Measured by Gross Written Premium (GWP), the Indian private health insurance (PHI) industry has more than doubled in the last five years. As of March 2020, annual GWP reached INR 51,636 crore ($6.9 billion).¹ However, when measured by the proportion of lives covered, the market still is significantly underpenetrated, making top-line new business growth a priority for insurers. At the same time, COVID-19 is changing the health insurance market in India by creating a clear shift in the customer mindset. This could over time lead to health insurance transforming from a traditionally “push” product to a “pull” one.²

Although premium growth has been encouraging, many insurers are falling short when it comes to their targets for underwriting surplus. In addition to addressing the costs of traditional claims, high levels of uncertainty around treatment expenses for COVID-19 mean that diagnostic and insurers are still scrambling to predict healthcare expenses and consequently the claims ratio with any degree of accuracy.³

One strategy that India health insurer can take to improve financial performance is to manage or optimise claims costs. This paper examines best practice strategies to reduce healthcare spending, while maintaining or improving patient outcomes. Figure 1 shows the six categories of waste driving healthcare inflation in the US identified by the US Institute of Medicine of the National Academy of Sciences (now called the Health and Medicine Division of the National Academies of Sciences, Engineering, and Medicine)—totalling $765 billion annually—equivalent to a third of all healthcare costs.⁴ It is important to note that these drivers of expenditures lead to little improvement in health or the quality of care.⁵ We discuss each item in turn below.

Figure 1: Sources of Estimated Excess Costs in Healthcare (2009)

Category	Sources	Estimate of Excess Costs	% of Waste in the US	% of Total US Health Spend
Unnecessary Services	Overuse beyond evidence-established levels Discretionary use beyond benchmarks Unnecessary choice of higher-cost services	$210 billion	27%	9.15%
Inefficiently Delivered Services	Mistakes, errors, preventable complications Care fragmentation Unnecessary use of higher-cost providers Operational inefficiencies at care delivery sites	$130 billion	17%	5.66%
Excess Admin Costs	Insurance paperwork costs beyond benchmarks Insurers’ administrative inefficiencies Inefficiencies due to care documentation requirements	$190 billion	25%	8.28%
Provider Prices That Are Too High	Service prices beyond competitive benchmarks Product prices beyond competitive benchmarks	$105 billion	14%	4.58%
Missed Prevention Opportunities	Primary prevention Secondary prevention Tertiary prevention	$55 billion	7%	2.40%
Fraud	All sources—payers, clinicians, patients	$75 billion	10%	3.27%
Total		$765 billion		33.33%

Unnecessary services

Unnecessary services, including overtreatment or providing low-value care, account for an estimated 27% of waste in US healthcare. Figure 2 shows common examples of unnecessary healthcare services in India from our experience.

Figure 2: Examples of Unnecessary Services in Indian Healthcare

Main contributors	Common examples
Ordering unnecessary tests, diagnostic procedures or medical surgical treatment that have limited or no proven benefit and can cause harm by: -Exposing patients to unnecessary radiation from x-rays -Causing anxiety due to false positive results -Leading to postponement of surgery -Triggering further tests or procedures	-Chest X-ray for a diagnosis of acute pharyngitis or acute gastroenteritis -Diagnostic esophagogastroduodenoscopy for acute gastroenteritis -Blood sugar testing in absence of a history of diabetes -Imaging tests for an acute low back pain in the absence of red flags -Extensive preoperative baseline laboratory testing (CBC, LFT, KFT, blood sugar etc.) prior to low-risk surgery
Excessive services Overuse of treatment or consults or services beyond required level of care.	-Unwarranted and excessive medications and consumables during a hospital stay -Excessive consults or unwarranted specialist consultation -Unwarranted prescription of equipment, consumables and anaesthesia

Excessive or unnecessary services are common in many markets where:

