Growth of electronic payments driving cost savings in healthcare february'14

Growth of Electronic Payments Driving Cost Savings in Healthcare February, 2014 BLOG POST

How PPACA is Accelerating Growth of Electronic Payments1 US healthcare industry has been transitioning from paper-based processes to electronic transactions for some time now, but the pace has been slower than anticipated by healthcare experts. The Patient Protection and Affordable Care Act (PPACA) is expected to play a major part in helping the industry overcome many of the challenges associated with electronic payments. The Administrative Simplification provision under Section 1104 of the Patient Protection and Affordable Care Act (the Act) intends to improve the standards for electronic transactions mandated by the Health Insurance Portability and Accountability Act (HIPAA).

The intent of this provision which takes effect from January 1, 2014, is to reduce administrative costs by adopting a set of operating rules for each transaction and to create as much uniformity in implementing electronic standards as possible.

The administrative simplification provisions of PPACA have created the necessary buzz for electronic transactions mainly because of the following requirements: • •

Medicare must make 100% of claims payments electronically, both the financial payments and associated data by January 1, 2014 All payers must be able to pay electronically if the provider requests it

Today, almost all healthcare providers have some Medicare patients; hence; they will all effectively have to adopt electronic transactions. Consequently, many in the banking and healthcare industries believe that January 1, 2014 may finally prove the tipping point for electronic payment and data acceptance.

Electronic payments, which currently account for approximately 40% of claim payment volumes, should become the major avenue for all payments.

New Operating Rules2: Industry groups NACHA and CAQH CORE were asked to develop operating rules for electronic transactions based on the 1996 HIPAA standards; Defining these standards/rules is imperative to the development of the market, as the absence of operating rules can result in an environment that is too broad and unstructured to facilitate easy understanding or efficient transactions.

The major rule changes that are affecting providers are extensive. They are as listed below: •

• • •

1 2

The new rules specify how Electronic funds transactions (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 make the payments 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 re-association.

Health plans are required to use common format, flow, and vocabulary in their enrollment forms for EFT and Electronic remittance advice (ERA). Since health plan enrollment forms will be similar, EFT and ERA enrollment for providers will be greatly simplified.

Bank of America – Merrill Lynch Key Bank

How PPACA is Accelerating Growth of Electronic Payments

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• •

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.

Re-association 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, re-association, and standardization issues, PPACA requires that 100% of Medicare claims payments and associated data be made electronically.

Major Savings Associated with Electronic Payments The new PPACA rules should accelerate 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. 20233 EFT as % of category 2023

ERA as % of category

2010

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%

(Projected)

2010

2023

Health plan category

(Projected)

* Weighted average, based on proportion of payments per category

According to projections by the U.S. Department of Health and Human Services, EFT is projected to grow to 84% of all healthcare payments by 2023 from 33% in 2010, while ERA will increase to 82% of all payments from 35% over the same period.

Annual savings of $USD 11 billion if EFT used for 100% of healthcare claim payments4 Between 25 and 40 cents of every healthcare dollar currently consumed by administrative costs5 Nearly 40% of billing and insurance-related (BIR) tasks dedicated to collecting payments6 Billing and insurance-related costs: 10% to 12% of a practice’s annual revenue7

3

Department of Health and Human Services U.S. Healthcare Efficiency Index 5 NACHA, ACH Primer for Healthcare 6 Health Affairs 7 Billing and Insurance-Related (BIR) Costs, 2005 Study 4

How PPACA is Accelerating Growth of Electronic Payments

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