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Times of India
15 August 2010
By Manthan K Mehta
Mumbai, India

Public sector health insurance companies have decided to float their own third party administrator (TPA) for management of medical claims in a bid to bring down the ratio of inflated reimbursement demands allegedly due to "fraudulent practices".

The General Insurance (Public Sector) Association (GIPSA), a body of non–life insurance public sector firms, decided on Saturday to invite expressions of interest to select a partner for all the TPA operations. An official said: "As of now, there are nearly 30 TPAs working with four public sector health insurance companies. Because of intense competition between them,the TPAs do not carry bargaining power when it comes to negotiating terms and conditions with hospitals.

This will change once the new entity starts work." The new entity is likely to start operations by June 30, 2011 and will be incorporated as a TPA in accordance with the Insurance Regulatory and Development Authority (IRDA) regulations. The move comes after a month of public sector health insurance companies refusing to provide cashless benefit for treatment in those hospitals that are not under the preferred provider network umbrella.

"It is expected that 50%–75% of the health insurance premium of the GIPSA would be transferred to the new entity by its third year of operation and 75%–100% by the fifth year. But all this is subject to its performance, especially in terms of reduction in claims," the official explained.

The four public sector health insurance companies currently dominate the market with a collective market share of around 80% and recover premium in the region of Rs 5,000 crore to Rs 6,000 crore every year from policy holders. They started outsourcing the business to TPAs in 2002.

A GIPSA official said: "With the mushrooming of TPAs, the claim ratio has gone up substantially which is not to the liking of the health insurance industry. Many of these TPAs, with an eye on profit, are compromising their role by encouraging high claims as a few of them are hand–in–glove with some hospitals."

Another official said: "Being an independent entity, the TPAs do not have a stake in ensuring higher profitability for the insurance companies. After the joint venture starts, there is likely to be huge a change in the way business is done. The GIPSA–TPA JV will be more responsible in controlling claims as it is going to have a direct effect on the bottomline of insurance companies."

Explaining the rationale behind the move, an official said: "By controlling the TPA operations, GIPSA members aim to curb fraudulent claims. Moreover, GIPSA will not have to deal with multiple agencies to manage its business. Apart from cutting losses, the JV will also benefit customers as there will be better coordination between the insurance firms and this new TPA, which is a part of GIPSA."

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