• There is a fee-for-service (FFS) payment mechanism. In most countries, physicians have historically been paid on a fee-for-service basis, which can incentivise them to deliver services over and above clinical necessity to increase their revenue.⁶
• Case rate-based payments or package rates are not predominant. Package rates shift the risk of overutilisation to providers. Although some common surgical procedures can be managed through package rates, most medical admissions and many surgical procedures do not have package rates.
• Balance billing allows providers to charge patients for services not paid by insurers. For example, in Indian hospitals, many consumables used in treating COVID-19 are costly and not payable by insurers. The costs are billed to the insured.⁷
• Standardised treatment protocols are not mandated or implemented. In India, recent COVID-19-related supply constraints and a massive surge in demand confirms this common challenge. Unnecessary use of steroids, antibiotics, antivirals and plasma therapy to treat COVID-19 patients has led to waste as well as potential harm to patients.⁸ Providers are not held accountable for compliance with evidence-based protocols and insurers are unable to challenge overuse beyond obvious errors and inappropriate practices.
• Defensive medicine is practiced. Especially prevalent in markets where medical malpractice litigation is common. Physicians may order unnecessary tests or treatments to avoid missed diagnoses or accommodate patient demands.

Best practice strategies to reduce unnecessary healthcare services:

• Reimbursement reform. A common strategy to reduce the incentives for overservicing created by FFS reimbursement is a move to bundled reimbursements, such as diagnosis-related groups (DRGs) or capitation payments. This transfers some of the payment risk from the insurer to the healthcare provider, which encourages efficient use of healthcare services. Price adjustors can then be used with these bundled payment mechanisms to drive certain policy objectives, including incentivising value-based healthcare by structuring payments to provide higher reimbursement for higher-quality health outcomes.⁹
  
  Although in India public sector insurers have negotiated package rates with some healthcare providers, there could be benefit for insurers from a focused industry effort. As a start, Indian national health and state health schemes have negotiated package rates for more than 1,000 services. Further, collaboration among health insurers could reduce costs by encouraging transparency and standardisation of contracted tariffs and prices.
• Standardised billing. In mature markets like the US, insurers use standard medical billing codes to determine the amount to reimburse a provider for services performed. Because use of these codes is universal, every provider uses the same codes for the same services.¹⁰ This allows for easy or automated checking and comparison of services if these differ from the expected pattern of care.
  
  Standardised billing is critical to reducing healthcare waste in India and other markets where the identification of unnecessary services in hospital bills is an expensive, inefficient and manual task.
• Advocacy and education. Awareness campaigns have been successful in educating patients and practitioners about low-value services. Originating in the US, but now active in many countries. the “Choosing Wisely” campaign encourages conversations between clinicians and patients to help reduce unnecessary tests and procedures.¹¹ Similarly the UK’s National Health Service’s “First Do No Harm” campaign identifies and reports on low-value and potentially avoidable services in routine clinical care.¹²
  
  Historically, health awareness initiatives have been difficult to implement in India due to a lack of regulation and standards and low provider support. However, COVID-19 has generated heightened awareness of guidance from agencies, including the World Health Organisation (WHO), Centres for Disease Control (CDC), Indian Council of Medical Research (ICMR) and All India Institute of Medical Sciences (AIIMS), creating an opportunity to advocate for standard protocols and evidence-based practices.

Inefficiently delivered services

We define inefficiency or waste within the healthcare delivery system as unnecessary, redundant or ineffective treatment (and the costs associated with such treatment).¹³ Typical examples include unnecessary hospital admissions, complications that could be avoided, hospital-acquired infections, surgery on the wrong body part, adverse events resulting from wrong medication, and patient falls, resulting in increasing morbidity and mortality or bedsores. Inefficiently delivered services are usually a result of ineffective preventive care, noncompliance with patient safety best practices or a lack of care coordination. All can result in patient injuries, worse clinical outcomes and higher costs.

In Indian hospitals, in our experience, excessively long hospital stays are common and costly for insurers. Lack of coordinated care causes delays in discharge and results in extended stays in inappropriate sites of service including intensive care units (ICUs) and tertiary hospitals. Overuse of tertiary hospitals or specialist physicians for low-acuity services and extended stays for nonmedical reasons also contribute to healthcare waste.

Best-practice strategies to reduce inefficiently delivered services

In many markets, there is a great deal of unwarranted variation in the approach that physicians take when recommending care, which can lead to inferior outcomes and higher-than-necessary costs. Setting standards and using them to reduce variation is one of the best opportunities for the convergence of higher quality and greater efficiency in the medical system. To that end, the US National Quality Forum (NQF) evaluates and endorses tools for standardised performance measurement.¹⁴ Similarly, in the UK, the National Institute for Health and Care Excellence (NICE) provides evidence-based recommendations for health and care in England. Adherence to these best practice recommendations reduces variability in care.

