Chapter 6- Service, Process and Synergy

149
6.1 Service delivery

In health insurance there are three main parties – the insurer, the insured and the provider.
The major set of services is delivered to the insured customers both by the insurer and the
healthcare providers. The insurer promises a set of services to the insured customers,
which are also listed in the policy contract. Whether, it‘s a retails or a corporate client, the
set of services are almost same except the fact that in retail health policies the level of
benefit is less when compared to that of the corporate health insurance policy. As the set of
services are listed down in the contact, any breach can lead to legal action against the
party. It is also due to this fact that health insurance comes under the preview of consumer
forum and there is also provision for Insurance Ombudsman37.

The services are at times outsourced by the insurer to the TPA which is then responsible to
provide cashless hospitalization and other allied services like issuance of unique card no,
processing reimbursement files, running a 24X7 call centre, maintain the database,
maintain relationship with network hospitals and also participate in fraud and investigation
activities. In India the TPA‘s are regulated by the IRDA. As discussed earlier, there are
more than 25 TPA‘s in India, providing services to both life and general insurance
companies. The purpose to bring TPA model in India was triggered by multiple factors.
Firstly, there was no mechanism to extend cashless benefit to the insured patient.
Secondly, it use to take a lot of time to get the reimbursement claims from the insurance
company, also there were no set benchmark for service delivery. Thirdly, to have an
independent body, that can take decision on claims in an un-biased manner. Finally, to
have better control on claim cost by negotiating rates with network providers. But the
question is whether the TPA has been able to achieve its objectives for which it was
formed? There could be different school of thoughts on this. Before answering this
question let‘s examine the services offered by the TPA‘s.

37
The institution of Insurance Ombudsman was created by a Government of India Notification
dated 11th November, 1998 with the purpose of quick disposal of the grievances of the insured
customers and to mitigate their problems involved in redressal of those grievances. This institution
is of great importance and relevance for the protection of interests of policy holders and also in
building their confidence in the system. The institution has helped to generate and sustain the faith
and confidence amongst the consumers and insurers (Source: IRDA).

150
6.1.1 24-hour helpline services through an in-house Call Centre: TPA‘s normally
operates a 24/7 Call Centre for the benefit of the insured. The Call Centre is
equipped to provide all requisite information regarding the mediclaim policy and
the entitlements of specific benefits under the policy. The insured is also able to
obtain the status of his/her claims and details of network hospitals.

6.1.2 Cashless hospitalization: Here, the TPA‘s empanel health care providers, sign
contracts with them, which talks about offering cashless hospitalization benefit to
the insured, negotiated and agreed rates and other service related propositions. The
insured can avail cashless facility at network hospitals, using the identification card
issued by the TPA. There are few TPA‘s that are in the process of developing
technology whereby the cashless intimation and authorization process would be
processed on-line. The critical analysis of the flow of activities during cashless
hospitalization is presented later in this chapter.

6.1.3 Claim processing and settlement: It is one of the most important functions of the
TPA‘s. The TPA‘s have qualified doctors on its panel and they are trained to
process health insurance claims. One of the service measures is the time taken for
processing and settlement of health insurance claims. Most of the TPA‘s vouch that
they are able to maintain less turnaround time for processing of claims than their
counterparts. With the advent of features like co-payment, deductible, room rent
capping and exclusions, it is more important for the TPAs to have a robust I.T.
system which can check and validate the claim processing mechanism.

6.1.4 Priority admissions in hospitals: Few of the TPA‘s are offering services wherein
on emergencies, members can avail priority admissions in hospitals. This is
normally arranged after receiving intimation from the insured or his/her
representative.

6.1.5 Data analysis: TPA‘s are equipped to provide data, which can be critical while
deciding premium levels on health policies. Claim statistics on age wise, hospital
wise, disease wise, area wise and claimed amount categorization can be provided. It

151
 may be because of this reason that the Indian health insurance industry has seen
many insurance and re-insurance companies buying stakes in the TPA business.

6.1.6 Cost containment: Most of the TPA‘s has pre-negotiated discounts from providers,
thereby reducing the expenses on hospitalization cost. This helps containing the
hospitalization expenses for the insured (affecting his sum-insured) and also in
minimizing claim loss ratios for insurers.

A classical challenge for health policy-makers and researchers is how to design a health
care system that will control or moderate the rapid increase in health care costs without
unduly affecting the quality of and access to health services. It is generally believed that
consumer moral hazard38 has a direct impact on claim cost. In an effort to control costs,
insurers adopt various consumer cost-sharing devices (such as coinsurance and de-
ductibles) which, as a second-best solution, sacrifice the consumers' benefit of risk
spreading to make patients assume some of the economic consequences of their use of
health services.

As the cost of claims is directly proportional to the premium charged from the insured i.e.
with increase in claim cost the insurance premium also increases and vice-versa and given
the fact that globally there is a problem of increased health insurance premium rates,
possible solution to this problem needs to be examined. A feasible first step towards
solving this problem is to define treatment protocols that specify appropriate medical care
for a variety of illnesses. The insurer could leave it up to the physician's judgment that the
illness has occurred, while still exercising some control over the services that are delivered.
Patients who seek care from physicians who tend to exceed the treatment protocol could be
required to pay additional premiums.

On examining the demand and supply side of health insurance it become obvious that the
providers play an important role both in terms of growth and profitability of the Indian
health insurance industry. In the cyclic process of premium price and claims cost the later
has a direct impact on the bottom line of insurers. Thus, to indentify measures to

38
An increased demand for medical services under health insurance-contributes to high utilization
and health care expenditures (see, e.g., Manning et al., 1987).

152
effectively control the same becomes critical. Since health care providers influence
patients' demand for medical services, provider moral hazard that is, little effort to
minimize cost or excessive use of resources is another contributing factor to health
expenditure increase. A difficult challenge, then, is how to influence providers to be cost
efficient or how to implement a supply-side cost-sharing mechanism to make providers
bear the economic consequences of their decisions in the production of health services.

