Insurance Article, The Insurance Times 2022, The Insurance Times September, 2022

PPN SYSTEM – HAS DONE MORE HARM THAN BENEFIT – CONTINUES TO VIOLATE PRINCIPLE OF INDEMNITY

I wrote an article titled PPN SYSTEM – FAILURE OR SUCCESS, which was published herein this publication in March, 2017. In the said article, I had anylised the reasons in detail, which are the causes that this system was failing in its objective in the first five years of its’ introduction by four PSU companies. Unfortunately, now when almost a decade is passed the PPN system has done more harm than benefit and continues to violate Principle of Indemnity. In present article, at the cost of some repetition, I have once again anylised with more in-depth study of the system from the beginning particularly in the light of new scenario, where private sector including standalone health insurance companies, have come in the field with aggressive marketing of their health products. This new scenario has proved how the PPN system is harming dangerously the health insurance portfolios of four PSU companies. Worst affected stakeholders are not only policyholder but also the intermediaries involved in selling these products.

Medical insurance was introduced at the insistence of Government around nineteen eighties with the noble objective of providing financial succour to citizens whenever any family member faces medical exigencies particularly when the disease is a critical one. It indeed has played a vital role for these objectives and innumerable number of families has been benefited, who, otherwise, would have been financially ruined or would have been deprived of costly treatments.

Prior to introduction of health insurance coverages, for all the service providers in the health sector, it was privately funded health treatment services. However, ever since the health insurance cover started in India, scenario in health treatment services has changed drastically. Other than government hospitals, for almost all private sector hospitals and nursing homes it has become insurance funded health treatment services which resulted in substantial increase in revenue generation. Commercial aspect and profit motives for improvement in quality treatment services under modern facilities also resulted in raise in considerably higher treatment cost.

As at the time of introduction of health insurance coverages only Public Sector Insurance (PSU) companies were present/available in the market. Though, health insurance portfolio grew substantially for all four companies, the management of Health insurance portfolio for all the insurance companies become a challenging task for a simple reason that health treatment costs were considerably higher. Commercial aspects of health service providers with better facilities have resulted in offering various services at a premium cost. Patients’ choice for obtaining best treatment at modern facilities and modern treatment protocols has also kept treatment costs at higher levels. As a result of which the health insurance portfolio remained in red, almost all along.

From the year 2000 onwards, private sector insurers also started operating in India. Cautious about the market scenario of health insurance portfolio with the available operating results of four PSU companies, they were reluctant to enter in the market with this portfolio in a big way. As such, even after entry of private companies in the market the health insurance coverages were mainly provided by PSU companies for next decade also. One of the important featuresof the health insurance policies offered by PSU companies to the general public was that coverageswere with subject to capping and limitations.

As the health portfolio remained loss making for almost large parts of three decades in all the four PSU companies, an innovative mechanism for controlling losses was designed and introduced around 2010, which is known as PREFERRED PROVIDER NETWORK (PPN) approved HOSPITALS and NURSING HOMES. The sole aim was to minimise the losses under this portfolio of all the four companies, but it was also projected by some of the heads of these companies during various interviews that with the expected reduction of claim amounts the corollary effect will bereduction in premium cost for insuring public. Undoubtedly the scheme of PPN was well designed and intended for the objective which was set by the authorities. However, in the long run it proved to be total disastrous and only generated resentment and complains for insuring public and to understand why this system turned out to be a failure and did not bring about the intended results, we have to understand what is the PPN system, what are the causes of its’ failure and how it affected customers’ confidence on PSU company’s health products?

WHAT IS PPN SYSTEM?

For simple understanding of PPN system, it is a legal and binding agreement between TPA on behalf of insurer, as one party and the hospitals/Nursing Homes as other party, whereby such other party agrees that for various procedures, fixed packaged rates will be charged from the patients availing CASHLESS facility under the policy provisions and the TPA, on behalf of insurer includes the name of such hospital in the list of PREFERRED PROVIDER NETWORK hospitals which are approved hospitals providing CASHLESS facility. Hospitals chooses this inclusion in PPN listed hospitals for the reason that they get more patients, which in a way is commercial consideration for them.

