What Is a Clearinghouse?

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They are Industry Experts

Medical claims clearinghouses provide an essential role in today’s healthcare space. Working with a healthcare claims clearinghouse means you’re contracting with an organization that understands claim routing and processing.  Your internal claims processing team may not be able to dedicate all the time and energy they need to learn the ins and outs of the trade that a clearinghouse team would. A medical clearinghouse knows how to communicate between providers and payers; they understand what forms require special treatment and they know how to check quality control. A good quality clearinghouse allows for seamless data exchange between you and your provider networks, improving and speeding up the claims process, which assists in an increase in cash flow.

They are Your Communication Advocate

A clearinghouse is your #1 resource for any of your questions or issues regarding a claim. Rather than an internal medical billing or accounting department handling your medical claims processing, a clearinghouse can be fully immersed in all things associated with your claims processing. They don’t manage other roles or duties, they’re dedicated to processing, issuing, and disputing claims.

Like we said before, they are the middleman between payers and providers. They know what questions to ask, what forms to file, and how to dispute discrepancies properly. Just by doing what they do, clearinghouses can vastly improve the relationships between providers and insurance carriers. They can quickly resolve problems with streamlined communication, which results in faster payments and fewer denials. The medical claims process becomes incredibly more streamlined and efficient by having a clearinghouse present and communicating properly with all necessary parties. 

How Financial Clearinghouses Work

A clearinghouse gets involved in a financial trade after the seller and buyer execute their trade. The clearinghouse finalizes and then validates the transaction. It is essentially a middleman that makes sure these trades are secure and efficient. 

Clearinghouses play a key role in maintaining the stability of a financial market. They do this by taking on the opposing position for each trade. This reduces the risk, as well as the cost, that comes with settling multiple transactions across different parties. 

There are laws in place that help regulate how clearinghouses work. The National Securities Clearing Corporation (NSCC), established in 1976, is a subsidiary of the Depository Trust Clearing Corporation (DTCC). The NSCC oversees the following responsibilities for most broker-to-broker trades that deal with corporate and municipal debt, equities, unit investment trusts, American depositary receipts, and ETFs:

  • Clearing
  • Settlement
  • Risk management
  • Central counterparty services
  • Guarantee of completion for certain transactions 

Let’s look at a common example of where a financial clearinghouse steps in to ensure a financial transaction is properly managed. Let’s say you sell shares of stock you own, and you need to ensure that the money you are supposed to receive from the sale is actually delivered to you. A financial clearinghouse will make sure that you do, in fact, receive the money you are owed from the sale. It does this by confirming that the stock trader purchasing the stocks actually has enough money in their account available to buy the stocks involved in the trade. 

Clearinghouses vs. Exchanges

Clearinghouse Exchange An agency or corporation that oversees a marketplace for trading securities A marketplace for trading securities Helps execute trades that happen at the exchange Where trades actually take place May have a physical trading floor, but may also be strictly electronic May have a physical trading floor, but may also be strictly electronic

It’s easy to confuse clearinghouses and exchanges, but they do serve different purposes. A clearinghouse oversees marketplaces. An exchange is a central marketplace where buyers and sellers can meet to trade securities like futures and options contracts. Both can have a physical trading floor (such as the NYSE) or be strictly electronic (like the Nasdaq). The clearinghouse is the middleman that helps execute the trades between the buyers and sellers at the exchange.

There may be rules and regulations that businesses need to follow to be listed on the exchange. For example, a business must have 1.1 million publicly held shares to be listed on the NYSE.

Key Takeaways A clearinghouse in a financial market acts as an intermediary between buyers and sellers.Clearinghouses aim to keep financial markets stable by providing security and efficiency to buyers and sellers. Exchanges are often confused with clearinghouses, but exchanges are central marketplaces where you can trade securities like futures and options contracts.The NYSE and the Nasdaq are both exchanges and clearinghouses.

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