Also, services in health insurance will mean different to different stakeholders. For an
insured patient service may be classified under two broad categories. First, the services
offered at the time of buying the policy. This will include both the pre and post sales
activity. It will also include the dispatch of policy document, insurance membership
identification card, guidebook along with the list of network hospitals. The interesting
point here is that 100 percent of the insured customer experiences these services while they
buy the health insurance product. However, only five to six percent of insured customers
experience the second category of services which is at the time of lodging a claim. The
important point here is that it is this five to six percent of insured customers, those who are
responsible for 100 percent of cost of incurred claims. This second category of services can
be further divided into cashless hospitalization and reimbursement of claims. In cashless
hospitalization, the insured patient visit the network hospital, get the pre-authorization
from the insurance company or the TPA (as the case may be), get the treatment and
without making the payment is discharged from the hospitals. Post the patient is
discharged from the hospitals, the hospital sends the bills along with relevant treatment
papers and the preauthorization letter to the insurance company or the TPA for payment. In
case of reimbursement claim, the only difference is that the patient pay out of pocket and
then claims it back from the insurance company or the TPA. There should be efforts to
minimize claim cost in both these cases. However, the methods and tools would be
different given the level of relationship between the insurer and the hospital where the
treatment is taken.

Services can also be studied keeping the relationship in mind. In health insurance there are
different types of relationships. The primary relationship is that of the insurance company

153
and the insured (A), followed by relationship between insured and the hospitals (B) and the
insurer and the hospitals (C).

Insurer -------------A------------- Insured (Customer)

Insured -------------B------------- Provider (Hospital)

Insurer --------------C------------- Provider (Hospital)

The relationship matrix becomes more complex with the introduction of TPA‘s. Thus,
there is the relationship between the insurer and the TPA (D), the TPA and the insured (E)
and finally the TPA and the provider (F).

Insurer------------D--------TPA----------E----------Insured (Customer)

Insured-----------E---------TPA----------F----------Provider

Insurer------------D--------TPA----------F----------Provider

The above relationships can be looked as a range along a continuum. For example, the
TPA has relationships with both the insurer and the provider. There could be two extremes
i.e. the relationship of the TPA with the insurance company is very good and that with the
provider is very bad (leading to a ‗dead relationship‘, documented further in this chapter)
and vice-a-versa. In both the extreme cases, one thing is for sure, that the insured customer
will suffer. In the first case as the relationship is not in good shape with the provider, there
is very high possibility that this will get reflected in the services delivered by the provider
to the insured patient. Some of the events could be - that the provider does not accept the
card of the TPA, they does not prioritize the process of sending the pre-authorization
request etc. In the second case when the relationship with the insurer is not good, then
there is a very high probability that the payments39 will not be made in time by the

39
The amount which is outstanding with the TPA and is required to be paid by to the health care
providers. Generally there is a float mechanism, where once the claims has been incurred, the TPA
raise the bill with complete details to the insurance company. The insurance company then makes
the payment to the TPA against the raised float. In few cases advance float is provided to the TPA‘s
which get replenish from time to time.

154
insurance company to the TPA and thus there would be high level of TPA outstanding with
the provider. This will then, directly affect the services offered to the insured patient. Thus,
it is important for the service provider (whether it‘s the TPA, insurer or the health care
providers) to have a balanced approach towards different relationships and always try to
focus towards activities that creates value for the customer.

While studying the provider‘s perception it is important to study the relationship B, C and
F i.e. what the provider perceive about the insured, the insurer and the TPA. The question
is what one would like to study under these relationships so as find out the possible
strength, weakness, opportunity and pressures in the existing system and how one can
leverage them to bring in synergy? There are many other similar un-answered questions
inked to providers themselves and with reference to TPA‘s, insured patients and the
insurer. In case of providers, the important questions are - what amount of business they
are getting through health insurance? Is it sufficient for them to start focusing into this new
segment? Do providers prefer any existing insurance company? At what frequency the
providers increase their rates? Do they give preference to any specific income group?

With reference to TPA‘s the un-answered question are- With how many TPA‘s a provider
would like to do tie-up? Do the provider see TPA model as a successful model? Are
providers getting there payment in time from the TPAs? Do provider offer discounts to
TPA‘s and what would be the implication of these when we talk of services? Is the cost of
treatment in case of cashless hospitalization higher than that of reimbursement?

With reference to insured patients the questions for which one would like to seek answers
are – Are the insured patient more demanding than that of the patient who pay out of
pocket? If yes, then what are the implications of such demand on the existing and limited
resources available for disposal at the provider‘s end? What is the awareness level of the
insured patients with respect to policy terms and conditions and the processes followed for
availing cashless hospitalization benefits? Does the insured patient care for the cost of
treatment? If not, then does it create an opportunity for the provider to overcharge? Since
room category is one of the major determinants of service, it would be interesting to find
out, that what type of room category is preferred by the insured patient and what is its
implication on the cost of claims?

155
Finally, while studying provider‘s perception with reference to insurance companies, one
would like to know – what level of preference does provider have for insurance companies
and what is the current opportunity available for insurance companies to built long lasting
relationship with provider and bring in synergy?

Before moving further let‘s critically examine the cashless hospitalization and
reimbursement claims process. Both of these activities can be termed as the ‗foundations
of service delivery‘, as their failure to deliver will lead to collapse of the entire health
insurance service model.

The first step in cashless hospitalization is when the insured visit the network hospital for
treatment and show his health insurance membership card. The network hospitals, verify
the card details, check if they have a ‗live relationship‘ with the TPA and or insurance
company. If yes, they arrange for the pre-authorization of the respective TPA and or
insurance company and then either hand over the preauthorization form to the insured
patient/relative (as the case may be) or forward the same to the respective treating doctor
(consultant). The important point here is that there should be ‗live relationship‘ between
the hospital and the insurance company. What if, the hospitals name is listed in the guide
book issued to the insured at the time of policy issuance (this may be a couple of months
back) but at the time of need, the hospitals is not in the panel of the said TPA or insurance
company. There could be multiple reasons for a ‗dead relationship‘ (the relationship is
being called dead when either of the party i.e. hospitals and TPA/insurer are not willing to
extend cashless benefit even after having a service contract). Firstly, it could be because
the hospital has not received the past payments from the TPA and or insurance company.
Secondly, there could be unreasonable deductions in the payments which are not
acceptable to the hospital. Thirdly, the hospital is involved in fraudulent practices and
hence the TPA and or insurance company has kept them on hold. Fourthly, there could be
change in management at either side not willing to work with each other or non-
compliance of the signed contact. The important question here is what an insured patient
should do at the time of emergency in case he visits a so called network hospitals which
has a dead relationship with the TPA and or insurance company? Is this the insured patient
fault that he has paid the premium and expect a seamless service delivery? Or what could a

156
TPA or an insurance company do to avoid such service gap? One possible way will be to
inform the customer in advance and or arrange to re-locate the insured patient to the
nearest network hospitals with which it has a ‗live relationship‘. Here, the insurance
company can also offer to reimburse the travel amount incurred by the insured patient to
shift from the ‗dead relationship‘ to a ‗live relationship‘ hospital. The other possible
solution could be to avoid any ‗dead relationship‘. It‘s easier said than done and to achieve
this there need to be complete synergy between the insurer and the provider.

