Third Party Administrators Vis-A-Vis HEALTH SERVICES

Third-Party Administrators are the middlemen in the health care delivery chain, which links physicians, hospitals, clinics, home health, long-term care facilities, and pharmacies.  In India, TPAs are separate entities and they serve more than one insurer at a time.  TPAs are governed by the IRDA (Third Party Administrators-Health Services) Regulations, 2001. They render the Health Services under an agreement with an insurance company in connection with ‘Health Insurance Business’ or health cover as defined in regulation 2(f) of the IRDA Regulation, 2000 but does not include the business of an insurance company or the soliciting, directly or through an insurance intermediary including an insurance agent, of the insurance business.

WHAT IS A THIRD-PARTY ADMINISTRATOR?

‘TPA’ means A Third Party Administrator who, for the time being, is licensed by the Authority, and is engaged, for a fee or remuneration, by whatever name called as may be specified in the agreement with an insurance company, for the provision of health services.  Only a company with share capital and registered under the Companies Act, 1956 can function as a TPA.  The minimum share capital of the company shall be in equity shares amounting to Rs. 1 crore.  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 licensed by the Authority, the company shall not engage itself in any other business. At least one of the directors of the TPA shall be a qualified medical doctor registered with the Medical Council of India.  The aggregating holdings of equity shares by a foreign company shall not at any time exceed twenty-six percent of the paid-up equity capital of a third party administrator.  More than one TPA may be engaged by an insurance company and, similarly, a TPA can serve more than one insurance company. The parties to the agreement have to agree between themselves on the scope of the contract and the facilities that have to be provided.  Such an agreement shall also prescribe the remuneration they may be payable to the TPA by the insurance company.  Every license granted by the Authority to a TPA or any renewal thereof, in terms of these regulations, shall remain in force for three years, unless the Authority decides, either to revoke or cancel it earlier.  The License may be renewed for a further period of three years at least thirty days before the date of expiry of the license. The Claim administration and management are supposed to be the backbone of TPA.  Various TPAs in India have developed their in-house processing model, however, only a few of them have moved ahead and developed computerized claim processing and management module. TPA is an organization that administers group benefits and claims for an insured group or self-funded company without participating in the insurer’s risk.  A TPA performs administrative functions such as provider contracting, claim processing, and medical management.

CODE OF CONDUCT FOR TPA’s

The regulations envisaged two primary things;1) A TPA licensed under the regulations shall as far as possible act in the best professional manner. 2) In particular and without prejudice to the generality, it shall be the duty of every TPA, its Chief Administrative Officer, or Chief Executive Officer and its employees or representatives to:

1. Establish the identity to the public and the insured and insurance company with which it has agreed.
2. Discloses its license to the insured/policyholder/prospect.
3. Disclose the details of the services it is authorized to render in respect of health insurance products under an agreement with an insurance company.
4. Bring to the notice of the insurance company any adverse report of inconsistencies or any material fact that is relevant for the insurance company’s business.
5. Obtain all the required documents about the examination of an insurance claim arising out of an insurance contract concluded by the insurance company with the insured/policyholder.
6. Render necessary assistance specified under the agreement and advice to policyholders or claimants or beneficiaries in complying with the requirements for settlement of claims with the insurance company.
7. Conduct itself courteously and professionally.
8. Refrain from acting in a manner, which may influence directly or indirectly insured or a particular insurer to shift the insurance portfolio from the existing insurance company to another insurance company.
9. Refrain from trading on information and the records of its business.
10. Maintain the confidentiality of the data collected by it in the course of its agreement.
11. Refrain from resorting to advertisements of its business or the services carried out by it on behalf of a particular insurance company, without the prior written approval by the insurance company.
12. Refrain from inducing an insured or policyholder to omit any material information, or submit wrong information;
13. Refrain from demanding or receiving a share of the proceeds or indemnity from the claimant under an insurance company.
14. Follow the guidelines or directions that may be issued down by the Authority from time to time.

In addition to the above, any change made from time to time in the agreement entered into by an insurer and a TPA shall be filed with the Authority.  TPA is not authorized to charge any separate fees from the policyholders whom it serves under the terms of the agreement with the insurance company.  If any TPA fails to furnish any document, statement, return, etc., to the Authority, the same is construed as a non-compliance of the Act.

