Hospitals are a peculiar world, where life and death situations are starkly juxtaposed against the mundanity of billing and insurance. Result: no one really pays attention to what’s going on in between. Especially when there’s a nameless, faceless layer—the third party administrators (TPAs)—that quietly handles the legwork of processing insurance claims.
The segment is a vital cog in India’s sprawling healthcare setup. At Rs 14,952 crore ($2 billion), TPAs processed about two-thirds of the amount claimed by policyholders for the year ended March 2020, with private insurers processing the rest in-house. This cog—already a tiny pool of 25-odd companies in India—is now consolidating, with the latest to wade into the deep end being Bengaluru-based Vidal Health.
On 9 March, Vidal Health acquired Delhi-based Vipul Medcorp for an undisclosed amount, catapulting the former into one of the top three TPAs in India. The deal is expected to deliver scale to Vidal, which saw a revenue of Rs 128 crore ($17.6 million) for the year ended March 2020 and an Ebitda Ebitda Ebitda Earnings Before Interest, Taxes, Depreciation, and Amortization of about 12%.
The company covers around 8,000 hospitals in the southern and eastern parts of the country. Vipul brings with it business from around 11,500 hospitals in the northern and western parts of the country. It’s a puzzle that has clicked into place neatly for Vidal.
The deal also helps diversify Vidal’s businesses. At present, more than half of Vidal’s revenue comes from the public sector—the company is the implementation agency for the government-run Ayushman Bharat insurance scheme. It services around 130 million users out of the 530 million covered under the scheme. Vipul, on the other hand, derives its most of its revenue from processing claims for corporates and individual policyholders.
This is significant for several reasons. The public sector insurance business, despite the high scale, is notoriously low-margin. For the year ended March 2020, TPAs managed an estimated 362 million lives for Rs 4,920.62 crore ($676.6 million) in premiums. Compare that to Rs 19,956.63 crore ($2.7 billion) for around 43 million people covered in the individual policy segment (see chart).
Moreover, private insurers are also beginning to take claim redressal in-house. Out of 25 private insurers with a licence to sell health insurance policies, at least six older and larger insurers have developed in-house administration, while smaller, newer providers continue to outsource administration to TPAs.
Growth for TPAs, therefore, is much lower than the insurance sector. TPAs, according to several senior executives that The Ken spoke to, are growing at an estimated 10-12% rate in the last few years.