Once the insured patient meets his or her treating doctor and is advised to get hospitalized.
The pre-authorization form is then filled and signed by both the patient and the treating
doctor. The details that are captured in the pre authorization forms includes the diagnosis,
membership details, length of stay in hospital, line of treatment, room category, tentative
cost involved, past medical history and treating doctor contact information. The data that is
captured in the pre authorization form is very critical. It is based on the provided data that
the TPA claims team (mostly headed by a doctor) decide whether to authorize or not, or to
raise relevant queries before taking a final call. In few cases, even negotiation on the rate
takes place, before the approval is sent. The filled form is then sent to the respective TPA
and or insurance company via fax (in few cases via e-mail). Here, sending of fax by one
party does not necessarily mean receiving of fax by the other party. The claims team at the
TPA then verifies the membership details and the level of benefits available to the insured
patient. It also checks if the disease is covered under the policy or not and also if it‘s pre-
existing. The hospital charges are also compared with that of agreed tariff and incase of
any anomaly, clarification is sort. Once the claims team of the TPA and or the insurance
company is confident that the treatment is required and covered under the respective health
insurance policy, the approval letter is sent to the network hospital. Here again the
communication is sent through fax. The point to note is that approval is send for a tentative
amount, which helps in getting admission in the network hospital and not necessary mean
that the patient can get discharge without making any payments to the network hospital. In
case, the treatment is not covered under the policy and or there is a doubt of the disease
being pre-existing the cashless is not approved and a denial letter is faxed to the network
hospital. However, the denial of cashless does not mean repudiation of claim.

157
Once the network hospital receives the approval letter, the treatment is given to the insured
patient. During the insured patient stay in the hospital there is hardly any communication
between the hospitals and the TPA. In almost all the cases, at the time of discharge, the
hospital is required to send the final bill and the discharge summary, which is signed by the
treating doctor. The same is then scrutinized by the TPA and a final authorization is sent. It
is in this final authorization letter that the actual amount, which will be paid by the TPA
directly to the hospital, is mentioned. It also mentions the amount which needs to be paid
by the insured patient40. The insured patient is not allowed to leave the hospitals till the
time the final authorization has been received by the network hospital. The only option to
leave the hospitals without receiving the final authorization is by making the payment out-
of-pocket. Once the approval is received by the network hospitals, the insured patient is
allowed to leave the hospital premises. The original documents related to the treatment are
retained by the network hospitals including the discharge summary, diagnostic test reports,
MRI, CT-Scan film, final bill etc.

The above stated process remains the same for emergency hospitalization, except for the
initial authorization, which is not required during the first 24 hours. As the patient‘s
condition become stable, the pre-authorization letter is sent to the respective TPA or the
insurance company for approval.

Once, the patient is discharged from the hospitals, the actual processing and payment of
claims starts. All the relevant case documents are couriered to the TPA or insurance
company office (in most of the cases it‘s outside the city, where the network hospital is
located). The claims documents are scrutinized by the TPA or the insurance company and
based on the policy benefits and the authorization sent earlier, the payment is made to the
network hospital. In most of the cases the payment is made through cheques. However,
there are few cases when on-line fund transfer takes place. This is followed by the
reconciliation of payments by both the parties, the time and duration of this activity varies
from provider to provider. Thus, there are multiple activities that need to be coordinated
between the insurer and the provider, so that the customer can avail the cashless benefits.

40
These are non-payable expenses which are normally not covered under the health insurance
policy. It also includes the amount which falls under de-ductables and co-payments.

158
Any intervention than can enhance this coordination would help bring in synergy among
insurers and providers.

6.2 Provider’s perception

As seen that providers plays an important role in providing health care services to the
insured patient and is one of the key determinants, when it comes to delivering services or
controlling cost.

Figure 6.1: Provider’s Perception Mapping

- Model
- Preferences
- Cost
- Volume
- Payment
- Frequency of rate
change TPA - Discounts

- Fraud - Number
- Awareness

- Demanding

- Care for Cost

PROVIDER INSURED PATIENT
- Selection of Room
Category

- Preference

- Relationship
INSURANCE CO.
- Scope for Synergy

Source: Author‟s own creation

It is also, one of the corners of the ‗strategic triangle‘ (for details please refer to the
research framework discussed in the methodology section under Chapter 3) and as such is
one of the focus areas of this study. The starting point was to understand the perceptions of
the providers and to be able to get answers to the earlier stated questions. The intent was to
capture insights regarding key variables that will help understand the existing relationship

159
and perception of the providers with that of TPA‘s, insured patient‘s and the insurance
companies.

The objective was to evaluate the existing strength, weakness, opportunity and threats and
to develop strategies for synergy between providers and insurer. The key variables had
been summarized in the form of provider perception mapping (refer to Figure 6.1). The
sample characteristics and findings of the study to gain insight regarding provider‘s
perception are presented below.

The sample characteristics with reference to number of beds and location are depicted in
Table 6.1 and Table 6.2 respectively.

Table: 6.1: Sample Characteristics (Number of Beds)

Provider category Population Sample

Less than 50 157 40

50-100 26 8

100+ 50 22

Grand Total 233 70

Table: 6.2: Sample Characteristics (Location)

Provider category Population Sample

Delhi 177 52

NCR 56 18

Grand Total 233 70

160
The sample distribution with respect to number of beds is depicted in Figure 6.2.

Figure 6.2: Sample distribution (providers)

No. of beds

No. of beds

700
600
500
No. of beds

400
300
200
100
0
0 10 20 30 40 50 60 70
Sample Size

6.2.1 Key Findings

The findings had been grouped under different headings. Its starts with the provider‘s
perception on insured patient, insured awareness level, TPA model, cost of treatment and
percentage of business generated by health insurance; followed by the discounts offered by
TPA‘s; income group preference; frequency of increase in hospitals charges; moral hazards
& fraudulent activity; and finally on hospital preference for insurance companies.

