James J. Moynihan

Now that you've filed a HIPAA transaction standards compliance plan with HHS and are awaiting implementation of your HIPAA claims solution, you may be wondering what's next. Certainly every provider should have a conscious strategy for transmission of HIPAA-compliant healthcare claims. However, when choosing among options, it's important to recognize that not all solutions are the same. Some solutions provide solely for compliance while others also offer lower transaction costs and the potential for improved cash flow.

Option One. The first option is HIPAA compliance without a billing systems upgrade. For some providers, particularly small medical practices, receiving a HIPAA-compliant systems upgrade from their practice management vendors that supports the HIPAA 837 claim standard is cost-prohibitive. Some of these upgrade charges are equivalent to the cost of a new system. In this situation, seeking clearinghouse solutions for less-expensive transaction-based pricing may be the best option. If you choose this option, you should get reports in 2003 from the clearinghouse that it has successfully tested claims submission with your key health plans.

Option Two. The second option is compliance based on a new output file. Some patient accounting system vendors are promising a systems upgrade that will generate a proprietary output file with the data elements needed to populate a HIPAA-compliant claim. This file can then be sent directly to the provider's claims clearinghouse to have them reformat it into an 837 standard for transmission to different health plans.
If you choose this option, you should require a commitment from your systems vendor that the output file contain all of the detail required for an 837 standard claim. Also, similar commitments are needed from the clearinghouse that receipt and mapping from a proprietary file can be accomplished in time to meet HIPAA deadlines.

Some providers might consider taking this option to the next level by developing the capability to turn the output file into an 837 standard claim for transmission to the clearinghouse and/or directly to some health plans. This option would make sense if the provider determines that the potential for lower operating costs is worth the additional work to support direct connections at some point.

Option Three. A third option is compliance based on a new, enhanced output file and system functionality. Two HIPAA standard transactions use the X12 837 standard-the healthcare claim and the coordination of benefits (COB) transactions.

To fully support these transactions, a patient accounting system vendor would have to provide an output file that contains more data than are found on a CMS 1500 or UB92 form. The COB transaction is the equivalent of a claim form plus the remittance or explanation of benefits (EOB) data needed by a secondary payer to pay a claim. A more robust implementation of the HIPAA-compliant 837 standard would include the data needed for a provider to automate secondary billing. The secondary bill output file would contain the claim data plus the EOB data from the primary payer. System vendors supporting the COB transaction would have to support additional integration of EDI messaging to capture and use incoming electronic remittance data in the X12 835 HIPAA-compliant standard. Incoming 835 electronic remittance advice data would first be used to automate posting and closing of accounts receivable. When that task is completed, the system would use the same 835 data in the generation of an 837 secondary claim.

Providers that have systems support for automated secondary billing can achieve more than compliance; they often can accelerate cash flow and reduce write-offs because staff do not need to photocopy remittance advices and attach the copies to new bills. Many providers never bother to file a claim for amounts that do not pass some minimum dollar threshold. When provider systems support the creation of electronic COB claims, they can complete tasks for pennies that once cost dollars in a manual environment.


Providers can achieve HIPAA compliance with varying degrees of assistance from their patient accounting system and clearinghouse vendors. When considering your options, it's important to weigh investment versus potential for long-term financial gains. Providers can save transaction costs by choosing a solution with the capability to send claims directly to payers. They also can lower write-offs and increase cash flow by supporting both the healthcare claim and COB HIPAA transactions that use the 837 standard. The benefits of this option thus go beyond mere compliance to more effective use of EDI.

James J. Moynihan is a principal, McLure-Moynihan, Inc., Agoura Hills, California, and a member of HFMA's Southern California Chapter. His e-mail address is jim.moynihan@mmiec.com.

Publication Date: Wednesday, January 01, 2003

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