HIPAA casts doubt on role of claims clearinghouses

Claims clearinghouses emerged as a way for physicians to avoid filling out different forms for different plans, instead allowing them to send claims on paper or electronically and have the clearinghouse translate them to each plan's format.

But some payers, including Harvard Pilgrim, are arguing that the HIPAA electronic transactions rule has reduced the value of clearinghouses because payers and doctors now use national standard formats for electronic transmission of claims, eligibility inquiries, remittance advice and other transactions.

The standardization, for example, means that clearinghouses, which serve as middlemen for electronic transactions, no longer have to convert physician and hospital claims into one of the more than 400 proprietary payer formats that existed before HIPAA became effective in October 2003, said Kimberly Grose, vice president of provider network service operations at Harvard Pilgrim.

While the health plan believes clearinghouses still have an important role to play, it will do business with them only if services are provided for a flat monthly rate rather than on a per-transaction basis. This would reflect administrative savings that the federal government intended the industry to achieve through HIPAA, Grose said. As a result, the plan stopped paying transaction fees to WebMD -- which charges per transaction -- in March.

But WebMD, which operates the country's largest clearinghouse, counters that insurers have implemented HIPAA differently and still require individual claims edits. That means that WebMD can transmit a HIPAA-compliant claim that would meet the standards of one payer's claims adjudication system but that would be rejected by another payer's system, said Roger Holstein, WebMD's CEO.

William Seeglitz, MD, a solo family physician in Newton, Mass., who pays a monthly fee to WebMD's clearinghouse to submit claims to Harvard Pilgrim and other payers, is concerned that WebMD will shift insurers' costs to doctors if other payers follow the example of Harvard Pilgrim.

But only a small number of payers that derive the bulk of their business from one state or a metropolitan area -- like Harvard Pilgrim, which is concentrated mostly in the Boston area -- can take such a step and make it stick, said Patrick Kennedy, a Rockville, Md.-based consultant.

Most commercial payers operate in multiple states and don't have the large market share that Harvard Pilgrim and Blues plans have, making it too expensive and impractical for them to bypass clearinghouses and connect directly to physicians, he said.

"HIPAA or no HIPAA, a clearinghouse will always, always be needed in this marketplace," Kennedy said. "Payers deal with 450,000 different doctors. They have no choice but to allow clearinghouses to be part of their solution to communicate with their doctors."

Who pays?

Still, Kennedy expects payers will take a hard look at transactions, paying only for those that benefit them.

Then doctors will have to decide whether to pick up the bill for other clearinghouse services.

But the bottom line is that physicians already pay a fee to communicate electronically with payers, Kennedy said. "Ultimately the doctor always pays. It's just a question of whether they pay directly to the clearinghouse, or do they pay some other entity?"

Clearinghouses generally don't directly charge doctors for electronic transaction services, because most commercial insurers pay 12 cents to 35 cents per transaction to encourage physicians to submit claims electronically to them, Kennedy said.

Doctors, however, usually pay $20 to $89 monthly to their practice management vendors so they can electronically submit transactions from their billing systems to clearinghouses, Kennedy said. That also enables doctors to use their systems to submit claims directly to their local Blues plan, Medicare and Medicaid. The government payers -- and most Blues -- do not pay clearinghouses any fees because they provide doctors free ways to connect to them directly.

"It really makes no sense for me to pay a clearinghouse to do something that doctors can get for free [from us]," said Joseph Smith, CIO of Arkansas BlueCross BlueShield. The plan also offers Arkansas physicians a service under which they can submit HIPAA-compliant transactions to other commercial payers for 11 cents per transaction, which is what the service costs the plan, Smith said.

But some doctors are paying clearinghouses rather than take advantage of the free or low-cost alternatives the plan offers, Smith said.

Other options

A major reason is that many vendors that sell practice management software, especially those that also operate claims clearinghouses, haven't made their software HIPAA-compliant, he said. That means physicians can't generate and transmit HIPAA-compliant transactions from their systems, forcing them to use clearinghouses.

Another reason is that doctors aren't aware that less expensive options to clearinghouses are available, including Web-based transaction processing services that bypass clearinghouses, Smith said.