The percentage distribution of the response received from the providers with respect to
specific statements asked is presented in Figure 6.3. Evaluating the statements (as they are
presented) from the top, the findings suggest that more than 70 percent of the respondents
disagree that the cost of treatment is higher in-case of cashless hospitalization. There are
only 7 percent of respondents who strongly agree that the cost of treatment is higher in-
case of cashless hospitalization. It also suggest that the provider are not charging higher in
case of cashless claims, which does not seem completely true when one relate this to the
other findings linked to stakeholder‘s analysis. More than 80 percent of the respondent
agrees that the TPA model is a successful health insurance model. This may be because of
the reason that it were the TPA‘s those who took the initial efforts to make contact with the
providers and exposed them with the concept of health insurance. If one looks at the period

161
before year 1999, when the insurance industry was not privatized and only few might have
heard about TPA concept, there were in fact no contacts or live relationship between the
provider and the insurance companies41

Figure 6.3: Findings of the survey statements (Likert’s scale)

Hospital Survey

In cashless cases the cost of treatment is higher due to many reasons 7% 67%
The TPA model is a successful model for health insurance 64% 7%
The payments by the TPA’s are done w ithin 20 days 1% 69%
Statements

A patient w ith cashless card doesn’t care for cost of treatment 61% 12%
Hospital gives more importance to cashless patients 9% 15%
Patients w ith cashless TPA card are more demanding 63% 0%
Patients having the mediclaim policy are fully aw are of the terms and conditions 30% 12%
More than 10% of the patients w ho are admitted in the hospital have mediclaim policy 76% 3%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Percentage

Strongly Agree Somewhat Agree Neither Agree nor Disagree Somewhat Disagree Strongly Disagree

Source: Data compiled from primary survey undertaken by the author

It was only when the market was privatized and with the introduction of TPA‘s that this
relationship seed between the provider and the insurer was sown. Thus, the findings clearly
suggest that the TPA‘s has the first mover advantage in terms of building relationship with
the network providers, but the question is that whether they have been able to successful
harvest the benefits of this relationship or not?

When asked about the payment timelines, 69 percent of respondent strongly disagree that
the payments by the TPA‘s were done within 20 days. In fact there are more than 90
percent of providers who disagree with this statement. Now, when we examine the findings

41
There were few large public sector undertakings like the MTNL and ONGC which has direct tie-
ups with the provider for extending cashless benefits to the employees and their dependents but it
was not via the insurance route and thus no insurance companies were involved.

162
received on the above two statements (one on TPA model and the other on payment cycle),
we see a contradiction. On one side the providers are suggesting that the TPA model is a
successful and on the other side they are suggesting that they don‘t get the payment in time
(in this case it is more than 20 days). Thus, one needs to find out the possible reason for
such a contradiction. Why will the hospital agree with a model wherein the payments are
not received in time? The possible reasons could be that they get new business (increase
patient flow) or that they are able to charge higher rates in cashless cases.

Some 70 percent of the providers agreed that insured patient does not care for the cost of
treatment. So, one can argue that the cost of treatment does not matter to the insured
patient when he or she is covered by a health insurance policy. This may be explained due
to the fact that the insured patient is not paying from their own pocket. This means that
there is a clear opportunity for the providers to charge more incase the patient is covered
under any health insurance policy. This opportunity can be exploited either by following a
differential rate list42 or by trying to push the patients to take higher category rooms, which
finally result in increased final bill. Having know that the insured patient does not care for
the cost of treatment, the next thing one would like to know whether they are more
demanding or not?

The findings suggest that 63 percent of the hospitals strongly agree that the patients with
cashless card are more demanding. The patients being more demanding in case of a
cashless can be because of the reason that in India, health insurance is not bought but sold.
At the time of selling a health policy, a host of promises are made to the clients that
include seamless services and lower turn-around-times. Here, the nature of client will have
an impact on the level of demand i.e. an employee of a corporate client might be more
demanding than a retail client. What implication this has on the service delivery? Since, the
hospitals has limited resources, it has to have special provisions for handling clients which
are more demanding. It most of the cases it was observed that the network hospitals have a
42
Differential rate list is to have differential pricing for similar activity performed, based on the
clientele. There are few hospitals which charge differential pricing, where they charge more for
patients who are covered under a health insurance policy than those who pay out of pocket. The
rational given by the providers is that the insured patient has the right and capacity to pay more
than compared to a person who pays out of pocket.

163
dedicated team or a customer desk which takes care of the patients with health insurance
card. Now, this can be one of the opportunity areas for the insurance companies to share
their resources for this activity. By sharing resources, the insurance company will be able
to connect directly with the customer at the time of need; will be able to reduce the
workload of the providers and thus create a long lasting relationship; will also be in a
position to control the flow of information and control cost; and will be able to create a
value proposition for both the customer and the provider. Having talked about the benefits,
let‘s also look into the cost part. Well, it will not make sense for the insurance companies
to deploy its representatives in all the network hospitals. Instead, they can apply the
principle of twenty-eighty (Pareto law) i.e. to place their representative in those twenty
percent of hospitals in which they have eighty percent patient flow. One can also think of
sharing the cost of resources deployed to handle insured patients.

Only 30 percent of the providers strongly agree that the insured patients are fully aware of
the policy terms and conditions. Does this mean that there is again an opportunity for the
providers to use this lack of information towards their advantage or does it mean additional
efforts are required by the providers to explain the policy terms and conditions? In both the
cases, there is lack of synergy between the provider and the insurer. This is because, if the
provider decides to take advantage, the insurer will lose money and if extra effort is
required by the provider then the provider will lose time and efforts. Thus one can argue to
bring synergy there should be efforts from both the insurer and the provider to increase the
insured awareness about policy terms and conditions and also to standardize the process
and protocols followed by both the parties while processing health insurance claims.

