Information Week

New Claim Game

Insurance companies want doctors to bypass clearinghouses and submit claims directly. The move could cut costs and complexities from the system.

By Charles Babcock,  InformationWeek
Feb. 9, 2004
URL: http://www.informationweek.com/story/showArticle.jhtml? articleID=17602359

On March 1, Harvard Pilgrim Health Care Inc. will take a drastic step to realize the savings intended by the federally mandated Health Insurance Portability and Accountability Act, which went into effect four months ago. The insurance company will no longer pay "click charges" of about 35 cents per transaction to WebMD Corp., the industry's largest medical-claims-processing clearinghouse, which handles a third of the 10 million claims Harvard Pilgrim pays out every year.

In addition to establishing rules to ensure patient privacy, HIPAA set standards for the electronic exchange of information that in theory should ease connection problems between health-care providers and insurance companies, while reducing costs associated with manually processing paperwork. Harvard Pilgrim eventually wants to eliminate clearinghouses from its payment- processing system and have doctors submit claims directly to it using EDI or Web services.

A first step is to stop paying transaction fees to WebMD; they're costing Harvard Pilgrim more than $3.5 million a year. "With HIPAA, it's our belief that we no longer need to pay clearinghouse click charges," says Kimberly Grose, VP of network operations at the insurance provider.

Harvard Pilgrim's decision relates to a bigger question being asked in the health-care industry: Do clearinghouses provide a valuable service or merely add unnecessary costs? The industry has long depended on them to aggregate claims coming from physicians' offices and send them in batches to the correct payers, at a cost of about $414 million a year to insurance companies, according to Forrester Research. But Harvard Pilgrim and others, including Arkansas Blue Cross and Blue Shield, are hoping that will change with HIPAA and the acceptance of Web-services technologies.

As the largest claims processor, WebMD is stumbling in its efforts to convince the industry that its clearinghouse adds value. Its failure to provide HIPAA- compliant files in tests last August was the final straw in Harvard Pilgrim's decision, Grose says. WebMD's failure to file HIPAA-compliant claims since the law went into effect Oct. 16 reaffirms that decision. "We haven't received a HIPAA-compliant transaction from WebMD," Grose says, while other clearinghouses have complied.

Harvard Pilgrim isn't the only group dissatisfied with WebMD. The American Medical Association wrote in a letter to WebMD CEO Roger Holstein on Jan. 8 that physicians within its member associations in Arkansas, Colorado, Iowa, Kentucky, and Texas were experiencing lost claims and long delays in receiving payment for "thousands, and in some cases, hundreds of thousands of dollars" per practice. "Physicians have identified WebMD most frequently as being noncompliant with HIPAA transaction" and coding standards, the letter said. Tuft's Associated Health Plans Inc. in Massachusetts also has notified participating doctors that WebMD isn't forwarding HIPAA-compliant claims, according to the Massachusetts Medical Society. A Tufts Associated spokeswoman said an executive could not comment by press time.

A WebMD spokeswoman says the transition to HIPAA is creating rough spots for everyone, but it's most noticeable at WebMD because it's the largest clearinghouse. She acknowledges "isolated and sporadic problems" in claims processing. In a Jan. 29 letter to AMA CEO Michael Maves, WebMD's Holstein said the company is improving its monitoring and tracking of claim transactions and is deploying tools to improve early detection of problems.

HIPAA undoubtedly is creating complexities in health care. For one, it specifies different formats for different functions, such as eligibility inquiries versus remittance responses. Claims also must be compliant in their content, which creates problems when a physician uses an old or rudimentary practice- management system for patient records and billing information. Fixing that can require intensive technical work between the physician's office and the clearinghouse and between the clearinghouse and the claim payer. This has resulted in too much work for WebMD, Grose says, which is doing considerable integration to assimilate recent acquisitions.

Harvard Pilgrim is asking physicians to submit claims directly in one of two ways: They can use the New England Health EDI Network, a standards-based network set up by a consortium of health-care providers and insurers, or they can connect online with Harvard Pilgrim using a Web-services module it provides. Doctors also can use ProxyMed Inc., a smaller clearinghouse that has agreed to process claims for a flat annual rate that's lower than WebMD's fees, Grose says.

It's questionable whether low-tech doctors' offices will give up the convenience of having a clearinghouse handle processing, despite having to pay about $100 a month for the service. The complexities of HIPAA compliance only intensify many doctors' resistance to dealing with claims-processing tasks. 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."

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