overbilling on the part of providers (some hospitals use two billings schedules, one for patients with and one for patients without insurance) and fundamental underpricing of premiums. Premiums are underpriced because there are only a few pure-play health insurers in India, so most health insurers are standing under the umbrella of their parent company, buying time and market share while they wait out the monsoon.
And Third Party Administrators (TPAs) that handle the exchange of cash between providers and payors are the punching bag in the middle. They are caught between overbilling, unregulated providers and insurers that are bleeding money and want to delay payment. Because TPAs are paid by the volume of claims they process, not on the quality of their claims verification, they don’t look too hard at the accuracy of the claims, preferring to plug and chug. It is also worth mentioning that TPAs—because of the bidding process that set their contract terms—are usually faced with the choice of either doing a good job and losing money or doing a lousy one and breaking even.
Yet as ugly as the health insurance market is India, it’s trending up and to the right with a compound annual growth rate of 35 percent.
India and the World’s Healthcare Future
As provider regulation increases and as more IT systems are adopted, the incidence of fraud will decrease, premiums will be priced properly and TPAs will either be compensated properly or brought in-house by payors. The question of when will be answered at the sluggish pace of the Indian government. But what private equity investment and exponential growth curves can’t answer is how India and the rest of the world is going to deal with the fundamental gap in the number of health professionals (doctors, nurses, lab techs, etc.) and the rapidly increasing cost of healthcare.
Adopting healthcare IT will certainly help. The RAND Corporation estimates that if 90 percent of hospitals adopted healthcare IT over 15 years, we’d cut about 6 percent of our healthcare spending—a start but not enough. What we need is a revolution in technology and healthcare delivery and India may be where this revolution starts, out of simple necessity.
In India, only about 10 percent of people are covered by insurance and as a result almost all medical expenses are borne out of pocket. What this means is that there are powerful market forces driving the down the cost of care in India. This is in direct contrast to the US: In America firms can purchase healthcare with pre-tax dollars while individuals cannot. As a result of this tax law and history, most people receive insurance as a benefit from their employer. The result is that patients request and doctors perform excessive procedures because the costs are not as visible. Visible or not, the Bureau of Labor Statistics estimates that employer-provided health insurance reduced wages by 7.9 percent last year.
In India, this cost pressure and looser regulations give private firms the opportunity to experiment. GE Healthcare has already setup a division in India dedicated to bringing cost effective medical devices to market. “Beating heart” surgery that requires less medication and delivers faster recovery was pioneered in India by Wockhardt Hospitals (don’t hold their IPO against them). Aravind and LifeSpring Hospitals take a Toyota approach to eye surgery and deliveries, respectively, simultaneously reducing cost and increasing quality.
So as the US government grinds away to produce a health bill, it is well worth looking at and learning from India and other unlikely countries…before they learn the wrong lessons from us.
