On Finance: Examining the Claims Clearinghouse Market

February 1, 2005

For those healthcare providers and payers who still believe large claims clearinghouses are the only way to reduce administrative costs, it may be time to think again.

For those healthcare providers and payers who still believe large claims clearinghouses are the only way to reduce administrative costs, it may be time to think again. This widely held industry myth is being dispelled today by new savvy players who are proving that big national clearinghouses can be expensive and are not the only way to go.

At one time large clearinghouses could in fact leverage their market power to reduce the price of processing claims and other electronic transactions. Providers and payers, receiving these discounts through exclusive arrangements with the large claims clearinghouses, believed they had the best deal around.

HIPAA regulations took effect and stiff business competition abruptly changed the industry's trust in a "big clearinghouse" concept as the only available option. Once stung with increasing administrative costs, confusion, and lost claims, many providers challenged the status quo. Larger providers, who had the technical expertise and financial wherewithal, found they could send their claims directly to many payers to avoid the cost and hassle of the large middleman clearinghouses. Meanwhile, some larger providers eventually discovered the value in clearinghouse services. They quickly began to appreciate the economies of scale inherent in a clearinghouse; those advantages allowed them to offer services that large practices needed, but couldn't afford, such as converting reports, telecommunication costs, data abstraction, reporting, formatting different transactions, and implementing multiple transactions with multiple payers, among others.

Concurrently, smaller stealth clearinghouses began to gain momentum by luring away the small providers with better service at a time when HIPAA shook the marketplace. And to survive in this otherwise shaky market, the clearinghouses that could not rely on the large reimbursement from payers began to increase their efficiency, and hence market power.

 

Then, for the first time in years, providers and payers cut their relationships with large players and learned how to get better service at reduced prices through smaller, nimble regional clearinghouses, which could offer parallel services with lower prices and higher quality. This powerful transition is still in play. Yet, as the marketplace continues to change, there is still a lot of confusion and a few myths remain.

Myth: Clearinghouses are not paid by payers.

Truth: Clearinghouses are in fact paid by payers, with industry transaction fees ranging from $.07 to.$.35 per transaction. This payer support of electronic claims is critical to offsetting the cost to providers.

Myth: Large clearinghouses are bad for the industry.

Truth: Exclusive relationships by payers with one single clearinghouse present new challenges in the industry. Exclusive relationships are believed to inhibit provider's freedom to work with many clearinghouses, which then reduces their ability to send all of their claims electronically. After all, no single clearinghouse has connections to every payer. Exclusive relationships can also add another layer of administrative inefficiency, and ultimately may reduce payer bargaining power. In today's free marketplace, price and service matter most to customers. Moreover, when there are barriers to electronic exchange of data, choice is limited and lack of competition begins to affect the quality of service.

Myth: Providers pay additional money to send their claims through a clearinghouse but receive no financial benefit for claims transactions.

Truth: Efficient claims transactions, especially electronic transactions, can offset the cost of claims transmission and speed up payment by as much as two weeks.

 

Myth: Transaction fees will increase because of HIPAA.

Truth: The cost of transaction fees remains in the control of each clearinghouse. As part of its commitment to its valued customers, however, many clearinghouses, especially the smaller ones, have made the commitment not to raise prices during the HIPAA crisis, but, given this environment, find they can increase service offerings through access to additional transactions and provide other value-added services.

Myth: All clearinghouses can accept and send all formats from all providers and all payers.

Truth: Not all clearinghouses have the flexibility to accept non-compliant formats from providers and accurately translate them into fully HIPAA compliant formats to payers. In addition, not all clearinghouses have been able to process HIPAA compliant formats and get them to payers who are still only able to take in non-compliant formats.

Myth: Real-time transactions are today's only industry focus.

Truth: HIPAA in general continues to be the of prime industry focus.

Myth: The need for clearinghouses will go away once HIPAA is implemented.

Truth: Most small provider offices do not have the resources to connect to hundreds of payers. They need the convenience and technology that a good clearinghouse will provide. In addition, most offices cannot afford the costly upgrade that many software companies charge them to be able to produce HIPAA compliant transactions. They will need to rely on a clearinghouse to translate their transactions. Like the consumer-centric model taking hold of the health insurance market, the onus is now on payers and providers to consider the most value-added proposition when considering claims clearinghouses. Clearinghouses that focus on maintaining high-quality customer service and offer immediate resolution to outstanding or otherwise dead claims will most likely survive.

Charlotte A. Martin is president and chief operating officer of Gateway EDI.