Direct Filing Could Hurt WebMDs Transaction-Services Push

From a consumer-oriented dot-com fad to the largest health-care transaction-services provider in the United States, WebMD has come a long way. But will the company be able to keep its momentum in claims processing as direct filing catches on?

At first glance, WebMD Corp. boasts one phenomenal corporate comeback story. Based on the 1999 merger of two consumer-oriented health information and services companies, Healtheon Inc. and WebMD, the company has since become the largest provider of transaction services between health-care providers and insurers. By shifting rapidly from a consumer to a corporate focus, the company narrowly escaped the dismal fate of countless faddish dot-coms.

Not only has WebMD managed to survive, it actually turned a profit in the last two quarters of 2003 because of cost-cutting measures and a relentless acquisition pace. In the past five years, the company has acquired dozens of companies in the health-care transaction-services segment, garnering not only enhanced capabilities but also, maybe more importantly, an ever-growing customer base.

WebMD expects to bring in well over $1 billion in revenue this year. The companys health transaction services business, Envoy, is anticipated to bring in more than 58 percent of that revenue, up from 53 percent last year. But with rapid shifts occurring in health-care IT, the looming question for the company is whether it can continue to expand its health transaction services unit.

Last years figures suggest that despite growing revenue, WebMDs transaction services for insurers and physicians are not tapping into a wellspring of demand. In the fourth quarter of 2003, the companys Envoy segment completed 664 million transactions. Thats up substantially from 571 million during the same period a year earlier.

But according to a report by investment bank Jeffries & Company Inc., the increase is due almost solely to WebMDs acquisition in the third quarter of 2003 of Advanced Business Fulfillment Inc., a privately held, St. Louis-based health transaction services company.

Next Page: Several major insurers are starting to incorporate EDI or Web-based connections with health-care providers.