EDIBANX: a new EDI payment resource - electronic data interchange

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

Over the last few years, some banks involved in electronic data interchange (EDI) have created a new EDI payment resource to meet needs not being met by traditional automated clearinghouse (ACH) payment networks. The new resource - EDIBANX - is a nonprofit network owned by participating banks and operated by the Chicago Clearinghouse Association. EDIBANX is a banking industry solution that may correct several shortcomings inherent in doing business with ACH payment networks and could become a resource that helps providers implement financial EDI.

ACH payment networks are attractive because all banks can accept ACH payments, and origination and receipt cost less than 10 cents per transaction. These features have made ACH a great mechanism for the direct deposit of social security and payroll payments. But a big problem with ACH payment networks is that payers cannot receive confirmation from payees that funds have been received. In addition, payers themselves do not have a proof of payment. (In a paper-based environment, a check provides proof of payment.) Some payers are delaying the adoption of electronic claims payment until an electronic proof of payment is available.

EDIBANX is designed to the needs for confirmation and proof of payment. Participating banks in the network all are EDI trading partners. Each day, banks that originate EDI payments receive confirmations of receipt from banks that receive payments. Each participating bank also performs a daily net settlement for all transactions processed through EDIBANX. This settlement finalizes all transactions. By confirming payments and offering proof of payment, EDIBANX offers electronic payments users services that are common in other EDI transaction exchanges.

In addition to solving problems related to payment confirmation and proof of payment, the EDIBANX network has abandoned standard formats that the banking industry adopted years ago. EDIBANX is the only payment network that supports original American National Standards Institute (ANSI) X12 formats. This support affords EDIBANX participants two advantages. First, the EDIBANX network eliminates the need for originating organizations or their banks to translate X12 payment orders into National Automated Clearinghouse Association (NACHA) formats, and for receiving banks to translate NACHA formats back into X12. Second, the EDIBANX network does not require the splitting of large files. (NACHA formats contain file size restrictions that might require large remittance files to be split.) Healthcare providers receive very large remittance files from some payers and send large remittance files to their primary distributors.

The cost implications of the EDIBANX use of X12 may vary from one bank to another. Historically, many banks have charged more to translate X12 payment orders into NACHA formats. Such charges have created a situation in which an economic incentive exists for a payer to transmit files in NACHA formats rather than supporting EDI standards. If a payer's bank uses EDIBANX, the extra work required to translate files into NACHA formats is eliminated, and prices should come down. Prices also may come down for EDI payments because interchange fees charged by regional ACHs will be eliminated. The elimination of these charges might make some major payers more open to using the banking system to transmit remittance information.

Treasury management professionals should investigate using EDIBANX for electronic vendor payments, patient refunds, and other EDI payments. Payers also may find that EDIBANX eliminates some of their objections to adopting electronic claim payments. This would result in more EDI and electronic funds transfer payments for providers and a continued reduction in the labor required to post and close accounts receivable.

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@AOL.COM.