First it was check electronification at the point of sale, then decoupled debit. Now health care appears to be the next major target market to help drive automated clearinghouse payments volume.
NACHA, the electronic payments association that sets ACH rules, is working with a health care consortium to draft rules for making the ACH network the default vehicle for payments that health insurers make to doctors and other care providers.
If NACHA and its partner are successful, they potentially could bring more transaction volume to the network, which wants to expand its usefulness, especially for business-to-business payments, and make it easier for banks to cater to the industry.
“What this is going to do is create more opportunities for the banks and create more leverage for the banks to sell their products to health plans,” says Kunal Pandya, a senior analyst with the Aite Group LLC research firm in Boston.
The Patient Protection and Affordable Care Act is driving the opportunity. Enacted in 2010, the law included provisions that state health insurers must simplify administrative tasks, including payments and billing activity, involving doctors and other providers.
One of the requirements is that health insurers, including Medicare, adopt rules for making reimbursement payments to providers, such as doctors and clinics, by January 2014.
“Any financial institution–bank or credit union–that has a doctor, hospital, clinic [or] individual provider that might in fact have to receive reimbursement payments from Medicare may be impacted by these rules,” Janet Estep, NACHA president and chief executive, said April 4 during a press conference at the association’s annual convention.
The goal is to reduce costs by eliminating friction in how insurers pay providers, which is still conducted largely via paper.
Only about 10% of health care claim payments were made via electronic funds transfer at the end of 2009, according to the U.S. Healthcare Efficiency Index. The cost to pay via paper check is $1.68 compared with 17 cents to perform an electronic funds transfer, according to NACHA.
The goal is to “increase the efficiency and therefore reduce the dollars spent in health care on administrative functions,” Estep said in a recent interview.
Besides devising rules for using electronic funds transfers to conduct insurer payments to health care providers, the law also called for rules for handling “electronic remittance advice,” which pertains to the explanation of the payment.
The U.S. Department of Health and Human Services must adopt rules by July 2012. The rules would take effect on Jan. 1, 2014, with insurers facing fines of $1 per covered person per day until they are certified starting in April.
In March, the National Committee on Vital and Health Statistics, an advisory group that gives policy recommendations to Health and Human Services, recommended that NACHA and an arm of a health care consortium work together on the rules.
The consortium’s name is the Council for Affordable Quality Healthcare Committee. The arm of the council that NACHA is partnering with is the Committee on Operating Rules for Information Exchange.
Together, NACHA and the committee must submit draft rules by Aug. 1, using an ACH transaction category banks already use called Cash Concentration or Disbursement as the framework for electronic payments, per the council’s recommendation. Banks use the category in corporate payments, and it enables a business to include 80 characters of information with a payment.
“What we hope to do … is not reinvent the wheel,” Estep said.
The National Committee on Vital and Health Statistics’ recommendations are recognition that “the ACH network is the best way to replace payments in an industry that is primarily … paper checks today,” Estep said.
Adopting the ACH network for sending insurer payments will result in work for insurers and doctors and many of the banks that serve them.
Some insurers already have worked with their banks to convert to electronic payments, but many health care providers have struggled on their end because each insurer may have its own requirements for enrolling to receive electronic payments. Additionally, some insurers send payments and billing information separately, requiring the health care providers to spend significant time matching payments with invoices.
“If you go into any of the large payers across the country, many of them have several-hundred page” guides outlining their processes for transmitting payments and data, says Stuart Hanson, vice president and product line manager for health care solutions at Fifth Third Bancorp in Cincinnati.
That is why it has been difficult convincing doctors and other providers to accept electronic payments, says Rossana Salaris, a principal with payments consulting firm Radix Consulting Corp. and a former executive with the Clearing House Payments Co. LLC, one of two ACH operators (the Federal Reserve is the other) in the country.
“If you have to do things differently for every person you’re” receiving payments from, adoption will be slow, Salaris says. The establishment of standards and rules should help get various parties on the same page.
Some “health plans are going to need to adjust their operational platforms to be able to send instructions to the banking system,” says Martha Beard, a managing director of healthcare sales and industry segment executive with J.P. Morgan Treasury Services, a division of JPMorgan Chase & Co.
Chase, the largest originator of ACH transactions, already does a significant amount of work with health care clients, including insurers, and has been analyzing the health care reform rules closely since the legislation was introduced, Beard says.
“A lot of our volume is associated with the industry, … and we want to make sure that our systems can help with migration strategies and that ability to provide” data and services, Beard says.
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