STATUTORY OBLIGATIONS FOR TPAs

As per IRDA Regulation 2000, TPAs are under obligation to maintain proper records, documents, evidence and books of all transactions carried out by it on behalf of an insurance company in terms of its agreement.  Such records, documents, evidence, books, etc. and the information contained therein will be available to the insurance company and the Authority and access to them shall not be denied by the TPA on any ground. Every TPA will maintain the records and follow strictly the professional confidentiality between the parties is required, but this does not prevent the TPA from parting with the relevant information to any Court of Law/Tribunal, the Government or the Authority in the case of any investigation carried out or purposed to be carried out by the Authority against the insurance company, TPA or any other person or for any other reason. In case the license of a TPA is revoked or canceled by the Authority, the data collected by the TPA and all the books, records or documents, etc. relating to the business carried on by it with regards to an insurance company, shall be handed over to that insurance company by the TPA forthwith, complete in all respects. Every TPA has to furnish to the insurance company and the Authority an annual report and any other return, as may be, required by the Authority. The TPA will also submit the Annual Report duly verified by a Director and the Chief Adm. Officer within sixty days of the end of its financial year.  They have to make available to the Authority for inspection, copies of all contracts with insurance companies.

REVOCATION OR CANCELLATION OF A LICENSE:

A license granted to a TPA may after due notice be revoked or canceled by the Authority for once or more of the reasons.  The Authority may initiate action under regulation 13 for any of the following reasons:

1. Based on the information that the TPA is functioning improperly and against the interests of the insured or insurance company.
2. Based on information in its possessions, it is of the opinion that the financial condition of the TPA has deteriorated and that the TPA cannot function effectively or that the TPA has committed a breach of regulations.
3. The Authority thinks that the character and ownership of the TPA have changed significantly since the grant of license.
4. The authority finds that the license or any renewal thereof granted to the TPA was based on fraud or misrepresentation of facts.
5. There is a breach on the part of the TPA in following the procedure or acquiring the qualifications laid down by regulations.
6. The TPA is subject to winding up proceedings made under Companies Act, 1956 or any statutory modification thereof.
7. There is a breach of code of conduct prescribed by regulation 21 of these regulations.
8. There is a violation of any directions issued by the Authority under the Act or these regulations.

Before proceeding under regulation 13 to revoke or cancel a license granted to TPA, the Authority grants a reasonable opportunity of being heard of the TPA. Every order made by the Authority under regulation 13  is in writing stating clearly the reasons for the revocation or cancellation of the license and the order is served on the TPA as soon as the same is made. The Authority also uses to send copies thereof to the insurance company with whom the TPA has subsisting agreements.  The TPA on receipt of the order under regulation 13 ceases to carry on its functions as TPA to the insurance company and the insurance company immediately takes such alternative steps including the appointment of another TPA.

INCREASING CLAIM RATIO:

Currently, some insurance companies are taking some crucial decisions to reduce costs into the medical business.  It is likely to hike premiums on corporate mediclaim policies which are one of the largest claim-prone divisions in its business portfolio.  Insurers are planning to offer cash incentives to assigned Third Party Administrators, to help prunes the high claim ratio of media claims. Both these initiatives are expected to bring down the claim ratio by the close of the current fiscal. While the ideal claim ratio could be in the range of 70%, high levels of 100% are really difficult to cope with.  The selection of risk is significant and to concentrate on better profit levels, pruning of risk, particularly on loss-making accounts is essential.  This can be done by substantial loading on certain mediclaim accounts where claims are over 100%. The healthcare industry is on the threshold of a new era, and Indian IT companies can gain from the global sourcing that’s beginning to happen.  With life in cities becoming more and more demanding for the youth and middle-aged occurrences of illness from lifestyle changes have been on the rise.  Some common examples are juvenile diabetes and early heart attacks.  Public sector insurance companies have always offered some kind of cover for health check-ups. But these cover are conditional.  The cost of health checkup is reimbursable at the end of 4 continuously claim-free years.  Further, this is limited to 1% of the average sum insured of the 4 claim-free years.  Private non-life players also offer a similar provision.  It is not just the insurance companies that give this kind of benefit or policies for their customers. Many companies or employers have their health insurance plans, wherein they have tied up with one of the healthcare providers and they too offer this kind of benefit for their employees.

FLOATING OWN TPA BY INSURERS:

In the US, many insurance companies are understood to have TPAs of their own which help in monitoring excess billing and in speeding up the claim processing work.  In an attempt to improve its health insurance portfolio in India, A private player Bajaj Allianz has decided to float its own TPA.  So far the Bajaj Allianz is the only insurance company in the country to have a fully owned TPA. Most of the insurers are not happy with the claim processing work being done by the independent agencies. They are considering stopping outsourcing work to others and doing the groundwork for the launch of their own TPA.  There is a lot of conflict of interest these days among the TPAs.  Some of these have been promoted by hospitals and hence there are problems relating to over-billing and claim processing.  Ultimately the claims have to be borne by the insurance companies, hence the insurers have decided to venture out on their TPAs.