From the above position, ideally, when any patient undertakes treatment in such PPN listed hospitals, he should be charged as per the agreed packaged rate, neither more nor less. But in reality, it seldom happens. Invariably, hospitals charges in excess of agreed rates but the TPA settles the claim, either while approving CASHLESS amount or settling reimbursement claim at PPN rates agreed between them. Patient is called upon to pay extra charges. It is not that the hospitals/NH cannot charge over and above Package rates under the agreement. Under certain circumstances, which are defined by IRDA and for this purpose a declaration needs to be signed by the patient party, stating that they can charge over and above package rates and insured has to bear such additional charges. IRDA declaration provides for such additional charges, which Hospitals/NH can charge and which is to be borne by the insured, are as under:

“In case, policyholder wishes to avail better facility: Name of the Additional Facility/ Provision/ Procedure/ Treatment ………………………………………………………… ………………………………………………………………………………… which costs Rs. :……………………………………………………. (In words: …………………………………………………………………………………………………………………………………………………. ………………………………………………………………………………………………………………………………………………………………… …………………………………………………………………………………….) only. On my own option, I wish to avail above better facility and I hereby agree to pay on my free will, after being explained in detail by the Hospital authority in my own and understandable language about the abovementioned Additional Facility/Procedure/Treatment and associated cost of it, which is over and above the agreed PPN tariff. Further, if I opt to go for final bill reimbursement with insurance company, respective insurance company will reimburse only as per agreed PPN tariff rates and balance amount will be borne by myself or patient only. I have also been explained that when room service of a category better than the eligible room rent is availed by the patient, not only the difference in room rent but also an equal proportion of all other charges associated with the treatment shall be borne by me.

Signature :………………………………………… Signature :……………………”.

 

CAUSES OF FAILURE OF THIS DECLARATION SYSTEM

From the above form of declaration, two things are deduced, (1) Better Facility (i.e.  Additional Facility or Provision, and (2) better Procedure/Treatment for which Hospitals/NH can charge additional amount over and above the package rates and insured has to bear the same. If welook into the first aspect of so-called better facility which is “additional facility or Provision” availed by insured, the question arises what kind of better facility during hospitalisation can be available for the patient? Immediate answer to this is better category of room i.e., single room, double room or general ward, deluxe room or ordinary room etc. Now for this different category of rooms, hospital tariff is offered and whichever kind of room, patient selects, hospital levies charges accordingly. For this aspect in most of the health policies of PSU room rent capping is provided and not only extra charges over and above eligible limit of room rent but alsoproportionate charge on various other heads of the hospital bill are to be borne by the insured. Besides the accommodation in room what other “additional facility or provision” can be availed by any patient. Normally, we have never seen that in hospitals, treatment in different types of Operation Theatres (say, ordinary or deluxe) aregiven as a choice to the patient. Yes, for certain procedures some advanced instruments or machines are used, but in normal circumstances decision to use such type of instruments or machineries are taken by the doctors. As such, it is not understood what this aspect of declaration means for the insured.

Similarly, for the second aspect i.e., “better procedure/treatment” insured is called upon to bear extra charges. For any patient, treatment at hospital is taken with sole aim of getting relief from medical situations from which he or she suffers. In some cases, even such treatment is required to be taken from lifesaving considerations. In both the situations any patient naturally would like to opt for best procedure/treatment available.

The scope of cover under various health policies of PSU Companies provides for indemnity for ‘Medically necessary, reasonable and customary medical expenses’ incurred for treatment, subject to terms, conditions which includes any capping, sub-limits etc and subject to sum insured under the policy’. If one reads the policy carefully, there is no definition of implant, there is no definition of category of treatment. Yes, various capping and various sub-limits are defined under the policies.

All the aspects of abovementioned declaration, if we consider in the context of scope of cover provided under various health insurance policies, such declaration appears to be meaningless. Moreover, in many hospitalisations bills it is never found that charges are levied for “better procedure or treatments”. Also, unlike room rent tariff, which is published by the hospitals or shown in their websites, there is no differential rates shown for better or normal procedure/treatment. Yes, differential rates are made available normally for method of treatment, such as laparoscopic surgery etc as also with regard to implants, such as lenses for cataract etc. It is also pertinent to note that in the absence of any definition for covered category of treatment or selection of implants under the policy, can indemnity be denied for selection of better procedure for treatment or better implant? Such indemnity is to be considered within the meaning of capping and sub-limits provided under the policy.

