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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."

One reason this hasn't occurred already, suggests Carol Mullinax, senior director for OSMAdvantage, a business-support arm of the Ohio State Medical Association, Columbus, is that doctors have been nervous about electronic filing, especially when the process is hard to follow. In these situations, it seems that deciding to outsource would be a no-brainer, Mullinax says, "but there's the opposite feeling--that if you don't know much about something, you should be in control of it, and that if you outsource, you will lose control."

Something like this may have been the basis for physician complaints that, in January 2004, led the CEO of the American Medical Association, Chicago, to write to WebMD's Holstein, citing member concerns about lost claims, delays in payment and apparent noncompliance with HIPAA standards. About the same time, the large payer Harvard Pilgrim Health Care Inc., Wellesley, Mass., asked providers in its network to submit claims previously routed through WebMD either directly or through their regional consortium.

Holstein acknowledges some problems but says they have involved a tiny fraction of the more than 2 billion claims transactions WebMD processes annually from 200,000 providers--roughly a quarter of all physicians in the country. He adds that by the fall of 2004, WebMD will roll out a new Web-based product that will, among other features, enable physicians to track claims the way Fed-X allows shippers to track packages. WebMD also expects to add an electronic funds transfer feature that will automatically post payments to physicians' ledgers and bank accounts.

Competitive features
Other clearinghouses already have many of these capabilities. For example, last July ProxyMed announced an agreement with First Data Corp., Denver, to provide electronic funds transfers. Newcomer HealthePay, a division of NPC, Louisville, Ky., offers a product that handles paper-based as well as Web claims and extends beyond the typical clearinghouse to include post-payment services. Small, fast-growing clearinghouses such as Payerpath, Richmond, Va., and athenahealth Inc., Waltham, Mass., offer Web-based solutions that enable real-time claims tracking. Compared to industry giants, Payerpath's claim volume is small, about 16.5 million in 2003. But Jim Riley, vice president for sales, says it's growing at a rate of about 5 percent per month. At athenahealth, the annual dollar value of transactions processed grew from zero in 2000 to $3.5 billion today, says chief development officer Todd Park.

Potomac Physicians, a primary care practice of 45 physicians at seven locations in the Baltimore area, switched to Payerpath in late 2003. Contract manager Leigh Whitmore reports easy interface with the physicians' practice management system, excellent error-trapping (90 percent of claims go through without delay) and "significantly faster" payments. She plans to use a related Payerpath service to check patients' insurance status at appointment scheduling so she can utilize a single system rather than having to open several Web sites.

Professionals for Women's Health, a four-physician practice in Columbus, Ohio, switched to athenahealth from a local claim-filing service in August 2001. Practice manager Chris Masciola reports that the average number of days a claim remains in accounts receivable dropped from the 60s to the high 30s. "The biggest improvement is the transparency of the whole process," Masciola says. "You can see every step."

Clearinghouses also compete on "scrubbing"--or trapping payment-delaying errors as early as possible in the claims-submission process. And expect to see tighter integration between claims processing and practice management systems. WebMD and ProxyMed both have practice management products that file claims electronically and book payments automatically. Athenahealth "gives away" its practice management software in exchange for a percentage (typically 4 to 5 percent) of total billings, an arrangement that reduces the need for scrubbing.

"Claims don't die at scrubbing or when rejected by an insurance company," Park says. "They die at registration," when a duplicate patient name or an incomplete insurance policy number is entered. He says his company has built in warnings "at the moment of a sin of omission or commission." It's a lot cheaper to fix the problem then, while you're still "holding the insurance card right in your hand," he says.

The CIOs of large provider and payer organizations already understand the virtues of integration and connectivity, but some also expect increased demands for transparency--from both affiliated physicians and patients, thanks to health savings accounts.

"There's an analogy with online banking," Sharrott says. "It used to be that it was sufficient for people to have a passbook and go to a bank, which was open only until 3 p.m. That's not sufficient now. People want to be able to access their accounts online and move money online. As costs shift from employers to consumers, I think you'll see a similar situation with the healthcare claims process."

If more large payers begin to provide Web-based claims tracking to plan members, that will, if anything, further reduce the role for clearinghouses, Sharrott thinks, because they're unlikely to be allowed to track claims past payers' electronic front doors. "That would mean the clearinghouse has to be tightly integrated into my operation," he says, "and I'm not sure I want that. If I'm a payer, I don't want an intermediary between me and my customers."

Fred D. Baldwin is a freelance writer in Carlisle, Pa.

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