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Health Insurance TPA Limited: Is the formation itself anti-competitive?

Abhinav Gupta

This paper argues that the Competition Commission of India’s (hereinafter ‘CCI’) analysis of the allegation of Association of Third Party Administrator (hereinafter ‘Informant’) against the GIPSA (hereinafter OP-1), four Public Sector General Insurance Company (hereinafter PSGIC) and the Department of Financial Services, Ministry of Finance, Government of India (hereinafter OP-6) relating to the formation of Health Insurance TPA India Ltd (hereinafter HITPA) is flawed, as such the Joint Venture TPA by PSGIC is an anti-competitive agreement.

PSGIC collectively hold around 60 per cent share of the health insurance business. All the four PSGIC along with the General Insurance Company of India Limited combined to form a captive TPA in the form of HITPA, where every PSGIC held a share of 23.75 per cent, totaling to 95 per cent share, and GIC holding the rest 5 per cent. Under this background the Informant approached the CCI alleging establishment of HITPA to be in violation of Section 3 and 4 of the Competition Act, 2002 (hereinafter “Act”). The CCI after considering the report of the Director General (hereinafter ‘DG’) and submissions of the parties, found that HITPA was not in violation of the law.

The researcher believes that CCI erred in its decision as it relied on its previous order (Case No. 49 of 2010), where it had refused to give similar relief asked by the Informant on the ground that the matter was premature and based on anticipation of Informant that an entity like HITPA would come into existence. But in the present case such entity had already come into existence where the horizontally placed players held more than 60 per cent of the market. The respondent may be protected from the rigor of Section 3(3) under the proviso which carves out an exception for arrangements leading to increased efficiency, but section 3(4) would still be ply which covers vertical arrangements. The allegation was that there is an implicit agreement between HITPA and PSGIC where the former would be the preferred TPA for the latter. PSGIC was the biggest shareholder in HITPA with a share of 95 per cent and therefore becomes the biggest stakeholder in it.

Such co-existence of HITPA with other competing TPAs is problematic because the PSGIC has a direct conflict of interest - it has to select a TPA in the best interests of the market, but at the same time becomes a contender in the same race to accrue profits. The only exception to this is the discretion given to policy holders in case of Group Insurance having premium over Rs. 1 crore. Even that exception has a caveat where the majority stakeholder would be the Government of India, which again would prefer HITPA on same lines as Air India.

The DG report relies on the statement of the official of the PSGIC. Given that the same entity was facing scrutiny, it is natural for the officials to dispose in a manner which best serves their interests. The DG also came to the conclusion that HITPA would bring in greater efficiency and improve the quality of services as combined strength of all PSGIC will enable them to bargain better price with hospitals, resulting out of economies of scale. Therefore a holistic reading would suggest that the intent behind establishing HITPA was to establish a captive TPA, which may be used by the PSGIC to reduce the price of premium and expand their presence in insurance market. This would lead to foreclosure for other existing TPAs and discouraging new entrants. In addition to it, the observation made by the DG that PSGIC were competing with each other was also not based on facts, but rather on the communication between the responding parties and the DG.

CCI observed that newly formed TPA will result in loss to other TPAs, but may not result into absolute foreclosure. However given that HITPA was a Joint Venture of PSGIC where they hold 95 per cent share in it (qualifying for 60 per cent of the overall total market share), the line of reasoning adopted by CCI seems less convincing.

The chain of events where the circular issued by the OP-6 in May 2012 directed the CMD of the PSGIC to function in consonance with each-other so as to avoid unhealthy and self-destructive competition among the PSGIC, and then PSGIC coming out with HITPA in the very next year is reflective of the anti-competitive conduct displayed by the parties. It is likely to cause AAEC by creating an un-level field for other TPAs and insurance companies in the health insurance market.

Therefore it can be concluded that CCI failed to take into consideration a lot of factors while concluding the case. As dealt above, there was a clear evidence suggesting the formation of HITPA was anti-competitive in nature and violated section 3(4) of the Act.