management of claims would require an investment by the VHI in staff and other resources, this could be more than offset by the savings it would produce in the cost of claims.

”Milliman reviewed the VHI’s experience of claims costs between 2007 and 2009. It found a high trend for utilisation of day cases at private hospitals but also substantial increases in average costs for inpatient procedures. The report also found there were material increases in the utilisation in high-tech hospitals which have higher unit costs than other acute private hospitals, increasing rates for day case utilisation at acute private hospitals combined with substantial increases in average costs for inpatient procedures, and the claims costs per person between 2008 to 2009 rose by 19% while premium increases were 13% over the same period. Premium increases have inevitably been constrained by the competitive landscape in which the VHI operates.

”The Milliman report concluded the VHI had made impressive progress in the past two years, including a 15% reduction in consultants’ fees, a 6% reduction in private hospital fees and a reduction in its own internal administration costs. The study pointed to several important issues which the VHI must address regarding how it manages its claims. There is no doubt the VHI operates in a challenging marketplace and faces particular challenges from having the great majority of older customers who, understandably, give rise to greater costs of care. However, the lesson from the Milliman report is that the VHI can and must address its claims costs aggressively rather than relying on other elements such as risk equalisation or large price increases to help sort out its difficulties. I have discussed the various issues raised by the report with the VHI’s chairman and chief executive officer. Without interfering in the running of the company, I believe I am entitled to insist that these issues be addressed. This is made all the more important given the VHI’s decision to increase its premiums by so much.

The full debate is available at http://debates.oireachtas.ie/dail/2011/01/18/00017.asp

View the report