Banc One Corp.'s health care processing subsidiary, System One Corp., has acquired an operation that develops and sells computerized financial systems for doctors' offices.

System One bought the HPS Gold division of Dairy Herds Improvement Inc., a software developer in Provo, Utah.

The purchase shores up System One's ability to offer end-to-end processing of electronic health care claims and payments, bank officials said.

The deal also demonstrates Banc One's drive to become a top provider of the cash management services associated with health care claims and payment processing.

"We are very optimistic about the potential of this arrangement," said Raymond D. Croghan, president of System One. "We feel DHI has created a very competitive product."

With the health care industry processing nearly $1 trillion of payments annually, officials at Columbus, Ohio-based Banc One said they believe the time is ripe to enhance its processing capabilities and serve a rapidly expanding and lucrative market.

Banc One, which acquired System One two years ago, is among a handful of bank companies trying to make a business of health care processing.

"It's an industry that's behind in terms of automation," said Mr. Croghan. "Our ultimate goal is to create a totally paperless system from end to end.

Mr. Croghan founded System One in 1991. One of his misconceptions upon entering the business was that exchanges of health care documents among insurers, employers, and doctors were entirely paper-based.

He soon realized that document exchanges were highly automated but that the "centers of automation were not integrated."

"A claim is frequently captured by as many as seven or eight different computer systems during its life," explained Mr. Croghan. "Every time it's captured, somebody has to print it out, stick it in an envelop, and mail it to the next computer center."

Mr. Croghan said the acquisition of HPS Gold would let System One offer straight-through electronic processing for health care payments, claims, prescriptions, and other associated data.

The software streamlines the process by gathering information from physicians' offices.

Health care claim forms and billing information, he said, can be sent from the doctor's office to the insurance company and back electronically.

The doctor's office "was the last significant link in the chain to create this electronic payment system," said Mr. Croghan.

System One said the deal brought about 1,500 customers - physicians primarily involved with large group practices.

Customers that send and receive transactions through the service now number about 4,000.

Experts in health care processing noted that bank participation in the business has several benefits. The most prominent of these is that financial institutions' experience in trafficking electronic financial transactions eases health care providers' and insurers' fears of security breaches.

Larry Forman, a cash management consultant at Ernst & Young, New York, said that significant numbers of health care transactions ran in the past over third-party, value-added networks. These networks had adequate security, "if you are just going to move information."

"But if you are going to hook up the financial end," Mr. Forman added, "people are just not comfortable with using anyone other than a bank."

Mr. Forman, citing preliminary findings from an upcoming cash management survey, said, "Virtually all large (electronic data interchange) banks can receive" EDI instructions to make health care payments, "but there is no volume going through at all."

But that will soon change, he predicted.

System One, based in Boulder, Colo., completed the acquisition last week. Financial terms were not disclosed.

System One is a value-added network specializing in the development and delivery of medical payment services and electronic data interchange.

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