EXECUTIVE SUMMARY

Third Party Administrators (TPAs) are the intermediaries who bring all
the components of health care delivery - hospitals, physicians, clinics, long-term
care facilities and pharmacies - into a single entity. They extend quality health
care and services at reasonable costs. It is important to take an overview of the
health insurance scenario in India before taking a detailed look at the
functioning of TPAs. IRDA has defined TPA's as "An insurance intermediary
licensed by the Authority who, either directly or indirectly, solicits or effects
coverage of, underwrites, charges premium from an insured, or adjusts or settle
claims in connection with health insurance, except as an agent or broker or an
insurer."

The advent of Third Party Administrators (TPAs) is expected to play an

important role in health insurance market in ensuring better services to
policyholders. In addition, their presence is expected to address the cost and
quality issues of the vast private healthcare providers in India. However, the
insurance sector still faces challenge of effectively institutionalizing the services
of the TPA. A lot needs to be done in this direction. Towards this the present
paper describes the findings of a survey study, which was carried out with the
objective to ascertain the experiences and challenges perceived by hospitals and
policyholders in availing services of TPA in Ahmedabad, Gujarat. The major
findings from the study are:

(i) low awareness among policyholders about the existence of TPA;

policyholders mostly rely on their insurance agents;
(ii) policyholders have very little knowledge about the empanelled
hospitals for cashless hospitalization services;

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(iii) TPAs insist on standardization of fee structure of medical
services/procedures across providers;
(iv) healthcare providers do experience substantial delays in settling of
their claims by the TPAs;
(v) hospital administrators perceive significant burden in terms of effort
and expenditure after introduction of TPA and
(vi) no substantial increase in patient turnover after empanelling with
TPAs. However, there is an indication that hospital administrators
foresee business potential in their association with TPA in the long-run.
There is a clear indication from the study that the regulatory body
needs to focus on developing mechanisms, which would help TPAs to
strengthen their human capital and ensure smooth delivery of TPA
services in emerging health insurance market.

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 INTRODUCTION

The Insurance Regulatory Development Authority (IRDA) selects the

TPAs on the basis of the strict professional norms. The Insurance industry in
India has experienced a sea of change since the opening up of the sector for
private participation. With a plethora of companies entering the foray in the near
future, the health insurance sector is surging forward and is poised for a
phenomenal growth. Health insurance is an important mechanism to finance the
health care needs of the people. To manage problems arising out of increasing
health care costs, the health insurance industry had assumed a new dimension of
professionalism with TPAs. Further, the uncertainty related to a medical
condition increases the need for a health insurance for the entire citizen.

Health insurance is any health plan that pools resources up front by

converting unpredictable medical expenses into a fixed health insurance
premium. It also centralizes funding decisions on health needs of a policyholder.
This covers private health plans as well as Mediclaim policies. While call center
facilities and personalized financial planning tools are some of the innovative
trends, experienced in the products front, the best thing to happen on the service
front is the introduction of third party administrators as they serve as a vital link
between insurance companies, policyholders and health care providers.

TPAs were introduced by the IRDA in the year 2001. The core service of
a TPA is to ensure better services to policyholders. Their basic role is to function
as an intermediary between the insurer and the insured and facilitate cash less
service at the time of hospitalization. A minimum capital requirement of Rs.10
million and a capping of 26% foreign equity are mandatory requirements for a
TPA as spelt by the IRDA. License is usually granted for a minimum period of
three years.

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 Ideally, the TPA functions by collaborating with the hospitals in order for
the patient to enjoy hospitalization services on a cashless basis. The job of TPA s
is to maintain a database of policy holders and issue identity cards with unique
identification numbers to them. They also handle all the policy- related issues,
including claim settlements for the policy holders.

Insurance companies (insurers) can now outsource their administrative

activities, including settlement of claims, to third party administrators, who offer
such services for a cost. The insurers remunerate the TPAs; hence, policyholders
receive enhanced facilities at no extra cost.

Once the policy has been issued, all the records will be passed on to the
TPAs and all further correspondence of the insured will be with the TPAs and
not with the insurance companies. The TPA's are expected to provide value-
added services to the consumers, like arranging ambulance services, medicines
and supplies, guiding policy holders for specialized consultation, and providing
information about 24- hour help lines, health facilities, bed availability,
organization of lifestyle management and well- being programs. With the advent
of TPA, the insurance companies aim at ensuring higher efficiency,
standardization of charges, greater awareness and penetration of health
insurance to a larger section of the people.

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 Emergence of Third Party Administrator
The Indian health care system, one of society’s largest and most
influential institutions, is on the threshold of profound cultural and structural
changes because large buyers of services are wresting partial control from
providers in order to restrain escalating costs. Major corporations and insurers
have been rudely awakened from the spiraling of medical expenses paid by them
and are aggressively pursuing methods to curtail medical costs from continuing
to rise at about twice the general rate of inflation.

