4.1 RSBY: interaction between program design and implementation

Table 3 presents a summary of the salient design features of RSBY, the gaps and shortcomings that characterize them and the governance mechanisms in place to address them during implementation. As mentioned earlier, all contracts, especially health insurance contracts, are complex and unavoidably incomplete due to limitations to assessing quality, costs and outcomes. Consequently, program administrators must develop processes and practices that fill, offset or minimize the gaps if the program is to be effective.

Table 3

Program gaps and implementation governance in Rashtriya Swasthya Bima Yojana

Note: DA=District Administration; SNA=State Nodal Agency; IC=Insurance Company; TPA=third-party administrator.

Insurance companies participating in the scheme are selected through competitive bidding and are paid premium on per-family basis. The amount of payment the insurers receive is based on the number of enrolled households rather than service utilization, which incentivizes them to increase enrollment but not utilization because they bear the entire financial risk. Furthermore, there are no incentives for empanelment of hospitals, health care utilization or claims management. Given the clear incentives to increase enrollment and decrease utilization, insurers have little motivation to promote program awareness and quality of service or even honor claims. Moreover, since profit-oriented private hospitals are paid fixed package rates only for inpatient care, they have incentives to induce demand by converting outpatient to inpatient care, choosing higher price packages and providing low quality or insufficient care.

To address the gaps in program design, a number of implementation mechanisms have been put in place. Detailed performance indicators, both quantitative and qualitative, are defined. National-level nodal officers meet every month while state-level nodal officers meet with Insurance companies every 6 months to review the program’s implementation. Field key officer and district administrators are required to monitor implementation through regular field visits. The contract document includes detailed guidelines for processes mentioned in the contract. However, the program administrators are aware of the limits of contract and, hence, engage in informal collaboration and trust-building to supplement the formal arrangements. Agencies are expected to work as a ‘team and facilitate and support each other’ and are advised to ‘sit together and discuss’ in case of dispute (Swarup, Reference Selvaraj and Karan2012). In case of dispute, agencies are expected to use a three-tiered internal grievance redressal mechanism rather than the judiciary.

4.2 Governance of opportunism in implementation

As seen above, effective implementation of RSBY requires compliance with program requirements by all key stakeholders: insurers, DA, nodal agencies and contracted hospitals. However, the numerous failures intrinsic to social health insurance foster opportunistic behavior on the part of implementing agents, necessitating formal and informal collaboration among them if the program is to be implemented as intended.

Thus, the IC is mainly responsible for enrollment of beneficiary, empanelment of hospitals and managing claims. However, for the IC to perform its function, it needs the support of DA, which is responsible for selecting location for beneficiary enrollment, validating beneficiaries’ identity, managing enrollment disputes and recommending hospitals for empanelment. DA also monitors implementation and addresses all grievances at the district level as a Chair of the District Grievance Committee. The SNAs further complicate the relationship as it is they that select ICs, monitor implementation and address grievances at state level as a chair of the State Grievance Committee.

In reality, collaboration among the different implementing agencies faces numerous difficult hurdles. Thus, the IC’s revenues are based on the number of families enrolled in the program but it cannot complete the enrollment without the support of DA. The IC’s dependence on DA allows the latter to exploit its position and engage in opportunistic behavior, including corruption. DA officials are believed to accept bribes from hospitals in return for recommending them for empanelment, a recommendation the IC cannot turn down due to its dependence on the DA. Anecdotal evidence suggests that many empaneled hospitals are either related to DA officials or collude with DA to get empaneled even if they do not qualify (Asher et al., Reference Asher, Vora and Maurya2015; Maurya, Reference Lloyd-Sherlock2015). Once empaneled, such hospitals are believed to engage in fraudulent claims (Reddy et al., Reference Penteli and Ginneken2011; La forgia and Nagpal, Reference King, Keohane and Verba2012).

