While healthcare has been transitioning from paper-based processes to electronic transactions for years, the pace has been far slower than expected. That’s all about to change, with the landmark Patient Protection and Affordable Care Act (PPACA) playing a leading role in moving the industry to greater reliance on electronic payment processing. New operating rules governing healthcare transactions take effect on January 1, 2014, and these will provide healthcare providers with unprecedented opportunities to improve efficiency and streamline billing and insurance-related (BIR) administration. To take full advantage of the benefits, it’s important that healthcare providers understand the changes taking place and the options available — and then take action.
Electronic Payments: Opportunities and Challenges
The benefits of electronic transactions for healthcare payments — reduced operating costs, efficient processing, enhanced reliability, and strengthened security — are widely agreed upon. While the advantages of moving into the electronic age are understood, industry usage remains far below its potential: electronic funds transactions (EFT) represent only 33% of healthcare claim payments, while electronic remittance advice (ERA) notices account for slightly more than one-third of total remittances.1 The lack of universal operating rules has been a major roadblock in the move to more efficient and less paper-based healthcare payments. One major challenge in particular has been reassociation. In the past, it has been difficult for providers to match an Automated Clearing House (ACH) payment with its associated ERA. That’s especially problematic when issuance of an EFT and its ERA could be separated by weeks. Another problem area has been enrollment. Because health plans used different types of information and varying formats, providers often found electronic payment enrollment overly complicated and labor-intensive.
The New Operating Rules
PPACA is designed to deal with these and other obstacles to automation. Specifically, two industry groups — NACHA6 and CAQH® CORE®7 — were named to author EFT and ERA operating rules for Health Insurance Portability and Accountability Act (HIPAA) transactions. The goal: to create as much standardization and consistency in healthcare electronic transactions as possible. The rules have now been established, with a target date for implementation of January 1, 2014. The major changes affecting providers are sweeping:
• The new rules specify how EFT transactions should be executed in the ACH network, providing greater standardization and consistency throughout the industry. (Health plans are not required to send an EFT through the ACH network — the rules do not prohibit the use of other EFT payment options like virtual cards and wire transfers.)
• If a provider requests healthcare claim payments electronically, health plans must provide it using the new EFT standards.
• By establishing the maximum set of standard data elements that the health plans will have, the rules ensure that providers will have the proper data needed for automated reassociation.
• Health plans are required to use common format, flow, and vocabulary in their enrollment forms for EFT and ERA. Since health plan enrollment forms will be similar, EFT and ERA enrollment for providers will be greatly simplified.
• The rules place limits on codes used for rejections, making it easier for providers to understand the reasons for a health plan’s rejection or adjustment of a claim payment.
• Reassociation requirements set a narrow range of plus or minus three days between transmission of the EFT and the ERA — a significant improvement over current practices.
In addition to addressing enrollment, reassociation, and standardization issues, PPACA requires that 100% of Medicare claims payments and associated data be made electronically. Providers with even one Medicare patient must be able to effect electronic transactions — a powerful inducement for them to make the move to EFT/ERA.
An Electronic Growth Spurt on the Horizon The new PPACA rules should speed the shift away from paper-based, manual processes, with substantial increases in electronic payments projected by 2023.
Health Plan EFT and ERA Usage: 2010 vs. 2023 EFT as % of category ERA as % of category Health plan category 2010 2023 (Projected) 2010 2023 (Projected) Medicare 76% 98% 65% 90% Medicaid, CHIP, VHA, and Other Federal, State, and Local Governmental Payers 18% 79% 37% 80% Commercial Health Plans 15% 79% 27% 75% Entire Industry 33%* 84%* 35%* 82%* * Weighted average, based on proportion of payments per category. Source: Federal Register, Vol. 77, No. 155, August 10, 2012, Department of Health and Human Services The Benefits of Moving to EFT and ERA The new PPACA rules should speed the shift from paper-based, manual processes to electronic healthcare payments and administration, offering a number of benefits to providers, including: Faster payments and improved cash flow Providers may achieve lower accounts receivable days outstanding and quicker accounts receivable updates in an electronic transactions environment. In addition, automatic deposit of funds speeds up cash availability and further improves cash flow. Improved claims administration Electronic transactions systems give providers better tools to manage claims denials and to make quicker secondary insurance filings. Better risk management With electronic transactions, there is no risk of paper checks being lost or stolen. Because organizations are less dependent on paper, they can strengthen contingency planning and disaster recovery programs. More efficient processing Automated data entry and reporting in an electronic environment can improve accuracy while lowering processing costs. Enhanced company service levels Because providers spend less time on back-office functions, they have more time to spend with clients. According to projections by the U.S. Department of Health and Human Services, EFT is projected to grow from 33% of all healthcare payments in 2010 to 84% by 2023, while ERA will increase from 35% to 82% of all payments over the same period. 4 Healthcare Insights
Preparing for the New PPACA Electronic Payments Environment Going Electronic:
Six Obstacles to Overcome Some healthcare providers may feel overwhelmed with the challenge of moving from familiar paper-based processing to electronic transactions. Fortunately, the obstacles are ones that can be overcome.