One more important thing is that for similar type of treatment for any disease, even in conventional procedure, requirement of medical attention may differ from patient to patient. There may be different complications in different cases and different quantity of medicines, more investigations and repeated treatment may have to be given, which will certainly increase cost. Such costs, in terms of scop of policy, are ‘Medically necessary, reasonable and customary medical expenses. As such, how can claims for such cases be settled in uniform manner of PPN agreed rates.

However, it is one thing that additional charges are levied in the bill for such defined reasons of the declaration, if any,and it is a different thing that hospitals/nursing homes charges extra amount over and above package rates “without giving any justification, whatsoever, in terms of IRDA defined better facility”. Invariably, in hospital bills charges are levied over and above agreed package rates and no justification for that is provided under the bill document by the hospitals and nursing homes.

Such bills come in front of the TPA authorities, either at the time of consideration of cashless application or at the time of claims submitted by the insured for reimbursement. The TPA authorities, without bothering to check the bills for correctness of amount, and as per the agreement or justification for any extra charges,approves cashless authorisation or settle the claim for reimbursement on PPN ratesand the insured is saddled with bearing such extra charges.

ADVERSE AFFECT OF PPN SYSTEM

This is a mockery of PPN system and the consequencesare that the hospitals/nursing homes merely go on violating the agreement and get scot-free due to total inaction on the part of Insurer/TPA and the insured is burdened with bearing such extra cost. It is not that there is no system to address such lacune. Authorities have set-up nodal authorities at all four regions to consider any grievance which isbeing brought to their notice and corrective measures have also been taken at their end. But cases of such grievance are very nominal as against violation of agreement by hospitals/nursing homes. This is also because many insureds and many intermediates are not aware as to what to do when they face cases of overcharging in the prevailing situation.

Main question is why does not the TPA check the violation, when bills are presented at first instance for processing. Settlement at PPN rates with insured and calling the insured to bear the extra charges instead of preventing hospitals/nursing homes from charging beyond agreed packaged rates has resulted in two ways anomaly. One, the hospitals/nursing homes gets scot-free for violation of agreement and continue to indulge in more such violation and secondly insured remains disgruntled and dissatisfied.

Another important aspect of PPN system is that Insurer and, on their behalf, the TPA, applies PPN rates for settlement of claims in the cases of treatment taken at NON PPN hospitals under the provision of “Customary and Reasonable Charges” clause of the policies. Since, Non PPN hospitals have no agreement for package rates and their bills contain charges according to their own schedules rates. Settlement of such bills on PPN rates again leaves insured to bear the extra charges and there are no way hospitals/nursing homes can be called violator of any agreement. Such Nodal Authority system can also not do anything is such cases. Insured is the only sufferer in such cases.

VOILATION OF PRINCIPLE OF INDEMNITY

On the part of insurer, creating a situation where insured is called upon to bear extra charges is a clearcut violation of ‘Principle of Indemnity’ under the contract of insurance.

It appears that authorities of the four PSU companies are deliberately ignoring all these negative aspects of the system with a wrong notion that it is helping in loss ratio control but not realising that how harmful this strategy is going to be for the health insurance portfolio of the company in long run.

IMPACT OF HEALTH INSURANCE OPTIONS

Now, if we look into present scenario of health insurance market, we find that the private sector general insurance companies had initial cautiousness, but in the last decade many companies have come out with various health insurance products. Specially in last five years many standalone health insurance companies have come-up and started aggressively selling many innovative health insurance products. The biggest change in market scenario was that, whereas PSU companies’ products had features of capping and various sub-limits as also indemnity based on PPN system,the products of private insurers were much-much more attractive. The premium cost for such innovative products is comparatively higher than the premium rates of PSU companies. However, most important features are that provisions of most of the policies are free of any capping or limitations. The Bonus feature of various policies increases sum insured and makes it double the amount as early as within two years of commencement of the policy.

In this scenario where, due to deficiencies of PPN system, as narrated above, and the various capping and sub-limits under the policies of PSU companies, large number of insured becoming disgruntled and for the reason of the availability of attractive options under the products of private sector companies,business under health insurance portfolios of PSU companies started shifting in substantial manner to private sector health insurance companies.

