Healthcare providers stand to benefit in several ways from the switch from paper-based payment to electronic payment, but not all e-payment models are created equal.
Healthcare payers portray the industry's historic shift to e-payments as a win-win proposition. But providers fear there may be a snake in the digital transfer Garden of Eden.
A 2012 Institute of Medicine report estimates annual waste in the healthcare system at about $750 billion, with paperwork and administrative bloating tallied at about $190 billion.
Aetna is among the health plan e-payment early adopters, moving at a fast pace to offer e-payment to all of the company's provider partners from hospitals to individual-practice doctors.
"Medicare began requiring electronic payment for all providers effective January 1, 2014. Many other health plans have instituted similar policies," says Jay Eisenstock, head of provider e-solutions at Aetna. "Given the groundswell throughout the industry, we expect the conversion will happen fairly rapidly."
Robert Tennant, senior policy adviser at the DC-based Medical Group Management Association, says e-payment is a welcomed innovation, particularly electronic fund transfers. "We've been asking for this—the provider community— for years," he said, noting the EFT payment model features "one-stop shopping for the provider."
EFT payments include a wealth of information to help providers match bills to individual patients, including tax identification numbers and a "trace" number for each patient billing transaction, Tennant said. "That's a huge leap forward for practices. It used to be manual."
A prime pitfall for providers is that not all e-payment models are being created equal, Tennant said. "There's no downside per se with the standard," he said of federal rules for electronic reimbursement. "What some health plans are doing is sending the payment through virtual credit card… The credit card company takes a fee for that."
A virtual credit card fee ranges from 1 to 4 percent. "That's like the bank saying they are going to take a 4% surcharge on your [payroll] direct deposit, which would not be acceptable." Some insurers, Tennant says, are getting a piece of the action by "[cutting] deals with credit card companies to get a share of the fee."
In addition to taking a fee hit, medical practices can lose key information in virtual credit card transactions compared to EFTs. Most virtual credit card transactions batch large numbers of patients into one billing cycle reimbursement and drop individual identifier information found in the EFT model, including the trace number that links specific patients to specific bills, he says.
Tennant notes health plans are under no legal obligation to tell providers about the benefits of EFT transactions versus virtual credit cards. "They're not in opposition to the law unless the provider asks for EFT and the payer can't offer it."
"Some health plans are charging providers a percentage, sometimes 2 percent, for the privilege," Tennant said of virtual credit card payment. "They're using the standard to make more money, which I don't think is fair."
Nashville-based Emdeon is one of the largest e-payment vendors in the healthcare industry. Tom Dean, senior VP of financial services at Emdeon, says there is no free lunch, even in the virtual world of automatic clearing houses.
"There are expenses associated with each payment modality in the market. On a per-transaction basis, EFT-ACH is the least costly. However, Emdeon realizes that not all providers are able to accept the federally mandated EFT-ACH transaction from all payers; therefore, we offer a wide range of additional payment options to best serve the market including virtual credit cards, image cash letter and printed checks," Dean says.
"In Emdeon's program, virtual credit cards are not a substitute for EFT-ACH. In fact," Dean says, "our system uses virtual credit cards as a substitute for printed checks. For providers, we simplify the re-association process by including the virtual credit card in the same mail packet as the provider's explanation of payment."
Christopher Cheney is the CMO editor at HealthLeaders.