Los Angeles physicians must embrace change.

As debate continues on health care reform, many physicians have taken a wait and see approach to the changes that are before them. Practices that expect to remain solvent in the years to come, however, cannot afford to adopt this type of attitude. They must immediately embrace change by taking steps which will enable their practices to become more efficient and thus more competitive.

In 1991, under the direction of then Secretary of Health and Human Services Louis Sullivan, M.D., the Workgroup on Electronic Data Interchange (WEDI) was conceived. Since that time, this organization has worked to establish standards for various health care transactions. It is this wide scale application of EDI that has been termed the "administrative simplification" portion of health care reform. While there is great uncertainty as to the direction of health care reform in general, there is complete agreement on the need to implement EDI. These standards have been coined ANSI X12 and are comprised of the following four core transactions:

Claim submission (837)

Claim payment (835)-electronic remittance of advice-electronic funds transfer

Enrollment verification (834)

Eligibility (270 & 271)

In a presentation on February 3rd to payors and providers in greater Los Angeles, Lee Barrett, a Member of the WEDI Steering Committee and assistant vice president of AETNA, explained that the capability to handle transactions with the above standards will be mandatory as of the fourth quarter of 1994.

The impact of this program will be significant for all physician practices. Regardless of the legislative reform package that is pushed through, an industry-driven propensity exists; reimbursement for health care services is declining rapidly. Because of this reality, practices that do not operate efficiently and reduce their costs will face diminishing profit margins (or increasing losses). Meanwhile, those practices that embrace EDI technology will gain a competitive advantage over their counterparts who choose not to. Because of their ability to cut costs through EDI usage, they will be able to negotiate more managed care contracts at lower levels of reimbursement and thus improve their standing with regard to existing patient market share. Without a doubt, physicians must acknowledge the important role that EDI will play in the future of their practices. If they are to do so, however, they must first better understand each of the aforementioned transactions.

Although the vast majority of practices are sending claims electronically to Medicare, the transition to utilizing this media for insurance claims has been a difficult one. Every payor has a different format in which they require information to be submitted, making it difficult to maximize the number of claims that providers are able to send electronically. To make matters worse, both large insurance networks, such as Health Net, and an endless number of smaller payors are currently unable to receive electronic submissions at all.

Physicians, however, can now be very optimistic. The requirement on payors to adopt the 837 standard will enable them to submit claims in one format and to many payors who previously have not accepted claims electronically. Although they plan to continue accepting claims in the National Standard Format (NSF), Transamerica has already stepped up to the challenge by bringing the 837 standard into full production in January of this year. Similar action can be expected of other payors as we progress into the future.

Currently, the payor side of the health care industry is just beginning to attain the capabilities of processing payments electronically. As of October 1993, Transamerica made the 835 format available to providers for receiving "payment advice" (EOBs) electronically. They have not, however, brought the more critical electronic funds transfer (EFT) portion of this standard into production. They are presently carrying out pilot tests so that they can soon make this transaction readily available to providers. Upon doing so, physicians must be prepared to take advantage of this great opportunity to vastly improve cash flow and the efficiency of collections.

The promise of Enrollment and Eligibility verification is also significant. These particular electronic transactions will prove extremely valuable to practices. Currently, employees of the practice must phone insurance companies, fight through lengthy "automated response" systems, get placed on hold, and finally speak to a representative to verify enrollment and to determine benefits. EDI transactions give you the capability to electronically submit a patient's name and policy/group number to each patient's carrier. This will produce an automatic enrollment/benefit check producing a result in 20 seconds or so (fast-batch methodology). Within a year, these transactions will be "on-line" and will take a mere 8 seconds. All payors of 50,000 or more claims will be mandated to handle these transactions by the fourth quarter of this year. Transamerica is now testing a local format that allows for the transmission of the four following categories of information: 1) basic eligibility (over 65, handicapped, etc.); 2) is patient in an HMO; 3) does patient have secondary coverage; and, 4) what is patient's deductible and has it been met.

In the near future, there will be standards implemented with regard to certification/authorization, claim status checks, and finally coordination of benefit checks. As these transactions become available, physicians cannot view these changes as threats, but rather should welcome them as opportunities. A strong commitment to EDI will not alone be a panacea for the massive changes coming down the legislative pipeline. It will, however, be an integral component of a practice's effort to survive and flourish in the years to come.

Scott R. Cassell is vice president of Los Angeles-based Healthtech Dynamics, Inc.