The $1 trillion health care industry spends half of that amount pushing paper and moving money each year, but banks are hesitant to step into the breach.
Just as much of the public has cooled to the recent health care reform debate, financial institutions have generally turned cautious about potential business opportunities in the medical industry.
Several major banks and computer service companies have spent the past few years investigating the health care market as a potentially lucrative outlet for their transaction processing expertise. But there have been enough mistakes and missteps to give them pause.
Some financial industry strategists don't see the synergies that they expected to find when health care reform and the need for more efficient payment systems were on the from burner of public policy.
Still, the move toward standardization of insurance-claim and payment processing will certainly create demand for more automation. And a $1 trillion industry that reputedly spends more than half that amount pushing paper and moving money seems too big an opportunity to ignore.
Banc One Corp., which became active in the health care field earlier this year. has gone the acquisition route, as have others that are taking a serious interest. Last January, the Ohio-based bank bought System One, a Boulder, Colo., company that processes health care payments.
System One is still headed by Ray Croghan, who founded the company three years ago. It handles payments for more than 1,700 doctors.
The company has been growing at three times the rate it was this time last year, partly because of the ownership and backing of Banc One, Mr. Croghan said. The business has been picking up about 100 new customers a month.
Banc One has thus established a sturdy foothold in health care. It has given System One sophisticated electronic data interchange technology and the ability to leverage Banc One's reputation and customer base.
The twofold payback, as Mr. Croghan sees it, is "very significant fee-for-service revenue" and an outlet for repackaging existing banking services like lockbox and EDI. But there are surely pitfalls.
"Where others may have tried to enter the market using existing infrastructure, [Banc One has] blended the existing systems with ones that are adapted to health care," Mr. Croghan said. "We have set up a separate entity here just for this."
Banc One, in fact, has amended its Original plan to automate the flow of health claims and payments.
The bank announced its intent to pioneer in this field in March 1992, when it launched a pilot with CareNetwork Inc., an operator of health maintenance organizations in Wisconsin.
Bane One intended to issue plastic identification cards to HMO patients that -- when swiped through a special terminal -- would automatically give the doctor complete information on deductibles, co-payment requirements, and other coverage details. The doctor could then electronically complete and transmit the claim form to the insurance company, which would in turn credit the doctor's account.
While Banc One was progressing onto new turf, other financial companies made some serious and costly miscalculations.
The Exchange, a Bellevue, Wash., company that runs the major automated teller network in the Pacific Northwest, launched an ambitious assault in May 1992, by forming Exclaim, a partnership providing fee-based medical information services to doctors, hospitals, and insurers in Washington State.
Teaming up with a county Blue Shield outfit and a group of local doctors, Exclaim seemed headed for success. But less than two years later, the venture was terminated, largely because of discord within the health care community, particularly insurers, said Thomas Bass, president and chief executive of the Exchange.
"In banking, there's an incredible degree of cooperation -- banking has a long tradition of changing currency and information," Mr. Bass said. "The medical people don't have a clue. They do not understand the need for cooperation in data and payment exchange."
Although he would not comment on how much the failed venture had cost, the partners initially invested more than $5 million, which they had hoped to earn back by 1995.
Mr. Bass said he would "never go into this again, unless I had [market share] saturation of a region." He added that it would still take at least four years to achieve the volume needed to run a profitable system.
He likened the lack of support from insurers to big banks' refusals to join ATM networks in the early stages of that business.
American Express Co. faced similar problems when it embarked on two separate efforts -- in 1990 and 1993 -- to introduce Quattro, a credit card for health care payments.
When first launched in Boston, the program got a dismal response from insurers -- reportedly because Amex partnered with one insurer, the John Hancock Mutual Life Insurance Co.
On the second attempt, Amex dropped Hancock and moved the program to New Jersey. But that did not seem to improve matters.
Although American Express would not comment, insiders at the time said the company sank $50 million into Quattro without a steady payback in sight.
