The clock is ticking - deadline for the healthcare industry's adoption of electronic data interchange

Healthcare Financial Management, Dec, 1996 by James J. Moynihan

On August 21, 1996, President Clinton signed into law the Health Insurance Portability and Accountability Act of 1996. This legislation provides for a limited national test of medical savings accounts, changes the tax treatment of healthcare premiums, and limits preexisting condition exclusions for certain types of health insurance. It also addresses administrative simplification by including provisions to mandate standards for many electronic healthcare transactions, including:

* Health claims or equivalent encounter information;

* Health claims attachments;

* Health plan enrollment and dis-enrollment;

* Verification of health plan eligibility;

* Payment and remittance advice;

* Health plan premium payments;

* First report of injury;

* Health claim status; and

* Referral certification and authorization

Most industries have voluntarily adopted EDI and standardized business practices in response to market pressures. The healthcare industry, however, is the only industry mandated by the Federal government to automate such a wide range of information exchanges. The mandate is daunting, and the deadline for compliance is short.

Standards for the specified electronic transactions must be approved by the HHS secretary by February 1997. Most healthcare plans will have to meet the approved standards within two years of HHS approval or use clearinghouses to bring them into compliance. At present, very few health plans are prepared to meet such standards, and many may not be able to do so in the near future without replacing their claims adjudication systems.

Many regional HMOs and some third-party administrators owned by provider organizations also will be required to meet the standards. Hospitals and medical groups that adjudicate claims made under capitation contracts also may be classified as health plans under the new law and, thus, also would be expected to meet the standards.

The law will affect providers in various ways. They will have many more opportunities to use EDI to automate the patient accounting process and will be challenged by the pace of change and the conversion of existing business processes.

Providers will have to prepare to receive payments electronically from hundreds of different payers, to have their registration staffs handle thousands of responses to EDI eligibility inquiries, and to convert their business processes so that managed care authorizations can be requested and obtained electronically. This is an exciting vision, but one that will be difficult to achieve by the mandated deadline.

While ANSI X12 standards have not yet been designated by the HHS secretary as the standards of choice, a case can be made that no other coherent set of EDI standards exists for healthcare claims transactions.

Some X12 standards have a few competitors, such as the 835 remittance standard required for most Medicare payments to hospitals. However, more users of the national standards format (NSF) for claims submission exist than users of the X12 837 standard.

While the NSF format is widely supported, it is not compatible with the full family of X12 standards for messaging and acknowledgments. Healthcare EDI representatives next year will suggest to the HHS secretary EDI standards that should be used for claims processing.

Many providers may be pleased that the government finally has ordered payers to "get their house in order." But payers alone cannot simplify the transactions process in the healthcare industry. If EDI standards are to work, providers must be EDI capable as well.

ANSI X12 committee members are working to develop an unprecedented number of implementation guidelines for the December 1996 standards release, known as Release 3070. This release will likely be the version implemented over the next few years; hence the need for implementation guidelines that clearly and precisely indicate how a standard should be adopted.

The February 1999 deadline mandated by the health insurance act is fast approaching. In order for the standards to be implemented on time, payers and providers will have to increase their budgets for EDI support and develop an appropriate EDI plan. And they will have to make sure that their suppliers of new or replacement system software will have the capability to interface applications with relevant EDI transaction sets.

With so much work that still needs to be done, it will be difficult to meet the mandated deadline. But healthcare providers have no other option.

James J. Moynihan is a principal of McLure-Moynihan, Inc., Sherman Oaks, California. He can be reached at (818) 501-3967 or via the Internet at JJMOYNEDII@AOL.COM