What is the Biggest Myth about Electronic Fund Transfers?

“That EFTs will lower a claims administrator’s fulfillment expenses”

It is a common belief today, that if a claims administrator begins to send electronic payments (EFT) to healthcare providers it will lower their fulfillment costs. When, in fact, this is not the case.  The problem is that, unless a claims administrator produces an 835 that providers will accept, the administrator must still print an EOB, so the provider can reconcile to their EFT payments. Since EFTs use trace numbers and printed provider EOBs generally using check numbers marked “void”, it creates difficulties for providers to reconcile the EFT deposit to the paper EOB. This in turn can cause an increase in either the number of customer service calls or the provider resubmitting the claims. Additionally, because the cost of an EFT is only pennies less than the cost of clearing a check, there is little savings to be gained by the administrator!

Moreover, if an administrator is moderately successful in obtaining 50% of its benefit dollars transmitted via EFT with provider adoption in accepting 835s, this rarely represents more than five to ten percent of EOBs produced for providers. This is due to the fact that only the larger provider organizations can accept both an EFT & 835 making them the administrator’s largest payees. This means that the administrator must still bear the additional expense of producing provider payments over 90% of the time.

The truth is that EFTs help providers increase their cash flow, but save very few dollars for the claims administers. The most effective way for administers to truly save on fulfillment costs (e.g. print, postage, and banking fees) is to dramatically reduce the number of provider EOBs processed while migrating toward electronic delivery options that can reliably deliver reimbursements to a broad base of providers.

The first step in this process is to begin consolidating all payments electronically across all self-funded employer groups weekly for each individual provider in a “non-comingling and ERISA-compliant” manner. The savings in this consolidation process is dramatic, because the typical claims administrator approves different employer group’s payments on different days, and each of these groups generally pays the same providers with one check/per claim. On average, an administrator can achieve a consolidation rate of four or more claims on one provider EOB with one check, rather than generating four different checks being mailed out on four different days. By adopting this strategy with other treasury processes it will dramatically reduce the reconciliation costs and bank fees for the administrator, or its clients, as well the number of pages to print and postage if a provider is unwilling to accept electronic delivery. This innovative process alone will reduce an administrator’s EOB print and postage expenses by over 60%, plus saving over 75% on banking fees on provider payments!

Once the administrator has incorporated this consolidation process, which is under their control to implement, providers may be contacted aggressively to begin accepting alternative payment methods of delivery.

Alternative delivery options include:

Stored Value Virtual Card: The fastest payment delivery option for the provider is the stored value virtual card. Under this payment option a provider receives a fax image of the provider’s consolidated EOB for posting and a virtual card number for instant payment by entering this number in its card processing terminal. This is the easiest and safest delivery method because the providers do not have to give the administrator their bank account information, and they have the paper EOB to back up the payment. The administrator is charged nothing in this case, thereby completely eliminating its print and postage costs.

Provider Direct: Many claims administrators have relationships with local providers who do not have the 835 capabilities to support EFT transactions. Provider Direct takes the consolidated provider EOB and creates a PDF image of the document with the EFT trace number on the document. Once the EFT has been created, an e-mail to the provider directs the provider to the location of the EOB PDF. In this way, the provider receives its EOB and can reconcile it to the EFT payment by comparing the trace number from its bank to the trace number on the document. Generally, a fee per transaction is charged to the administrator, but the fee is far less than the administrator’s consolidated print and postage costs. Provider Direct does require the provider to give the administrator its bank account information.

Vendor Direct: Although many providers have clearinghouses and lockboxes, most of these vendors have been unwilling to support individual 835s and individual EFT payments from the administrators due to their or their client’s inability to reconcile these individual EFT transactions to individual 835s.  With weekly consolidated EOBs, however, these vendors are now more willing to take these transactions and process them on their client’s behalf.  The fees paid by the administrators range from free to a per claim fee. However, all fees are again far less than what the administrator would incur paying their print vendor.

Summary

In summary, EFTs alone do not lower the administrator’s fulfillment costs unless coupled with an 835, and only the largest providers process both. Therefore, the administrator is forced to produce 90% to 95% paper EOBs thus incurring additional costs. The only solution for administrators to reduce fulfillment costs is by consolidating payments more efficiently while utilizing alternative electronic delivery methods that are more acceptable to a broader base of providers.

About The Author

William H. Davis

Founder and CEO ECHO Health, Inc.

Mr. Davis is the founder and CEO of ECHO Health, Inc. located in Cleveland, OH. With over 30 years of industry experience, he is recognized as a visionary and a pioneer in the application of technology in the medical payment space. Prior to creating ECHO Health, Mr. Davis was the CEO of Secure Solutions, where he developed anti-counterfeit processes for MasterCard International. Mr. Davis holds five U.S Patents and is a graduate from Ohio University.