These large purchasers are buying medical services in volume at

wholesale prices and even dictating terms, a radical change from the long-held
custom of individuals and/or their insurers paying for their care in retail on a
case-by-case basis. Institutional buyers want to know what they are getting for
their money, a simple question that has threatened the autonomy of physicians
and hospitals to the core because the answers require detailed data, close
scrutiny, and ultimately professional judgment of whether the services are worth
their cost. The nature of insurance is being changed as buyers and insurers shift
the risk of costs to patients and providers. Increasingly, the fiduciary relation
between doctor and patient is being tested, by competition for business and
prepayment, while before it was compromised by paying the doctor every time
s/he did a procedure.

The corporate practice of medicine began in the public sector industries

and large corporate, where remote locations, high accident rates, and the growth
of lawsuits by injured workers called for some corporate form of health care.
These industries contracted for medical services on a retainer basis or on salary;
some even owned hospitals and dispensaries for their workers. Thousands of
doctors were involved in these contracts or worked on salary.

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 By the end of the 20th century, however, more and more businesses with
none of these special needs also began to contract on a competitive basis for the
health care of their employees. Commercial insurance companies of the day also
got involved, putting together packages of services for a flat amount per person
per year (capitation) or for a discounted fee schedule.

More widespread than early corporate health care plans are rapid
comprehensive health care services offered for a flat subscription price per year
to members of a group. This concept has proliferated rapidly in the recent past.
Informal reporting attests to the prevalence of such plans and of "contract
practice", as competitive health care. Practically all the large cities are fairly
honeycombed with nursing homes, steadily increasing in number, with a
constantly growing membership. The government has also become involved in
organized buying near the turn of the century. Municipal and state agencies are
thinking of putting out for bid service contracts for the poor, and also for civil
employees.

In response to these developments, more and more physicians compete to

provide medical services at discount fees or for a low capitation fee. This greatly
threatens independent practitioners, who are already facing keen competition
from the glut of doctors being trained at proprietary medical schools, and from
other kinds of doctors such as homeopaths, osteopaths, naturalists, and
chiropractors. Equally threatening to professional status, the institutions or
organizations writing these contracts set the conditions under which medicine
should be practiced.

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 Third Party Administrators have had a tremendous impact on the hospital
industry and on the health care system in general. Hospital administrators seem
so concerned that they quickly cut staff, reduce inventory, and have briefing
sessions with physicians to encourage shorter stays.
They establish internal monitoring systems to weed out or re-educate those
providers who run up expenses with too many tests or procedures. Secondary
industries arise around maximizing payments and around clinical management
systems. Profits (or surpluses) subsequently reach an all-time high, but the era of
dehospitalization has begun. Insurers responded to the profits by paying less.
They do not give the insurers an increase as large as overall medical inflation.
As a result, profits and surpluses have dropped to razor-thin levels, and many
hospitals run deficits. Admissions and length of stay continue to decline.

Such integrated delivery systems bring all the components of health care
delivery - such as physicians, hospitals, clinics, home health long-term care
facilities and pharmacies into a single entity – and takes upon financial risk.
Insurers expect the TPAs to deliver high quality health care and services at less
cost; balance cost of treatment with the need to provide more comprehensive
health promotion and disease prevention. The utilization of such a system
encourages appropriate treatment, discourages over treatment, encourages
preventive care, and attempts to promote cost containment and quality health
care delivery.

These fundamental changes and the resistance to them are easier to

describe than to analyze. The purpose of this approach paper here is to provide a
framework for understanding the role of Third Part Administrators in the Indian
health care system that is going to shape up tomorrow.

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 Third Party Administrators for
Health Insurance

The Third Party Administrators are intermediaries who connect insurance

companies, policyholders and health care providers. The Insurance Regulatory
Development Authority (IRDA) selects the TPAs on the basis of strict
professional norms. The Insurance Regulatory Development Authority (IRDA)
selects the TPAs on the basis of strict professional norms.
The Insurance industry in India has experienced a sea of change since the
opening up of the sector for private participation. With a plethora of companies
entering the foray in the near future, the health insurance sector is surging
forward and is poised for a phenomenal growth.

Health insurance is an important mechanism to finance the health care

needs of the people. To manage problems arising out of increasing health care
costs, the health insurance industry had assumed a new dimension of
professionalism with TPAs. Further, the uncertainty related to a medical
condition increases the need for a health insurance for all the citizens. Health
insurance is any health plan that pools resources up front by converting
unpredictable medical expenses into a fixed health insurance premium. It also
centralizes funding decisions on health needs of a policyholder. This covers
private health plans as well as Mediclaim policies.

While call center facilities and personalized financial planning tools are
some of the innovative trends, experienced in the products front, the best thing
to happen on the service front is the introduction of third party administrators as
they serve as a vital link between insurance companies, policyholders and health
care providers

8
TPAs were introduced by the IRDA in the year 2001. The core service of a TPA
is to ensure better services to policyholders. Their basic role is to function as an
intermediary between the insurer and the insured and facilitate cash less service
at the time of hospitalization. A minimum capital requirement of Rs.10 million
and a capping of 26% foreign equity are mandatory requirements for a TPA as
spelt by the IRDA. License is usually granted for a minimum period of three
years. Ideally, The TPA functions by collaborating with the hospitals in order for
the patient to enjoy hospitalization services on a cashless basis.

