The 'other' payment standard - Payment Order Remittance Advice 820 - Electronic Data Interchange

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

The Health Care Claim Payment standard (835) has become the most widely supported EDI payment standard in the healthcare industry. However, healthcare financial managers should consider using another payment standard--the Payment Order Remittance Advice (820)--traditionally used in industries other than health care, in their healthcare organizations' electronic data interchange (EDI) plans.

Like the 835, the 820 can be used to initiate payments and send remittance information. The portion of the two standards that concerns payment and banking information is identical. The 820 is older than the 835 and originally was designed for paying invoices generated by manufacturing or distribution companies. Because healthcare reimbursement seems so different from traditional invoice-based payments, the 835 was created in 1991 to meet the specific needs of healthcare organizations. As various industries--each with a different payment need--have sought an EDI standard solution, the developers of the 820 have altered the standard to meet their needs. These alterations allow a payer to ignore the nonrelevant portions of the standard and send only those portions that are relevant.

For example, the pension industry needed a way to process funds transfers related to payroll deductions for 401 (k) plans offered by many employers. During any one pay period, the employer needed to make deductions from employee paychecks and allocate the deductions to various funds, such as bond funds, stock funds, or loan repayment funds. To meet the needs of employers and pension administrators adopting EDI for payments, the pension industry created a "pension loop" within the 820.

Other alterations to the 820 followed. The effort to enforce and streamline the collection of child support payments resulted in the creation of a child support payment portion in the standard. Another portion of the 820 was altered to allow employers to submit tax payments electronically. In addition, the growth in consumer electronic bill payment is increasing the flow of EDI payments. Consumers now make greater use of financial EDI than do many organizations.

Where health care fits in

Several years ago, only a handful of trading partners supported receipt of EDI payments. Electronic funds transfer (EFT) was an isolated transaction, often limited to direct deposit of payroll checks. But now, many trading partners--utility companies, tax authorities, benefit administrators and healthcare organizations--can receive EFT and EDI payments.

Results of a recent survey conducted by Kaiser Permanente of Southern California indicated that many healthcare industry vendors already accept EFT payments. Kaiser questioned 266 vendors about their EDI capabilities and found that 38 percent of respondents send or receive EFT payments, and 50 percent plan to do so. The survey also revealed that 57 percent of responding suppliers use EDI-capable banks for payment activities. The two most common electronic payment options in use among the vendors surveyed are receipt of EFT payments and electronic remittance information through banks and receipt of EFT payments and faxed remittance advices.

Increased capabilities of the 820 and the growth in vendors' electronic capabilities make the standard attractive for healthcare systems to adopt.

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