There are many situations in which managers must demonstrate to themselves and others that their administrative activities are being conducted at reasonable costs. If anything, we expect that scrutiny will increase as the impetus towards reducing administrative costs increases. The Medical Loss Ratio (MLR) rules under the Affordable Care Act (ACA) and market forces are the catalysts for this.
We have both assisted and provided support for such documentation efforts. In 2014, we assisted a health plan in its evaluation of competing agreements with organizations to provide outsourced claims and information systems activities. We are currently working with a self-contained, state-sponsored health benefit program to evaluate its costs, including those that it outsources to a prominent third party provider.
More informally we are assisting a large, start-up health plan on improving its cost structure by enhancing its cost relationships for its outsourced activities. We are doing this in conjunction with its licensing of the Sherlock Expense Evaluation Reports (SEER).
Finally, our work has supported the assurance the fair market value of administrative activities between sister health plans. Under a provision of the Affordable Care Act, health plans may be exempt from certain taxes if they operate as non-profits and provide services to only Medicare, Medicaid or selected government customers. So, the health plans that had previously offered a broad spectrum of health benefits, divested their qualifying operations to a new non-profit, thereby making these products tax exempt. However since it made no economic sense to build a new administrative infrastructure for the new non-profit, services were provided by the original company to the new non-profit. Sherlock Benchmarks were used to document that the transaction was at fair market value.