In January 2014, a mandate went into effect requiring all payers to support electronic funds transfer (EFT) and electronic remittance advice (ERA) to providers on HIPAA-covered transactions.
The mandate was largely expected to significantly decrease costs for both payers and providers—the 2016 CAQH Index shows that healthcare providers spend on average eight, and up to nearly thirty, more minutes processing a manual transaction, as compared to the time required for an electronic transaction.
The regulation has been embraced by payers, which have achieved reduced operating costs and more efficient processing. But for providers, despite all the perceived benefits of moving electronic, adoption of EFT/ERA has lagged. This slow uptake is seen mostly for claim payments coming from commercial payers—providers accepting payments from Medicare are required to accept EFT (per 42 CFR 424.510(e)(1)).
Despite potential savings to healthcare organizations, the adoption rate for medical providers is hovering at approximately 60 percent for claim payments and 50 percent for remittance advice (2016 CAQH Index). In fact, CAQH reported just a one percent increase in adoption of EFT for claims payment from 2015 to 2016.
At the root of slow adoption
Although payers are now mandated to support EFT and ERA on HIPAA covered transactions, providers are not required to accept those payments. Providers can still request paper checks. Unfortunately, the most popular form of EFT, automated clearing house payments (ACH), can in some cases increase a provider’s administrative burden.
With ACH, the ERA arrives separately from payment. The ERA may arrive several days after a batched payment, requiring staff to manually review documents to ensure reimbursements were made appropriately. There’s also the issue of importing the ERA into a practice management system. Some practices don’t trust the auto-posting process and thus avoid the process all together—relying instead on checks and manual input.
The largest health plans may boast 80 percent adoption of EFT for in-network providers, but that number drops dramatically when discussing out-of-network providers. For in-network providers, there’s a high degree of familiarity with the insurance company and therefore more comfort with sharing their banking information with the payer. For out-of-network providers who are dealing with a plethora of payers, there can be a much lower confidence level.
EFT as a salve for struggling practices
Despite seeing a very slow build to full EFT adoption, the tipping point in boosting provider acceptance of EFT may be the ongoing need for medical practices to improve cash flow—particularly for small and independent practices.
The inherent “float” on check payments can cripple a practice, leading physicians to seek factoring (an advance on receivables) to maintain day-to-day operations. In some cases, the float period associated with paper checks can last for up to two weeks.
Complicating the financial situation for practices is the rise in high-deductible health plans and patient self-pay. As the account ages, the likelihood of collecting payment from the patient decreases by as much as 50 percent every 30 days. After three statements are sent with no activity, the chances for patient payoff are as low as 6 percent. The sooner practices can receive reimbursement for claims, the better they’ll be able to maintain operations.
Risk reduction may be one of the best reasons to move to electronic payments. Not only are providers assured that an unfamiliar payer will pay in a timely manner, they also don’t need to worry about lost or stolen checks. Should there be concerns about office malfeasance, electronic payments offer traceability and documentation.
An intermediate, and perhaps permanent, option
There is a way for providers who are reluctant to fully immerse themselves in EFT to benefit from at least dipping their toe in the water. Virtual credit cards (VCCs) serve as an easy first step into the electronic payments arena, saving time and money for both payers and providers versus a paper check.
A relative newcomer to healthcare, VCCs are widely accepted as a form of payment in virtually all other industries. With VCCs, payments are made to providers via single-use cards. The information about card payments is delivered to providers via online display, fax, email or mail, and providers key the card information into their merchant services system – the same system they use to process patient payments. Like physical credit cards, providers are charged a processing fee for the virtual card.
An advantage of accepting VCCs is the ability to easily reconcile payments because the explanation of payment is included with the payment. Again, in the case of an ACH transaction, ERAs are sent separately from payment, usually in batches at different times, which can cause headaches for practices as they try to find matches and inaccuracies.
Many providers are establishing EFT/ERA arrangements with their largest payers, then accepting VCCs for the array of other health plans and payers. It’s worth noting that VCCs are a form of EFT, but not considered an adopted transaction under the mandate. Despite this, they are often payers’ default payment method because most providers are already enrolled to accept a VCC and the remittance can be delivered electronically with the payment.
The need to move faster
Consumers have embraced the convenience of real-time financial transactions via electronic means. While the healthcare industry has a much more complicated financial system involving multiple entities, and the added challenge of transmitting ERAs containing protected health information, it is moving slowly but surely toward accepting electronic transactions.
Physicians who have been wary about bringing additional technology into their practices are gradually beginning to see the benefits, ensuring that adoption of electronic payments can be expected to increase. Whether it’s acceptance of ACH, VCCs or both, the entire healthcare ecosystem will benefit from the improved productivity and decreased costs that will result.
Jeffrey Brown is president of VPay, a leading turnkey B2B payments platform focused on the healthcare industry.
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