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 FUNCTIONING

TPA's are neither insurance companies nor healthcare providers but

intermediaries who bring all factors of health care such as physicians, hospitals,
clinics, pharmacies etc. together. The services provided by them include cashless
service at hospitals, telephonic support to policyholders and management of
claims and reimbursements. They also provide services to the corporate sector in
designing and managing health benefit packages for their employees. The main
function of a TPA is to guarantee cashless hospitalization to policyholders. In
short, TPAs are a key link between insurance companies, health care providers
and policyholders.

TPAs sort out health care providers by setting up a network with hospitals,
general practitioners, diagnostic centres, pharmacies, dental clinics etc. They
sign a memorandum of understanding with insurance companies under which
they let policyholders know about the various health care delivery facilities and
the methods for settling claims.

Policyholders get themselves registered with TPA's to benefit from these

services and at the time of hospitalization, health facilities are expected to pass
on this information to the TPA's. The medical representative of the TPA
examines the acceptability of the case and accordingly informs the healthcare
providers to provide cashless facility to the policy holder.

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 The agreement between TPA's and health care facilities includes the
collection of documents and bills concerning the treatment. Documents are
assessed and sent to the insurance company for reimbursement. TPA's also
procure reimbursements from the insurance company and pay the healthcare
provider. TPA's usually have in-house specialists comprising of medical
practitioners, insurance consultants, legal experts and IT professionals. The
mainstay of TPA's is information management system.

The value added services provided by TPAs include ambulance service,

medicines and supplies, information about health facilities, hospitals, bed
availability, 24 hour help lines etc.

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 SERVICES
The TPA undoubtedly aims to give the health insurance industry the required
boost in India.

The services provided by TPA are as follows:

[

• ID card: TPA provides ID cards to all their policyholders in order to

validate their identity at the time of admission.

• The TPA's undertakes "Pre-authorization" before a surgical procedure

to ease claim processing.

• 24 hours customer support services: The TPA provide assistance

through their 24 hrs call center that provides information regarding
policyholder's data, provider network, claim status, benefits available with
existing cardholder, etc All these details are furnished on request.

• Cashless Hospitalization: Each policyholder is provided with a list of

empanelled hospitals where in he/she can avail cashless hospitalization.

• Claim Management: On behalf of the insurance companies TPA

administers and settles claims for hospitals and policyholders.

Policyholders have the privilege of expressing their grievances to the

concerned insurance company or at the consumer's court if they are not satisfied
with the services of a TPA.

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 The specialized functions of the TPA include:
[[[

• The TPA keeps and maintains all the records of medical insurance policies
of an insurer.

• The TPA issues identity cards to all the policyholders. The policyholders
will have to show the identity cards to the hospital authorities before
availing any services from the hospital.

• In case of a claim, policyholders will have to inform the TPA on a 24 hr

toll- free line provided by them.
[

• After informing the TPA, the policyholder will be directed to a hospital

where the TPA has a tied up arrangement. However, policyholders have
the option to be admitted at another hospital of their choice in which case,
payment will be on reimbursement basis.

• TPA pays for the treatment; they issue an authorization letter to the
hospital for the admission of the policyholder in the hospital.

• At the point of discharge, all the bills will be sent to the TPA while they
are tracking the case of the insured at the hospital.

• TPA makes the payment to the hospital.

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• TPA sends all the documents necessary for consideration of claims, along
with the bills to the insurance company.

• The insurance company then reimburses the TPA

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 Third Party Administrators Regulations

Presently TPA licenses are issued to render health services. It is hoped that
effectively this will lead to cash less hospitalisation services. In contrast to
earlier scenario where the insured is reimbursed all the hospitalisation expenses,
in the present scenario TPA would tie-up with the hospitals and all the
hospitalisation services would be on cash less basis. Below is an overview of the
activities of TPA

• All the records of medical insurance policies of an insurer will be

transferred to the TPA.
• TPA may issue identity cards to all the policyholders, which they have to
show to the hospital authorities before availing any hospitalisation
services.
• In case of a claim, policyholder has to inform TPA on 24 hr toll free line
provided by the TPA.
• On informing the TPA, policy holder will be directed to a hospital where
the TPA has a tied up arrangement. However policyholder will have the
option to join any other hospital of his choice, but in such case payment
shall be on reimbursement basis.
• TPA issues an authorization letter to the hospital, for the treatment
wherein the TPA will pay for the treatment.
• TPA will be tracking the case of the insured at the hospital and at the point
of discharge; all the bills will be sent to TPA.
• TPA makes the payment to the hospital.
• TPA sends all the documents necessary for consideration of claims, along
with bills to the insurer.
• Insurer reimburses the TPA.

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 To offer their services TPAs, after getting license have to forge alliances with
insurers. To this extent TPAs have no role to play if they are not empanelled by
Insurers. As discussed earlier TPAs will be remunerated by insurers and
remuneration shall be fixed on a mutually agreeable terms. However IRDA has
laid down a maximum ceiling on the commission that can be given to a TPA,
which presently stands at 15% of premium amount. TPAs shall also have to tie-
up with hospitals, which offer hospitalisation services. Further each TPA may
tie-up with any number of insurers and like wise each insurer can empanel any
number of TPAs.

