The Inquirer’s editorial of Nov. 11 reported that an Aboitiz Group-led consortium had submitted a P1-billion unsolicited proposal to digitize the claims process of the corruption-plagued Philippine Health Insurance Corp. (PhilHealth). Aboitiz InfraCapital President Cosette Canilao said digitalizing PhilHealth’s claims process is a crucial step in addressing the problem of corruption and incompetence in the state health insurance company.

In 2006 an eye doctor in Iloilo filed claims amounting to P16 million in professional fees for 2,071 operations. In 2014, a Malalag, Davao del Sur infirmary with only an 18-bed capacity received P18 million for claims, and almost P10 million in just the first semester of 2015. There is the case of a patient in a hospital in Region 1. The patient, as well as both her parents, had cancer. The family was reimbursed P1.7 million. However, an investigation found out the family was non-existent. The Commission on Audit found out that PhilHealth paid P20.3 million in hospital expenses of 961 dead patients.

Digitalizing PhilHealth’s claims process will not solve the problem of corruption in the state insurance company. It will just speed up the payment of fraudulent claims.

In the insurance business there is what is called moral hazard. It is the tendency of the insurance policy holder to increase the probability of the occurrence of a loss or damage because the compensation is greater than the loss. For example, the owner of an insured vacant and rubdown building may increase the risk of the building burning down because he will gain from the insurance compensation.

In health insurance moral hazard is multiplied threefold as the professional and the healthcare facility may be parties to the fraud. An example is the insured patient with a common cold asking a physician to recommend his hospital confinement. Doctors with slow or poor practices would be inclined to recommend confinement of individuals with feigned illness, and private hospitals with low bed occupancy rate would just be too ready to admit them.

As PhilHealth pays on the basis of a package, the doctor and the hospital would bill PhilHealth for pneumonia instead of just for a common cold. PhilHealth reimburses hospitals P6,600 and doctors P1,980 for pneumonia, and P2,800 and P840 for common cold. Digitalization will not recognize the falseness of the claim of pneumonia, it will only speed up its processing and its payment.

Moral hazard takes on greater magnitude when medically indigent people — those who cannot afford even the most basic healthcare service — are insured. According to the Department of Health, there are 38 million Filipinos who are medically indigent. Faked hospital confinement means free meals and a real bed for the indigent enrollee and revenue for the healthcare providers.

When I was with a health insurance company, we received claims for whole families. We looked into the reason for this unusual sets of claims filed by a hospital in the province. Our inquiry revealed that when the children visited their father, a field employee of a geothermal company, in the hospital, they noticed he was served three good meals every day, slept on a comfortable bed in an air-conditioned room, amenities better than those in their own home. The children, who were also insured as dependents of the employee, found reasons, mostly mild ailments, to be confined as well, even for just a couple of days. As the children blabbed about their juvenile scam to the children of their father’s co-workers, the other children pulled off the same scheme.

Some doctors, even those practicing in prestigious hospitals, can be unethical, if not greedy. In 2014, fraudulent claims filed by doctors and hospitals, both private and public, including the major medical centers in Metro Manila, against PhilHealth were estimated at P4 billion.

But the greater fault with regard to the payment of fraudulent claims lies with PhilHealth. According to PhilHealth Vice-President Oscar Abad, Jr. there are 94.9 million Filipinos registered with the insurance company as of 2020. They include employees and their dependents, self-earning people, retirees and senior citizens, and indigents.

The health insurance company I was with many years ago had 35,000 enrollees, 90% of whom were employees, the rest their dependents. An average of 6% of the insured filed claims during a one-year period, or an average of 2,100 claims were filed every year. Spread over 250 working days, the office received 8.4 claims each working day. There were three claims processors (they are called adjusters in the insurance industry), each one a registered nurse with at least one year experience as a nurse in a tertiary (Level 3) hospital. They could ask a licensed doctor retained by the company as consultant when some data in the claim did not seem right. Payment was made three days after the submission of all supporting documents — medical history, hospital charges, and professional fees.

While the percent of claimants among PhilHealth enrollees may be significantly higher due to the inclusion of retirees, senior citizens, and indigents, for purposes of illustration we will use 6% as the rate of claimants per year among PhilHealth enrollees. With 94.9 million enrollees, the number of claimants each year could be 5.7 million. Spread over 250 working days, that is 22,776 claims filed each day.

Claims are submitted to 17 regional claims processing centers. If the 22,776 claims were divided equally among 17 centers, each center could receive 1,340 claims a day. Each regional office needs a platoon of claims processors.

A medical claims processor determines if the claim is valid or eligible for compensation. To do this, she verifies that a claim for pneumonia is really for pneumonia and not for a common cold. She determines this by looking at the results of the laboratory and diagnostic tests conducted and the medicine administered and reconcile them with the diagnosis. That reconciliation requires human intelligence.

The processor must have strong analytical skills. She generally holds a bachelor’s degree in some medical field. Along with this, she has high level of healthcare experience. A registered nurse with at least one year experience in a tertiary hospital would be ideal.

Department of Health Officer-in-Charge Maria Rosario Vergeire said last September that the country’s healthcare system lacks 106,000 nurses and also faces a shortage of professionals in the healthcare fields. It is highly probable that the PhilHealth processors lack the knowledge and experience required of a medical claims processor.

While the PhilHealth processors are struggling to cope with the thousands of claims unloaded on their desks every day, the hospitals, strapped for cash, are putting tremendous pressure through a sympathetic press on PhilHealth to pay up the billions of pesos overdue them for past claims. When the situation reaches that point, both sides — the hospital administrators and the PhilHealth officials are forced to compromise.

That is when agreements are forged outside of boardrooms. PhilHealth officials could have offered to pay for claims even if they had not been sufficiently or properly processed in exchange for some consideration. Hospital administrators badly in need of cash to fund the operations of their facility agree. Those agreements are not digitalized.

Those side and private agreements account for the payment of thousands of fraudulent claims.


Oscar P. Lagman, Jr. was country manager for the Philippine operations of a multinational health insurance company in the 1980s. As a consultant in 1988, he set up the health insurance line of the local partner of a London-based non-life insurance company. In 1999, he set up the health insurance line of the Philippine operations of yet another London-based insurance company. He was program director of the Executive Development Program the De La Salle Graduate School of Business conducted in 2007 for 50 officers of PhilHealth.