The findings of the last statement suggest that the amount of business generated by the
providers from health insurance business is more than ten percent. There were 76 percent
of the respondents who strongly agreed that more than ten of the patient admitted in the
hospitals have health insurance card. Now, this is important, because if the percent of
business generated by a particular channel is not sufficient then there would be less priority
and focus given by the organization. Also, the willingness to bring in synergy would be
less. This finding is validated by the fact that health insurance business is growing with a
CAGR of more than 35 percent and the overall loss ratio is more than 100 percent (please

164
refer to the chapter on trends in health insurance). That‘s means whatever growth happens
in health insurance premium is also being paid as claims and since claims are nothing but
the cost of treatment incurred by the insured patients, the premium income acts as a source
of income for the providers43. There were only 3 percent of the providers who strongly
disagree that they have more than ten percentages of patients who pays through insurance.
Talking of income and volume, one would also like to study the number of TPA‘s
empanelled and discounts offered to them by providers.

6.2.2 TPA‟s empanelled and discounts offered

As per IRDA regulations an insurance company is allowed to empanel with any numbers
of TPA‘s and vice-versa. In the similar way, the providers can also be in the panel of as
many TPA‘s as they agree to work with. The demand to have quality providers in the
network list comes from the insured customer, corporate clients and the insurance
companies. Also, it is one of the prerequisite of a TPA to have them on board. One way to
look at the networking aspect will be that from the TPA‘s pointy of view. Here, the focus
will be to have those network hospitals which are able to add value in terms of services and
can be cost efficient. A TPA would like to have network providers at those locations where
the customer base in higher. They will prefer those hospitals which full-fills the minimum
criteria‘s as listed out in most of the health insurance policy44. The TPA‘s will prefer those
hospitals which have fair and transparent billing practices. They would also tend to prefer
those who are able to give discounts and offer value added services like priority
admissions etc. The other way, would be to look networking activity from the provider
perspective. To capture this objective, there was a specific question in the questionnaire

43
Here, one also need to look into the bifurcation of claims into cashless and reimbursement. The
more the percent of cashless claims then that of reimbursement, the more will be the direct income
of the providers from the insurance companies.
44
The hospitals are defined in most of the health insurance policies. As per the common definition,
the hospital should have a minimum of 10 beds in places where the population is less than
10,00,000 and a minimum of 15 beds where its higher. It should also have 24 hrs nursing facility,
availability of doctors round the clock, Operation theatre facility where surgery is conducted. In
few cases, hospitals registration certificate is also required.

165
(Annexure III) that asked the provider to give details regarding the number of TPA‘s
empanelled by them and the nature of discounts offered.

It was observed that most of the tertiary hospitals (more than 100 bedded) have more than
10 TPA‘s empanelled with them. This suggests that since each additional TPA brings in a
set of potential customers to the provider, they prefer to have as many numbers of TPA‘s
as possible in their network. Talking of discounts, 64 percent of providers (above 100
beds) do not offer any discounts to the TPA‘s. One of the possible reasons for not giving
discounts to TPA‘s could be due to the fact that the percentage of patients who are covered
by means of health insurance are far less that the patients who pay out-of-pocket i.e. the
income generated by insured patient or the number of beds occupied by insured patients
are far less than those who pay out-of-pocket. Also, as seen earlier, the insured patients are
more demanding, which definitely consume more resources and this coupled by the fact
that the provider does not receive payment within 20 days, could possibly explain why
most of the providers does not offer discounts to the TPA‘s.

As the health insurance penetration in India will increase leading to high foot fall of
insured patients in the hospitals, the chances of getting discounts from the providers might
also increase. The current findings clearly suggest that value in terms of cost advantage is
not being created by the TPA‘s especially with hospitals above 100 beds. However, in case
the TPA‘s or the insurance companies are able to monitor the treatment cycle and can force
the providers not to over supply health care services or over charge for the treatment and
diagnostic offered then definitely cost advantage could be created. To achieve this there
need to be a well planed network strategy in place, which unfortunately was found missing
in the current study.

6.2.3 Income group preference

The reason to include the question on income group preference stem from the need to
understand the provider perception in a holistic manner. Will a provider give special
preference to any specific income group even if they are insured and have the capacity to
pay via the insurance route? If yes, then what could be the possible reasons and
justification for the same?

166
The field research finding revealed that all categories of hospitals prefer middle income
group population for extending cashless benefits. The findings suggest (Figure 6.4) that the
preference for both lower and higher income group is quite less as compared to the middle
income group.

Figure 6.4: Income group preferences of providers for extending cashless benefits

Income Group Preference

70
60
50
No. of 40 100+
hospitals 30
50-100
20 less than 50
10 Grand Total
0
Lower Middle Higher None total
Income Income Income
Group Group Group

Source: Data compiled from primary survey undertaken by the author

The interesting finding is that this preference is almost same across different categories of
hospitals (based on number of beds). The question - why there is less preference for lower
and higher income group need to be investigated further? One of the possible reasons
could be that for lower income group the sum insured is less i.e. the capacity to pay is
limited by lower sum insured45

On the other hand the justifications for lower preference for higher income group may be
based on the logic that higher income group population can anyways afford the cost of
treatment and does not require going through risk transfer mode. But this trend should

45
Sum-insured is the maximum amount which can be utilized by the insured customer during the
policy tenure for availing treatment. The sum insured varies from policy to policy and can range
from Rs 10,000 to Rs 50 Lac. The concept of floater and non-floater is also linked with the sum
insured. In case of floater policy the sum insured can be used by any member of the covered
family, whereas in non-floater the sum insured is fixed for each member.

167
change given the fact that policies like RSBY, which provide health insurance benefit (up
to a sum insured of Rs 30,000) is now getting implemented across all the States in India.

6.2.4 Hospital charges

When asked about the frequency of increase of hospital charges, almost 70 percent of the
providers (more than 100 bedded) responded that they increase their hospital charges
annually. Most of the providers having 50 to 100 beds increase their charges every two to
three years. There are very few hospitals which increase their rate after four to five years
(Figure 6.5). The findings clearly suggest that there is an opportunity as well as a threat for
the TPA‘s and the insurance companies.

Figure 6.5: Frequency of increase in hospitals charges by the providers

Hospital Charges

70%
60%
50%
40% 100+
Percentage 50-100
30%
less than 50
20%
Grand Total
10%
0%
Every Year Every 2 to Every 4 to Never being
3 Yrs 5 Yrs increased

Source: Data compiled from primary survey undertaken by the author

The opportunity is that if the TPA or insurance companies are able to freeze the
charges/packages for duration of three to five years by means of a mutually agreed
agreement then they will be able to control claim cost and have relative advantage over
their competitors. However, the threat is that if the top end hospitals (above 100 beds) keep
on increasing their charges on an annual basis (which they will) and does not agree to get
into an agreement for restricting their increase of hospital charges, then the option left with

168
the insurance companies will be to either increase the premium amount or not to tie-up
with such providers.

