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Filing for Dollars

May 1, 2004
by Fred D. Baldwin
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Claims clearinghouses are moving downmarket with upmarket products.

If the tax code were ever to be truly simplified, thousands of accountants and lawyers would be scrambling for new work. Similarly, if the rules for electronically filing insurance claims were to become truly standardized, the medical claims clearinghouse industry would diminish sharply. The first scenario is too unlikely to keep accountants or lawyers awake at night, but the second one has just enough plausibility to send clearinghouses searching for new customers. They're competing hard with options designed to persuade doctors who still file claims by mail to file them electronically--through the clearinghouse, of course.

Clearinghouse raison d'etre
The basic function of a clearinghouse is to give a healthcare provider, whether a large hospital system or a small medical practice, a single point of access to multiple payers. Claims may be submitted on paper, but hospital information systems and small practice management systems integrate with clearinghouse systems--seamlessly if software at both the sending and the receiving end of the transaction come from the same source. Otherwise, at least one party's IT department may need to do some programming.

Clearinghouses have been very nearly an operational necessity for providers with large claims volume, if only because of the number of payers--approximately 1,200 nationwide. Many of these payers (all of the larger ones) offer multiple insurance products that differ in conditions and treatments covered, payment terms and claims codes. Plus, they are customized to comply with state laws, different types of medical practices and contracts with specific employers. One clearinghouse executive says that all these variations result in more than 800,000 distinct insurance products.

A major goal of the Health Insurance Portability and Accountability Act (HIPAA) was to reduce the costs of handling provider-payer transactions by requiring standardization of the content and format of electronic transmission of healthcare data. The deadline for compliance with published standards governing healthcare transactions and code sets was Oct. 16, 2003, and the Centers for Medicare & Medicaid Services (CMS) announced that after that date it would accept paper claims only under limited circumstances. However, industry observers say that standardization is still more of a goal than a reality, largely because of the number of insurance products involved.

"There is no single HIPAA," says Roger Holstein, CEO of WebMD, Elmwood Park, N.J., the nation's largest clearinghouse, describing how payers are shoehorning their complexities into HIPAA's framework for standardization. "There are as many flavors of HIPAA as there are payers today. Virtually every payer has adopted a different interpretation, [and] they've published more than 400 unique 'companion guides' for providers. It's virtually impossible for the small group practice to submit HIPAA-compliant claims directly."

Even for large organizations, submitting all claims directly will remain impractical and unreasonably costly, so for the foreseeable future, they'll continue to use clearinghouses, at least for payers that account for only a small percentage of their claims. But every step toward standardization makes submitting claims directly to major payers more cost-effective, beginning with Medicare/Medicaid claims to CMS.

Clearinghouse futures
Lawrence Sharrott, CIO of Atlanticare, Atlantic City, N.J., an integrated delivery system that offers both provider and payer services, and president of Infoshare, which provides IT services to Atlanticare and other organizations, says the value of clearinghouses "is going to decline rapidly unless they can figure out some other value they can provide to providers and payers."

John C. Osberg, Principal, Informed Partners L.L.C., Marietta, Ga., expects large "first-tier" clearinghouses--such as WebMD and ProxyMed, Fort Lauderdale, Fla.--to lose market share as more large providers submit claims directly--at least to payers that account for large volumes. However, he thinks that smaller, "second-tier" clearinghouses will prosper by capitalizing on their knowledge of insurance plan provisions in specific geographical areas.

This process will strengthen incentives to address small practices and induce physicians to make greater use of IT solutions. Analysts believe that heavy reliance on paper is almost certainly costing small practices money, some in salaries but most in lost revenue. Rosemarie Nelson, a Syracuse, N.Y.-based senior consultant for the Medical Group Management Association (MGMA), Washington, D.C., says MGMA member surveys show that practices with above-average profitability file 85 percent of their claims electronically, while those with below-average profitability file only about 70 percent electronically. Other industry sources give lower estimates on electronic filing (around 60 percent of claims).

Experts also contend that most physicians fail to collect 5 to 10 percent of the income to which they are entitled. "Docs in small practice are notorious for not even filing very small claims," says Amith Viswanathan, Boston-based manager for the Healthcare Information Technologies practice of Frost & Sullivan, San Antonio. "That's where the software community is trying to strike gold. They're selling the idea that migrating their billing workflow from paper to computer systems will yield ROIs of 10 to 20 percent, just from tracking claims that have been lost or perhaps never filed. That will sound really attractive to buyers."