In India, industry publications such as the Federation of Indian Chambers of Commerce and Industry (FICCI) have highlighted patient safety criteria and safety is key to hospital accreditation under the National Accreditation Board for Hospitals and Healthcare Providers (NABH) or international accreditation programmes. However, there is no common platform to publish this information for insurers or patients. Additionally, the lack of electronic health records limits provider performance monitoring and therefore informed choice for both patients and insurers.

Excess administrative costs

Excess spending also occurs when insurers, the government or accreditation agencies create inefficient or flawed rules and overly bureaucratic procedures. For example, a lack of standardised forms and procedures results in needlessly complex and time-consuming billing work for both hospital and insurance staff. In India, excessive administrative costs are mainly due to manual processes during claims adjudication. Without digitisation, administrators must manually enter data from scanned documents. Even when electronic data is available, some manual entry is still required, which leads to errors that can cause delays. Information gaps, such as incomplete documents, also delay claims processing and increase costs. Unclear processes at preauthorisation for services causes avoidable queries and delays in processing as well as leads to disputes. Often uncertainty on approval status leads to calls and queries between members, providers and hospitals; many of these could be avoided.

Best-practice strategies to reduce excess administrative costs

• Digital transformation. The Indian healthcare industry is shifting towards digitisation at pace due to COVID-19. COVID-19 triggered the need for digital distribution strategies and process-wide digital services across insurance polity sales and underwriting, telehealth appointments and e-prescriptions and insurance claims processing.
  
  In fact, COVID-19 has highlighted the need for a complete digital ecosystem for claims processing and policy management.¹⁵ Patients want faster claims settlements, which requires automated claims adjudication to speed decision-making and better digital controls for providers and insurers. Clinical rules and data analysis enabled by optical character recognition (OCR), artificial intelligence (AI) and machine learning can provide interim solutions for system-driven validation checks and prompts to automate claims processing and increase efficiency.
• Standardised clinical data. Accurate standardised clinical data to enable provider monitoring and strategic planning is also critical. To that end, many markets use a "pay-for-reporting" strategy to incentivise accurate, complete data from healthcare providers at the source and reduce the downstream costs of converting unstructured non-standardised data to the required standardised format.

Provider prices that are too high

This type of waste occurs when the price of a service exceeds what may be considered usual and customary for the actual cost of the service plus a reasonable profit, or what similar providers with similar cost factors may be charging. Different countries have different perspectives and regulations to control and monitor healthcare prices.

In India, there is no formal healthcare pricing regulation and insurers are responsible for negotiating prices. In our experience, healthcare providers have separate service tariffs for patients with insurance coverage and people without insurance are often charged less. The cost of the same surgical procedure varies considerably by the type of hospital in the same city—even if the hospital is in the same network and the same surgeon is doing the surgery using the same components. Price variations for consumables and drugs are also common in India across different hospitals, often higher than the maximum retail price.

Best-practice strategies to lower provider prices

Insurance companies and the government can negotiate lower fees with hospitals and healthcare providers or they can dictate fees. In the US, Medicare and Medicaid determine how much they will pay for each service—these are the reimbursement rates. These rates tend to influence those used by other plans and payers. As a result, providers may be paid less for a service than they would without these guideline prices.¹⁶

Insurers can partner with healthcare providers to highlight patterns of inappropriate billing against benchmarks and enable package rates. Package rates speed claims settlement with preapproved services or straight-through processing, and policyholders and providers gain faster payments and fewer disputes. Insurers can also use data-driven provider profiling to identify and reward the providers who deliver higher-quality care at a lower cost. Providing transparency in cost of services is another strategy that can help lower provider cost, by arming the consumers with the power to compare and choose between providers.