In both the cases the insured customer is going to lose. Indian customers are quite cost
sensitive and will not prefer to pay more when it comes to health insurance premium. They
would also not like to buy a policy from an insurance company which does not have high
end hospitals in the network list. However, this can also have a positive effect, in the sense
that the cost of hospitalization increase to an extent that the middle and lower income
group can‘t afford to pay out-of pocket and will then try to look for alternative health care
financing mechanism and health insurance being one of them.

6.2.5 Moral hazards and fraudulent claims (supply-side effect)

One of the biggest threats to the Indian health insurance industry is the fraud risk.

Figure 6.6: Moral hazards and fraudulent claims (supply-side)

Q. Are you aw are of any hos pitas w hich m ak e fals e bills

or m e dical docum e nts or inflate the bills incas e of
m e diclaim (he alth ins urance )?

3% 4%

40%

53%

Yes No Can't say May Be

Source: Data compiled from primary survey undertaken by the author

The findings suggest that about 7 percent of the respondent agreed that they were aware
that the hospitals are making false bills or medical documents or inflate the bills in case of
health insurance. There were 53 percent respondents who did not agreed and 40 percent
169
those who selected can‘t say option (Figure 6.6). In case of cashless cases there is a
financial benefit to the providers in case they inflate the bills. The insurance companies
and TPA‘s try to create barriers by undertaking spot-verification, negotiation at the time of
cashless authorization, package-rate agreement and also by some sort of trend and data
analysis. But in re-imbursement mode such barriers would not be helpful as the insured
approach the providers to make false bills and then claim it as reimbursement. Here, is the
role of the claims team to first identify suspected fraudulent claims on the basis of certain
fraud indicators and then it‘s the role of the investigation team to investigate the
fraudulent activity and report accordingly with necessary recommendations. Thus,
different strategies need to be in place for managing both frauds and moral hazards in case
of cashless and reimbursement claims.

6.2.6 Hospital preference for an insurance company

When asked about the preference for any insurance company, the answer hinted towards a
huge opportunity for insures to build their relationship with the providers. 100 percent of
the providers with 100+ beds have no preference for any insurance company (Figure 6.7).

Figure 6.7: Preference of providers for an insurance company

100%
100%
86% 88%
81%
80%

60%

40%

20%
14% 19%
0% 0% 12% No
100+ Yes
50-100 less
Grand
than 50
Total

Yes No

Source: Data compiled from primary survey undertaken by the author

170
Only 19 percent of providers with less than 50 beds have a preferred insurer. One of the
reasons could be because most of the providers interact with the TPA‘s and not the insurer
directly. Another way to look at these findings would be that the insurance companies have
not made the efforts to contact the providers for extending services. They have not thought
that it is this relationship with providers that will help them manage their health insurance
portfolio in a way that it is not only profitable but also customer friendly. At the same time
as said earlier, it highlights the huge potential for the insurance companies to capture the
mind share of providers which can help them to develop competitive advantage in the long
run.

6.2.7 Selection of room categories

The selection of room category has a direct impact on the final hospital bill. In India most
of the providers have differential rate packages based on the room category i.e. there is an
incremental effect on the changes like consultation, OT, Anesthesia, etc. As per the
findings the customer with a cashless card prefers staying in a higher category room than
with those who don‘t have a health insurance policy (Figure 6.8). Limiting the room rent
categories and or prices at the time of underwriting could be one of the possible ways to
reduce the consumption of ―hotel facilities‖ by the insured patient.

Figure 6.8: Selection of room a category by patients who are insured and who pay
out-of-pocket.

Source: Data compiled from primary survey undertaken by the author

171
The other mechanism to avoid cost escalation due to utilization of higher category rooms is
to restrict this by allocating a fixed percentage of sum-insured to be used for per-day room-
rent expenses. For example, limiting the per-day room rent expenses as 1 percent of Sum-
insured. Thus, if the sum-insured is say Rs 2, 00,000 then the per-day room rent would be
Rs 2, 000. Anything over and above this amount needs to be borne by the patient.

The market player which is able to device a product which will have the option to choose
the room categories viz a viz premium paid would be able to control said practices. Also,
the type of relationship built with providers will play a crucial role in fighting the game
against over consumption.

The above findings could be summarized as under: The level of awareness among the
insured population is low with regard to policy terms and conditions. Most of the insured
does not care for the treatment cost as they are covered under health insurance policy. The
TPA model has not been successful in bringing down the claim cost but has definitely
helped in providing un-biased services to the insured population, which includes cashless
benefit. The price structure of healthcare services are linked to the room rent category and
most of the insured patient, who are more demanding prefer staying in higher category
rooms. It‘s quite evident that the final bill generated for an insured patient is higher than
that of a patient who pays out-of-pocket. One of the ways to bridge this cost gap is to move
towards a ―package rate‖ agreement and to incorporate ―room rent capping‖. The Indian
health insurance market is not immune from moral and morale hazards and the concept of
cost-sharing by the insured will help tackle this issue to some degree. There exist an
opportunity for the insurance companies to built long term relationship with the preferred
healthcare providers by understanding each other role in serving the common client. The
use of technology can help bridge the current service gap and will help in better service
performance, more transparency and cost effectiveness. The insurance companies should
built strategies keeping in mind the different market forces and anticipating the changes
which the industry is bound to see (Kumar, Rohit. et al., 2011).

172
6.3 Data Relationship (Hypothesis A and B)

On the basis of literature survey, filed study and stakeholder analysis it was found that the
claim cost paid by the insurers to the providers could be dependent on multiple
independent factors like the risk covered by the insurer and components of hospitalization
cost. Age and sum insured are the two basic information on which the insurer decide to
accept or reject the risk. The risk covered by the insurers also includes the number of days
the insured stay in the hospital, this is measured in terms of Average Length of Stay
(ALOS). ALOS is a common proxy indicator of resource use and is an easy variable to
measure. For some, it is regarded as the leading indicator of hospital resource use46. In the
health insurance policy the benefits are paid under different categories i.e. room rent,
surgeon fee, consultant charges, investigations, medicines, and miscellaneous charges (for
example- implants, lenses, etc.). Thus, on the basis of available information the population
regression model was developed (see below). The details of the variables, its definition and
the data sources are provided under Table 6.3.

