EDI savvy software supports accounts payable and accounts receivable - electronic data interchange

Healthcare Financial Management, April, 1998 by James J. Moynihan

As EDI becomes more widespread and legislation such as the Health Insurance Portability and Accountability Act of 1996 mandates support of EDI standards, providers should ensure that their accounts payable and accounts receivable software is "EDI savvy." Three key features are needed to make EDI software "savvy" - interface support, integration support, and compliance with ANSI ASC X12 standards.

Interface Support

Rather than assume that all information is either key-entered or extracted by printing, EDI savvy software provides for data to be uploaded without key entry or downloaded without paper printing. Examples of needed interfaces are fairly obvious. Accounts payable software should be able to upload invoices received electronically, for example, as well as produce electronic output files for EDI payments. Patient accounting software should be able to provide an electronic file for outgoing claims and upload incoming electronic remittance data. The availability of interfaces to support EDI exchanges is the most important requirement of EDI savvy software.

The number of interfaces available to support automated processing should be a key point in software evaluation. A provider's overall EDI strategy should determine the number of interfaces needed. The EDI strategy of a single-specialty medical group will differ substantially from that of a multihospital health system with its own HMO. The key determinants are what EDI transactions can be obtained or sent to trading partners today or in the near future and what transactions will be mandated by the Health Insurance Act and relevant state legislation.

Integration Support

The next requirement for EDI savvy software is the automated processing of information uploaded in an interface file. Uploading information into a system eliminates data-entry labor, but other information processing work should be automated as well. For example, it is one thing to upload electronic invoices into an accounts payable system and another to automate the traditional three-way matching of purchase order, receiving notice, and invoice. Automated three-way matching is a mature accounts payable application in many industries and should be a system requirement of healthcare financial managers as well.

The same logic applies to patient accounting software. The EDI remittance standard Health Care Claim Payment/Advice (835) was adopted in 1992 and broadly implemented by Medicare. Autoposting of electronic remittance data should be included in a patient accounting system. Payers increasingly will be supporting Health Insurance Act requirements to send providers EDI claims status, eligibility, and remittance data. Forward-looking providers require automated processing support of Health Insurance Act-mandated transactions from their software vendors. Those vendors will support automated processing of EDI data only when the provider requests for information and requests for proposals specify this requirement. If financial managers make EDI support a business requirement, vendors will meet market requirements.

ANSI ASC X12 Compliance

In the manufacturing and distribution industries, the adoption of EDI has grown to the point where software vendors have built in ANSI ASC X12 data-element values. When an invoice is not being paid in full, for example, the reason is taken from a list of adjustment reason codes in the X12 data dictionary.

The same requirement could easily be applied to healthcare accounts payable processing because many distributors support receipt of EDI payments. For patient accounting, the advent of Health Insurance Act-mandated EDI standards requires that HCFA and other claims payers support X12 data-element values. Providers need patient accounting software that can both send and receive data content that is part of the X12 data dictionary. This need represents a change from today's requirement to support HCFA 1500 or UB-92 data elements.

Data elements found only in the X12 data dictionary will be required for payers and providers to be compliant with Health Insurance Act mandates. The standards and their implementation guidelines are available on the Internet (www.wpcedi.com).

Healthcare financial managers should require their software vendors to be knowledgeable about the use of these standards and incorporate them into the latest versions of their software.

James J. Moynihan, MBA, is a principal, McLure-Moynihan,Inc., Agoura Hills, California, and a member of HFMA's Southern California Chapter. His phone number is (818)706-3882, and his e-mail address is jjmoynedi@aol.com.