Missed prevention opportunities

Missed prevention opportunities include missed early screenings, lack of early intervention and failures of care coordination. They often occur when patients experience care that is fragmented and disjointed—for example, when the care of patients transitioning from one care setting to another is poorly managed. These missed opportunities can lead to unnecessary hospital readmissions, avoidable complications and declines in functional status, especially for the chronically ill. In the US, nearly one-fifth of fee-for-service Medicare beneficiaries discharged from the hospital are readmitted with 30 days. Three-quarters of these readmissions—costing an estimated $12 billion annually—are in categories of diagnoses that are potentially avoidable.¹⁷

Best-practice strategies reduce the cost of missed prevention opportunities

Evidence-based protocols and quality measures can address missed prevention opportunities. Introducing simple managed care models such as health maintenance organisations (HMOs) and preferred provider organisations (PPOs) promotes risk sharing among payers, providers and members. Patient safety and clinical outcomes monitoring can be linked to incentives and penalties. For example, Medicare has taken steps to discourage “never events”—hospital-acquired conditions that should never occur, and will never again be reimbursed, including hospital-acquired infections, wrong-side surgery, and hospital accidents.¹⁸

In markets like India where access to electronic health records and claims data is limited, establishing programmes to address missed prevention opportunities is more challenging.

Fraud

The US National Health Care Anti-Fraud Association defines healthcare fraud as the deliberate submittal of false claims to private health insurance plans and/or tax-funded public health insurance programmes. Also, intentional deception or misrepresentation that the individual or entity makes, knowing that the misrepresentation could result in some unauthorised benefit to the individual, or the entity, or to another party.¹⁹

In India, common health insurance frauds perpetrated by policyholders include:

• Concealing preexisting disease (PED) and chronic ailments, and manipulating pre-policy health checkup findings
• Fake documents to meet policy terms and conditions
• Duplicate and inflated bills and impersonation
• Participation in fraud rings and the purchase of multiple policies
• Staged accidents and fake disability claims

Agents and brokers are also sometimes sources of fraud by:

• Providing fake policies to customers and siphoning off premiums
• Manipulating pre-policy health checkup records
• Guiding policyholders to hide PED and material facts to obtain coverage or file claims
• Participating in fraud rings and facilitating policies in fictitious names
• Channeling customers to rogue providers
• Misrepresenting data in group health coverage

Additional sources of US healthcare fraud include kickback schemes, where a business party influences medical experts by paying them a commission; compounding pharmacy fraud; and medical bill scams.²⁰

Best-practice strategies to control fraud

To combat healthcare fraud, predictive modeling and fraud analytics by geography, rate and incidences are needed. A common platform for all health insurers to report fraud and abuse is required. Many insurers have a fraud investigation team to specially focus on suspicious claims and fraud triggers are built into claims systems. Although these measures have been somewhat effective in detecting fraud, fraudulent claims are still thought to be a major expense. Additional ways to tackle this issue to reduce the cost of claims include:

• Strengthening tele-underwriting to enable data validation
• Training staff who interact with policyholders to ensure they follow procedures
• Creating a rewards programme for whistleblowers
• Enhancing fraud detection tools and algorithms to keep pace with ever-changing fraud patterns

Conclusion

In India, COVID-19 has had a significant positive impact on the consumer mindset around securing access to quality healthcare. To meet this demand, we see an urgent need to bring healthcare cost inflation into a sustainable range, both to help make premiums more affordable and to ensure long-term insurance industry sustainability. An analysis of US healthcare spending identifies six categories of waste that add up to approximately $765 million in excess costs. While we do not have an equivalent estimate for the costs in the Indian market, in our experience they are a significant percentage of the overall healthcare costs.

For the Indian market to address these categories of wasteful spending, data standards, electronic health records, and the digitisation of claims processing and policy management are critical. This would enable preauthorisation checks to identify unnecessary services, the ability to challenge clinically inappropriate or unwarranted services and the establishment and enforcement of easily accessible reference guidelines. Administrative data quality is important not only to track quality of care but also provide insights that could help insurers in guiding their product designs, package pricing negotiations, disease management, disease trend etc. IT system intelligence is also required for decision-support enablers and quality assurance monitoring. Data analytics is playing an increasingly critical role in all key functions of the insurance business. Improving data quality and integrating analytics in the claims life cycle has been a key strategy for claims cost containment in mature markets. Indian health insurers urgently need to reinforce data quality initiatives to leverage the proven data analysis methodologies from other markets.

Additionally, patient safety and quality of care advocacy organisations should be created to educate patients and providers, increase transparency and improve the credibility of the Indian healthcare system. These organisations would support evidence-based medical practices to establish higher standards of care and help reduce variation among providers—to reduce waste and inefficiency, while improving patient outcomes and ultimately making private health insurance more sustainable for both patients and insurers.

