In March 2000, seven major health care payers started earnest negotiations to create a joint company to enable providers to communicate with the payers via the Internet.By July 2000, MedUnite was formed with a goal of offering services within a year. MedUnite launched its services last September, only six weeks behind its original schedule. However, it's a different company from what was originally envisioned.

Gone is the focus on Internet services, although they will be offered, along with claims submission, claims status and eligibility verification transactions.

MedUnite in August acquired NDC Health's physician network services business unit. The unit processes claims for solo or very small physician practices that use NDC Health's practice management software.

However, NDC Health has had limited success getting small practices to automate. That's now the challenge for MedUnite.

The company initially expected to launch with several additional transactions, such as patient referrals and treatment authorizations. But MedUnite's strategy change came after CEO David Cox and other executives came on board in July 2000. "I would agree that when I came on board, we planned to offer a lot of things to a lot of people," Cox says.

MedUnite, in essence, has become the second payer-created claims clearinghouse in 20 years. In 1981, 11 payers formed National Electronic Information Corp. (NEIC) to provide a common conduit for electronic claims. But payers no longer control NEIC, which later was acquired by Envoy and now is part of WebMD.

Having control of a company to further automate claims and related transactions is one reason behind MedUnite's creation, Cox says. "They wanted a company they could influence to get the automation rate up," he adds.

Some in the industry suspect the payers-Aetna, Anthem, CIGNA, Health Net, Inc., Oxford, PacifiCare and WellPoint Health Networks-formed MedUnite because they feared WebMD, through Internet initiatives, would get between the payers and their members and contracted physicians.

But payer frustration at the inability of clearinghouses, including WebMD's Envoy, to substantially penetrate the small physician market is the core reason for MedUnite, Cox says. "We have not seen anyone in the market that has created the type of volume there should be," he adds.

Some observers applaud MedUnite's focus, but wonder if it will find the resources to automate thousands of small physician practices. "There's a reason why no one has been able to attack that market," says Steven Kilguss, vice president of the Information Solutions division of McKesson Corp., San Francisco.

"It's tougher than they realize. Time will tell if MedUnite can pull this off."

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