New Claim Game

The attempt to avoid clearinghouse charges is backfiring for Arkansas Blue Cross and Blue Shield, which is seeing a rapid drop in the number of physicians filing direct claims. The organization invested millions of dollars in its Advanced Health Information Network, which at one point supported 6,000 health-care providers who dialed in using a direct EDI connection. Blue Cross CIO Joseph Smith says the number of providers using his network dropped by 2,000 over the last four months. Blue Cross processes its own claims for free but charges a $15 fee per doctor each month to pass claims on to other insurers.

Smith says WebMD and companies like it that provide practice-management systems and clearinghouse services have convinced doctors that HIPAA's complexity means it's simpler to stick with one company for both. It's a puzzle to Smith: "Why move away from something that's free and direct to something you have to pay for?"

WebMD grew out of the Internet boom and is now a $1 billion-a-year company. It was launched in 1995 as Healtheon Corp. to provide online connections in the health-care industry. In 2000, Healtheon/WebMD acquired Medical Manager Corp. and its CareInsite Inc. subsidiary, a supplier of practice-management and connectivity systems to doctors. WebMD's acquisition spree of clearinghouses, practice-management-system providers, and other companies has resulted in substantial financial losses but brought it market-share clout.

For its quarter ended Sept. 30, WebMD reported revenue of $250.6 million, up more than 15% from the third quarter of 2002, and net income of $6.1 million, up 36%. But in a statement, CEO Holstein expressed disappointment with the results, adding that they "reflect the difficulties we encountered responding to increased demand for our physician software and services and the challenges of assisting thousands of providers and payers [to] implement the HIPAA transaction standards in the face of uncertainty concerning the Oct. 16th deadline."

Nancy Weaver, managing director for securities firm Stephens Inc., says WebMD "has the size and balance sheet" to resolve its difficulties eventually, and she believes it will achieve its goal of making a profit in 2004.

Meanwhile, Harvard Pilgrim is making progress moving doctors off WebMD, Grose says. The clearinghouse's share of Harvard Pilgrim's claims traffic dropped from 38% to 30% in the last year as Harvard Pilgrim urged physicians to submit directly. Grose expects that decline to continue.

Because of the industry's entrenched dependence on WebMD, physicians will likely struggle to keep up with the jockeying between insurance companies and the claims processor. WebMD's Medical Manager "is a very popular practice-management system," says Scott Jauch, Massachusetts Medical Society practice-management specialist, and Medical Manager by default routes claims through WebMD's Envoy clearinghouse. Converting to another system would cost a doctor's office $30,000 to $100,000, he says.

To realize simpler and cheaper transactions, the health-care industry needs more standards, says Forrester analyst Eric Brown. Even with HIPAA, insurance companies have to publish companion guides telling clearinghouses and providers what network protocols to use and other details for connecting with them. The fragmented nature of the industry's information processing cries out for "a well-behaved, benevolent dictator" to foster consistency, Brown says.

But companies like Harvard Pilgrim don't see any savings being realized if WebMD becomes that dictator. Clearinghouses only add costs, Grose says. "It's a philosophical issue. WebMD just happens to be the one we disagree with most."