Providers need to prepare for HIPAA-compliant payments – Digital Perspectives – Health Insurance Portability and Accountability Act

Providers need to prepare for HIPAA-compliant payments – Digital Perspectives – Health Insurance Portability and Accountability Act – Brief Article

James J. Moynihan

The Health Insurance Portability and Accountability Act (HIPAA) final transaction and code-set standards require payers with annual revenues greater than $5 million to support electronic claims processing with standard transactions by October 2002. (a) Medicare fiscal intermediaries and carriers must be ready for transaction testing by January 2002. They and other carriers will be implementing mandated transactions throughout the year. Each of the nine mandated EDI transaction sets is distinct, and each has unique business and system issues that must be addressed for successful implementation.

Healthcare financial managers should be taking advantage of the opportunities afforded by HIPAA by planning their strategies for converting from paper-based to electronic transactions. Of primary importance is having a plan for receipt of HIPAA-compliant electronic claims payments. Electronic claims payments enable providers to streamline and automate operations by eliminating manual check processing and by receiving and processing electronic remittance information to automate posting and closing of patient accounts.

By the fall of 2002, fiscal intermediaries and carriers for the Centers for Medicare and Medicaid Services (CMS) will convert from the current version of the Health Care Claim Payment/Advice (835) standard to the HIPAA-compliant version. Almost all hospitals receive the older version of the 835 today and must convert from the old version in a timely organized manner in 2002. Although upgrading software to meet HIPAA compliance requirements is important, providers also need to revise their processing procedures. Forward-thinking providers in 2002 will plan for electronic claims payment from many payers, not just from Medicare. Few, if any providers today have the banking, software, and business-office procedures needed to manage electronic payments from the hundreds of payers with which they do business.

Although HIPAA requires payers to implement the EDI standard that supports electronic claims payments, payers will not automatically generate an electronic payment for every claim that has been submitted electronically. Payers will continue to send paper checks and remittances until providers request a HIPAA-compliant electronic claims payment. Provider organizations need to contact the payers with which they do business to set up the necessary procedures for implementation and ongoing transaction processing.

The challenge in receivables processing after October 2002 will be building business processes to support multiple payers and a greater variety of payment and remittance delivery options. The HIPAA standard allows multiple delivery options for both data and payment. Some payers will support electronic funds transfers, and some will not. Some providers may elect to continue receiving paper checks and remittance advices. They may regard receipt of electronic remittance data without electronic funds transfer as a bad business practice because it complicates invoice and payment matching. Either way, providers need to establish a comprehensive reporting-and-tracking process for paper and electronic payments to manage business office operations with substantial volume. Providers should be working with their banks to develop the reporting tools they will need.

Another major issue facing providers is how and where to receive electronic remittance information. Providers might ask payers to send electronic remittance advice with electronic funds transfer to their receiving bank, obtain the data from a clearinghouse, or obtain the data themselves. Some payers may post remittance data on a bulletin board or Web site, while others may be willing to send data to an electronic mailbox.

This is an important issue. The goal for administrative simplification was to achieve file transfers and data exchanges without human intervention. Many payers have Web-enabled solutions that require providers to retrieve files from password-protected Web sites. Many of the Web solutions use 2001 technology to deliver data for 1970s bulletin-board business processes. Providers should closely examine how much manual intervention is needed to obtain electronic remittance advice from each payer.

Providers need to determine how they wish to be paid and have a plan in place for the payment and data delivery options they will support. Key payers must be identified and contacted to determine testing procedures, parallel production, and eventual conversion to full-time, live, electronic claims payments. Although it is challenging, this process will offer an opportunity for payers and providers to achieve the benefits of administrative simplification.

James J. Moynihan, MBA, is a principal, McLure-Moynihan, Inc., Agoura Hills, california, and a member of HFMA’s Southern California chapter.

(a.) “Health Insurance Reform: Standards for Electronic Transactions; Announcement of Designated Standard Maintenance Organizations; Final Rule and Notice, Federal Register, August 17, 2000, pp. 50311-50372 (

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