Opportunistic behavior on the part of private hospitals, which deliver around 60% of all inpatient care but are subject to almost no regulation regarding quality or price, is also common. They are known to induce demand, especially in case of insured patients (Bhat, Reference Bhat2005; Bearing Point, 2008; Reference DesaiDesai, 2009). In the case of RSBY, hospitals are paid fixed package rates, which are generally low and poorly designed (La Forgia and Nagpal, Reference King, Keohane and Verba2012) and which incentivize them to induce demand. The beneficiaries do not resist the hospitals’ behavior due to absence of co-payment. Thus, hospitals turn ambulatory care into inpatient care, select higher-paying packages (DRG Creep), provide low-quality services, select low-cost cases (cream-skimming) and accept informal payments. Hospitals also collude with DA to engage in blatant fraudulent behaviors like treating ghost patients, colluding with beneficiaries to make claims for services not provided and claiming multiple packages (Press Trust of India, Reference O’Flynn, Blackman and Halligan2013). Supplier-induced demand by private hospitals is a major reason for high claims ratio, exceeding 100% in many states (Ministry of Labour and Employment Government of India, Reference Mathauer and Carrin2014). Districts with a large number of hospitals colluding with DA have witnessed claims ratio as much as 700% (Ministry of Labour and Employment Government of India, 2012a). Private ICs cover their losses by the profits earned in other districts where they have managed to keep claim ratio low by various ways as discussed earlier, whereas public sector insurance companies cover up their losses by other segments of insurance business.

RSBY’s claims monitoring system is geared at detecting fraudulent claims rather than controlling subtle opportunistic behaviors such as DRG creep and supplier-induced demand.

Though the private health insurance started in India in 1986, the sector was monopolized by public sector insurance companies until 1999 when the sector was liberalized. Given the small market size, and specialized nature, health insurance policies were offered as an add-on product to other insurance policies. Given the specialized nature, low profitability and small size, Insurance companies did not invest in developing the specific expertise needed to run these policies (Bearing Point, 2008).

In general, health insurance industry in India lacks capacity to manage claims and traditionally have relied on unethical measures to control claims, such as rejecting claims on minor technical grounds (Bearing Point, 2008). Lack of standardization in treatment, records, billing process, limited data on disease burden (Chandrashekhar, Reference Chandrashekhar2009) and slim profit margins for the insurers have prevented investment in capacity building. One of the officers of the IC commented

ICs have no formal contract with DA, which undermines the former’s position. In case of non-compliance by DA, the insurer can approach the SNA, but there is little it can do if the latter do not assist. Moreover, the relationship between SNA and National Nodal Agency varies across states, ranging from close collaboration to aloofness. State governments also vary in their support for RSBY, ranging from active support in some states to neglect in others.

Unable to control fraudulent hospitals, ICs resort to counter-opportunistic behaviors, including suspension of hospitals, delay in claims payment and payment of amount lower than the claim. Anticipating opportunistic behaviors by IC, fraudulent hospitals submit inflated and false claims, often in collusion with audit agencies. This leads to a vicious cycle of opportunism and counter-opportunism. Faced with the vicious conditions – low package rate, claim rejection for frivolous reasons and delayed claims payment – genuine hospitals often do not participate in RSBY, leaving fraudulent hospitals in the scheme (The Hindu, Reference Sheikh, Saligram and Krishna2011; Deccan Herald, 2013; Amar Ujala, 2014).

DAs for their part do not monitor or contain opportunistic behaviors of IC or hospitals during enrollment or claims management. In addition, if IC anticipates fraudulent behavior by DA (common in states with high corruption rate), they behave opportunistically during enrollment and claims management to control hospitalization. During enrollment, they may not include details of all family members, or issue the cards or provide incomplete information about accessing benefits in order to reduce cost of operation. During empanelment, they empanel few hospitals, avoid facilities that are popular among beneficiaries or designate hospitals located in remote places. In claims management, they reject claims on trivial reasons, delay payment and dis-empanel hospitals without proper investigations. Fraudulent behavior by DA induces other agencies to behave opportunistically, which aggravates the flaws in the program design and undermines the effectiveness of the program.

DA and SNA are entrusted with the responsibility for supervising and monitoring performance, as well as adjudicating disputes. However, they have little motivation for performing these functions due to the absence of reward for it (Vaishnav and Khosla, Reference Vaishnav and Khosla2016). Similarly, although there is a three-tier grievance redressal mechanism, there is no provision for penalty other than non-renewal of contract (Swarup, Reference Selvaraj and Karan2012). There is also no penalty for lapse on the part of public functionaries. The program beneficiaries also have no practical mechanism for raising grievances given their low literacy and social status. All these shortcomings undermine the RSBY’s implementation and effectiveness.