1. Lack of awareness One of the biggest challenges is lack of awareness. Providers need to understand the changes coming and then get enough information to make decisions. Working closely with a bank or vendor will help a provider avoid the learning curve and better prepare for the new rules. “Getting prepared for the new rules will be tougher for providers that don’t have a bank relationship,” said Gwendolyn Lohse of CAQH. “Those providers should talk with other healthcare providers, industry associations, and health plans — especially those with whom the provider does a lot of business.” Related to lack of provider awareness is uncertainty about how each health plan is preparing for the new rules. The concern over progress toward being ready on January 1, 2014 is greatest for small and medium-size plans. “The large health plans with whom we work are already paying electronically and we expect the implementation of the new rules will go smoothly with them,” said Arletta Samulak, Director of Patient Accounting at Canton-Potsdam Hospital in New York. “However, a handful of insurers haven’t been able to process claims electronically and we’re anxious about their progress in meeting the new requirements.”
2. Enrollment volume Many providers believe they’ll be inundated with EFT and ERA enrollment, but it may be easier to manage than they think. As a rule, 20% of a provider’s health plans will represent 80% of their claims payments. By moving that 20% to EFT first, they can improve cash flow and reduce the number of transactions that are manually processed by check or cards. One of the major barriers identified by providers to accepting EFT transactions is the enrollment process. The new rules standardize the format and information that can be included in an EFT enrollment form and require that one electronic enrollment option be made available. There are also databases being established to allow providers to input the EFT enrollment information in one location and designate which health plans can receive or access the information. These initiatives will help reduce the time it takes providers to enroll for EFT claims payments. “Learning a new way to process healthcare payments may seem challenging to providers who are using manual and paper-based methods, but healthcare providers don’t have to make the transition all by themselves: financial institutions, vendors, and industry associations can help make the process of converting to electronic payment systems go smoothly.” — Priscilla Holland, AAP, CCM, Senior Director of Healthcare Payments, NACHA 5 Healthcare Insights Preparing for the New PPACA Electronic Payments
3. Expense “Occasionally we’ll hear that moving to electronic payments is just too expensive,” said Priscilla Holland, AAP, CCM, Senior Director of Healthcare Payments, NACHA. “But it’s too expensive if a provider doesn’t make the transition. EFT/ERA provides tremendous opportunities to ramp up efficiency and lower operating costs.” The healthcare industry is moving to electronic payments at an accelerated pace, and the consensus is that healthcare payments will be predominantly electronic within the next decade. Frankly, it’s an investment that providers need to make to be in the business. If a provider doesn’t move to EFT now, there are only a few alternatives: sell the practice, merge with someone who has already moved to electronic processing, or retire.
4. Concern about giving out banking information If there’s concern about controlling access to account information, providers can check with their financial institutions to see if Universal Payment Identification Codes® (UPICs) or a similar service is offered. UPICs are unique account identifiers issued by financial institutions that allow organizations to receive ACH credit payments without divulging confidential banking information. The UPIC is used in place of an account number in EFT enrollment forms and prevents delivery of ACH debits to the account holder.
5. Not understanding the benefits The real challenge to a provider is not taking advantage of automation. Most healthcare providers still collect and deposit paper checks and manually post and reconcile claim payments in their accounting systems. With automation, time and labor spent on payment collection can be sharply decreased. Accounts receivable can be updated faster and more accurately, secondary insurance claims can be filed sooner, and checks aren’t waiting to be deposited, to name just a few advantages.
6. Need for training Converting from manual, paper-based processing to electronic payments involves training staff in new procedures. Administrative personnel will need to learn processes different from the ones they have used in the past. “For providers who are new to electronic payments, it’s important to train billing and insurance staff in the new system, including how to balance the files and address exceptions,” said Samulak of Canton-Potsdam Hospital. “It takes some time, but the new rules are moving the industry towards simplification and standardization. The payoff in streamlining the work flow is tremendous.”