The above relates to roles and activities of a TPA in case of medical

insurance policies. However, in the days to come, TPA services may well be
extended, but not limited, to the following:

• Documentation and policy issuing.

• Legal services and claims recovery services under subrogation rights.
• Record verification under adjustment policies
• Medical examination services for life insurance policies and overseas
Mediclaim policies.
• Co-insurance recovery services for both premiums and claims.
• Follow up of recoveries from reinsurance companies.
• Servicing of motor policies
• Inspection and assessment of risk prior to issuance of policy.
• Arbitration services.

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Responsibility of the insurer: The insurer will be responsible for determining
the benefits, premium rates, underwriting criteria and claims payment
procedures that shall be followed by the TPA. Additionally, any reinsurance
requirements for this line of business carried on by it will be arranged by the
insurer.
Agreement:

(1) No TPA shall act as such without a written agreement between the TPA
and the insurer, and such an agreement shall be retained as part of the
official records of both the insurer and the TPA for the duration of the
agreement and for five years thereafter.
(2) The written agreement shall include a statement of duties which the TPA
is expected to perform on behalf of the insurer, and the types of policies of
insurance which the TPA is authorized to administer.
(3) The agreement shall make provisions on underwriting or other standards
pertaining to the policies underwritten which the TPA will adopt while
acting so.
(4) The insurer or TPA may, by written notice, terminate the agreement for
causes provided in the agreement. The insurer may suspend the
underwriting authority of the TPA during the pendency of any dispute
between them.
(5) The insurer shall fulfill all lawful obligations with respect to the policies
covered by the written agreement, regardless of any dispute between it
and the TPA.

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 Conditions and Procedures for Licensing of TPA

The following conditions must be fulfilled for getting licencing of TPA :

• Only a Company with a share capital and registered under the Companies
Act, 1956 can function as a TPA.
• The main or primary object of the company shall be to carry on business
in India as a TPA in the health services, and on being licenced by the
Authority, the company shall not engaged itself in any other business.
• He shall not be:
a) A person of unsound mind,
b) An undischarged insolvent ,
c) A person who had been subjected to a term of imprisonment for a
period of three months by a court of competent jurisdiction on
grounds of misconduct, misfeasance, forgery, etc.

• The qualification required are :

a) A degree in arts , science or commerce or management or health or
hospital administration or medicine, and
b) A pass in the Associateship exam conducted by the Insurance
Institute of India or such equivalent exam as may be recognized by
the Authority and notified from time to time, and
c) Completion of practical training, as may be specified by the other
authority, not exceeding one hundred hours with an institution
recognized by the Authority, for these purposes, from time to time.

The Authority may grant, on an application made to it, by the CEO

through the TPA, time not exceeding twenty four months from the date of the
coming into force of these regulations for fulfilling the qualification
requirement.

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 CODE OF CONDUCT FOR TPA

A third party administrator licenced under insurance regulations shall act in the
best professional manner as underlined in the licence. In particular and without
prejudice to the generality of the provisions contained above, it shall be the duty
of every TPA, its Chief Administrative Officer and its employees or
representatives to:

• Ascertain its identity to the public to the insured and that of the insurance
company with which it has entered into an agreement.
• Make known its licence to the insured.
• Disclose the details of the services it is authorized to render in respect of
health insurance products under an agreement with an insurance company.
• Bring to the notice of the insurance company with whom it has an
agreement, any adverse report or inconsistencies or any business.
• Obtain all the requisite documents pertaining to the examination of an
insurance claim arising out of insurance contract concluded by the
insurance company with the insured.
• Render necessary assistance specified under the agreement and advice to
policyholders or claimants or beneficiaries in complying with the
requirements for settlements of claims with the insurance company.
• Conduct itself / himself in a courteous and professional manner.
• Refrain from acting in a manner, which may influence directly or
indirectly insured of a particular insurance company to shift the insurance
portfolio from the existing insurance company to another insurance
company.

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• Refrain from trading on information and the records of its business.
• Maintain the confidentiality of the data collected by it in the course of
agreement.
• Abstain from including an insured to omit any material information, or
submit wrong information.
• Desist from demanding or receiving a share of the proceeds or indemnity
from the claimant under an insurance contract.
• Pursue the guidelines / directions that may be issued down by the
Authority from time to time.

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 What is Mediclaim Cashless Settlement

It is a kind of health insurance policy, which allows you to get treatment

at a hospital (hospitalization, surgery, or both depending on the kind of policy)
by only showing the Focus Smart Card.

The insurance company settles the bill directly. The aim behind it to
reduce the direct financial burden on insured at the time of hospitalization.
Insurance company will directly settle the bill through TPA.

Offered by the various Insurance Companies, Mediclaim is a Health

insurance Product. After Introduction of TPA (Third Part Administrators), this
product has gained a strong edge over all products in the category due to its
feature of Cashless Services.

What are the salient Features of this policy

• Reimbursement for hospitalisation due to disease/surgery.

• Reimbursement for domiciliary hospitalisation expenses in lieu of
hospitalisation.
• Pre Hospitalisation expenses upto 30 days.
• Post Hospitalisation expenses upto 60 days.
• Age Limit: 5 years to 80 years. Children between the age of 3 months to 5
years can be covered provided one or both parents are covered
concurrently.

