More than two years ago, an Indianapolis-based company unveiled an initiative to resolve health claims within minutes of a patient's visit with a doctor. Executives called their creation revolutionary and said the first customers were nearly signed.
Then the new venture, RealMed Corp., promptly dropped from sight.
Until now. Long stymied in attempts to enlist a major payer, the company announced last month it had reached agreements with five Blue Cross and Blue Shield organizations -- including Anthem, which is headquartered a few miles away in downtown Indianapolis.
Within days of that announcement, RealMed filed for an initial public offering of stock, seeking $60 million to establish that the concept works in practice and then to pay for the rollout of its claims-resolution process at the five Blues organizations.
The return of RealMed to the healthcare marketplace followed an overhaul of its network infrastructure to take advantage of Internet technology and reduce the complexity and cost of setting up data centers with links to physician computers.
But just as important as the technological tinkering was a complete overhaul of the company's business strategies for wooing payers and forming the physician links, says Robert Hicks, RealMed's chairman and chief executive officer since June 1999.
RealMed spent nearly nine months getting to know the business of payers before proposing ways to fit the claims-resolution process into their businesses, Hicks says.
"People come in and try to shoot too high, too hard," he says, referring to vendors of new technology that attempt to cut "onerous, exclusive deals" before the technology can show its stuff.
But the hard sell wasn't the only problem getting in the way of success, he adds. Potential customers still had to take the gamble that the technology would work as promised.
So RealMed decided to pop for the entire expense of installing the service at client sites and proving its benefits, Hicks says. The company hasn't insisted on multiple-year contracts to recoup those costs. "If it works, they'll keep using it; we believe that," he says.
In mid-May, Anthem and RealMed launched a limited pilot project connecting an undisclosed number of physician offices with Anthem's mainframe computer. "We're testing the technology and, more importantly, we're testing the business value," says Jane Niederberger, Anthem's chief information officer, who adds she was "very, very pleased" with the initial results.
Results first. The relaunched RealMed is keeping a lower marketing profile than the original management team did in December 1997. That's when executives, with more than a little fanfare, unveiled the fruits of a four-year development effort: a data network that would determine a patient's coverage, field a bill, adjust it for contractual discounts and copayments, and settle the claim on the spot (Modern Healthcare, Dec. 22-29, 1997, p. 22).
The system relied on a nationwide network of high-powered data centers that would be loaded with all the payer-supplied details necessary to accept requests from computers in physician offices and dispatch a claim decision within five minutes.
But the company could not convince wary payer organizations of the return on investment, says Larry Gigerich, senior vice president of public affairs and corporate relations.
Anthem's Niederberger agrees. "They had some really good ideas at RealMed, but they were ideas," she says, recalling the years of being courted by the venture.
Technologically, Anthem had some concerns about RealMed's capability to tap into the payer's information systems and replicate its intricate business rules for adjudicating claims -- without interrupting or otherwise getting in the way of the insurer's business. Niederberger says the message to RealMed was: "We don't want to be your guinea pig."
The original framework for the data-exchange network was built around powerful personal computers with specialized software. The new Internet-technology foundation removed some of the complexity and cost of setting up physician data-transfer stations one by one and the need to maintain and upgrade them individually, Hicks says.
The technology transformation also enabled the company to reformulate its data-exchange methods to better mesh with payer systems and gain the flexibility to handle all sizes of customer organizations, Hicks says.
RealMed's board recruited Hicks in June 1999 as part of a management shake-up, and Hicks recruited 10 new managers from June to September. Hicks continued as executive vice president with the vendor technology unit of CIT Group, a Livingston, N.J.-based commercial finance company.
According to RealMed's filing with the Securities and Exchange Commission, Hicks will resign from the venture capital firm when RealMed completes its public offering.
Hicks was executive vice president of strategic development at Newcourt Financial, a Parsippany, N.J.-based venture capital firm, when it extended $17.5 million in credit to RealMed in 1999 and followed up with $10 million more this year. The CIT Group last November acquired Newcourt's parent company.
The "hero" strategy. The line of credit is intended to get RealMed through the period of integration necessary to implement the claims-resolution service at the targeted payer sites -- a custom job at each of them -- and be able to run the service effectively for a four- to six-month sales cycle, Gigerich says.
The company has burned through $30 million in investment capital since 1997, increasing its staff to 98 from about 30, he says. The integration of RealMed's data center with payer computers containing all the necessary information and contract details will take three to 12 months depending on the payer, according to the SEC filing.
With little in the way of revenue -- except for a temporary side business processing medical savings account claims -- the company had an accumulated loss of $28.4 million at the end of February; its strategy is to put revenue-producing plans on hold at least through the summer.
But in the long run, company officials say, the strategy will work better than the original business plan that unfolded in late 1997. In that scenario, RealMed aimed to charge physicians immediately for using the service while simultaneously trying to get payers to buy the service and keep it well-fed with data.
When Hicks took over and assembled the new management, "We spent over a week deciding who our client was," he says. The conclusion was that signing up payers with high market share in a region was the key to acceptance. But those payers also had to commit to working closely with RealMed to forge true connections and produce a product they could bring to providers.
"We basically made the payer into the hero, the sponsor of a solution in a given market," says Hicks.
When the services debut, doctors will get the first three months free and then be charged $95 per month, Gigerich says. Insurers will pay a fee per claim once they're satisfied with the results of the implementation.
For Blue Cross and Blue Shield of North Carolina, it could be 2002 before the fees start accumulating. A major effort to establish proof of concept should be ready by year-end, and the Blues organization expects to run the operation for a year before making a commitment to roll it out, says Fred Goldwater, CIO of the Chapel Hill-based company.
The switch to fee-paying customers could come earlier if the initial field test yields "an embarrassment of riches caused by an immediate success," Goldwater says. He's giving that possibility some credence.
"They've certainly done a good job of getting their story out and discussing the compelling reasons why this should work," he says, adding that RealMed also has put money and effort into executing the plan. "They try and make it easy for you."
But it won't be easy, Goldwater adds. Success depends on digging deeply into two separate information systems that are going through a gradual transition into one successor system. Next, the data and claims-adjudication processes have to be integrated into physician practice management information systems, and only then can RealMed and the Blues plan work on gaining acceptance of the physicians, Goldwater says.
"Good ideas don't become great ideas until they're implemented."