4.3 Accounting for the differences in implementation performance

Most of the factors determining RSBY’s implementation – eligibility, benefit levels, financing and payment arrangements, etc. – are defined in the program and hence uniform across the country. Yet the program’s performance varies significantly across jurisdictions, as evident in Table 4, which presents key performance indicators for three states: Himachal Pradesh, Punjab and Uttar Pradesh.

Table 4

Implementation performance in Himachal Pradesh, Punjab and Uttar Pradesh

Note:

^a Based on data provided by Ministry of Labour, Government of India.

^b Jain (2013).

^c Nandi et al. (2013).

^d Ministry of Labour and Employment Government of India (Reference Maurya2013a).

^e Nayak and Behera (2014).

^f Ministry of Labour and Employment Government of India (Reference McIntyre and Kutzin2013b).

^g Estimated from the data.

The table shows that Himachal Pradesh is the best performer along all dimensions and Uttar Pradesh the worst, with Punjab somewhere in between the two. Thus, 80% of the eligible household population in Himachal Pradesh is enrolled in RSBY, compared to only 38% in Uttar Pradesh. Similar difference is evident in the quality of enrollment, which is measured by the average number of members enrolled per card. Although Uttar Pradesh has the largest family size (6.06), it has the lowest number of family members enrolled per card (3.02), whereas Himachal Pradesh has the smallest family size (4.64) and the highest number of family members enrolled per card (3.31). In terms of hospital empanelment, Punjab has the best performance (15.56 per 10,000 card holders) while Uttar Pradesh has the worst (1.81 per 10,000 card holders). In terms of utilization, Himachal Pradesh (5.1) again has the best record and Uttar Pradesh (2.1) the worst. The level of corruption also affects performance. Thus, the best-performing Himachal Pradesh also has the lowest level of frauds in RSBY among the three states while Uttar Pradesh has the highest level of fraud and worst performance. Out of 158 hospitals de-empaneled for fraudulent activities by January 2012, 110 were from Uttar Pradesh alone (Ministry of Labour and Employment Government of India, 2012a). In Himachal Pradesh the highest hospitalization rate in a district was very close to the average hospitalization rates, whereas in Uttar Pradesh the hospitalization rate was as high as 24% (ten times the average hospitalization rate). Many districts in Uttar Pradesh had a hospitalization rate more than 10%, which could not be explained by any reason other than fraud (Government of Uttar Pradesh, Reference Grzymala-Busse2011). In-depth Interviews, media reports (Political and Business Daily, 2010; The Indian Express, Reference Srivastava2011a, Reference Swarup2011b; Times of India, 2012, 2013) and secondary data suggested high level of fraud in Uttar Pradesh compared to Himachal Pradesh. Punjab is a middling performer with moderate performance, as well as incidence of fraud. In the following paragraphs, we provide details on governance of RSBY’s implementation in the three states.

The State government in Uttar Pradesh has strongly supported the program and actively participated in its implementation right from the start. It established an autonomous agency – Himachal Pradesh Swasthya Bima Yojana Society – under the Department of Health to coordinate the implementation of RSBY. The agency has developed the skills and resources necessary to coordinate implementation, limiting the scope for opportunism by IC or DA. SNA considers empanelment as a process ‘between Insurance Company and private Hospital (and) we (State Nodal Agency) do not have any role’. Insurance Company has complete autonomy in hospital empanelment…. ‘In case of hospital empanelment, We used to get initially request for empanelment. We just listen but we do what we want’ (Zonal Head Insurance Company).

The agency ensures that ICs enjoy complete autonomy in empanelment of hospitals while DA’s role is largely advisory. That around 90% of empaneled hospitals are from the public sector, with no incentives for profit-driven fraud, makes the task simpler. The state government has also deployed crime investigation agency to investigate suspicious transactions, which further curtails fraud. Low corruption and turnover of ICs and empaneled hospitals make for stability in service provision, which has promoted utilization. Over time, service utilization under RSBY in the state increased from a hospitalization ratio of 2% in the first year to 5% in the second year (Ministry of Labour and Employment Government of India, 2012b).