Beneficiary can avail the cashless facility at network hospital by presenting

the Focus Smart Card. TPA is an important intermediary between an insurance

21
co. & a hospital. It verifies the policy details of the beneficiary, on behalf of the
insurer, & provides clearance for cashless services.

THE PROCEDURE FOR AVAILING CASHLESS FACILITY

PLANNED HOSPITALISATION

The TPA needs the prescription with the details of the medical history along
with the following particulars:

• Reasons for getting admitted

• Recommended date of admission
• Estimated costs
• Name of the hospital
• Estimated duration of stay
• Doctor's prescription

The steps include:

• The Focus Smart Card should be presented at the hospital while

approaching for the cashless facility.
• The hospital will submit a cashless request form duly filled in, signed by
the concerned doctor and stamped by the hospital to Focus.
• A Letter of Guarantee will be issued by Focus directly to the hospital,
specifying the amount that can be exhausted by the hospital.

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 • The process will take 3-5 hours.

• If the total hospitalisation expenditure increases the amount authorized,

the hospital will ask for further authorization from Focus, stating the
reasons for the rise, at least one hour before the patient is to be released.

EMERGENCY HOSPITALISATION

In case of an emergency hospitalisation, it is mandatory for the hospital to

have the approval of the TPA to render cashless treatment. The hospital takes the
approval within 3 hours and then starts with the treatment. If the treatment is not
in a condition to be delayed, cash deposits that can be refunded later need to be
made to begin the treatment.

Benefits:

• It facilitates in obtaining and undergoing treatment without making any

direct payments.
• It is the best kind of facility healthcare available for meeting the growing
needs of busy health care business at a fast pace.
• This facility does not carry any unnecessary problems and restrictions and
has a straightforward operational method.
• The insured has an option to walk into any of hospitals of his choice from
amongst those included in the list of network hospitals of the TPA.
• There are no hassles in the entire process of treatment and payment.
• In case of emergency hospitalisation, it provides the facility to claim the
expenses later.

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Precautions:

• For planned hospitalisation, send the pre-authorization form online.

• In case of accidents, make sure the doctor fills the fields like time of
accident and evidence of alcohol abuse. A partially filled form will be sent
back to the hospital, in this way it causes more delay.
• If you are accompanying the patient then mention your cell phone number
on the pre-authorization request. This will ensure that Focus can get in
touch with you immediately.
• Carry your Focus Smart Card at all times, will be helpful in case of
emergency.
• Find out which of the network hospitals is close to your house or place of
work.
• Don't forget to renew your policy every year.
• Be clear about which expenses and surgeries that is covered by your
policy.

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 ROLE OF THIRD PARTY ADMINISTRATOR

There is considerable confusion on the role and usefulness of third party

administrators (TPAs) in India. The Insurance Regulatory and Development
Authority (IRDA) defines TPA as ‘an insurance intermediary licensed by the
Authority who, either directly or indirectly, solicits or effects coverage of,
underwrite, collect, charge premium from an insured, or adjust or settle claims in
connection with health insurance, except as an agent or broker or an insurer.’
Basically, a TPA acts as a service integrator between the insurer, the insured and
the health service provider.

The TPAs were introduced as intermediaries to facilitate claims

settlements between the insurer and the insured. Insurance companies have been
searching for ways and means to get their management expenses in line with the
specifications laid down by IRDA. Insurers can now outsource their
administrative activities, including settlement of claims, to TPAs, who offer such
services at a cost. Since the TPAs are paid by the insurers, it is argued that the
policy holders should welcome such a move since they receive enhanced
facilities at no extra cost. The other benefit of TPAs is that once the policy has
been issued, the insurance companies have to pass on all the records to the TPA,
and all the information regarding the insured will remain with the TPA. Finally,
the new system is supposed to be based on a cashless mode, which is definitely
an improvement over the previous system as far as consumers are concerned.

Ultimately, of course, the role of TPAs in the country has to be measured

against the basic parameters of a functional health sector, that is, are the TPAs
able to make healthcare more accessible and available to the population at large.

25
 Before IRDA allowed the TPAs to formally enter the market, there were
intermediaries who were acting on behalf of the corporate and playing a very
similar role to that of present-day TPAs. Corporate were utilizing these agencies
to help them make the process of claim reimbursement easier and smoother for
their employees. Also, these agencies were helping to market the insurance
products available – mainly Mediclaim – to corporate.

The IRDA mandated that only an organization registered under the

Companies Act, 1956 with a share capital of at least Rs 1 crore could set up a
TPA. Further, a minimum of Rs 1 crore worth of working capital is also
mandated by the IRDA regulations.

At the time of inviting applications, it is learnt, the IRDA called a meeting

of 108 potential players. With the limit of Rs 1 crore capital, only 23 TPAs
remained and got registered. Of these, the Mediclaim business of the public
sector insurance companies was allocated among 11 TPAs, but according to
some of the TPAs contacted for this research, this list was apparently very
different from the one initially drawn up by experts and other selected invitees.
The initial misallocation of the Mediclaim business – the reasons for which
seem to be not based on any objective criteria – is still seen as a major reason for
the subsequent outcome in the market for Mediclaim business, which will be
discussed below. It may be mentioned here that most of the health insurance
business comes from the four public sector companies; the private companies at
present have only about 6 per cent of the medical insurance business, and have
given the business to only a couple of TPAs.

