HIPAA Transaction Standards: Legislative Mandate with a Silver Lining

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

How should the connectivity solution be implemented? The provider should evaluate the key trade-offs among alternative implementation plans, taking into account factors such as the time frame for realizing benefits, the requisite level of investment, and the relative need for internal resources and support.

What is the return on investment (ROI)? To determine which course will produce the greatest ROT, providers should systematically assess their current revenue-cycle performance, costs of key processes, potential for both improved clinical outcomes and savings under automation, available connectivity options, appropriate level of integration, and implementation costs.

Exhibits 1 and 2 illustrate the benefits identified during an assessment for a four-hospital system in the Northeast with annual net revenue of $630 million. Such benefits do not depend on immediate automation of all five of the transactions shown in Exhibit 1. Often, a stepped implementation plan that prioritizes transactions with the greatest potential ROT (eg, eligibility verification) is the best option.

Conclusion

By mandating electronic connectivity with payers, HIPAA offers providers an unprecedented opportunity to reduce costs and increase revenue. The standardization of key revenue-cycle transactions through automation truly is the silver lining of HIPAA. When implementing electronic solutions to reap the benefits of HIPAA, however, providers need to be realistic about their need to reengineer work processes to integrate automated transactions and seek ways to accomplish greater integration.

Christine Malcolm, MBA, is vice president, CSC's Global Health Solutions Group, Chicago, Illinois. Her e-mail address is cmalcol2@csc.com, and her telephone number is (312) 470-8588.

Cynthia Bailey, MBA, is senior consultant, CSC's Global Health Solutions Group, New York, New York. Her e-mail address is cbailey3@csc.com, and her telephone number is (212) 401-6032.

(a.) Woolhandler, Steffle; Himmelstein, David U.; and Lewontin, James P., "Administrative Costs in U.S. Hospitals," The New England Journal of Medicine, August 5,1993, pp. 400-403.

(b.) Lass, Gene, ed., The Hospital Accounts Receivable Analysis, Q3 2000, Gaithersburg, Maryland: Aspen publishers, 2000.

(c.) "Medicare and Medicaid: Health Insurance portability and Accountability Act of 1996; Electronics Transaction standards; Health Insurance Reform," Federal Register, August 17,2000, pp. 50311-50372.

                   NORTHEASTERN MULTIHOSPITAL SYSTEM
             CASE STUDY--ANNUAL COST SAVINGS BY TRANSACTION
Referral/Authorization     $3,166,700  46%
Claim Submission             $806,100  11%
Claim Status Inquiry       $1,341,900  19%
Claim Remittance             $217,700   3%
Eligibility Verification   $1,496,300  21%
Total Savings: $7,028,700
Note: Table made from pie chart
                   NORTHEASTERN MULTIHOSPITAL SYSTEM
                   CASE STUDY--ANNUAL COST SAVINGS BY
                            BENEFIT CATEGORY
Increased Net Revenue             $4,139,900  59%
Interest on Accelerated Payment     $476,600   7%
Reduced Rework                      $217,100   3%
Reduced Time per Transaction      $1,496,500  21%
Nonlabor Cost Reduction             $698,600  10%
Total Savings: $7,028,700
Note: Table made from pie chart.