A leading Mumbai-based surgeon (who prefers to be anonymous) tells the inside story about the nexus between hospitals, insurers, pharma majors and Third Party Administrators (TPAs). Excerpts of the interview:

Moneylife (ML): What are your views about health insurance in India?

A. The public does not understand health insurance at all. What usually happens is that a financial planner recommends that they buy Rs5 lakh health insurance cover and they do so without understanding the product or the fine print. They now think they are covered, only to end up being harassed by the third party administrator (TPA)/insurer. It amounts to clear mis-selling.  

ML: Can you give us more specifics?

A. Government-run insurance companies tend to offer low cost package rates to hospitals covering 42 procedures. This money is paid by an insurer to the hospitals to cover the costs of the person insured undergoing these procedures. Insurers want the hospitals and doctors to contrive to fit costs within that pre-fixed sum. For a surgery of Rs30,000, the insurer/TPA would give a cashless approval of Rs20,000. We used to advise patients with an insurance policy to go for a reimbursement claim (rather than cashless), which used to ensure full payment. Then, insurance companies closed this option and began to pay the same amount for cashless facility or reimbursement. The actual cost of the surgery has no bearing with the medical issue of whether a person opts for cashless or reimbursement.

Then, there are issues with the computer entries of different medical procedure codes and the associated pricing (insurance companies had coded different illnesses and the amounts payable for each medical treatment or procedure, but since this was badly done and it affected the patients' claim reimbursements). Total abdominal hysterectomy procedure used to be listed under five procedure codes, which was confusing. Also, there were glaring coding blunders like surgery of total abdominal hysterectomy along with ovaries being priced lower than the one not involving removal of ovaries.

For one year, doctors refused to take insurance cases for total thyroidectomy as insurers had coded it at a ridiculous price of Rs16,000. There were only two claims in a year. The problem was the computer data entry done by the insurer for this medical procedure. It took a long time to reverse the error, and this meant poor customer service for the insured person.

ML: Are these low prices for medical procedures acceptable to some doctors and hospitals but not for others?

A. There are some doctors with less experience or poor financial condition who will work at lower rates, since something is better than nothing. Nursing homes or hospitals accepting these rates will usually cut corners to fit costs into the package rates offered by the insurance company. They may get medicines from dubious sources, use generic medicines or reuse certain disposable medical items which are supposed to be used only a specific number of times. E.g. A shaver can be used only three times. A bigger hospital, which works within a certain ethical framework, will use it only three times and bill each patient only one-third the price. A smaller hospital may use it more than three times to cut costs. How does the patient know how many times the shaver was reused by the small hospital?

ML: What is your experience with private sector insurers?

A. The amount that an insurance company is willing to pay for certain medical procedures depends on class of the hospital and the city it is located. There is a subtle nudge towards bigger hospitals and for cashless insurance. The treatment at smaller nursing homes may be cheaper and beneficial for the insurer and the patient, but the insurer is happy to pay the higher procedure rates at bigger hospitals. It increases the cost for them which will get reflected in higher premium for the insured. Both the insurer and insured end up getting fleeced.

Doctors who have their own private nursing homes and are also attached to hospitals prefer to route patients with insurance to bigger hospitals for surgery. For private nursing homes, there could be delays in receiving payment from the insurer/TPA. It invariably needs follow-up and there are deductions, which nibble into the payments. Also, the TPA may want a cut. This puts a squeeze on smaller nursing homes. Gradually, the doctors stop operating on patients at small private hospitals and prefer to direct them to bigger hospitals, which have the processes set up to handle insured patients. Getting money from an insurer/TPA becomes the headache of the bigger hospital, not the doctor operating on the patient in that hospital.

ML: We hear that large hospitals often get things like stents and implants at a very low price and bill the patient/insurer at MRP. What is your experience?

A. Yes, insurance companies find it difficult to determine the opaque cost of the implant charged by big hospitals. These hospitals can buy implants as bulk purchases and are also sourced from different places to save on taxes; Maharashtra has 10.5% sales tax plus octroi, Hyderabad has 4.5% while Chennai does not have any tax. Bigger hospital can also sell implants to smaller hospitals at different rates. The MRP (maximum retail price) on the box has no relevance to the actual cost to the hospital. Medicines are purchased by bigger hospitals at an unfathomable discount. Hospitals makes money only from pharma items (implants, medicines), nothing else; otherwise it is a white elephant.

On the other hand, genuine billing for implant from a hospital may not be paid by the insurance company. Small hospitals cannot stock some implants due to their high cost. An insurance company may also question small hospitals on the necessity of buying implants from outside instead of the hospital inventory, etc.

I once operated a senior citizen at a co-operative hospital, which takes excellent care of poor patients and the rates are very low. We stock implants and charge the patient whatever we use. We get the implants at discounted rates and pass the price on to patients; I agree most other hospitals do not do it. Yet, even this claim had a deduction on the ground that the bill for the implant was not submitted. The insurance company had proof in the form of an x-ray and a bill from the hospital stating that one plate and seven screws were inserted and charged accordingly. It was also clear that the cost reflected in the bill was much lower than the standard rates of implants, but the amount was still rejected. Now if I order costly implants and give a bill for the patient to claim, do I justify costly implants just because the bill is needed by the insurance company?
(Read the second part of the interview tomorrow)