Private sector insurers including standalone health insurance companies adopted a different strategy and their focus was to provide maximum coverage with reasonable pricing. Even, under their policies, where there are no capping or sub-limits and there are provisions of increase of sum insured through attractive No Claim bonus systems, they also provided optional covers for OPD expenses, Dental Treatment cost and even reimbursement of cost of NON-PAYABLE consumables under various Add-ons. In their underwriting system they will examine proposals thoroughly and wherever required, through medical examinations,before accepting it and offering policy. In this method, it is the experience of many customers that in the event of claims they get reimbursement of almost entire hospitalisation expenses with very nominal deductions. Yes, at the time of claim, if there is a violation on the part of policyholder for non-disclosure or suppression of any material fact is detected, the insurers have invariably not only deny the entire claim but also have cancel the policies.

Aggressive selling by private insurers, particularly by standalone insurers is capturing health insurance portfolio in substantial manner and attractive reward schemes for the intermediaries are also helping them in growth of this portfolio. It is not that the PSU Companies are lacking in offering attractive reward schemes for their intermediaries and also they have made revisions in their products by inclusion of many new and attractive features including many meaningful ADD-ON covers  with better underwriting procedures, however because even after bringing new and revised product with better underwriting guidelines and attractive reward schemes but still keeping indemnity based on capping and various sub-limits and particularly settlement of claim under PPN system and it’s unreasonable use under the ‘Reasonable and Customary Clause’ has not made situation any comfortable for customers of Public Sector Policyholders, particularly when they get much better and attractive options elsewhere.

Intermediaries of public sector insurers, in many cases are so apprehensive that selling of these products sometimes force them to think that they will have to face the ire of the customer in the event of claim. Particularly, intermediaries, those who are controlling substantial business from clients in other departments are afraid that the dissatisfaction in the event of claim under health policies, sold to such client, will affect their other businesses also.

As has been mentioned earlier that profitability under this portfolio is a challenging issue for any insurer, it appears clearly that private insurers, including standalone health insurers are adopting strategy of ‘expanding premium base of portfolio to the maximum’ which, despite offering maximum coverage and despite mitigating claims under full coverage provision, can absorb the claims and cost of procuring business and hoping to make profits. As against this the PSU companies considered that by limiting the coverage by various limitations including Room rent clause as well as adopting PPN system can curtail losses and make profit.

Health portfolio for PSU companies consists of retail as well as from Group and Government sponsored businesses, as such overall results may still be within manageable limits, but if individually retail segment is considered, it cannot be very encouraging. Under the circumstances such strategy of limiting the scope of coverage by capping and various limitations under the policies and particularly adopting PPN system for indemnity will turn out to be suicidal in long run. It appears that authorities of PSU believe that as because only few cases of grievances are received by them, perhaps they feel that by resolving such small number of grievances, it still leaves majority of claim settlement cases with limited settlement, which helps in controlling losses. If this is their strategy, they are failing to realisethat more and more policyholders will become disgruntled. Such policyholders may not be knowing how to make grievances or they may not be getting proper guidance for fighting their cases but when better options are available, they would prefer to shift their policies to private companies. In the long run retail health insurance portfolio of PSU companies will drastically be affected and they will be saddled with more loss-making policies of old age insured persons, who cannot, for obvious reasons, shift their policies, as PSU authorities have believed in these disastrous strategies of loss minimisation.

Overall, this is the defeat of objective with which those who had designed the mechanism of PPN. They only workout this system in theory by which agreements with hospitals and fixing of PPN rates for various procedures for controlling losses were designed but had no clue how it will work and particularly failed to set strict controlling system against violation of agreement by hospitals and nursing homes. Rather, without realising the consequences, PSU companies allowed the TPAs to settle claim on PPN rates, even if there is violation and they force the insured to bear extra charges. Objective of PPN was that the insured will get medical services at fixed rates for various procedures as per the agreement but in large number of cases, it has not happened and thus has defeated the very objective of PPN system, by which it has also turned out to be a clear case of BREACH OF PRINCIPLE OF INDEMNITY UNDER THE CONTRACT OF INSURANCE.

Sad part is that hospitals and nursing homes have got scot-free under the very agreement, they have signed with the insurers. The need of the hour is that authorities at all four PSU companies should anylise the system thoroughly and take corrective steps immediately to save the situation. Also, regulatory authority IRDA should take stock of the situation and issue appropriate directives, so that insuring public does not face injustice anymore.

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