documents, as well as healthcare payments themselves, remain paper based.

Managing all that paper requires manual intervention and leads to inefficiency and higher processing costs.

One of the common scenarios healthcare providers face is insurers sending them a single check that represents multiple payments. The providers must rely on the accompanying EOB to research which claims are being paid by the check.

Insurers also often send providers a check in the mail but account for that check separately with an electronic remittance advice (ERA).

Scenarios like these make it laborious for providers to reconcile any particular payment, which explains why that process can often take weeks.

One of the reasons that adoption of electronic payment processing has been slow is that some providers have not acquired the ability to receive an electronic remittance. Healthcare providers have been faster to adopt EDI for claims than for remittances. Virtually all providers are able to send claims in the industry-standard EDI 837 format, but many providers lack the technology to translate ERAs into a format that their billing system can accept.

ADVANCED HEALTHCARE LOCKBOX SOLUTIONSFor years, banks have offered standard healthcare lockbox solutions in which they collect mailed remittances, open the mail, deposit the checks and forward the remittance documents to the provider. Additionally, lockbox banks have for some time been able to capture images of all the related documents, including checks and EOBs, and give clients online access to those images. Healthcare providers using these image lockbox services can research the remittance documents on an intraday basis and post payments from the online system.

In addition to collecting insurance payments via wholesale lockbox, banks have enabled healthcare providers to collect patient payments mailed in with a scannable coupon through the banks’ retail lockbox services. The same as with a wholesale lockbox service, a healthcare provider can post its patient payments from information imaged-captured by the bank.

Healthcare providers are under extreme pressure to reduce operating costs while expanding services and maintaining superior levels of care. In response, their financial managers have an opportunity to play a vital role in promoting efficiency and cost cutting through the innovative management of payments — incoming payments, in particular, but payables too.

Payments management is significantly more complicated in the healthcare field due to the many players involved. In addition to providers such as hospitals and medical practices, key participants in the process include patients and insurers — both private companies and government payers.

Managing healthcare payments is more difficult today because the industry is in the midst of migrating from paper-based to electronic transaction processing — while facing an array of demanding new laws and regulations.

Despite regulatory mandates promoting this shift, adoption of electronic data interchange (EDI) has been inconsistent, resulting in a continued overabundance of paper in the healthcare revenue cycle. This increases provider costs, with the lion’s share of provider administrative dollars continuing to go to revenue cycle management in areas such as claims processing, payments, billing and bad debt.

To respond to cost-cutting pressures, providers need to focus on efficiently managing incoming insurance payments. At the same time, patient out-of-pocket expenses as a percentage of overall payments are on the rise, creating a separate challenge around patient payments.

This paper looks at best practices and electronic banking solutions aimed at addressing healthcare provider payment challenges. In the receivables arena, we will describe solutions that address both insurance and patient payments. And, in the payables realm, we will highlight one electronic solution in particular that many providers are using to improve the bottom line.

DIFFICULTIES IN POSTING INSURANCE PAYMENTSThe paper-to-electronic conversion envisioned for healthcare payment processing still has a ways to go. There remains an incredible amount of paper in the healthcare revenue cycle. By some accounts, half or more explanation of benefits (EOB)

CAPITAL PERSPECTIVESAUGUST 2013

TAKING ON HEALTHCARE PAYMENT CHALLENGES: ELECTRONIC REMEDIES

Products and services offered by the Capital One family of companies, including Capital One, N.A., Member FDIC. ©2013 Capital One. Capital One is a federally registered service mark. All rights reserved.

Beyond these traditional healthcare lockbox features, two new healthcare lockbox enhancements are emerging at banks to assist healthcare providers with the administrative and receivables issues they face. One of these enhancements is the ability to automatically post insurance payments to a patient accounting system using an EDI 835 industry-standard electronic file. The 835 is the standard file format for healthcare claim payment advices.

AUTO-POSTING VIA AN EDI 835 FILEMore and more lockbox banks — or in many cases, the third-party vendors they use to provide this enhancement — have the technology to extract the necessary data from each check, EOB or Explanation of Payment (EOP), and translate it into an 835 posting file. The healthcare provider can use this file to automatically update its patient accounting system.