When Exclaim folded, Mr. Bass also faulted legislative forces beyond his control, namely the Washington Health Service Act of 1993. It mandated the formation of four regional health insurance purchasing cooperatives in the state, Similar to cooperatives that had been proposed on the national level. Mr. Bass said this created a market so competitive that many players were offering support services for free.
Nontheless, Mr. Bass pointed out that health care is still in the throes of a massive transition, and few companies want to commit themselves too soon.
"They're building bridges to places they don't know are going to be there." Mr. Bass said.
Amid the uncertainty. potential service providers are lying low.
In August 1993, BankAmerica Corp. officials talked up plans to start an integrated payment services business serving consumers and health care providers. Bank executives anticipated that BankAmerica Health Information Services would offer a broad range of electronic information and fund transfer services, drawing together doctors' and hospitals' records.
But the nation's second-largest banking company soon scrapped its health care plans, according to spokesman Bob Winn. The pilot project "didn't fit with our strategic goals," he said.
Mr. Winn added that BankAmerica would continue to work with medical companies through its commercial and investment banking units, but not payment processing.
Command Credit Corp., a small credit card processing company on Long Island, N.Y., announced its own foray into the business with a health care credit card. Backed by a group of West Coast investors, Command Credit expected to issue cards to guarantee payment to health care providers and develop the processing system to link them.
According to William LuCas, Command Credit's chairman, the investors dropped out of the deal because "they thought they couldn't provide sufficient funding." Mr. Lucas said his company still expects to issue a medical credit card to handle copayments.
On a more positive note, Chase Manhattan Corp. began three months ago to process electronic payments for a group of dentists in Nevada. Partnering with Electronic Claims and Funding, an Atlanta-based insurance processor for the dental industry, the New York bank is extending its clearinghouse capabilities to the health care business. Chase and ECF receive payment instructions from the dental group, and Chase routes the money between accounts while ECF sends verification to the dentists.
Chase officials said they recognized that the venture required careful planning.
"Processing a health care payment is like nothing else in the world," said Jean Lutzker, Chase's vice president in charge of electronic payments for health care. The challenges include eligibility requirements, enrollment, insurance claims processing, and multiple carriers.
"It's one of the most complicated things." Ms. Lutzker said. "But the folks who figure how to, wrap all those things together are going to come up with a big prize."
Although health care standards and practices are far from set in stone, Ms. Lutzker said interested institutions must move quickly or will miss the boat.
"Banks that have made a commitment to health care and EDI better be in this market," she said. "As the health care industry consolidates, banks are deciding what [part] they want to play. A year from now it will be a whole different environment."
Other banks have found a fairly safe passage into the health care enterprise via nonbank service companies
UJB Financial Corp. of New Jersey and Barnett Banks Inc. of Florida recently signed on to provide their customers health care payment services through Equifax Inc.'s Cooperative Healthcare Networks division. Atlanta-based Equifax acquired that unit in January 1994. It offers StatLink. a raft of EDI and billing services.
By working with servicers, executives say, a bank can introduce health-care-type products to customers at minimal risk to itself.
"It's tough. You have to have the expertise. and it lowers the level of risk to partner with a service company," said Thomas P. Ferris, UJB's regional vice president in charge of health care for northern New Jersey.
Card Establishment Services Inc. of Melville, N.Y., a major credit card processor for retail merchants, has made significant headway into health care. In May, CES acquired three medical information service companies, which will provide a base for its health care ambitions.
"There are certain parallels to the financial services industry, but it's much less mature," said Joseph Sullivan, president of CES' health care unit. "There are a lot of small, regional niche players. It's like the card issuing or the merchant acquiring business 15 years ago."
"Health care transaction processing is going to be a very big business," said Wade Nield, the health care segment manager for Barnett Banks. "What remains to be seen is what role banks will play, and right now it's not clear whether banks will play a strategic role.
"Even though health care reform is dead now, it will be revisited."