Louisiana State University Health Sciences Center thought it had an efficient claims submission system. Half the claims from the nine-hospital integrated delivery system in Baton Rouge go to Medicare or Medicaid. Staff used to load the claims on magnetic tape each week and ship them to the government payers.

In March 2000, however, a strategic alliance between its hospital IT vendor and a claims clearinghouse made it easy for LSU to adopt electronic data interchange and submit claims electronically.

Now, magnetic tape is gone. Seventy-five percent of LSU's claims are electronically transmitted via a claims clearinghouse to payer organizations, and LSU is getting paid on average 10 days faster per claim.

In addition, claims submitted to insurance companies and government agencies are cleaner, and an electronic claims history file enables LSU to identify problem claims, says Diane Dean, applications support manager at LSU Health Sciences Center. Consequently, the number of denied claims has fallen substantially. "We thought magnetic tape was going well, but we didn't know what we were missing," Dean says.

A slow go

Like LSU, some health care providers are discovering the benefits of claims automation by using software to generate electronic claims and submit them to payers directly or via claims clearinghouses.

However, the slow rate of 3% to 5% annual growth of electronic claims seen in recent years continues. And recent consolidation of the claims clearinghouse industry has resulted in an industry dominated by a few large players.

Some experts believed that consolidation would lead to more efficiencies and spur claims automation growth. These large clearinghouses, however, haven't made any significant strides in boosting the percentage of claims processed electronically.

Furthermore, some observers believe automation is in a holding pattern as the health care industry assesses the effect of the Internet and national claims transactions standards under the Health Insurance Portability and Accountability Act.

"Everyone is spending so much time, money and emotion focusing on HIPAA that they haven't put energy into growing electronic claims and related transactions," says Patrick Kennedy, president of P.J. Consulting, Rockville, Md.

In addition, the emergence of Internet-based claims transactions services-enabling providers to access software on a Web site, create claims and submit them over the Internet-has not yet occurred, as some industry experts expected.

This is because most Internet-based claims submission systems are not integrated with provider billing systems. This means provider office staff must enter claims data into a billing system, then access a Web site and enter the same data again. "Providers aren't going to re-key data into a Web site just to do electronic claims," Kennedy contends.

Hindering growth

These obstacles are hindering further growth of electronic claims and related transactions despite the efforts of some payers to encourage more EDI.

Payers want more EDI because they estimate that they save more than $1 in processing costs per transaction when claims are submitted electronically.

Large hospitals often directly submit electronic claims to their major payers, but most electronic claims are submitted to payers via claims clearinghouses. Some payers are improving their processing of electronic claims via both delivery methods to pay them significantly faster than paper claims.

This effort is meant to promote the use of EDI at provider organizations. Providers that move to electronic claims submission and don't see substantial improvement in their cash flow may not expand their use of electronic data interchange, or may even revert back to paper claims.

"If provider organizations don't get paid in a timely manner, the perception is the EDI process is broken," says Paul Keyes, EDI business lead at Bloomfield, Conn.-based Cigna HealthCare. "If you just focus on your business and do a better job processing claims, it improves the perception of EDI."

Many claims clearinghouse executives report only a modest increase in the percentage of claims automated during the past year. "More providers are adopting EDI and some smaller payers are getting on board," says Thomas Johnson, director of product management at NDC Health.

However, there is no real driving force to accelerate the pace of adopting electronic claims submission, many experts say. Many of the same industry observers, however, believe HIPAA and the Internet will become the driving forces in the future.

Some predict rapid growth in electronic transactions next year as HIPAA's Oct. 16, 2002, deadline for using standard transactions nears. That deadline, however, could change. Congress is under pressure from some health care provider and payer associations to authorize additional time for compliance.

The emergence of a new EDI company, San Diego-based MedUnite Inc., also could become a driving force in the growth of electronic transactions.

A number of major payers formed MedUnite to provide a common conduit for receiving electronic claims and related transactions. But MedUnite, which is just starting to roll out its services and substantially changed its business plan, has much to prove (see related article, below).

If MedUnite succeeds, it could become formidable competition for WebMD Corp., the dominant claims clearinghouse. Elmwood Park, N.J.-based WebMD's Transactions Services division, formerly Envoy, still has the most electronic connections to insurance companies, forcing other clearinghouses to send many of their claims through WebMD.

However, WebMD's electronic transactions volume is flat as the company struggles to integrate Envoy and about a dozen other clearinghouses acquired in recent years.