26
 Market for TPAs in India
Health insurance premiums in India have risen from Rs 531 crore in
2000-01 to Rs 1,045 crore in 2002-03, which includes overseas medical policies
(IRDA Journal 2003). The four public sector insurance companies have hiked
premium by 6 per cent since January 2003, apparently to factor in cost
escalation as a result of the appointment of TPAs as mandated by IRDA.
However, this revision comes on the heels of another hefty hike of 15 per cent
implemented exactly a year earlier (Business Line, December 31, 2002). The
TPAs are being paid 5.5 per cent of gross premium as commission. Based on a
figure of over Rs 1,000 crore of premiums, this means that the total business for
TPAs in India is about Rs 50 crore. Some business is, however, being conducted
without TPAs. Based on the rate of growth of insurance premiums in just one
year, it is possible that health insurance will grow much more in coming years,
giving more business to the TPAs.

Given the current business of about Rs 50 crore, it may seem that even
these 23 TPAs are probably too many. The market is already divided among
some that have cornered the major part of the business. However, while bigger
TPAs are more effective, for pan-Indian operations, some of the smaller TPAs
are also doing well in terms of quality of service, in their limited areas of
operation. Success or lack of it depends on a fine balance of essentially three
parameters: (a) share of total business, (b) availability of capital, and (c)
geographic spread of operations. As in any market, the unsuccessful players are
expected to exit the business. In the TPA market, the inefficient players, who are
not able to satisfy their main customers, would in theory exit the market;
however, as will be discussed below, this has not really happened in India.

27
 The reason ultimately is that the TPA market is not really like any other
market: neither the entry nor the exit of TPAs from the market is really free. As
mentioned above, the entry of TPAs was based on rationing of the total business
and not a natural entry based on market considerations. Similarly, the exit of
inefficient TPAs is also not due to market forces and, in fact, has not taken place
at all.

As mentioned earlier, one of the main benefits of a TPA to the customer is

a cashless transaction at the time of service delivery. Clearly, this mode of
business requires the TPAs to have sufficient working capital to make payments
to the hospital. Given the cashless system of settlements being encouraged under
the Mediclaim scheme, insurance companies are insisting on bank guarantees
from TPAs.

To illustrate how the system works, let us assume that the claims ratio of
Mediclaim is 100 per cent. This means that for a premium of Rs 1 crore (Rs 100
lakh) per annum, the claim would also be Rs 100 lakh. Let us also assume that
the turnaround time – the time taken from the time of service delivery to the
payment by the insurance company to the TPA – for a claim on average is 15
days (presuming efficient turnaround time). For a 15-day period, the claim
amount would be around Rs 4 lakh on an annual claim of Rs 100 lakh. Hence if
the insurance company insists on bank guarantees, and the turnaround time for
claims is on average 15 days, then for each Rs 1 crore of business, the TPA has
to arrange for a bank guarantee of Rs 4 lakh. The bank would charge a
commission while issuing the bank guarantee. Further, it would also insist on a
cash margin. If the margin requirement were 50 per cent of the bank guarantee,
then Rs 2 lakh cash margin would have to be provided for the issuance of a bank
guarantee of Rs 4 lakh for business worth Rs 1 crore. For business worth Rs
1,000 crore, bank guarantees worth Rs 40 crore would have to be provided. This
would require a cash margin of Rs 20 crore, assuming 50 per cent margin.
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 Thus the requirement of working capital for TPAs goes up substantially.
This example clearly indicates that pan-Indian operations would require a
substantial amount of working capital for TPAs and of bank guarantee in
proportion to the size of the business. Initially, some TPAs could not make the
reimbursements to the hospitals and/or the customers on time, with resultant
confusion and frustration on the part of all the stakeholders. Even now, some
hospitals continue to complain about not receiving payment on time.

As for the basic design of the new system of cashless payment, it is clear
that the entire system is not as yet cashless; a significant portion of the
Mediclaim business is still in the form of reimbursement to the policyholder.
One TPA mentioned a 30-70 split between cashless and reimbursement;
however, this may vary widely among TPAs. The reason for not moving over to
the cashless system could be both a preference of consumers who like to visit
their selected hospitals that are not on the TPA network, or the hospitals, who
prefer to be paid by patients directly rather than wait for settlement. A third
reason is an emergency situation where the consumer does not have much of a
choice.

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 Benefits of TPAs

With the Indian healthcare scenario of high out-of-pocket payment for

curative care – both hospital and domiciliary, – limited health insurance for the
majority of the population, uncontrolled expansion of the private health sector
and falling standards of government healthcare facility, there is understandably a
lot of confusion about what should be the ideal set of reforms However, it was
clear that the health insurance sector needed to expand for greater coverage, at
least for catastrophic illnesses. It was also quite obvious that the four public
sector general insurance companies were unable to offer a product that was more
useful or consumer-friendly than Mediclaim as it was designed in the
beginning.3 Finally, the reimbursement process for even those few who had the
policy was arduous and complicated enough to diminish the value of the benefits
considerably in the eyes of the customer.

