Healtheon Buy to Move EDI Claims to Net

FRAMINGHAM (01/28/2000) - Health care portal Healtheon/WebMD Corp. last week announced a $2.5 billion acquisition that will make it the largest processor of electronic health insurance claims in the private sector.

Healtheon said it will buy Envoy Corp., a health care transaction unit of Durham, N.C.-based Quintiles Transnational Corp., for $400,000 in cash and $2.1 billion in stock.

"Healtheon wants to be the first and best in automating the business of health care online," said Claudine Singer, an analyst at Jupiter Communications Inc. in New York.

Numerous Alliances

To reach that goal, Atlanta-based Healtheon has recently forged numerous high-profile alliances. The Envoy acquisition would enable it to process 2 billion transactions per year. Healtheon now processes one quarter of that amount.

"The number of transactions is critical. It's where [Healtheon] is going to make money," Singer said. Healtheon charges 15 to 50 cents per transaction.

Under the agreement, Healtheon will acquire Envoy's back-end network. Claims that were once processed as electronic data interchange (EDI) transactions on private networks will now be processed over the Internet.

Challenges Ahead

Incorporating Envoy's back-end infrastructure and claims processing could be a formidable challenge for Healtheon, said Steve Ditto, a consultant at First Consulting Group Inc. in Long Beach, Calif.

Envoy's current customers "are not doing transactions over the Internet; they're doing it over a proprietary network. How do you transfer that to the Internet in a secure, scalable fashion?" asked Ditto.

Pavan Nigam, Healtheon's chief technology officer, said the company is currently considering whether it needs to upgrade systems to accommodate the additional 1.5 billion transactions.

Healtheon said that Envoy's senior management will remain at Envoy's headquarters in Nashville. The deal will likely be completed in the first half of this year.

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