Goodbye electronic connection, hello EDI

Goodbye electronic connection, hello EDI – Electronic Data Interchange

James J. Moynihan

Dozens of books have been written about electronic data interchange (EDI), and many have sections devoted to healthcare EDI. No story has been told more often than that of the American Hospital Supply Corporation (AHS), now Baxter Healthcare. In the late 1970s, AHS pioneered an electronic connection with hospitals (known as ASAP) that reinforced its position as the country’s largest distributor of hospital supplies.

Baxter’s product began as a terminal-based facility for transmitting electronic purchase orders. Over time, it evolved into a PC-based software package. Today, it serves as a gateway for purchase orders and confirmations for Baxter and for many other suppliers that want to receive electronic purchase orders. Harvard Business School case reports have been written about the product and its success.

Time has passed, and the healthcare industry, like so many other industries, has moved into a world of EDI standards. Standards allow all players to enjoy the electronic connectivity that, 10 years ago, only was available through proprietary products such as Baxter’s. Baxter’s competitors can adopt off-the-shelf technology, while Baxter bears the costs of supporting its software products. These products constantly must be updated because of advances in personal computers and operating systems – an expensive and time-consuming process. As providers expand their EDI linkages beyond purchase orders to electronic invoices and electronic vendor payments, Baxter’s executives must ask themselves some important questions: Should Baxter attempt to provide solutions through ASAP? Should its product line be expanded to handle 835 remittance data? How far away from Baxter’s core distribution business should its product line evolve?

Hello EDI

Recently, a number of major healthcare suppliers have made it easier for providers to adopt X12 standards-based EDI. These suppliers have announced their support for an EDI management software package – preset with “trading partner kits” – that can be preconfigured to allow providers to click on an icon and plunge into EDI transactions with any vendor whose icon appears on the screen. This support represents a major shift by the larger suppliers, who throughout the 1980s supported competing proprietary EDI packages.

“We are experiencing a flood of requests from our hospital consumers for ready-made, standard EDI solutions,” said Martha Burge, director of EDI Technologies, Bergen Brunswig, Orange, California. “Hospitals are increasingly sophisticated in their approaches to EDI and are no longer willing to accept a separate proprietary system for each supplier.”

There are some immediate advantages for providers in this “new” arrangement. Obtaining software, already set to the specifications of major trading partners, helps eliminate time spent file testing. In some EDI implementations, employee (or consultant) time spent file testing can amount to thousands of dollars spent resolving errors.

The move away from proprietary solutions is welcome, as are solutions that shorten implementation timeliness. The challenges that remain for providers are two-fold: integration and re-engineering. For example, providers can now receive electronic invoices, but can those invoices be uploaded into an accounts payable system for automated three-way matching? Some hospital information vendors have supported this integration capability for years with the result that uploading EDI data is an insignificant information systems task. Other systems do not support this capability, and integrating EDI data may have to wait until a new software package or a major upgrade of existing software is obtained. At the same time, providers must be willing to reo engineer the accounts payable approval process. Audit controls and procedures must be restructured and employees must be assigned to new tasks.

The major vendors supporting an upgrade from Baxter’s product are sending a clear message to providers. Now is the time to abandon proprietary linkages and adopt standards-based EDI. Nonetheless, in order to really say goodbye to Baxter’s product and hello to EDI, providers will have to do more than switch to a new piece of software. Implementing EDI for major bottom-line results will require integrating systems, retraining employees, and linking all major trading partners.

Perhaps the demise of Baxter’s electronic connection product will prove to be the catalyst for many providers to staff and maintain an “electronic mailroom” that will maintain linkages to payers, suppliers, and other providers. If so, the product will have served its purpose well – both in its lifetime and in its departure.

James J. Moynihan is a principal of McLure, Moynihan & Associates, Sherman Oaks, California. He can be reached at (818) 501-3967 or via the Internet at JJMOYNEDI

COPYRIGHT 1995 Healthcare Financial Management Association

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