There are good reasons the healthcare industry has taken so long to adopt electronic health records (EHRs): These systems are highly complex and must account for clinicians’ unique workflows—plus, they’re expensive. Organizations clinging to manual, paper-based revenue cycle activities deserve less sympathy than those forging ahead with EHRs.


Revenue cycle processes are, after all, how providers are paid for services. Given the high frequency and volume of revenue cycle transactions, switching from paper to electronic processes can help organizations save a tremendous amount of time and money. Many healthcare organizations today are still paid via paper checks, even though they could be saving a significant amount of money with electronic payment transactions. 

Consider how inefficient and costly healthcare billing is today: According to a study published in Health Affairs, inefficient billing accounts for 10 to 15 percent or more of each healthcare dollar spent (Blanchfield, B., et al., “Saving Billions of Dollars—And Physicians’ Time—By Streamlining Billing Practices,” April 2010). And of the $800 billion that the Centers for Medicare & Medicaid Services (CMS) says that the healthcare industry wastes in redundant or ineffective practices, a third or more can be attributed to paper-based transactions. 

Healthcare payers and providers can eliminate a majority of these costs simply by implementing an electronic claims reimbursement and remittance delivery strategy. Unfortunately, we have a long way to go. According to the U.S. Healthcare Efficiency Index, a forum that monitors business efficiency in health care that is sponsored by the Council for Affordable Quality Healthcare, although 46 percent of remittances are automated, only 10 percent of payments are electronic (National Progress Report on Healthcare Efficiency, 2010).

Moving in the Right Direction

In a previous column, I mentioned that the healthcare industry is making progress toward eliminating paper from the remittance process, spurred by provisions in the Affordable Care Act (ACA) that call for the adoption of electronic funds transfer (EFT) and electronic remittance advice (ERA) operating rules and technical standards (“Electronic Remissions: What’s the Holdup?” hfm, February 2013).

The law further states that health plans must have the capability to transmit EFT and ERA files by Jan.1, 2014, to any provider organization that requests electronic transactions. But providers are not required to accept electronic payments from health plans, with one caveat: Regulations state that by Jan. 1, 2014, all Medicare payments must be conducted via EFT.

Electronic Payment Options

Electronic payments can take many forms. Among them, providers and payers can take advantage of options such as automated clearinghouses (ACHs), image cash letter (ICL) technology, bank lock boxes, and credit card networks. The only requirement is that electronic transactions comply with HIPAA standard ASC X12 v5010 835.

ACHs. Most healthcare transactions take place via an ACH electronic payment system based on Cash Concentration and Disbursement Plus (CCD+) or Corporate Trade Exchange (CTX) standards. Like other transaction mediums, ACHs will do away with paper checks and minimize personnel and other administrative requirements. Providers also will benefit from the speed at which ACH transactions are settled—typically no more than a day after the file is received. ACHs also allow health plans to transmit additional information with the payment. 

ACH payments can pose administrative challenges—namely, healthcare organizations will be required to enroll with each payer and actively manage the relationship, which is a time- and resource-consuming proposition. Third-party clearinghouses can streamline this process for providers, however, enabling the healthcare organization to enroll once with the clearinghouse, yet receive electronic claims payments from multiple payers.

Like most electronic systems, security is paramount in the ACH environment. Networks and applications should include advanced security features with multiple safeguards, including passwords and encryption protocols. And although providers will incur start-up costs with the technology that allows them to receive or transmit ACH files, over the long run, these transactions will be the least expensive. 

ICL technology. Another electronic payment option takes the form of an ICL, a platform used to transmit check data, including images, allowing the payment to be cleared electronically. When a provider receives a check, it is scanned, and an ICL is electronically transmitted to the bank for clearing. Using their existing imaging infrastructure, healthcare organizations can then convert a check to an image replacement document (IRD), or “substitute check,” which reproduces both sides of the original check and is its legal equivalent.

In 2004, the Check Clearing for the 21st Century Act (Check 21) legitimized the use of IRDs, enabling banks to handle more checks electronically, speeding processing times. With ICLs, healthcare organizations that wish to continue receiving check payments are afforded earlier access to funds and the convenience of remote deposits. ICLs also streamline the deposit process; expedite funds availability; and reduce the costs, time, and risks involved with transporting paper checks to the bank. The disadvantage of using an ICL platform is that, if a check was tampered with and the only documentation is the image, it is more difficult to identify or prove that it was fraudulently altered.

Bank lock boxes. Bank lock-box services go hand-in-hand with ICLs, accelerating funds availability by depositing electronic payments into the clearing mechanism more quickly. Currently, about 30 to 40 percent of all providers are using bank lock boxes, which hold both paper and electronic payments. Paper payments are sent directly to the lock box and are scanned into electronic files, which are accessible via the Internet so providers can monitor their contents. In these instances, healthcare organizations do not have the administrative burden of handling paper checks, but there are still systematic costs associated with physically printing and mailing paper-based documents. And depending on the bank, a lock-box solution can be quite costly, with both monthly and per-item fees charged to the provider. 

Credit card networks. Healthcare organizations also can use credit card networks, or “rails,” to receive payments. Common in other industries, business-to-business, credit-based transactions are a convenient way to leverage a technology platform that already exists within the organization. Credit-card-based payments can be reassociated with a remittance just as easily as an ACH transaction, with the added benefit that the provider need only establish a single account with the credit card merchant rather than separate accounts for each health plan, as is necessary in the ACH environment. These transactions also are more “real-time” in nature, which means they can more easily fit into the future paradigm of real-time adjudication and payment for submitted claims.

A Compulsory Capability for the Future

Regardless of your opinion of the ACA, one thing is certain: The EFT/ERA mandates are good for the industry. These mandates will eliminate costs and speed payments, leading to a healthier revenue cycle for providers. As healthcare organizations increase their technical sophistication, they will be even better positioned to take the next step toward widespread electronic remittance and payment solutions. More tightly integrated provider networks, including accountable care organizations and medical homes, will become commonplace under reform and will create even more complex combined transactions. Automated payments and corresponding remittances will simplify the process of managing these transactions

When fully implemented, electronic payment solutions will provide one more avenue of connectivity between provider organizations and health plans, both of which desire to achieve greater transparency in the claims management and remittance processes. Electronic payment technologies will help ensure accuracy and reduce incorrect or unwarranted payments, including those due to fraud and abuse. By digitizing the disbursements, healthcare providers will receive payments more quickly, reaping the benefits of improved cash flow.

As providers evaluate new avenues for achieving administrative efficiencies and financial benefits, electronic payment systems are rising to the top of the list. ACHs, ICLs, and credit card network transactions are just a few of the various ways providers can transition to electronic processes from slower, more costly paper-based processes and thereby reap the benefits of reduced costs, quicker payment processing times, and greater staff efficiency. It may not be easy, but making the transition is a necessary, and worthy, effort. 

Tom Dean is senior vice president of financial services, Emdeon, Nashville, Tenn.

Publication Date: Wednesday, May 01, 2013

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