In-Band vs. Out-of-Band Remittance Delivery…

In Part I of my Understanding Healthcare EFT standards blog, I identified several major obstacles for health care providers to adopt EFT (electronic funds transfer) and ERA (electronic remittance advice).  In Part II, I will explore the differences between in-band versus out-of-band remittance delivery and how it reletes to EFT standards. The term in-band means that the payment and remittance information flow together.  Receipt of a paper check along with printed invoice payment details is an example of this, as is the NACHA CTX transaction.  Out-of-band means that the payment and remittance information flow separately through different channels and delivery may follow separate timelines.  A wire payment followed by the delivery of printed remittance is an example of this. 

Health care payments today, outside of checks, follow the out-of-band remittance delivery model. This is because the health care payment and remittance advice transaction is really a combination of two different types of information transmissions: 1) healthcare payment processing information and 2) the electronic remittance advice (ERA).

With few exceptions, the EFT and ERA are sent in different formats through different networks, contain different data used for different purposes and are often received by the provider at different times.  Payment instructions are typically generated by a health plan’s treasury system and transmitted over a payment network. The ERA is traditionally sent from a health plan’s claims processing system and processed through the provider’s billing and collection system.  Eventually, the payment and ERA are reassociated in the provider’s practice management system, ideally in an automated process but often requiring time-consuming effort by administrative staff. 

The Reassociation Challenge

Another barrier to the adoption of EFT for health care payments is that the ERA arrives at a different time than the associated payment.  They often arrive on different days or even different weeks. This can result in costly manual intervention and oversight.  But most critical to efficient reconciliation is the need for a common key - a data value that can be passed in both transmissions and used to reassociate the payment data with the remittance data.

The X12 EDI 835 contains such a key.  It is the trace number segment (TRN).  However, this TRN segment is not always passed in the EFT.  Payers may be using the CCD, or may not pass all of the necessary elements, or pass them in the wrong order, or instead pass a proprietary trace number.  A financial institution may place the TRN in the wrong field or remove it altogether.  An RDFI may transmit the information to the provider in a proprietary form. 

In summary, errors and omissions can occur between both the payer and the ODFI and the RDFI and the provider.  In Part III, I will discuss which message format to use for health care EFT.