Like mariners heeding a siren's song, bankers are sailing into the potentially lucrative business of processing medical payments. But several financial shipwrecks have resulted.

The market for automating medical payments is Large, growing, and untapped. Consumers used bank cards to charge only 5% of their $149 billion in health care payments last year, and expenditures are rising about 10% annually.

"Given the sluggish growth in the rest of the bank card business, card issuers are licking their chops and looking at the health care market with some degree of lust," said Joel Friedman, partner and bank card specialist in San Francisco for Andersen Consulting

To tap this market, banks are eyeing two approaches.

One is to exploit the existing credit card system; the other involves linking consumers, health care providers, and insurance companies to automate claims processing and the associated payments.

The less risky tack has been the former choice, as banks begin to market Visa and Master-Card more aggressively to health care providers and users. To this end, both Visa U.S.A. and MasterCard International have begun health care marketing campaigns in the past two years.

Consumers Hard to Persuade

Both card associations report that health care charges are increasing at more than twice the rate of other charges. But total volume remains small.

And experts warn that banks are battling a big acceptance barrier since consumers are reluctant to eat up modest credit balances with hefty medical bills.

Likewise, credit cards can be difficult to use in health care, since doctor or consumer must wait for an insurance payment before knowing how much to charge.

Response Has Been Weak

To overcome this problem, banks and nonbanks are considering new cards that would tie revolving credit lines with the electronic settlement of insurance claims.

But so far, the highest profile attempt to create such a product, American Express' Quatrro card, has been lackluster.

American Express Co. launched a pilot test of Quattro in late 1990 with the John Hancock Mutual Life Insurance Co. by distributing the card to 5,000 employees of both companies in the Boston area.

Employees use their Quattro cards to pay for medical services from 56 hospitals and 3,500 physicians.

Quattro relies on a sophisticated computer system, developed and operated by American Express, to forward insurance claims electronically and to receive electronic notifications of the amount of covered.

The system calculates the amounts owed by consumers and sends them a monthly bill. Consumers can roll over monthly balances by paying interest charges competitive with standard bank card rates.

American Express also pays health care providers, minus a discount of 2% to 7% of the amount billed.

Officials close to the program said that American Express has invested a minimum of $50 million to get Quattro off the ground. But the company has been unable to convince other insurers besides John Hancock to participate.

As a result, American Express told John Hancock that it had suspended marketing of Quattro late last year, pending a decision by the end of this year on whether to go forward, said Joseph Briand, former Quattro product manager at John Hancock.

Last month, Mr. Briand became vice president of the insurer's Cost Care Inc. unit in Newport Beach, Calif, a move he said was unrelated to the Quattro program's lack of success.

Mr. Briand said that insurers were reluctant to work with American Express because they viewed the card giant as a competitor. He added that the card didn't offer enough benefits to employers.

An American Express spokesman declined to comment, except to say that several changes in the Quattro card were being examined.

But Quattro isn't the only lackluster performer.

Blue Cross and Blue Shield of Maryland has lost about a million dollars on a proprietary health care credit card that it is now looking to sell, said Gary Baker, the insurer's controller.

And dozens of smaller companies have tried to launch proprietary medical credit cards tied to insurance claims processing. These either have not gained significant market share or have gone belly up.

Undaunted, many banks are forging ahead. Among them is Banc One Corp., which plans to launch a pilot test of a medical payment and insurance claims processing system this quarter in Wisconsin. It will be called CareNetwork Inc.

Likewise, Liberty National Bancorp, a $4.3 billion-asset bank holding company in Louisville, Ky., plans to launch an innovative medical payment and insurance claims processing program in the first quarter.

And Command Credit Corp., an upstart credit card processor in Rockville Centre, N.Y., plans next year to distribute at least a million health care credit and insurance claims processing cards.

"It's a market that's crying out to be served if someone can figure out how to do it," said Andersen's Mr. Friedman.

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