TEAMING UP FOR IT IN HEALTH SECTOR:

Realizing the need for a uniform approach to health informatics, the ministry of information technology in consultations with the IRDA and a host of private players in the health sector has formulated a framework for IT infrastructure for health (IITH) in India. If each hospital, nursing home, primary health center, and neighborhood clinic embraces information technology independently, without an over-arching set of norms for hardware, software, networking, and bioengineering equipment, Indians can never benefit from telemedicine. Telemedicine is the delivery of health care services through IT where the patient and doctor may be in different locations. The IITH envisages the setting up of a National Health Informatics Center (NHIC) and State Health Informatics Centers (SHIC) to initiate standardization across the country.  The IRDA is likely to devise a special insurance scheme that would cover the costs of health services under telemedicine.  The Apollo Hospital Group has proposed a “unique health identifier” allotted to a patient, which is a universal numeric or alphanumeric code that would remain constant. Some of the TPAs like FHP now enjoy the sound infrastructure and excellent facilities for providing health insurance.  But efforts must be made to extend the facilities to rural areas as well.  Apollo Hospitals have taken the initiative to extend the health insurance schemes to rural areas nearly seven years back.  The family health plan backed by the Apollo Group of hospitals is confident of giving a face-lift to the TPA industry, which is currently bogged down with problems relating to claim processing and conflict of interests between the insurance company, hospital, and TPA. There was an incident in Mumbai where some corporate hospitals decided to boycott TPAs because the Mumbai market is purely driven by cash.  It is expected that the repercussion of the Mumbai market would not be felt elsewhere in the country if the TPAs are properly upgraded and networked. The grey area of the TPA industry is that “There is no standardization of documentation.”  As a result, the information required always varies leading to confusion and delay.  The uniformity is to be maintained in the functioning of the TPAs. Faced with mounting dues running into crores, owed by Third Party Administrators of general insurers to private hospitals across the country, the Association of Hospitals, a body of 37 private hospitals in Mumbai, is now in the process of forming a standard MOU to deal with problems that health care provider faces in dealing with TPAs. Presently the fine prints of the entire framework are being worked by the TPAs. The move is expected to provide a boost to cashless hospitalization and hospitals across India are eagerly waiting for the Mumbai Model.  It is working on making a provision that will make it imperative for the TPAs to pay some interest to the hospitals in case of delay in payments beyond the stipulated credit period.  The framework has also decided to provide no discounts to the TPAs which they usually demand from the healthcare service provider. The MOU will also look into the issue of unnecessary interference of the TPAs in the treatment of the patient.  This hampers a lot on the entire treatment procedure and modalities. A Grievance Committee would also be set up to address all the issues that the hospitals face in dealing with TPAs.  The structure of the committee will have two members from GIPSA, the TPAs, Association of Hospitals, AMC and ANH.  Dealing with irate customers can be quite a bother, especially if the product is a financial instrument such as insurance.  Insurance Ombudsman in India was faced with 9675 complaints from the irate policyholders in 2003-04. Out of these, 30% pertained to life insurance contracts while the rest comprised non-life insurance contracts.  Out of the total complaints in the non-life segment, nearly 50% came from the domestic and overseas mediclaim segment.  It is expected that Medi-Tourism and health insurance will be the key drivers of future investments in the healthcare sector.  India has pockets of excellence.  Hospital infrastructure in key metros is second to none. The instrumentation and technological expertise are here.  India produces the largest number of healthcare professionals in the world.  Close to 15% of the doctors in the US are of Indian origin.  Health insurance is presently targeted at a corporate audience of 13 million working people, with an estimate insurance premium value of around Rs. 2000 crore and growing at 15% annually.  Group health insurance coverage is primarily aimed at the service sector such as IT and BPO Companies.  Because of the rapid expansion of the healthcare segment, the TPA industry will also flourish in the future. If the TPAs are properly upgraded and networked, problems can be sorted out. In the US, most insurance companies have their TPAs, however, in India, TPAs are separate entities and the service more than one insurer at a time.

---

By Mr. Jagendra Kumar, Jaipur, Published in The Insurance Times, October 2005