During the integration, the company also has discovered that some of its volume is duplicate claims from one or more of its clearinghouses. WebMD had 14 clearinghouse data centers and has consolidated down to four or five, with a goal of having one data center and a back-up by 2002, says Roger Holstein, executive vice president.

More than two-thirds of the claims generated in the United States are electronically transmitted to payers. However, billions of related transactions are still done on pape. Industry observers estimate less than 10% of eligibility verification transactions are performed electronically, and much of that is through automated voice response telephone systems. Less than 5% of referral authorization and claims status transactions are electronic in any form, observers estimate.

Claims automation will continue to pick up each year as small physician practices, nursing homes, dentists and other paper-based providers adopt electronic data interchange.

But the real boost in EDI, observers say, will be in claims-related transactions such as eligibility verification.

"Last year, claims-related transactions comprised 1% of our volume," says William Dagher, president of the e-Health Division of Per-Se Technologies Inc., Atlanta. "This year, it's 6%."

Increased automation of claims-related transactions will help speed the adjudication and payment of claims, if information on the transactions is integrated into billing systems, says Jon Zimmerman, president of Healthcare Data Exchange, the EDI division of Siemens Medical Solutions Corp.

"You have to integrate the workflow to make sure a referral authorization number gets on the claim," Zimmerman says. "Payers don't just want more electronic claims, they want cleaner electronic claims."

Embracing the Internet

Claims clearinghouse executives report a modest number-generally far less than 10%-of claims submitted to them by providers are transmitted via the Internet.

Until billing systems are integrated with Internet-based claims submission systems, there seems to be little incentive for providers to do double data entry just to send claims over the Internet.

However, the Internet is an ideal vehicle for transmitting claims-related transactions-such as eligibility, claims status and referrals-that have far less data elements than claims. A growing number of payers are offering to process these claims-related transactions via the Internet to save money and improve relations with providers.

Harvard Pilgrim Health Care, for example, rolled out its Internet transactions processing service on March 12. By June, the Wellesley, Mass.-based HMO had received more than 30,000 eligibility and claims status transactions through its Web site, which uses data processing software from HealthTrio, Nashville, Tenn.

Harvard Pilgrim initially targeted 950 high-volume physicians, and by late July had 15% of them using the Internet service. "The Internet has been the biggest market mover of the past year," says Bob Trombly, deputy chief technology officer at Harvard Pilgrim. "It gives us a competitive advantage."

Many providers, however, worry the Internet is not secure enough to handle health information. That has been a barrier to greater growth, Trombly says. But good Internet security software is available, and HIPAA will mandate technologies and policies to ensure the security and confidentiality of data, he adds.

The industry's consensus is that HIPAA will boost health care EDI. Standard transactions formats should ease migration to automation and standard data content will make claims-related data easier to collect and analyze. Industry observers also believe HIPAA's data security standards will facilitate greater use of the Internet for the transmission of claims and related transactions.

A small boost

Thus far, however, the law appears to be having little, if any, effect on boosting the automation of claims and related transactions. But HIPAA eventually will have an effect, observers say, because it enables payers to offer faster and better claims services to providers.

"When we talk to providers, the first thing we are promoting are standard transactions," says Trombly of Harvard Pilgrim Health Care.

For now, HIPAA's transactions standards are a blessing and a curse, Trombly says.

The standards give everyone a clear target, and anyone implementing new transactions is making them HIPAA-compliant. But "the bar is pretty high to meet these standards," he adds. "It's beginning to feel like a new Y2K."

HIPAA's emerging standards for coordination of benefits data could boost the automation of claims by up to 4% each year, estimates Keyes of Cigna Healthcare. That's because the secondary payer information will be on primary claims, making it easier to identify other payers and send them electronic claims.

Some observers, however, aren't confident HIPAA will have much effect on standardization.

The law requires a uniform implementation of standards, meaning everyone uses the same implementation guide for each transaction.

But there are enough optional data fields in the implementation guides to permit hundreds of different HIPAA standard formats, contends Dagher of Per-Se Technologies.

Per-Se's clearinghouse is testing HIPAA-compliant eligibility verification transactions with eight different payers, Dagher says. "About 80% of the formats are identical, but the remaining 20% with differences means we must make changes to our editing software for each payer."

Joseph Goedert is news editor for Health Data Management, where this article first appeared.

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