By Dan Chavez

April 2010 – As the US healthcare system becomes more electronic, many are surprised to learn that most payments to providers are still paper-based. Even though authorization and claim submissions are 90% electronic and climbing, payments to providers are the inverse.  With the acceptance of Pay Pal, online banking, and direct deposit, it is difficult to imagine why there is so much paper in the healthcare payment process.   Standards exist for electronic transactions, yet still healthcare payments are well over 80% paper.

Most health plans assert that they provide electronic payments and remittance advices.  They do, but only to their high value providers, which account for about 10% of their provider networks.  According to UnitedHealth Group, moving to 100% electronic payments would save the industry $108.6 billion over the next ten years, split 80% to 20%, providers to payers, respectively.  This would materially impact half the hospitals and 70% of the non-hospital based physicians.

With that much potential savings, what is the industry waiting for?

Four areas need to be addressed:

First, provider identification must become clearer.  It is important to understand that how a payee is recognized for payment is not universal.  A payee may have many identifiers within a single health plan. These are based on the contractual relationships between the payee and the health plan.  There may be separate contracts within a health plan for each Line of Business. Each payee is typically reimbursed by between 20 and 100 payers, depending on practice size and specialty. Even more complicating, a payee can be one or more providers. One payer sees a payee as a group practice of three physicians and another sees the same practice as three individual physicians.  This three physician practice can be reimbursed in several ways.

Health plans working with their provider networks need to re-engineer their network management function to allow this flexibility. Providers must be more diligent in updating their demographic information with health plans.

Second, it must be simpler for provider payees to enroll for electronic payments.  Currently, each payer requires the provider to enroll using predominantly paper-based forms. The provider must share routing numbers, bank account information, and other financial information with several entities just to get paid electronically.  This is cumbersome, with a significant chance for error.  To get paid by check, the payee does nothing.  If the provider’s address changes, the provider must notify the payers of the change.  This is why many providers choose a post office box or a lock box as their mailing address. If the office moves or expands, the need to notify all paying entities is eliminated.

The requirement for a wet signature in some states should be replaced with web-based electronic enrollment.  Providers need to be given assurance that their financial information will be treated with the same privacy and confidentiality as clinical information.

Third, electronic information must be at least as accurate and informative as paper information.  Many payers continue to use proprietary codes to explain why claim items were not paid as expected.  Prior to HIPAA, these codes were numerous and not consistent across payers. Yet they were very descriptive.  When the HIPAA standards for the explanation of payment came out, the codes were made consistent but were not granular enough to adequately explain payment variances.  To work around the issue, the payers went back to the paper remittance (not regulated by the standard) and added the proprietary codes.  The paper contains more detailed, understandable, and valuable information than the electronic standard.   As long as this is the case, providers will not choose to convert from paper to electronic.

Health plans need to work with provider networks to come up with translation mechanisms that allow for machine- and human-readable explanations of payments.

Lastly, the receipt of the physical payment and access to the payment information must be synchronized.   Without electronic remittances and EFT, the payee receives an envelope containing both the check and the explanation of payment.  The funds may be divided as the business desires and the information to make that determination is in the envelope with the check.  When the payee elects to do electronic remittances and EFT, many times the posting of the funds is out of synch with the payment details. Payment without details, and vice versa, is somewhat useless. Additionally, with EFT funds are directed to a single account and may then be further distributed to individual physicians. This makes the reconciliation of the receiving account more laborious.

Payment data and remittance information must be inseparably linked on both sides of the payer and provider interaction. Both sides need to be able to view the same information.

It should be clearer why healthcare electronic remittance advice and EFT volumes are not increasing.  It is imperative to drive to industry standards and solutions that will address these payment issues.  The opportunity to do so resides with adjudication systems vendors, claims clearinghouses and third party vendors that bring the payment stakeholders together on a common payments platform.

About the Author

Daniel J. Chavez, Executive Vice President of Payformance, joined the company in August of 2009. Prior to Payformance, he served as Immersion’s Senior Vice President and General Manager of its Medical Line of Business. Prior to Immersion, Mr. Chavez was a health information technology consultant focused on business planning, strategic alliance development, product management and marketing. From September 2001 to December 2006, he held various positions, including Senior Vice President, Operations, Vice President, Operations and Vice President, Business Development, at Availity LLC, a healthcare transactions and professional services company. Prior to Availity, Mr. Chavez served in a variety of management and business development positions for EmStat Corporation, Computer Sciences Corporation, Stellcom Technologies, Inc., Science Applications International Corporation, GTE Corporation and IBM Corporation.

Mr. Chavez holds a Bachelor of Arts degree in economics from San Jose State University and a Master of Business Administration degree from Stanford University. He can be reached at  


Leave a Reply