If the provider is already receiving electronic 835 files directly from some of its insurance payers, those files can be consolidated into the 835 posting file the bank creates from document images captured in lockbox processing.

Another important component of this enhanced lockbox feature supports the development of a more complete and accurate 835 file. Typically, the bank’s service will allow the healthcare provider to send its EDI 837 claim file to the bank, which uses the information in the 837 to match claim data against the payment record. In this way, the bank can verify information, make corrections and add any missing information. This matching process is designed to improve the provider’s automatic accounts receivable posting rate.

Banks typically deliver the consolidated 835 posting file to the healthcare provider through a file delivery service or a Web portal.

A healthcare lockbox can enable hospitals and medical practices to accelerate cash flow and improve days sales outstanding (DSO) by more efficiently processing remittance checks and depositing them into the provider’s bank account. In addition, this new automated posting capability can reduce the keying of EOB/EOP information, and improve the accuracy and speed of payment posting.

HEALTHCARE LOCKBOX WEB PORTALThe second notable enhancement to some banks’ standard healthcare lockbox offerings is a Web portal that — in addition to enabling providers to download 835 posting files — allows them

to research claims and view the images of the checks and EOB/EOPs that have been processed. Providers can use this Web portal feature to search for remittance data and review rejected and duplicate EOBs.

Using a healthcare lockbox Web portal, a provider can search for information by claim or by payment. The resulting simplified research process can speed reconcilement of each payment with the associated claim, which further increases administrative efficiency.

MEETING THE CHALLENGE OF RISING PATIENT PAYSPrivate and government insurance payments make up the majority of healthcare provider receivables. However, with escalating healthcare costs leading to more high-deductible health plans and consumer-driven options such as health savings accounts, more of the burden of paying for healthcare has been shifting to patients, leading to higher self-pay balances.

According to data released this year by the Centers for Medicare and Medicaid Services (CMS), the amount of healthcare costs for which consumers were responsible reached an all-time high of $307.7 billion in 2011, representing a nearly 50% increase during the course of the previous decade.

CONSUMER OUT-OF-POCKET PAYMENTS FOR NATIONAL HEALTH EXPENDITURES, 2001 – 2011

YEAR PAYMENT (BILLIONS)

2001 $209.0

2002 $221.9

2003 $236.4

2004 $248.5

2005 $262.9

2006 $271.6

2007 $286.1

2008 $293.0

2009 $293.3

2010 $299.4

2011 $307.7

Source: Centers for Medicare & Medicaid Services, Office of the Actuary. Data released January 9, 2013. CMS completed a benchmark revision in 2009, introducing changes in methods, definitions and source data that are applied to the entire time series (back to 1960). For more information on this revision, see

http://www.cms.gov/nationalhealthexpenddata/downloads/benchmark2009.pdf.

Products and services offered by the Capital One family of companies, including Capital One, N.A., Member FDIC. ©2013 Capital One. Capital One is a federally registered service mark. All rights reserved.

Thus, it’s clear that providers need to seek electronic solutions for more efficiently collecting not only from insurers but from patients as well. In addition to retail lockbox for processing patient checks sent by mail — an option that, again, can leverage image technology to increase posting efficiency — here are three solutions that providers should consider for managing incoming patient payments:

• Remote Deposit Capture. Checks that patients remit at the point of care can be deposited more efficiently using a bank’s remote deposit capture service. Such a service enables a healthcare provider to use a desktop scanner to capture images of paper checks and securely transmit them over the Internet to a bank for deposit. This expedited receivables process saves providers the time and money associated with daily bank trips or employing armored car services.

• Merchant Services. Bank merchant services can enable a provider to accept card payments at the point of care or by telephone. Card payments generally enable a provider to collect payment from the patient’s card account within 24 to 48 hours.

• Electronic Bill Presentment and Payment (EBPP). EBPP allows patients to make electronic payments online. When a healthcare provider offers this online payment option, patients log on to a secure area of the provider’s website to view and pay their bills. Patients receive an e-mail when a bill is available for viewing, and they can visit the website at their convenience to make payments.

Typically, EBPP payments can be made using the Automated Clearing House (ACH) network or a credit card. The patient gets an immediate e-mail verification of payment, and the provider’s account is electronically credited.