While Uttar Pradesh too established an autonomous agency with adequate staff to monitor implementation, its ability to not carry out its functions was compromised for a variety of reasons. Disputes due to poor quality of poverty register and non-availability of field officers made insurance companies considerably dependent on the DA, increasing the latter’s leverage over them. The DA enjoyed the power to veto empanelment of hospitals, an authority it used to promote the interests of private hospitals colluding with them. The SNA was powerless in exercising its formal authority because it was at par with DA in the administrative hierarchy. As a result, SNA had to route all instructions to DA through the highest level of bureaucracy in the state. The IC has limited decision-making power in hospital empanelment as observed by Regional Manager of an IC: ‘We don’t have complete decision making power. We try our best by providing information at various level. We can fight but we are going to be here. If one has to live in water, he cannot fight with the crocodile’.

In the absence of effective restraints on their behavior, DAs in Uttar Pradesh abused their veto power to empanel fraudulent hospitals, which led to counter-opportunism by other agencies. In many districts, hospitalization rate was more than 10%, which is difficult to explain merely on the basis of pent-up demand (Government of Uttar Pradesh, Reference Grzymala-Busse2011). Collusion, rent seeking and bribe payments were reported in award of contracts, enrollment of beneficiaries, empanelment of hospitals, claims settlement, audit of hospitals and so on (Indian Express, Reference Swarup2011b; Zee News, 2014). The situation was aggravated by the poor conditions at public hospitals, leaving the government with no choice but to rely on private hospitals for services, confirmed by the fact that more than 95% of the RSBY claims were by private hospitals.

In Punjab, the program is managed by a corporatized SNA – Punjab Health System Corporation – with offices in all districts, which gives it access to in-depth information and control over field operations. The corporation enjoys broad support among stakeholders, which was confirmed by award of the prize ‘Outstanding performance in providing facilitation to stakeholders under RSBY’ (Ministry of Labour and Employment Government of India, 2013c). It also actively promoted empanelment of public hospitals and instructed DAs to not interfere in the empanelment process so as to give ICs autonomy in selecting hospitals (Srivastava, Reference Sato and Gilson2012). However, the DAs continued to interfere in the process in collusion with private hospitals, emboldened by their job security as public servants and easy opportunities for collusion. All DAs in Punjab are doctors, with close linkages with private hospitals, which provided easy opportunities for collusion. Because of limited number of poor families in the state (as Punjab is an economically developed state with relatively low poverty), ICs depended on DA’s support for identifying beneficiaries, creating program awareness and making field officers available. As a result, DAs were able to interfere in hospital empanelment and claims management about which the ICs could do little. As a TPA put it: ‘If we want any work done, the first thing he would tell us is to empanel these hospitals. So that was affecting on all our activities and our enrollment will not happen’ (sic). Such a pattern of behavior led hospitals and ICs to engage in opportunistic behaviors of their own, which in turn triggered counter-opportunism by others.

In principle, DAs’ role is limited to only suggesting hospitals for empanelment but, in reality, it has veto power, which they abuse for corrupt purposes. In return for informal payments for empanelment, private hospitals engage in fraudulent claims that lead to a cascade of opportunism and counter-opportunism by other parties. The extent of DAs’ veto power and dominance of private hospitals thus affects scope for opportunistic behavior and ultimately performance.

As shown in Table 5, the DA enjoyed broad veto power in Uttar Pradesh and Punjab and little in Himachal Pradesh. The opportunity to engage in opportunism also varied across states according to private hospitals’ share of the RSBY contracts. Thus, Uttar Pradesh relied heavily on private hospitals, which gave DAs in the state expanded opportunities for colluding with them. The SNA in Punjab, on the other hand, preferred public providers but had to accommodate users’ and DAs’ preference for private hospitals. As a result, over half of all empaneled hospitals in the state were private, which allowed ample scope for opportunism. In contrast, public providers account for around 90% of empaneled hospitals and 97% of the claims in Himachal Pradesh, which allowed little scope for opportunism. The combination of the extent of DA’s veto power and the dominance of private providers is closely reflected in the performance record of the three states.

Table 5

Variations in risk of opportunism

Note: RSBY=Rashtriya Swasthya Bima Yojana.