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¹Insurance Regulatory and Development Authority of India (31 March 2020). New Business Statement of Life Insurers for the Period ended 31st March 2020. Retrieved 27 July 2021 from https://www.irdai.gov.in/ADMINCMS/cms/NormalData_Layout.aspx?page=PageNo4106&flag=1.

²Healthworld.com (19 August 2020). How COVID-19 is changing the health insurance market in India. Retrieved 27 July 2021 from https://health.economictimes.indiatimes.com/news/insurance/how-covid-19-is-changing-the-health-insurance-market-in-india/77634563.

³Ibid.

⁴Institute of Medicine (10 May 2013). Best Care at Lower Cost: The Path to Continuously Learning Health Care in America. Retrieved 27 July 2021 from https://pubmed.ncbi.nlm.nih.gov/24901184/.

⁵Institute of Medicine. 3: Imperative: Achieving Greater Value in Health Care. Best Care at Lower Cost: The Path to Continuously Learning Health Care in America. Retrieved 27 July 2021 from https://www.ncbi.nlm.nih.gov/books/NBK207222/.

⁶Ikegami, N. (February 2015). Fee-for-service payment – an evil practice that must be stamped out? International Journal of Health and Policy Management. Retrieved 27 July 2021 from https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4322626/.

⁷Dubey, N. (16 June 2020). Your insurance may not pay for significant part of hospital treatment for coronavirus. The Economic Times. Retrieved 27 July 2021 from https://economictimes.indiatimes.com/wealth/insure/health-insurance/coronavirus-treatment-in-hospital-costs-25-more-due-to-consumables-social-distancing/articleshow/76275572.cms?from=mdr.

⁸Gupta, A. (5 May 2021). Lack of definitive COVID-19 treatment guidelines is leading to chaotic medicine. Science.the wire. Retrieved 27 July 2021 from https://science.thewire.in/health/lack-of-definitive-covid-19-treatment-guidelines-is-leading-to-chaotic-medicine/.

⁹Counihan, A., Jhu, E. & Baveja, L. (January 2021). The Role of Reimbursement Mechanisms and Payment Adjustors in Value-Based Care. Milliman Research Report. Retrieved 27 July 2021 from https://us.milliman.com/en/insight/the-role-of-reimbursement-mechanisms-and-payment-adjustors-in-value-based-healthcare.

¹⁰All Things Medical Billing. Medical Billing Codes. Retrieved 27 July 2021 from https://www.all-things-medical-billing.com/medical-billing-codes.html.

¹¹Choosing Wisely. A Special Report on the First Five Years. Retrieved 27 July 2021 from https://www.choosingwisely.org/wp-content/uploads/2017/10/Choosing-Wisely-at-Five.pdf.

¹²NHS Networks. First Do No Harm. Retrieved 27 July 2021 from https://www.immdsreview.org.uk/downloads/IMMDSReview_Web.pdf.

¹³Milliman Insight (25 June 2009). The Convergence of Healthcare Quality and Efficiency. Retrieved 27 July 2021 from https://us.milliman.com/en/insight/the-convergence-of-healthcare-quality-and-efficiency.

¹⁴National Quality Forum. Improving Healthcare Quality. Retrieved 27 July 2021 from https://www.qualityforum.org/Setting_Priorities/Improving_Healthcare_Quality.aspx.

¹⁵Healthworld.com, op cit.

¹⁶Schreck, R.L. (March 2020). Controlling Healthcare Costs. Merck Manual. Retrieved 27 July 2021 from https://www.merckmanuals.com/home/fundamentals/financial-issues-in-health-care/controlling-health-care-costs.

¹⁷Lallemand, N.C. (13 December 2012). Reducing Waste in Health Care. Health Affairs. Retrieved 27 July 2021 from https://www.healthaffairs.org/do/10.1377/hpb20121213.959735/full/.

¹⁸Milliman Insight (25 June 2009), op cit.

¹⁹Kohn, L.T. et al. To Err is Human: Building a Safer Healthcare System. Institute of Medicine. Retrieved 27 July 2021 from https://www.simlaweb.it/wp-content/uploads/2019/07/to_err_is_human.pdf.

²⁰Ibid.