A 360-DEGREE VIEWHealthcare providers that manage receivables most efficiently generally approach the task by taking a 360-degree view of the entire healthcare payments life cycle. In other words, they consider the important role that payers play in the process of speeding receivables payments, and do all they can to tightly integrate the electronic flow of payment information between their office and the offices of the insurance companies and government agencies that pay them.

Efforts to ensure that patient data is being accurately entered into providers’ electronic medical record systems, before that data is sent to insurers as part of the claims process, can lead directly to faster payment turnaround and reduced DSO. For example, employing best practices to ensure that medical procedures are coded correctly in the billing system can significantly impact receivables turnaround.

Effective integration with payers ensures they have the accurate, up-to-date information they need to turn the claim payment around in a timely fashion.

REVENUE CYCLE PROCESS FLOW

HEALTHCARE PAYABLES STRATEGIESWhile financial managers at most healthcare providers are rightly focused on managing incoming receivables payments, they can also help shore up the bottom line by employing innovative payables strategies. One that can make a big difference is initiating a commercial card program for accounts payable spending.

Hospitals and medical practices can generate additional working capital by taking advantage of card program rebate opportunities. By paying for big-ticket items like X-ray and other diagnostic machines, ongoing lab fees and the restocking of vaccinations, healthcare providers can earn sizable rebates that can be used as working capital to fund further purchases.

Using a commercial card also effectively provides a no-cost credit facility, since you typically don’t have to pay for purchases for 30 to 55 days (monthly billing cycle plus an additional 20-25 day grace period).

Products and services offered by the Capital One family of companies, including Capital One, N.A., Member FDIC. ©2013 Capital One. Capital One is a federally registered service mark. All rights reserved.

PATIENT ACCESS

INSURANCE BILLING, REMITTANCE & PAYMENT

PATIENT BILLING & PAYMENT

Remittance & Payment Processing

Bank

PatientPayments

PatientCommunications

Remittances& Payments

Insurance Claims

Financial & Demographic Screening

Eligibility & BenefitVerification

Payers PatientsProviders

Healthcare providers should look for other opportunities to implement innovative payables strategies, as well. For instance, they can work with their bank to implement an electronic alternative to issuing checks for patient refunds, such as using their patient Web portal to offer refund payments through the ACH network.

A HOLISTIC APPROACH TO PAYMENTS MANAGEMENT Healthcare providers are typically cash-hungry businesses, and their financial managers can help satisfy those cash needs through innovative payments management.

The most effective approach to payments management is a holistic one that employs electronic solutions to add efficiency to both receivables and payables management practices.

For more information about Capital One Bank healthcare receivables and payables solutions, including our recently enhanced healthcare lockbox offering, contact your Treasury Management advisor.

BORROWING AGAINST YOUR RECEIVABLES? RULES MAY DICTATE ACCOUNT STRUCTURE

Healthcare providers that desire to borrow against Medicare and Medicaid receivables may need to establish a special cash management structure to meet lender requirements and comply with rules that generally prohibit the assignment of such receivables by the healthcare provider.

In a typical asset-based lending arrangement, a lender receives payment in respect of the borrowers’ receivables directly through a lockbox or other account controlled by the lender. However, under federal law, Medicare and Medicaid must pay directly into an account under the sole dominion and control of the healthcare provider.

Most asset-based lenders will require a borrower to set up two accounts, one for government (Medicare and Medicaid) collections and one for non-government collections from private payers such as commercial insurance and individuals.

To comply with the anti-assignment rules, the account control agreement for the government account must provide sole dominion and control over the account to the healthcare provider. The agreement will also include a standing instruction from the provider directing the depository bank to automatically transfer all collected funds (usually on a daily basis) to a secondary account in the sole dominion and control of the lender. This is often referred to as a double account or double lockbox structure, which complies with anti-assignment rules and is acceptable to most healthcare lenders. Any change in the standing instruction requires advance notice to the lender.

Capital Perspectives publication is for informational purposes only, does not constitute the rendering of legal, accounting or other professional services by Capital One, N.A., or any of its subsidiaries or affiliates, and is given without any warranty whatsoever. Products and services offered by the Capital One family of companies, including Capital One, N.A., Member FDIC. ©2013 Capital One. Capital One is a federally registered service mark. All rights reserved.