(Claim Cost Paid) i = β0 + β1 *(Age)i + β2 *(SI) i + β3 *(ALOS) i + β4 *(RENT) i +

β5*(SUR) i + β6*(CON) i + β7*(INV) i + β8 (MED) i +
β9 (MISC) i + Ɛ i

As the population parameters were unknown, sample regression model was taken i.e.

46
Hadley J, Steinberg E, feder J. ―Comparison of uninsured and privately insured hospitalization:
conditions on admission, resource use and outcome,‖ JAMA (1991); 265: 374-9.

173
Table 6.3: Multiple Regressions: Variables and Definitions

Variable Definition/Calculation Source

Claim Cost
Paid by Insurer
(CLMPAID) The amount of money paid by the insurer to the insured IRDA
The age of the insured at the time of taking the policy. This is
Age also taken into account at the time of calculating the premium IRDA
This is the maximum amount that could be paid to the insured
during the entire policy period. It is at times called as the
Sum Insured policy limit. It is also taken into account at the time of
(SI) calculating the premium IRDA
Average Length of Stay in hospital. This is calculated by
subtracting the date of discharge with the date of admission of
ALOS the insured patient. IRDA
Room Rent This is the expenses incurred towards the room rent category
(RENT) availed by the insured customer. IRDA
The fee charged by the surgeon who operates on the patients.
Surgeon Fees The amount is paid to the hospitals and then passed on to the
(SUR) surgeon based on their mutual understanding IRDA
The fee charged by the consultants (Doctors). At times there
Consultation could be multiple doctors consulting the patient based on his
Charges (CON) need and the ailment IRDA
Investigation The fee linked to the investigations conducted to diagnose the
Charges (INV) problem e.g. pathological test, X-ray, Ultrasound, MRI etc. IRDA
Medicine
Charges (MED) The cost of medicines administered to the insured patient IRDA
Miscellaneous
(MISC) Other cost like implants, lenses etc. IRDA

The sample data was collected from Insurance Information bureau, IRDA. Unfortunately,
IRDA data usually provide few variables, and that strongly conditions the econometric
analysis. The two hypotheses that were tested are given below.

6.3.1 Hypothesis A

H0: β1 = β2 = β3= β4 = β5 = β6 = β7 = β8 = β9 = 0

HA: At least one βi ≠ 0

174
6.3.2 Hypothesis B

H0: βi =0

HA: βi ≠ 0

The descriptive statistics is presented in Table 6.4. The data was coded on the basis of
sum-insured and age group. The frequency table for sum-insured is presented in Table 6.5.
As could be seen the maximum frequency is for sum insured between 100001 to 200000
(29.7 percent) and between 50,001 to 100000 (27.6 percent).

Table 6.4: Descriptive Statistics

Descriptive Statistics

Std.
N Range Minimum Maximum Mean Deviation Skewness Kurtosis

Std. Std. Std.

Statistic Statistic Statistic Statistic Statistic Error Statistic Statistic Error Statistic Error

CLMPAID 19190 656693 20 656713 14784.43 163.214 22609.712 5.922 .018 74.365 .035

SI 19190 990000 10000 1000000 158043.00 882.305 122223.923 1.739 .018 4.006 .035

Age 19190 80 0 80 39.64 .143 19.778 -.180 .018 -.803 .035

ALOS 19190 20 0 20 2.48 .022 3.017 2.098 .018 5.990 .035

RENT 19190 82900 0 82900 1957.65 27.303 3782.275 4.978 .018 44.338 .035

SUR 19190 200000 0 200000 1496.14 43.302 5998.606 12.309 .018 255.511 .035

CON 19190 177000 0 177000 3701.40 58.630 8121.942 6.300 .018 70.651 .035

INV 19190 78930 0 78930 1835.82 30.322 4200.394 6.318 .018 64.262 .035

MED 19190 99564 0 99564 3173.61 45.089 6246.121 5.726 .018 49.341 .035

MISC 19190 250000 0 250000 3557.36 70.393 9751.334 7.988 .018 103.127 .035

Valid N 19190
(listwise)

175
Table 6.5: Sum Insured Code: Frequency Table

SI_CODE
Cumulative
Frequency Percent Valid Percent Percent
Valid 100001 to 200000 5701 29.7 29.7 29.7
200001 to 300000 2756 14.4 14.4 44.1
300001 to 400000 668 3.5 3.5 47.6
30001 to 50000 3182 16.6 16.6 64.1
400001 to 500000 686 3.6 3.6 67.7
50001 to 100000 5303 27.6 27.6 95.3
Above 500000 204 1.1 1.1 96.4
Less than 30000 690 3.6 3.6 100.0
Total 19190 100.0 100.0

Table 6.6: Age Code: Frequency Table

AGE_CODE

Cumulative
Frequency Percent Valid Percent Percent
Valid 0-17 2904 15.1 15.1 15.1
18-35 5100 26.6 26.6 41.7
36-44 2736 14.3 14.3 56.0
45-50 2037 10.6 10.6 66.6
51-55 1800 9.4 9.4 76.0
56-60 1499 7.8 7.8 83.8
61-65 1214 6.3 6.3 90.1
66-70 961 5.0 5.0 95.1
71-75 665 3.5 3.5 98.6
76-80 274 1.4 1.4 100.0
Total 19190 100.0 100.0

176
Estimation by SPSS Results

Table 6.7: Correlations (Claim paid, Average Length of Stay)

CLMPAID ALOS
CLMPAID Pearson Correlation 1.000 .241**
Sig. (2-tailed) .000
N 19190.000 19190
ALOS Pearson Correlation .241** 1.000
Sig. (2-tailed) .000
N 19190 19190.000
**. Correlation is significant at the 0.01 level (2-tailed).

Table 6.8: Correlations (Claim Paid, Age)

CLMPAID Age
CLMPAID Pearson Correlation 1.000 .219**
Sig. (2-tailed) .000
N 19190.000 19190
**
Age Pearson Correlation .219 1.000
Sig. (2-tailed) .000
N 19190 19190.000
**. Correlation is significant at the 0.01 level (2-tailed).