In this scenario, privatization of the insurance sector and the subsequent

creation of the system of TPAs meant that there was a possibility of more
efficiency in the insurance market because of more competition as well as the
creation of a professional cadre to look after speedy disposal of payments. Thus,
outsourcing of the service facility did make eminent sense, especially given the
service quality of PSU companies. Average time for claim processing before the
TPAs came into existence was apparently much longer than what it is now: some
TPAs claim that the settlement is done in a matter of days. Due to lack of
adequate data, it is not really clear what the current average turnaround time is.

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 Secondly, the cashless system is definitely an improvement over the
reimbursement scheme, and the choice set for such cashless transactions
expanded when the TPAs succeeded in enlisting many more hospitals and
nursing homes on the approved list eligible for cashless facility. From the
perspective of the insurance companies, the TPAs benefit them by bringing
down the claims ratio, by reducing false claims as well as standardizing
treatment costs.

Finally, the TPAs can play a huge role in making appropriate data
available for actuarial calculations, because they are the recipients of morbidity
data that are linked with individual characteristics such as age. From a research
and policy perspective too, the availability of such data is of immense value.

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 Poor hospital network of TPAs dents Mediclaim Cashless

Service plan
Mediclaim cashless service introduced by general insurance companies is
yet to take off. It has been six months since the four public sector insurance
companies - New India Assurance, United India Insurance, National Insurance
and Oriental Insurance - launched the Mediclaim cashless service, but 80 per
cent of claims still continue to be reimbursed. In other words, cashless service
has been effective in only 20 per cent of the claims.

The Insurance Division of the Ministry of Finance has cited the weak
hospital network of Third Party Administrators (TPAs) as the main reason for
cashless Mediclaim not taking off as proposed. ‘‘In big cities, the numbers of
hospitals under the TPA network are inadequate. As a result, 80 per cent of
policy holders go to small and medium hospitals for treatment and these
institutions are not in the network. This is the main reason for such high levels
of reimbursements,’’ S K Mahapatra, secretary general, General Insurance
Public Sector Association (GIPSA), told Express Healthcare Management.

The Finance ministry is now calling for expansion of the TPA hospital
network by inviting more hospitals to get empanelled with TPAs. Last month,
the Division appointed four nodal TPAs (one for each region) to process new
applications. The four nodal TPA appointed include Paramount Health Services
for the Western region, Medicare for East and North, and TTK and Family
Health Plan in the South. These nodal TPAs would also take upon the task of
improving the system by exploring options of grading and standardizing hospital
procedures like billing and admission procedures.

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 General Insurance Public Sector Association (GIPSA) is planning to
convene a meeting this month to review the service levels of 10 TPAs appointed
by public sector insurance companies to discuss and implement steps suggested
by the finance ministry, S K Mahapatra said.

Besides weak network, infrastructure at the TPA level is also blamed for
high number of reimbursements. The primary complaint is delay in issuing
identity cards to policy holders. ‘‘Policy holders have been complaining that
they have not got their cards. Without identity cards, hospitals refuse to provide
cashless service to the patients,’’ says Subhash Wasnikar, divisional manager,
New India Assurance. Subir Bhattacharya, manager, United India, admits that
they have received complaints on delay in issuance of identity cards, delay in
claim settlements, etc against TPAs.

But TPAs say patients are not yet used to the system of cashless service
and it will take some time. ‘‘Patients do not carry identity cards or there are
instance where patients do not furnish sufficient medical details for pre-
authorization by TPAs. Patients also do not go through the information brochure
sent by TPAs leading to inconveniences, says Dr Nayan Shah, managing
director, Paramount Health Services.

TPA service is another sore point among policy holders. ‘‘My TPA sent
me the list of hospitals only after I called and fired them,’’ says Dr Rao.
Mediclaim subscribers feel that they should also have the choice of TPAs.
Another policy holder said despite his TPA mentioning a name of a particular
hospital in Mumbai in its panel, treatment was refused to the policy holder. The
reason offered was that the particular TPA was not recognized by the hospital.
‘‘If I had the choice of TPA, I could have ensured that this does not happen,’’ he
says.

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 The problems facing effective implementation of cashless service extend
to hospitals as well, say experts.

RECOMMENDATIONS/EXPLANATIONS GIVEN BY INSURANCE

COMPANIES AND TPA REGARDING THE COMPLAINTS

Both insurance companies and TPAs say these are early days and
problems are bound to exist, which will be sorted out soon. ‘‘It is true that most
TPAs have failed to issue identity cards. But, these are due to teething problems,
which will be sorted very soon. Adds Mahapatra, ‘‘It is too premature to review
and judge the TPAs. It is a learning process for them too and also for insurance
companies and policy holders.’’

Another problem is the surge in patient base. Earlier, TPAs used to pay
deposits to the hospitals for cashless service. But, with increasing patient base, it
is not possible to do so, say TPAs. ‘‘For a hospital, the number of cashless
service has increased five times after Mediclaim began offering cashless
service,” says Dr Nayan Shah.

