As the cost of health benefits continues to rise, companies are shifting more payment responsibility to the employee. To offset escalating premiums, employees are absorbing co-pays and deductibles in amounts unheard of a few years ago. This in turn can spell financial trouble for health care providers—at least, for those not affiliated with InstaMed.

InstaMed provides real-time, direct connectivity between insurance companies and financial networks. Their processing platform allows doctors to automatically collect a patient's portion of the bill without waiting for the insurance company to adjudicate a claim and determine patient payment responsibility.

"Doctors have to collect a lot of high deductibles from patients, but they can't accurately collect until the claims are adjudicated," says Bill Marvin, CEO of Philadelphia-based InstaMed. "As a result, doctors are getting stuck with large piles of accounts receivable, and the costs to collect those dollars is rising. This is not a good situation for the health care providers, and we're doing something about it."

Marvin takes an example from a different industry to illustrate his point. "When someone pays for a meal with a credit card, the restaurant owner has the financial assurance that, in a few days, the money will appear in his account," Marvin says. "Health care providers don't have that same assurance because claims must be adjudicated by payers before they can even begin to collect. This can take weeks."

Improving the Reimbursement Process
InstaMed provides real-time, direct connectivity between insurance companies and financial networks. Their processing platform facilitates reimbursement by creating a payment system where doctors can automatically collect a patient's portion of the bill without waiting for the insurance company to adjudicate a claim and determine patient payment responsibility. By working closely with major health care plans and financial institutions, InstaMed integrates health care transactions—eligibility and claims—with financial payments, authorization and settlement.

One key component to InstaMed's service is that they execute that transaction from their network in real time, cutting costs and reducing errors by eliminating a great deal of administrative efforts. With InstaMed, a health care provider can swipe a credit card, get account authorization, submit the claim, have the claim adjudicated and move the money into the doctor's account—all in one integrated process.

"This dramatically lowers transaction costs and accelerates the payment process for providers, which really impacts their bottom line," says Marvin. "Our platform represents a huge transformation in the revenue cycle for health care providers."

National Recognition for the System
InstaMed was formed in 2004, executed its first transaction in July 2005 and is experiencing enviable ramp-up. The company, which employs 30, was recently chosen by U.S. Bank, the sixth largest bank in the country and third largest payment processor, to be their health care payment platform. InstaMed is now in the process of implementing 10 health care systems and 100 hospitals onto their platform—a total of some 500 separate entities that will be using the InstaMed platform through the U.S. Bank relationship.

The company received a total of $500,000 in funding from Ben Franklin Technology Partners (BFTP) in 2005 and 2006. According to Marvin, "We started with BFTP when we were in the concept and design phase. That funding was critical to the buildout of our platform and making connections into the health care network. We started processing our first transaction through United Health Care thanks to Ben Franklin dollars."

Marvin says the company was able to raise an additional $3.3 million thanks in large part to the recognition that BFTP endorsement provides. "Having BFTP as a stamp of approval gives other investors the sense you've been vetted with a credible source," he says. "We were closely scrutinized by the BFTP teams. I daresay, they asked us every question we've ever been asked by all other investors combined."

A Slice of the Transaction
InstaMed charges a small fee for each claim processed, but the majority of their income comes from payment transactions. InstaMed takes a small piece of the percentage fee that doctors and hospitals are paying to banks and credit card companies. As the dollar value of co-pay and deductibles becomes larger—paying $300 out-of-pocket for an office visit may soon become commonplace—the fee that InstaMed captures will grow.

According to Marvin, much of InstaMed's competition is focused on the back end—for example, connecting health savings account custodians and banks to health plans.

"What you don't see in the market is what we're doing—building the network on the front end," Marvin says. "All these transactions originate in the doctor's office, hospital or billing service. We placed our system where help is needed most—on the front end. At the end of the day, we give the providers what they need—financial assurance."

 From the January/February 2007 issue