HIPAA Transaction Standards: Legislative Mandate with a Silver Lining

Healthcare Financial Management, May, 2001 by Christine Malcolm, Cynthia Bailey

Despite negative perceptions among healthcare providers of the Health Insurance Portability and Accountability Act (HIPAA) of 1996, HIPAA's administrative simplification provisions offer providers a real opportunity to reduce costs and improve outcomes. Indeed, there is considerable room for such improvement, given that 24 cents of every U.S. healthcare dollar, or about $250 billion annually, is spent on administrative costs. [a] Providers incur these substantial administrative costs primarily because more than 80 percent of healthcare transactions still are being conducted via paper or manual processes. [b]

Providers can leverage HIPAA-mandated automation to improve timely performance of administrative processes, such as verifying a patient's eligibility before the patient has been treated and left the care site. In turn, customer service can be improved by making it unnecessary to request demographic and insurance information more than once, reducing registration delays and helping to ensure that bills are accurate.

Electronic claims processing not only will allow providers to reduce processing costs, but also can help providers eliminate the types of errors that lead to claim rejections. For example, it is not unusual for providers to send as many as one in eight claims to the wrong payer, or to submit a similar proportion of bills at least twice. Automation of revenue-cycle transactions, such as eligibility verification and claims submission, offers providers the potential to reduce such errors by 90 percent.

The extent to which an electronic connectivity solution can provide such benefits depends on the degree to which it both provides real-time response and integrates seamlessly into a provider's legacy information systems and current or reengineered workflow. With an effectively integrated eligibility verification system, for example, verification transactions are sent automatically from the provider's legacy system. The connection with the appropriate payer is made in real time, and the payer's response (eg, confirming eligibility for specific dates of service) automatically flows into the provider's legacy system.

Given the potential for such improvements, providers should look for ways to achieve the HIPAA-mandated electronic connectivity with payers immediately, rather than wait for the October 16, 2002, compliance deadline. Even though the means to become fully compliant with the HIPAA standards still are evolving, tools and technologies are available today to allow providers to translate data into a HIPAA-compliant format and route it to the appropriate payer.

Connectivity Options

Most large payers already offer one or more means of electronic connectivity, especially for claims transmission and eligibility verification. The three main provider-health plan connectivity options are the collaborative commerce model, the commercial model, and the payer-specific model.

Collaborative commerce model. In a collaborative commerce model, providers and health plans agree to participate in a consortium with standards for data exchange. Each provider and health plan is responsible for its own data translation. These models tend to be low-cost, subscription-based services. An example of a collaborative commerce model is the New England Healthcare EDI Network (NEHEN) for the Boston, Massachusetts, region. If a collaborative model already exists in a provider's market, this option is likely to produce the quickest positive results.

Commercial model. In a commercial model, providers and health plans send all transactions through a single clearinghouse, which translates the provider data into the correct format for each health plan (and vice versa). The clearinghouse performs all the sorting and data transmission. Commercial vendors typically charge providers and payers on a per-transaction basis and may charge a membership fee. Examples of commercial vendors include WebMD and MedUnite (national), and Pointshare and Xcare.net (regional).

Provider financial application companies also offer services through their own clearinghouses. Although clearinghouses are relatively easy to access, total costs can be substantial, depending on transaction volume. In addition, response time may be too slow for transactions such as eligibility verification, where real-time response is ideal.

Payer-specific model. Some health plans offer their own connectivity solutions by which providers directly connect to the health plan through an access device specified by the health plan (eg, swipe card, dumb terminal, or interactive voice response). This access device can be expensive, however, and the process adds a step to each transaction. But there are no transaction fees.

Examples of payer-specific models include the Blue Gross/Blue Shield plans of Massachusetts and Florida, both of which use swipe-card devices. A significant drawback of these models is that providers must be able to support multiple systems, thus requiring registration and/or billing staff to learn the multiple systems and rekey data for each transaction.