Healthcare behind the times with electronic data interchange

by Kevin L. Shrake

Clearly not every best practice resides in healthcare. Although the clinical technology used in our industry is second to none, the use of technology to run our businesses that is common in other sectors is largely different. The case of electronic data interchange (EDI) is a classic example. Almost any retail company asks two key questions as it relates to the use of EDI:

  1. Why should you pay anything for your suppliers to do business electronically with you?
  2. Why should you do any business with suppliers who don’t communicate with you electronically?

Unlike other industries, healthcare has been told that isn’t the way EDI works. The buyer pays for EDI for a few of the top-dollar-spending vendors, (usually fewer than 200) and more than 90 percent of suppliers still operate by some sort of automated fax or worse yet … paper invoices. The cost in EDI fees and pricing errors are enormous. Not only is the system inefficient and labor intensive, but the flaw of only connecting to your high-dollar-volume vendors is that it costs the same to process a $5 invoice as it does a $50,000 invoice. The cost of the invoice is irrelevant, yet for years this description of the healthcare purchasing and receiving process has been common.

To make it worse, there’s a limited number of companies in healthcare that provide EDI, and they work both sides of the fence, charging both the buyer and the seller for the privilege of using their EDI services. By looking outside of healthcare for best practices, we can find proven technology with 20 years of experience that brings healthcare up to date with other industries.

A best-practices checklist for EDI includes:

  • Fees should be paid for by the vendors rather than the buyers.
  • Fees should be affordable and driven by the actual cost of providing the service as opposed to an arbitrary percentage of the cost of the invoice.
  • The process should include a web-based portal that is easy and practical for vendors of any size to use.
  • There should be a 360-degree electronic process that allows for an automated method to track the complete process of purchase order, purchase order acknowledgement, invoice creation/matching and straight through processing to the accounts payable system.
  • A robust dashboard of analytics should be available to efficiently run your business.

It is time for us in healthcare to reach out to solutions from other industries where the above-described process has been standard for decades.

Kevin L. Shrake ( is a 35-year veteran of healthcare, a board-certified fellow in the American College of Healthcare Executives and a former hospital CEO. He currently serves as the executive vice president/chief operating officer of MDR, based in Fresno, California

How EDI Benefits the Healthcare Claims Process

Many healthcare partners, payors, and vendors choose EDI as a safe, fast, and cost effective method for automating the business processes that take place.   From the consumer perspective, using EDI

  • helps keep healthcare affordable.
  • improves the accuracy of information exchanged between healthcare participants, improving the quality of healthcare delivery and its supporting process.
  • makes enhanced information available to all healthcare participants as appropriate. This access ensures accurate, fast, reliable, secure and detailed information on patients and healthcare partner plans.

From the business perspective, if you are not taking advantage of all available electronic transactions, you are not maximizing your savings and organizational efficiency. Using EDI you can:

Send and receive information faster.  Providers typically experience quicker turnaround times. A payor can receive your claim the same day you send it. In addition, an eligibility inquiry can be received and responded to in seconds, faster than you could pick up the phone and dial.

Identify submission errors immediately and avoid processing delays.  This process decreases the number of reasons a claim may be rejected once received by the payer. This same level of automated data verification cannot be performed on paper claims.

Lower your receivables.  Integrating EDI into your office workflow and software systems may make a positive impact on your bottom line. Automating electronic transactions such as eligibility will enable you to have current coinsurance, deductible and benefit information readily available while the patient is present, and prior to filing the claim. All EDI transactions may help increase your cash flow due to the expediency and accuracy of information exchanged.

Cut administrative expenses.  Whether time you want to save from phoning, faxing, printing, sorting and stuffing envelopes, or its purchases you wish to avoid (paper forms, supplies and postage) EDI can increase productivity and lower costs.

Spend less time on the phone. Many of the calls received by a payor can be answered by performing one of the following EDI transactions:

  • Eligibility (270/271)
  • Claim Status (276/277)
  • Notifications (278N)

The information returned comes from the same system used by representatives that answer your calls. You can gain administrative cost savings by reducing the amount of time spent on the phone.

Go Green and reduce paper, mail time, and postal costs.  Payors receive electronic transactions in real-time. This eliminates both mail time and the cost of postage and envelopes. EDI is also good for the environment because it reduces the volume of paper you receive from payors. Receiving electronic confirmation of claim submissions, electronic remittance advice (ERA/835), electronic funds transfer (EFT) and other EDI transactions can save time and trees.

Estimate Your Cost Savings from Increased Efficiency. A study by Milliman, Inc. calculated the cost of manual and electronic transactions.  You can use the estimated savings per transaction from the table below to calculate your potential savings.

Estimated Per-Transaction Costs and Savings Opportunity by Transaction Type

Estimated Health Plan Cost Estimated Provider-Facility Cost Estimated Total Industry Cost Potential Savings Opportunity
Claims Submission
   Manual $0.74 $1.84 $2.58 $2.03
   Electronic $0.26 $0.28 $0.54
Eligibility & Benefit Verification
   Manual $3.28 $3.55 $6.83 $6.61
   Electronic $0.06 $0.16 $0.22
   Manual $3.95 $18.53 $22.48 $17.10
   Electronic $0.18 $5.20 $5.38
Claims Status Inquiries
   Manual $3.84 $2.25 $6.09 $5.81
   Electronic $0.06 $0.23 $0.29
Claims Payment
   Manual $0.66 $1.83 $2.49 $1.98
   Electronic $0.21 $0.30 $0.51
Remittance Advice
   Manual $0.45 $1.83 $2.28 $1.77
   Electronic $0.21 $0.30 $0.51

Sources: CAQH, Index; Millman Inc.; United Healthcare