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Statement To




December 8, 2005

Presented By: Lisa S Miller
COO Washington Publishing Company
Chair – DSMO/CMS Cost Benefit Analysis Task Group

Mr. Chairman and Members of the sub-committee, I am Lisa S Miller, COO for Washington Publishing Company and Chair of the Workgroup for Electronic Data Interchange (WEDI) DSMO/CMS Cost Benefit Analysis Task Group. I would like to thank you for the opportunity to present testimony concerning findings of the task group regarding potential costs and benefits of migrating to ASC X12N version 004050 835 – Health Care Payment/Advice.

In June of 2005, WEDI was contacted by the Data Standards Maintenance Organizations (DSMOs) and the Centers for Medicare and Medicaid Services (CMS) to request assistance in the development of cost-benefit analysis that are included in every Notice of Proposed Rule Making (NPRM). WEDI was approached due to our role as an advisor to HHS as prescribed in the HIPAA legislation. WEDI formed an ad hoc task group and developed a survey of the industry, with specific questions for health plans, providers and vendors.

That survey has been provided to you.  I will present the survey results shortly, but first I will set some parameters around the survey and, more importantly, around the larger issues of industry adoption of the 835 remittance advice standard.

WEDI recognizes that the true problem we are addressing with the 835 remittance advice transaction is not fundamentally a versioning issue, but rather an adoption issue.  Previous communications to HHS from WEDI (see WEDI letter to Tommy Thompson, March 8, 2004) identify adoption impediments that we believe are more significant than the version issue.

WEDI’s recent paper summarizing our survey on the costs and benefits of moving the 835 transaction from version 4010-A-1 to version 4050 reports industry belief that there is value to migrating, but stops short of establishing certainty around return on investment for payers and providers.  Other WEDI deliberations have elicited industry opinions that there are more serious barriers, including:

  • Perception or reality of inadequate specificity in the code sets utilized by both the 4010-A-1 and the 4050 versions of the 835, e.g., the reason codes and the remarks codes, both of which are external codes sets to X12 and can be amended by the coding bodies without HIPAA rule making;
  • COB/Medicare Crossover inadequacies; and
  • Perception or reality of balancing problems within the 835 or between the 835 and 837 claim.

Bottom line is that industry use of the 835 is low and is not likely to grow significantly until the 835 can assure users that posting and closing can be automated within the provider practice and that most adjustment clarification phone calls between provider and health plan can be eliminated. WEDI is working with its membership and will be working in cooperation with X12, the Coding Committee, CMS and the other DSMO organizations to address those barriers.

That being said, I’d like now to focus on WEDI’s 835 version 4050 survey and results.

During the June 2005 conversations with the DSMO Chair and OESS staff, the following were identified as items that would be both meaningful and as accurate as possible. The items identified were:

  • The organizations were initially looking for a cost-benefit analysis for moving the industry to the 835 Version 4050.
  • Costs and benefits should be reflected for each covered entity including payers, providers, and clearinghouses;
  • The information would not need to be statistically valid but rather could be based on industry estimates from each of the core stakeholders mentioned above;
  • When information is estimated, the NPRM would likely ask for industry validation to agree with or dispute the estimates and provide for additional information-gathering prior to the final rule;
  • Creating the analysis will help CMS expedite the timing and release of the NPRM;
  • Need the analysis completed by the end of July, 2005 for 835 Version 4050.

In order to meet the aggressive time requirements,  WEDI created a DSMO/CMS Cost Benefit Analysis Task Group that consisted  of a cross-section of industry stakeholders including payers, providers, clearinghouses, vendors, standards liaisons (including DSMO representation), government liaisons (including CMS/OESS representation).   It was further communicated that in the future the DSMO/CMS representatives would require cost-benefit analysis for additional NPRM’s – for example, when it is recommended to move forward with X12N Version 5010 transaction sets.

