EDI: when to start, where to begin

Healthcare Financial Management, Jan, 1994 by James J. Moynihan

Most healthcare financial managers know that the Health Care Financing Administration (HCFA) is adopting national electronic data interchange (EDI) standards for electronic claims processing, and that providers will have to implement these standards by 1995. But many senior managers at healthcare organizations are asking: When do we start using EDI? And where do we begin?

When to begin

The time to start is now. There are three frequently cited--but invalid--reasons to delay EDI implementation. 1) Providers do not want to divert from an information systems plan developed several years ago at a tremendous cost in compromise and consensus building. 2) Information systems staff is cutting its budget, and any request for assistance may be met with cries of "We have no resources." 3) Providers view EDI as just another Medicare mandate and will accordingly wait until the last possible minute to adopt it.

Information systems plans developed several years ago need amending. The world has changed, and plans need to change with it. Consider that electronic remittance advices and electronic invoices were not available in standard X12 formats some years ago. At that time, incorporating their use into a plan would have been wishful thinking. Today, not incorporating their use into a plan constitutes neglect and a lost opportunity.

If an information systems staff does not have the resources needed to convert to EDI, it should hire an outside vendor. An outside vendor can help implement EDI and charge for the service on a per-item basis. Using an outside vendor for EDI services allows management to begin restructuring jobs to take advantage of electronic commerce. While EDI can eliminate keyboard data entry jobs, its biggest benefits come from changing the way jobs are designed and business is done. The process of retraining takes time, and it can begin as soon as an outside vendor helps implement EDI.

Those who view EDI as a Medicare mandate to eliminate claims forms will fail to reap the benefits of changing the way work is done if their plan is developed in a last minute rush to ensure compliance. Extensive restructuring cannot be done 30 days before a Medicare-mandated use of EDI takes effect. In addition, why use EDI only as a reaction to HCFA mandates? Smart providers will adopt a broad EDI strategy to link electronically to all their trading partners, including suppliers, payers, and other providers.

EDI implementation should start now because the management of internal change and the creation of multiple network linkages takes time.

Where to begin

Although the use of EDI can eliminate keyboard data entry tasks and paper, the greatest benefits come from process improvement. When reengineering a process, it is wise to start at the beginning. If mistakes are not eliminated at the beginning of a process, the quality of work will suffer. For healthcare financial managers, that advice provides the insight regarding where to begin in EDI--with the purchasing process.

Purchase-related EDI should begin with the receipt of price catalog updates. Claims-related EDI should begin with eligibility. But a strong case can be made that EDI implementation for many hospitals should begin with the purchase process.

Why use EDI first for accounts payable?

Because the quality of receivables management determines the provider's cash flow and because the related transaction volume is very high, the patient accounting process is a natural one for EDI. Nonetheless, there are several good reasons why it makes sense to tackle accounts payable applications first.

It makes sense to start EDI with a supportive, experienced trading partner. Most hospitals are working with suppliers that have been using X12 EDI for years. Many support the complete array of EDI transactions for purchasing, from price catalog updates and purchase orders to electronic invoices and receipt of EDI payments. For some hospitals, using EDI with the top 10 suppliers may automate 60 percent of the transaction volume of the accounts payable department. If this is a first venture into EDI, doesn't it make sense to minimize the risk of mistakes? Mistakes made with the claims submission process could delay payments for 30 days. Providers who venture into EDI with their supplier trading partners can begin with a risk-free, highly beneficial exchange--receipt of price catalog updates.

The price is right

Why should providers request EDI price catalog updates? Because they will eliminate approximately 30 percent of the errors encountered by the accounts payable department.

Most hospitals currently transmit purchase orders electronically. The price on the purchase order usually reflects contractual prices recorded in the material management system. Unfortunately, those prices may not be the same as the prices on related invoices received later by the accounts payable department. All too often, contract prices have not been updated in the hospital's system, and the resulting mismatch between purchase orders and invoices creates errors that require resolution by the accounts staff.