First steps in managed care EDI - electronic data interchange

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

Many experts agree that the future of the healthcare industry lies in managed care. But does the future of healthcare electronic data interchange (EDI) lie in managed care transactions? The question is difficult to answer because little information exists about the benefits of EDI for managed care and EDI-related standards are relatively new.

The first EDI standard designed solely for managed care providers was Health Care Service Review Information (278), released in December 1994. Several years in the making, the 278 benefitted from input from managed care industry professionals, many of whom had X12 standards development experience. Upon release, experts thought the standard was likely to meet the business needs of managed care EDI. But has it?

Oakwood Healthcare System - a multihospital regional health network based in southeastern Michigan - was one of the first 278 users. Oakwood serves communities in a 500-square mile area with seven hospitals and more than 30 speciality medical centers.

Several years ago, Oakwood formed a managed care services support (MCSS) team to coordinate the referral and authorization process among payers, hospitals, and physicians. First, MCSS team members standardized Oakwood's business process. Primary care physicians who refer patients to other facilities were asked to fill out a utilization data log form developed by the MCSS team and to fax it to MCSS staff for review. MCSS team members maintain the various referral and authorization rules from contracted payers and review each authorization, assign referral numbers and, when necessary, obtain prior authorization from the payer. Authorization and referral information then is sent to payers, some of whom generate and mail referral documents to patients, primary care physicians, and referral providers.

While the MCSS team approach helped effectively manage the referral process, problems still remained. As many as five individuals could be involved in entering data for one referral, creating opportunities for transcription errors. The referral process sometimes took as many as 10 days before the information was available on the payers' systems, and physicians who has access to filing ended up submitting claims before authorization data reached payers. Claims submitted electronically were being denied, and rebilling tasks were annoying and time consuming.

The MCSS team's solution to these problems was to adopt the 278 to reduce the amount of time needed to get information into payers' systems. Referral information from Oakwood's managed care tracking system is sent to a claim submission vendor to reformat data into the 278. The 278 data then are transmitted to an EDI transaction network, which acts as the receiving electronic mailbox provider for SelectCare, a Detroit-area health maintenance organization (HMO).

"The key benefit was EDI's ability to reduce the time it took to get information to the HMO," said Judi Policicchio, director of the MCSS department at Oakwood. "With the use of the 278, SelectCare receives and processes information in three days as compared to up to 10 days in a paper-based environment. With a faster process, our customers - primary care physicians, specialists, hospitals, and patients - no longer have to deal with denied claims because referral information was not available. Fewer hands reduce the opportunity for error, and increased customer satisfaction is the result. Our next step is to use the 278 to develop referral EDI processes with others that we contract with. In fact, we already have gone 'live' with a second HMO payer," she said.

Meanwhile, SelectCare's receipt of the 278 is consistent with how the organization does business. SelectCare is a claims payer owned by five hospital organizations in the Detroit area. It has both HMO and preferred provider organization operations and receives electronic claims. SelectCare supports several EDI transaction sets and plans to add others soon. The 278 fits well with its overall goal of supporting a range of X12 transactions that automate provider-payer exchanges.

The successful implementation of the 278 by a regional hospital, a claims submission vendor, a claims clearinghouse, and an HMO seems to prove that the 278 was developed well. Oakwood pays less than the cost of a postage stamp for each transaction using the 278. The low cost of transactions may suggest that use of the 278 will spread.

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 JJMOYNEDI[at]AOL.COM.