Numerator
(e) Numerator(1) Required elements. The numerator of an MCO's, PIHP's, or PAHP's MLR for a MLR reporting year is the sum of the MCO's, PIHP's, or PAHP's incurred claims (as defined in (e)(2) of this section); the MCO's, PIHP's, or PAHP's expenditures for activities that improve health care quality (as defined in paragraph (e)(3) of this section); and fraud prevention activities (as defined in paragraph (e)(4) of this section). (2) Incurred claims. (i) Incurred claims must include the following: (A) Direct claims that the MCO, PIHP, or PAHP paid to providers (including under capitated contracts with network providers) for services or supplies covered under the contract and services meeting the requirements of 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 as a result 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. (H) Reserves for contingent benefits and the medical claim portion of lawsuits. (ii) Amounts that must be deducted from incurred claims include the following: (A) Overpayment recoveries received from network providers. (B) Prescription drug rebates received and accrued. (iii) Expenditures that must be included in incurred claims include the following: (A) The amount of incentive and bonus payments made, or expected to be made, to network providers that are tied to clearly-defined, objectively measurable, and well-documented clinical or quality improvement standards that apply to providers. (B) The amount of claims payments recovered through fraud reduction efforts, not to exceed the amount of fraud reduction expenses. The amount of fraud reduction expenses must not include activities specified in paragraph (e)(4) of this section. (C) The amount of payments made to providers under State directed payments described in 438.6(c). (iv) Amounts that must either be included in or deducted from incurred claims include, respectively, net payments or receipts related to State mandated solvency funds. (v) Amounts that must be excluded from incurred claims: (A) Non-claims costs, as defined in paragraph (b) of this section, which include the following: