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    Direct Filing Could Hurt WebMDs Transaction-Services Push

    By
    Stacy Lawrence
    -
    April 9, 2004
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      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.

      Going Direct

      Several major insurers are starting to incorporate direct electronic data interchange (EDI) or Web-based connections with health-care providers. One example is the New England health-insurance company Harvard Pilgrim Health Care Inc., which is aggressively encouraging providers to file claims directly.

      Three out of 10 of its claims go through WebMD. At a cost of 35 cents per transaction, these services are costing the company $3.5 million. Arkansas Blue Cross and Blue Shield is similarly attempting to push providers into filing directly, but the effort has hit obstacles, with 2,000 of 6,000 health-care providers dropping out of the plan.

      Although the direct efforts may still be tentative, investment bank SunTrust Robinson Humphrey Capital Markets cites the hybrid-based e-business efforts of some of the markets major payers—including UnitedHealthcare, Anthem-WellPoint, Aetna Inc., Humana Inc. and many Blue Cross Blue Shield plans—as a threat to WebMDs ability to sustain a business model as the middleman between insurers and health-care providers.

      WebMDs acquisition earlier this week of Dakota Imaging Inc., a privately held company with a Web-based claims processing technology that also facilitates data capture from paper sources, is an implicit acknowledgement of this shift in strategy by health insurers. Dakota Imaging provides software and services to 24 of 41 Blue Cross and/or Blue Shield plans in the United States, as well as Medicare claims processors in 21 states.

      Adequately and economically meeting the needs of health insurers, either through transaction services or software, will continue to pose a challenge for WebMD, as will becoming increasingly compliant with the Health Insurance Portability and Accountability Act (HIPAA).

      WebMD says 90 percent of the claims providers submit to it are not HIPAA compliant, but that only 28 percent of the claims it submitted to payers were not in compliance. If the company can become fully HIPAA-compliant, such a record could help fend off moves toward direct provider-payer transactions.

      Another ongoing hurdle for WebMD will be creating a unified company out of a series of mergers and acquisitions. In early March, the company received a huge vote of confidence from the California Public Employees Retirement System (CalPERS), the principal backer behind the private equity fund PCG Corporate Partners Fund, which accepted the private placement of a $100 million convertible bond issued by WebMD. CalPERS is the third-largest purchaser of health benefits in the United States.

      /zimages/4/28571.gifCheck out eWEEK.coms Enterprise Applications Center at http://enterpriseapps.eweek.com for the latest news, reviews, analysis and opinion about productivity and business solutions. Be sure to add our eWEEK.com enterprise applications news feed to your RSS newsreader or My Yahoo page: /zimages/4/19420.gif http://us.i1.yimg.com/us.yimg.com/i/us/my/addtomyyahoo2.gif

      Stacy Lawrence
      Stacy Lawrence is co-editor of CIOInsight.com's Health Care Center. Lawrence has covered IT and the life sciences for various publications, including Business 2.0, Red Herring, The Industry Standard and Nature Biotechnology. Before becoming a journalist, Lawrence attended New York University and continued on in the sociology doctoral program at UC Berkeley.
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