InstaMed Blog

Recent healthcare news announcements indicate that another major clearinghouse has disappeared. This is a trend that started a few years ago and will continue. In fact, of the top clearinghouses from five years ago, only a portion are still in business, some of which are in the process of exiting the business through strategic sales by their equity investors.

Why are clearinghouses disappearing?

Technology Barriers
One of the major factors contributing to the disappearance of clearinghouses is the fact that most clearinghouses are built on legacy technology. Consequently, they lack a focus on real-time transactions, and require multiple “hops” over multiple days for claims processing. Limited responses are another issue – even the largest clearinghouses in the U.S. do not support the HIPAA-mandated 277CA response format for a claim. Frequently, these limitations are a result of growth through acquisition without consolidating platforms. The largest clearinghouses have many separate internal systems, and therefore reporting on real-time transactions is separate from reporting on batch transactions, resulting in disparate processes.

Outdated Business Models
The largest clearinghouses make money by charging payers and providers. However, payer rebates have gone from one dollar per transaction in the nineties, to 35 cents in 2004 (see Forrester’s “Will Web Services Kill WebMD”), to cents today. As payer rebates continue to approach 0, payers have become less dependent on clearinghouses. Furthermore, as this revenue source has dried up, clearinghouses have shifted costs to the provider, and tried to augment their value through new services to justify higher prices. But providers cannot sustain higher price increases and we are not at a value crisis for the market price that providers are willing to pay for clearinghouse services.

Not Delivering Payments
The entire purpose of clearinghouse transactions – verifying eligibility, submitting claims, following up on claims and posting remittances – is getting paid…. i.e. “It’s all about the money.” However, clearinghouses are not capable of processing payments, and either lack this critical service, or are forced to partner. This is equivalent of a payroll company charging an employer to just send out the payroll slip, and let another vendor deliver the paycheck!

Healthcare Reform
Mandates from PPACA and HITECH require payers to deliver standardized responses on claims (277CA and ERA/EFT) and real-time information (eligibility benefits and claim status). As payers achieve compliance with new regulatory mandates, the value of a clearinghouse will diminish even more.

The future for healthcare payments: Integrated Healthcare and Payment Processing

While clearinghouse transactions (eligibility, claims, claim status, remittances) will continue to be a part of the healthcare payments process, in the new world of healthcare, with new regulations and higher patient responsibility, they are no longer the sole pillar of value. Without any connection and integration to the movement of money, they have little value. Clearinghouse transactions are simply a means to achieve the end goal: getting paid. Providers are starting to understand the value of integrated healthcare and payment transactions, which deliver the ability to dramatically accelerate and transform the revenue cycle.

In the next post, we’ll talk about the “hotel check-out model” which is a powerful example of integrated healthcare and payment processing.

The healthcare payments network of the future is here now. Learn more at www.instamed.com/about.

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