The first organizational meeting of the task group occurred on July 13, 2005. During this meeting, approaches to meet the requirements and deadlines were discussed.  The task group agreed that a survey of the stakeholders would be the most efficient method of obtaining the industry perspective.  The task group also agreed to utilize the X12 document “Health Care Claim Payment Version 4050 Cost and Benefit Analysis” authored by the ASC X12N TG2 WG3 (Claims Payment work group) co-chairs.  It was further assessed that the group could not make the July timeframe and adjusted the timeframe to the end of August 2005 for the completion of the documentation.

The announcement, survey questions and the X12 document were sent out to the community on August 3, 2005.  With the assistance of the American Medical Association’s online survey tool, the survey results were collected electronically and closed on August 10, 2005.  The survey results were analyzed and compiled into the document titled “Health Care Claim Payment/Advice Version Migration” and was ultimately approved by the WEDI Board of Directors in September 2005.

Survey Structure

The web-based survey asked participants to self-select into one of three domains:

  • Health Plan (Payer)
  • Provider
  • Vendor

Note: It is important to note that respondents did not necessarily answer every question in the survey. In addition, there may be some outlier responses that skew the response averages up or down.

Health Plan (Payer) Interpretations and Findings

The Health Plan (Payer) survey had 40 valid responses. The summary of the responses and the detail of the responses can be found in the sections ‘Payer Survey Summary’ and ‘Payer Survey Results’.

After evaluating the content of the 40 responses, the Task Group concluded that the survey results were substantially representative of the industry.


  • The 40 responses included representation from most health plan sectors, including federal and private payers, indemnity and managed care, acute and long term care, dental and vision.
  • 97% of the responding Payers are capable of sending the 835 today.
  • Most of the Payers (69.7%) reported that fewer than 50% of their trading partners (provider community) are receiving the 835.
  • Average costs for implementing the 835 range from $219,000 – $287,000.
  • The average cost for the payer community is higher than the average provider organization cost.
  • There are unidentified costs that will raise the implementation costs for the payer community (i.e., companion guide creation, testing, etc.).

BENEFIT opportunities

  • There may be room for potential benefit for the health plan.
  • The 4050 835 provides clearer instructions providing consistency (across payers) that may potentially lead to improved usage of the 835 by their trading partners.
  • Although not specifically addressed in this survey, the increased acceptance of the 835 may reduce ancillary costs, such as customer service, paper-based payment and reporting, increasing the potential benefit by the health plan.

Provider Interpretations and Findings

The Provider survey had 93 valid responses. Of these 93 respondents, 42% indicated they are best described as a “Hospital, Nursing Facility, Health System or other institutional setting,” 18% indicated they were an “Individual or Group of Physicians,” and 40% indicated they would be described as something “Other” than these categorizations (includes Ambulance, Lab, Pharmacy, DME and all other clinics and practitioners). The summary of the responses and the detail of the responses can be found in the sections “Provider Survey Summary” and “Provider Survey Results.”

The Task Group evaluated the content of the 93 responses. The Task Group observed that the survey sample size was too small for statistical validity and that the respondents disproportionately represented large providers; small groups/practices were not well represented.  Nonetheless, task group expert opinion is that the survey is probably representative of provider organizations who have implemented the 4010 835 Health Care Claim Payment/Advice, since implementers tend to be the larger organizations.  Therefore, we believe the content is valid for the purposes of this study.


  • Small number (93) of providers responded.
  • More representation from the larger providers; limited representation from small groups/practices.
  • For the part of the provider community that is capable of receiving the 835, the majority of the remittance items are still posted manually.
  • Average costs for ‘Individual or Group of Physicians” respondents implementing the 835 consist of around 110 person-days plus around $48,000 for software costs.
  • Costs for very small provider groups/practices (<10 physicians) is unknown since there were no small practice respondents
  • Average costs for “Hospital, Nursing Facility, Health System or other institutional setting” and “Other” respondents implementing the 835 consist of around 200 person-days plus software costs of around $144,000 for survey respondents
  • There are unidentified costs that could raise the implementation costs for the provider community

BENEFIT opportunities

  • There may be room for potential benefit for the provider.
  • The 4050 835 provides clearer instructions providing consistency that may potentially lead to providers’ ability to further implement/automate the 835 where it is already in use with payers, and begin to use the 835 with more payers.

