A dynamic era ended in 2011 when NASA docked the space shuttle program for good.


After more than three decades of launching men and women into orbit, the federal government’s manned space program is on hiatus until NASA scientists roll out the next generation of spacecraft. Similarly, the healthcare industry is exploring innovative vehicles to reach new horizons.

It’s no joke: The amount of paper the healthcare industry burns through each year for documentation and other processes, if stacked, would reach 60 miles above our heads. The healthcare industry moves more than $1 trillion in paper-based payments alone each year. Consider the enormous expenses associated with paper-based claims payments and remittance advice, including the cost of stock, printing and postage, and the resources that manual payment-processing activities require—from accounts receivable posting to bank deposits—and it becomes clear that health care is in desperate need of a new solution.

The federal government actually imposed an intervention in 1996, mandating electronic remissions with the passage of HIPAA. However, HIPAA has yet to deliver on its promise to strip costs from the system through standard electronic payments. So now we find ourselves repeating the words “administrative simplification”—only this time, these words are being uttered in conjunction with the Affordable Care Act (ACA). Among other things, the ACA requires the U.S. Department of Health and Human Services (HHS) to adopt a set of operating rules and standards for electronic funds transfer (EFT) and electronic remittance advice (ERA).

A Look at the Mandate

Let’s set the record straight about the new requirements. They do not force commercial payers to distribute claims payments electronically. They do, however, require all commercial health plans to adopt EFT and ERA operating and standards rules by Jan. 1, 2014, and certify that they have the ability to facilitate these transactions should a provider request an electronic remittance.

In addition, all payments under Medicare must be submitted by EFT beginning in January 2014, which will likely spur both payers and providers to move ahead with adoption of the electronic process to streamline claim payment receipt. Failure by payers to certify that their data and information systems are in compliance with these standards and operating rules will result in financial penalties for health plans.

Providers are not required by the ACA to accept electronic payments. However, the law includes provisions that allow states to write more stringent legislation covering electronic transactions. The state of Ohio already has a law on the books that exceeds the national mandate: If a healthcare provider submits a claim electronically, the payer has the right to electronically settle the claim, and the provider cannot refuse the transaction.

Operational and Technical Challenges

In January 2012, HHS issued an interim final rule that specifies new standards for EFT and ERA transmissions. The announcement was highly touted by HHS Secretary Kathleen Sebelius, who said that electronic payments would reduce administrative costs by as much as $4.5 billion over the next decade. Based on input from a cross-functional work group of industry experts convened by the Council for Affordable Quality Healthcare and National Automated Clearinghouse Association—The Electronic Payments Association, the rules define the what and how of EFTs and ERAs. The panel’s goal was to propose regulations that would address specific industry pain points that could become barriers to EFT acceptance. HHS has recently communicated that it is inclined to adopt the proposed operating rules and standards for EFT and ERA without any modification.

Among the operational requirements, providers must separately enroll for EFT and ERA with each health plan they accept. The challenge, of course, is in managing all the enrollment forms: Large physician groups and hospitals may have hundreds of payer relationships, with each group requesting different information. The interim final rule attempts to ease the potential administrative burden by creating a standard EFT/ERA enrollment data element set with master templates for all health plans to adopt.

The rules also address the problem that arises when health plans send the EFT and ERA separately: Providers find it difficult, if not impossible, to match the bill with the corresponding payment due to incorrect, missing, or unavailable reassociation data. New operating procedures require health plans to use a Reassociation Trace Number (TRN) that automatically matches the two transmissions. Additionally, the rules address a common complaint by providers that there is often too much time between the receipt of the ERA and the availability of funds. Now, health plans have a maximum of three days to send payment after an ERA has been delivered.

In addition, the requirements attempt to resolve data integrity issues related to claim adjustment reason code/remittance advice reason codes (CARC/RARC) sent from health plans. The current variability in CARCs and RARCs from one payer to the next often renders providers unable to automatically post these adjustments or accurately follow up on claim denials. Like the other directives, health plans will be required to follow a certain set of CARC and RARC code sets.

Most payments will be facilitated through an automated clearinghouse (ACH) electronic payment system based on the Cash Concentration and Disbursement Plus (CCD+) standards. EFT/ERA TRN will be achieved by comparing data from three fields within the CCD+. In addition, the rule requires health plans to tell providers to request the TRN data elements when interfacing with their financial institutions. However, health plans can send the funds electronically via any method a provider desires, such as a wire transfer or a credit card rail. Regardless of how the funds are transmitted to a bank, all transactions must comply with HIPAA standard ASC X12 v5010 835.

At the Tipping Point

The healthcare industry has been slow to adopt EFT for a variety of reasons. First, it has long lacked complete, detailed rules and standards. This created many operational disparities between providers and payers. Technology for electronic remissions also lacked consistency, making it difficult for transactional systems to interoperate. Finally—and ironically—healthcare providers have been daunted by the administrative burdens that come with managing hundreds of EFT relationships.

But these challenges don’t outweigh the projected benefits of EFT. In addition to eliminating costs associated with printing and manually depositing checks, electronic transactions will help control fraud and improve financial forecasting. A 2010 survey published by the Association for Financial Professionals reported that 90 percent of organizations that experienced payment fraud in 2008 were victims of paper-check schemes, while only 7 percent of organizations were victims of EFT fraud. Forty percent of respondents reported improved cash forecasting as a result of EFT

These barriers are quickly coming down. But we still have a long way to go. With reform-mandated changes on the horizon, and both providers and payers demonstrating greater levels of technical sophistication, health care is poised to take the next step toward electronic remittance and payment acceptance. 

Tom Dean is senior vice president of financial services, Emdeon, Nashville, Tenn. (tdean@emdeon.com)

Publication Date: Friday, February 01, 2013

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