A milestone for paperless claims processing - Electronic Data Interchange

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

In January 1996, a small milestone will be reached in the continuing evolution toward paperless claims processing. This month, all Health Care Financing Administration (HCFA) fiscal intermediaries must stop using old proprietary remittance formats and adopt the X12 835 format for electronic data interchange (EDI) payments. The health care claim payment/advice, approved in 1991, was the first standard adopted for widespread use by HCFA. Pilot programs were launched in 1992, and all fiscal intermediaries were instructed to make electronic remittance information available in the 835 format in October 1993. At that time, HCFA gave intermediaries and providers warning that in two years, by October 1995, all non-X12 file formats for remittance information would be eliminated. The January 1996 deadline is an extension of the original deadline. But proprietary formats and paper remittance advices have not yet become extinct.

Many providers still rely on paper remittance data despite HCFA's warning that it will be eliminated. Providers print the data from an electronic file and rekey the information into a patient accounting system. Staff turnover, shifting budget priorities, and a reluctance to abandon paper-based processing are a few reasons why many providers have not automated remittance processing functions. Over the next few years, however, many providers will automate remittance processing functions due in part to the proliferation of 835 support services now in the market. In contrast to 1993, when the 835 format first was made available, now there are a variety of independent vendors offering paperless claims processing software or services related to remittance processing. In addition, many claims submission vendors have broadened their product service lines and are providing remittance processing services.

On the payer side, only recently have some of the major Blue Cross Blue Shield and commercial insurance companies adopted the 835 format for commercial claims payment. Many payers will convert to EDI payments in the near future because the economics of electronic claims payment are extremely attractive for payers.

Major clearinghouses do not charge payers to deliver remittance information to providers. Electronic funds transfers cost as little as six cents per transaction as opposed to 60 cents to $1.00 per transaction if the task is done manually and mailed. Why, then, haven't more payers adopted the 835 format? Part of the reason is because too few providers are able to accept EDI payments. In addition, payers face many of the same hurdles providers face in converting to EDI payments: staff turnover, shifting budget priorities, and a reluctance to abandon paper-based processing.

Providers that have not automated remittance processing of Medicare data should do so immediately. Providers should not wait to automate until some unknown point in the future when the industry becomes completely standardized.

Providers should not spend too much time or money analyzing the costs and benefits of automation. The reality is that HCFA eventually will eliminate all paper-based processing, and providers must be prepared for the changeover.

Providers should not labor under the illusion that capitation will eliminate all claims payments soon. Providers should implement a solution that allows them to be paid by many different indemnity payers, including managed care payers. Such a solution will not be wasted even in a predominantly managed care environment because the 835 format will continue to play a role in electronic capitation payments.

Providers should be aggressive in requesting that payers send EDI-based payments. One provider, St. Joseph's Medical Center in Tacoma, Washington, was able to automate 80 percent of its remittance processing volume by aggressively pursuing local payers to obtain electronic remittance data.

For providers still accepting an older proprietary Medicare format, January 1996's deadline represents an opportunity to adopt a newer, better way of doing business.

James J. Moynihan is a principal of McLure-Moynihan, Inc., Shennan Oaks, California. He can be reached at (818) 5013967 or via the Internet at JJMOYNEDI@AOL.COM.