Insurance companies and TPAs assure that they are working towards
building an efficient system. GIPSA plans to launch awareness campaigns on
TPA services, while TPAs plan to hold seminars to educate the stake holders on
the evolving changes in the health insurance sector and on how to gear up to
meet the challenges.

But, experts say, public sector insurance companies need to gear up pretty
fast to match consumer expectations. How serious are insurance companies in
building up an efficient system remains a question mark as Bhattacharya says,
‘‘we can always fall back on the old one if this fails.’’

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 Insurance Companies Working on Measures to Speed Up

Health Policy Claims

Policy holders of healthcare insurance will no longer have to wait a long

time for their claims to be settled once measures taken by state-owned non-life
insurance companies come into effect. These companies are involving
commercial banks to prevent misuse and diversion of healthcare claim funds by

third party administrators (TPAs), say officials of leading insurers.

There have been widespread complaints that TPAs do not issue cheques to
claimants on time. They divert the claims funds for other activities, delaying
payments to hospitals and policyholders. There have also been instances where
cheques issued by TPAs have bounced.

The average time taken to settle a healthcare claim for individuals is

anything between a month and 15 days. For hospitals, the TPAs take anything
between 45 and 90 days. While individual policyholders have little recourse,
hospitals have started charging differential rates for TPA and non-TPA patients.
In the process, the insurers not only faced flak and footed increased bills but also
started losing customers. The Chennai-based United India Insurance Co Ltd (UI)
has stopped providing funds to TPAs towards settlement of claims. It has
instructed its bankers -- Bank of America and Citibank -- to issue cheques in the
name of hospitals on receipt of claims data from TPAs. Under the new system,
the TPAs would upload the critical data after processing the claims. The two
banks would make out the cheques in the name of the hospitals and send them to
the TPAs for onward transmission to claimants.

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 Do's and Don'ts For Policy Holders

The following points should be noted when availing cashless services

from Third Party Administrators:

Do's

• Pre - authorization form from the Insurance helpdesk 3 - 4 days prior to

the admission for planned hospitalization should be obtained.
• The treating doctor should fill the Pre - authorization form.
• The pre - authorization approval at the Insurance helpdesk should be
checked out within 24hrs.
• Cashless treatment at the hospital can be availed after receipt of written
authorization from TPA for the covered.
• At the time of discharge leave all the entire original documents and signed
claim form with the hospital.
• In case of clarifications, the TPA office must be contacted.
• Payment to the hospital for the expenditure over and above the TPA-
approved limit, or for treatments not covered under the package, must be
made by the policyholder at his cost.

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Don'ts

• Admission at the hospital merely for investigation, evaluation or health

check ups- will not be approved by TPAs.
• Do not insist on admission on cashless basis at the Hospital without
obtaining the pre -authorization approval from TPA.
• Don't carry back any original documents at the time of discharge from the
hospital, if the TPA approves your cashless claim.

The bottom-line is that before undergoing any treatment check all the facts with
TPA's to avoid disappointment.

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 TPA-related Challenges

The challenges perceived by hospitals and policyholders in availing

services of TPA are

• Policyholders mostly rely on their insurance agents

• Low awareness among policyholders about the existence of TPA.
• Policyholders have very little knowledge about the empanelled
hospitals for cashless hospitalization services.
• In settling of their claims by the TPAs, the health- care providers
experience delays as the TPAs insist on standardization of medical
services/ procedures across providers.
• Hospital administrators perceive significant burden in terms of effort
and expenditure after introduction of TPA.
• Hospital administrators foresee business potential in their association
with TPA in the long run though as of now there is no substantial
increase in patient turnover after empanelling with TPAs.

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 Future role

In the fast developing health insurance sector the TPAs have crucial roles to
play in the future. Some of them are

• Medical examination services for life insurance policies and overseas

Mediclaim policies.
• Record verification under adjustment policies
• Documentation and policy issuing.
• Co-insurance recovery services for both premiums and claims
• Follow up of recoveries from reinsurance companies
• Servicing of motor policies
• Arbitration services
• Inspection and assessment of risk prior to issuing the policy

Developing viable mechanisms would help TPAs to strengthen their human

capital and ensure smooth delivery of their services in an emerging health
insurance market.

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 CONCLUSION

Third party administrator in health service will also play an important role in
insurance sector but Health insurance is not very popular in India as people are
not taking Health Insurance because it is a costly proposal. Furthermore there is
lack of awareness amongst people about the benefit they can derive from Health
Insurance. At present, Health Insurance is purchased by those people who are
affluent and can afford to pay the medical bills whereas it is actually required by
those who can ill afford the costly medical treatment. With the entry of the TPAs
this concept will spread and more people will go in for Health Insurance.

HEY DEAR UR PROJECT IS VERY GOOD N U HAVE DONE GREAT

EFFORTS THE THINGS MARKED IN GREEN SHOULD NOT BE
INCLUDED N ONE MARKED IN YELLOW IS U SHOULD ADD THT
TOPIC N ONE IN GRAY IS U HAVE TO FIND MEANING OF THAT TERM
OK BYE

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