Table 6.9 Correlations (Claim Paid, Sum Insured)

SI CLMPAID
SI Pearson Correlation 1.000 .192**
Sig. (2-tailed) .000
N 19190.000 19190
CLMPAID Pearson Correlation .192** 1.000
Sig. (2-tailed) .000
N 19190 19190.000
**. Correlation is significant at the 0.01 level (2-tailed).

177
The age code frequency table suggests that the least frequency is for the age group of 76-
80 years (1.4 percent) and age group of 71-75 years (3.5 percent). The reason for this could
be because most of the health insurance policies do not cover individuals above the age of
60 years (see Table 6.6).

The correlation between the dependent (claim paid) and the independent variables (ALOS,
Age and Sum Insured) are depicted in Table 6.7, Table 6.8 and Table 6.9. In all the cases
correlation was found to be significant at the 0.01 level.

The regression analysis was done using SPSS 17.0 and on the basis of output (Table 6.10)
the regression equation is:

Regression Analysis
Variables Entered/Removed

Model Variables Entered Variables Removed Method

1 MISC, INV, SI, SUR, . Enter
ALOS, Age, CON, MED,
RENTa

a. All requested variables entered.

b. Dependent Variable: CLMPAID

178
Table 6.10 Model Summary, ANOVA and Coefficients

179
The coefficient of multiple determination is 0.860; therefore, about 86 percent of the
variation in the claim cost paid by the insurer is explained by the age of the insured, sum-
insured covered, ALOS, room rent, surgeon fee, consultation charges, investigation
charges, medicine and miscellaneous charges. The regression equation appears to be very
useful for making predictions since the value of R2 is close to 1 (Table 6.10).

At the α = 0.05 level of significance, there exist enough evidence to conclude that at least
one of the predictors is useful for predicting claim cost paid by insurers; therefore the
model is useful. By looking at the Test Statistics and P-value the null hypothesis for
Hypothesis B is also rejected. Thus, all the predictors are useful for predicting claim cost
paid by insurers.

Since neither of the predictor variables has a variance inflation factor (VIF) greater than
ten, there are no apparent multicollinearity problems; in other words, there is no variable in
the model that is measuring the same relationship as is measured by another variable or
group of variables.

The results suggest that managing the different components of hospitalization cost by both
the insurers and providers would help reduce the claim cost paid by insurers. This would
then help reduce the claim ratio for the insurance companies and given the competitive
environment, it has the potential to make health insurance policies more affordable for the
general population. Also, the increase in average length of stay in the hospital leads to
increase in the claim cost paid by the insurers. Thus, one of the ways to eliminate the effect
of ALOS on the claim cost paid by the insurers would be to move to ―package rates‖,
wherein the cost of treatments is not linked with the number of days the patient is
hospitalized. The age of the insured customer also affects the cost paid by the insurers and
this explains why the insurers charges higher premium for higher age.

180
6.4 Health Insurance Value Chain

In health insurance, being a service industry and given its regulatory environment, there
are five primary value chain activities and seven secondary activities. The primary
activities as listed out in the Figure 6.9 include the following:

I. Product Design
II. Regulatory Approval
III. Marketing and Sale
IV. Enrollment and Risk Transfer
V. Services during Risk Coverage

Figure 6.9: Indian Health Insurance- Value Chain

I II III IV V

Services
Enrollment
Product Regulatory Marketing during
> > > and Risk > >

MARGIN
Design Approval and Sale Risk
Transfer
Coverage

Firms Infrastructure

Technological development

HR Management

Legal and Compliance

Finance, Investments & Actuarial

Provider Management

Audit, Fraud and Investigations

Source: the above value chain is designed based from the framework developed by
Michael Porter and on the knowledge, study and investigation undertaken by the author.

181
Product Design may be considered to be the first step in the value chain wherein the needs
of the customer is assessed and on the basis of customer and business requirements
different health insurance products are designed and developed by the insurance
companies. Here, there is an opportunity for the insurance companies to engage with the
providers to design innovative health insurance products. For example- the closed network
policies designed specifically for a customer segment within a defined geography. In such
products the benefits of reduced claim cost may be transferred to the customer by offering
the product at a reduced premium. Also, there would be product that has a hospital cash
cover built in it.

Once the product specs are developed by the insurance company it is then sent to IRDA for
approval as per the ―file and use‖ guidelines. Unless there is a regulatory approval, the
insurance companies cannot start selling the product in the market. Even for any changes
in the existing product it is mandatory for the insurer to take regulatory approvals. Once
the regulatory approval is in place, the activities linked to marketing and sales are initiated.
With the introduction of standalone health insurance companies the number of
advertisements on health insurance benefits and awareness has increased. Under the
marketing and sales activity the insurer and intermediaries should ensure that there is no
misselling. Also, the help of the providers may be taken for joint promotions activities. For
example- using hospital premised for brand promotional activities. Here, there could be an
argument that using hospital for such activity might lead to enrolling bad risk. Therefore,
there should be a robust enrollment and risk transfer mechanism.

The enrollment and risk transfer is the fourth activity in the value chain wherein the
customer are asked to fill the proposal form and on the basis of which the underwriting
team take a decision to either accept the risk, accept with certain exclusions or reject the
risk. In the first two scenarios, the policy is issued and the policy kit is dispatched to the
customer. Normally, the details about the network hospital are provided in this kit. The
policy inception and expiry date is mentioned in the policy document along with other
terms and conditions.

The final activity in the value chain is the different services offered between the risk
inception and risk expiry dates. Generally, this period is of one year. Claims processing

182
and customer service are an integral part of this activity. The level of service offered
during the risk cover period will determine if the existing customer would re-new the
policy or not. Also, the ―word of mouth‖ is mostly spread on the basis of services offered
during this period. The claim experience then acts as an input in designing and pricing of
new products, which is nothing but the first activity in the value chain.

These activities are supported by firm infrastructure, technological development, human

resource management, legal and compliance, finance, investments and actuarial, provider
management and audit, fraud and investigations.

The different factors identified throughout the course of the current investigation are
depicted in Annexure V. Having identified the variables that are going to act as an input
for strategizing the providence of services to the beneficiaries, the success of such
strategies as has been indicated will be more dependent upon the influence of these
variables and converting them into effective service mechanism.

183