The 4050 version of the ASC X12N 835 may remove obstacles to industry-wide implementation of the 835 for the reporting and posting of electronic remittance advices. This implementation has significant potential benefit for both providers and health plans. One aspect of the potential4050 835 cost savings could be better remittance management, secondary billing and more timely generation of patient statements. The task group has estimated that providers may conservatively save $4 per payment posted in an electronic versus paper environment. The task group has identified other possible benefits which include cash flow improvements, reallocating staff to other functional areas that impact operating costs, savings in paper management and storage, easier retrieval of EOBs for follow-up purposes (appeals process) if the 835 is stored in a file for future reference and other benefits.

Overall, enterprise management is impacted when cash is posted accurately and timely, and can be used to track the financial performance of specific treatment modalities and how they may be changed to increase overall performance (i.e., eliminated, improved, etc.). Finally, other regulations are creating pressures in the area of remittance management, to ensure that financial records accurately reflect fiscal posture. Implementation of the 835 can streamline both operating and compliance procedures for the healthcare provider.

The ASC X12N 835 may require changes before it can be “operationalized,” including issues around coding of denial reasons and other areas. As these issues resolve, implementation of the 835 to automate workflow processes could become just as important as the automation that has already occurred with the 835. If the administrator was faced with “turning off” the 835, it would create a strain at many hospitals because the savings have already been internalized. The 835 offers the opportunity to reduce costs related to the remaining remittance classes.

Vendor Interpretations and Findings

The Vendor survey had 32 valid responses. The summary of the responses and the detail of the responses can be found in the sections ‘Vendor Survey Summary’ and ‘Vendor Survey Results’.

The Task Group evaluated the content of the 32 responses. The vendor survey is unique in that the customers of the vendors that responded are both providers and payers. 53.1% of the Vendor respondents support Institutional healthcare providers, 87.5% support Professional healthcare providers, and 43.8% support Payers. These percentages add to more than 100% because some vendors could potentially support any or all of the categories listed. The Task Group concluded the survey results were representative of the industry. The content was found to be valid for the purposes of this study.


  • Small number (32) of vendors responded overall
  • Representation from all Vendor sectors.
  • The majority (83.3%) of responding Vendors’ report their software is capable of receiving/sending the 835 today.
  • The majority of the vendors (58.6%) receiving/sending the 835 report that usage of the 835 is less than 50% of total potential volume.
  • Reported costs for creating the new version of the 835 range from under $25,000 up $5 million (one respondent only).

BENEFIT opportunities

  • There may be room for potential benefit for the vendors through improved remittance capabilities and clearer instructions of the 4050 835, which may drive up usage of remittance-related products and services.
  • Although not specifically addressed in this survey, the increased acceptance of the 835 may reduce ancillary costs, such as customer service, paper based payment and reporting, increasing the potential benefit.

In conclusion, while WEDI believes the survey results are reflective of industry beliefs, the survey stops short of conclusively demonstrating achievable value to the industry or identifying next steps toward removal of all the barriers to adoption.  We conclude that further exploratory work is advisable.  That work should include:

  • specific quantification of 835 4050 adoption value to providers and health plans;
  • resolution or substantial improvement in the specificity and uniform use of code sets;
  • further refinement of barriers to automated posting and closing of accounts based on 835 data.; and
  • further research to identify and address implementation barriers from all parties’ perspectives.

Overall, the survey results indicate “potential” benefits for the migration from the 4010 to 4050 version of the 835 transactions currently mandated under HIPAA, but the nature of the request from CMS and the DSMOs and the methodology did not contemplate a quantitative proof of benefit.

I would like to note that it was not in the scope of the task group to consider or evaluate other versions of the 835 transactions such as the 5010 version.

Mr. Chairman and members of the sub-committee, thank you for the opportunity to testify. This concludes my statement.