Card Establishment Services Inc. said it will test the common ground between the payment processing and health care markets by acquiring three information services companies in the medical field.

The Melville, N.Y.-based leader in credit card processing for retail merchants said Tuesday that it had completed the purchases of MedE America Inc., Medical Processing Center Inc., and Wellmark Inc.

The companies serve a combined 1,500 health care providers, insurance claims administrators, and employers in 11 states, and offer billing services in 42 states. They are the nucleus of a new business unit, CES Healthcare Information Services.

'One-Stop' Option

Its expertise in sorting out insurance benefits and claims will make it a "one-stop, all-payer" option for hospitals and others, according to John C. Elliott, CES chairman and chief executive officer.

"Just as technology revolutionized the efficiency of processing card-based transactions for the retail and travel and entertainment industries, the same technology can reduce the cost and paperwork that burden our nation's health care delivery system," Mr. Elliott said.

CES expects to profit from an assumption that companies in banking, health care, and data processing have been making but have been struggling to prove: that health care transactions could be the growth market of the 1990s that credit cards and other electronic payments were in the 1980s.

Draft Capture Method

Mr. Elliott, a former MasterCard International executive, said that in 1985 only 4% of card transactions were settled in a paperless fashion. Today, the vast majority of credit card sales and virtually all of those CES handles for merchant clients use the draft capture method.

Only a "small fraction" of health care payments are electronic, Mr. Elliott said. But that percentage may begin to climb as the political spotlight continues to shine on health care.

"Any meaningful health care reform must address the issues of processing [insurance] claims and payments electronically and the point of service," Mr. Elliott said. "What the national health care debate has done is heighten the need to be cost effective."

Electronic data interchange technology, which automates and transmits documentation, can streamline the complex processing of insured patients' claims. CES quoted a recent study by the Tiber Group, a Chicago-based health care consulting firm, that estimated that EDI could cut the industry's costs by $22 billion to $24 billion over five years.

Mr. Elliott said such complexities as claims eligibility and coverage limits pose problems different from those in payment services.

R. Joseph Sullivan, as president of CES health care unit, will be charged with integrating the three acquisitions. Easing the transition will be the fact that all three run Unix-based computer systems, and two use the Oracle data base system that CES has.

MedE-America, in Mitchell Field, N.Y., determines patients' insurance eligibility and coverage limits, and manages Medicaid enrollments. MPC, in Twinsburg, Ohio, handles electronic claims processing, data entry, and physician billing. Wellmark in Westlake Village, Calif., specializes in electronic claims processing and managed care products. With the acquisitions, CES raises the number of hospitals it serves from 650 to 875, or 13% of the U.S. total. CES' base of health care providers also expands by 17%, to 10,500.

Meanwhile, Mr. Elliott said there is no leveling out of his company's core business. It processed $43 billion in payments last year for 127,000 merchants with 205,000 outlets and 185,000 point of sale devices.

"We don't view this as two separate markets," Mr. Elliott said. "Anybody who sells goods and services is our target market."

Allen DeCotiis, president of Payment Systems Inc. in Tampa, Fla., said CES is taking "a leadership role" in health care processing, but may find its gross profits do not match those in merchant processing. More earnings could come from value-added services such as data publishing and analysis.

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