Transactions and Code Sets:
Strategies in Implementing the
835 Transaction
Brett Hacker, CIO
Remettra, Inc.
©2003 Remettra, Inc.
Page 1
Simple Concept

Plans have been paying providers since providers
started filing claims

Providers need to know what was paid, rejected, or
adjusted (remittance)

HIPAA just wants to get that remittance standardized,
and available electronically so providers can eventually
auto-post receivables
©2003 Remettra, Inc.
Page 2
Complex Issues

Health care industry has little experience with banking
beyond cutting a check and reconciling statements

Banking industry as a whole has little experience with
health care and is generally unaware of HIPAA
©2003 Remettra, Inc.
Page 3
Driving Factors - Payers

HIPAA Compliance - October

Reduced print/mail costs - over time
Increased efficiency – immediate
Declined importance of float (although likely to rebound
eventually)



Reduced check fraud (if implementing EFT)
©2003 Remettra, Inc.
Page 4
Driving Factors - Providers

HIPAA Compliance - October

Automatic receivables posting – eventually
More timely payment receipt (if implementing EFT)

©2003 Remettra, Inc.
Page 5
What’s The Problem?

IG Scenarios/Prescribed Strategies:

2.1.2.1: ERA w/Payment by Check

2.1.2.2: ERA and EFT through DFI

2.1.2.3: ERA with Payment by Separate EFT

2.1.2.4: ERA and Payment Delivered Separately but
Processed by a Value-Added Bank (VAB)

2.1.2.5: ERA with Debit EFT
©2003 Remettra, Inc.
Page 6
ERA with Payment by Check
835 ERA
Payer
Payee
Check

Payer sends $ via check through the mail


Payer sends ERA directly to the Payee

Payee deposits the check and reconciles the ERA

Requires reassociation
“Gotchas”:


Legacy Approach: keep same old process, tack on electronic delivery of
ERA
Payer (or Payer’s clearinghouse) responsible for ERA delivery, which
becomes an additional process (still stuffing and mailing an envelope for
the check)
©2003 Remettra, Inc.
Page 7
ACH Primer

Terms:

DFI: Depository Financial Institution

Electronic Funds Transfer (EFT): The electronic mechanism that payers use to instruct
one DFI to move money from one account to another account at the same or at
another DFI. Fund transfers may utilize ACH, FedWire, Swift, or other authorized
electronic payment system.

Originating DFI (ODFI): bank which initiates EFT instructions

Receiving DFI (RDFI): bank which receives EFT instructions

NACHA: NACHA is a not-for-profit trade association that develops operating rules and
business practices for the Automated Clearinghouse (ACH) network and for other
areas of electronic payments (http://www.nacha.org).

ACH (Automated Clearinghouse): The most popular and widely used clearinghouse of
electronic fund transfers (i.e. direct deposit of payroll, corporate payments,
travel/expense reimbursements, state/federal, tax payments, consumer/business
related transactions). Common ACH computer formats (NACHA formats) include CTX,
CCD, and CCD+.

Float: Refers to both the time delay related to exchange of funds (i.e. check, mail,
processing) and the associated interest that may accrue during that delay.
©2003 Remettra, Inc.
Page 8
ACH Primer, Continued

More Terms:

Financially EDI capable/Value Added bank (VAB): DFI that can successfully process
and deliver incoming/outgoing EDI data, including translation, and store-and-forward
mailboxing between bank customers and their trading partners. Lockbox-capable.

Value added network (VAN): A third party service provider of secure networking
services such as secure store-and forward mailbox delivery of EDI documents, EDI and
proprietary in-network translation, and access to audit and reporting data on activity.

Advance Notification of Funds: The receipt of payment related detailed information in
advance of payment.

Dollars and Data Together: When the payment and remittance are kept together
through the entire data flow process, with the receiver also receiving the information
together.

Dollars and Data Separate: The transfer and receipt of payment and related data
separately (usually split to accommodate the advance notification of funds, requiring
reassociation of both payment and remittance by receiver of information).
©2003 Remettra, Inc.
Page 9
ACH Primer, Continued

More Terms:

ACH Operators


Federal Reserve System, New York Clearing House Association, VisaNet
ACH Services, and the American Clearing House Association
ACH Formats



CCD: “Cash Concentration and Disbursement”

B2B EFT format

1 payment record, no addenda
CCD+: “Cash Concentration and Disbursement with Addenda”

1 payment record, 1 addenda record of 80 bytes

Suitable for transmission of payment order and 835 TRN segment
CTX: “Corporate Trade eXchange”

1 payment record, up to 9,999 addenda records of 80 bytes each
©2003 Remettra, Inc.
Page 10
CTX
©2003 Remettra, Inc.
Page 11
CCD+
©2003 Remettra, Inc.
Page 12
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
Payer sends $ and ERA in an 835 to the Payer’s DFI

Payer’s DFI sends $ and ERA to Payee’s DFI

Payee’s DFI notified Payee of the $ via FDN (Funds Deposit
Notification) and delivers the ERA

Reassociation not necessary
©2003 Remettra, Inc.
Page 13
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
“Gotchas”:

Payer must maintain Account/Routing info for payees
(information not available in 837)

Since ODFI and RDFI will have access to PHI via the remittance
portion of the 835, BA agreements will need to be in place
(between Payer and ODFI, and Payee and RDFI)
©2003 Remettra, Inc.
Page 14
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
More “Gotchas”:

835 is “enveloped” into a NACHA CTX format by Originating bank
(ODFI) – BAA required between Payer and ODFI

CTX is transmitted to ACH (Federal Reserve, other CH) – in clear text
over private connection

CH forwards to Receiving bank (RDFI) – based on routing number (if
correct: if not, NACK is sent back to ODFI)
©2003 Remettra, Inc.
Page 15
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
More “Gotchas”:

RDFI extracts 835 from CTX and re-assembles – if RDFI is EDI-capable

RDFI delivers 835 to Provider – if RDFI has electronic delivery
mechanism
©2003 Remettra, Inc.
Page 16
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
NACHA ACH Rules (page OG99): “If the addenda record information will be
provided in human-readable format, the RDFI must ensure that the addenda
information is translated from ANSI ASC X12 syntax…and provided to the
Receiver in human-readable text. If the addenda record information will be
provided in machine-readable, electronic file format…the RDFI and
Receiver will need to determine whether the information will be (1)
transmitted to the Receiver as a pass-through of the electronic file format
(i.e., …835), (2) translated into a proprietary format agreed to by the RDFI
and Receiver, or (3) merged with the Receiver’s lockbox data.”
©2003 Remettra, Inc.
Page 17
ERA and EFT through DFI
ERA
Payer
EFT

Payer
DFI
ERA
EFT
Payee
DFI
ERA
Payee
FDN
More “Gotchas”:




CTX format consists of (1) payment record (the “6” record in ACH
format) and up to 9,999 “addenda” records (“7” records), each
sequenced and related to the “6” record
The ACH format allows 94-characters per line, and the addenda record
allows an 80-character payload (plus 14 characters of ACH control
information)
The maximum “payload” or remittance data capable of being transmitted
per payment record is just at 800k
The data cannot be compressed, except to make “…one segment
immediately follow(s) the preceding segment”
©2003 Remettra, Inc.
Page 18
ERA with Payment by Separate EFT
EFT
Payer
Payer
DFI
EFT
Payee
DFI
FDN
Payee
ERA

Payer sends $ via EFT instructions to the Payer’s DFI

Payer sends ERA directly to Payee

Payer’s DFI sends $ to Payee’s DFI

Payee’s DFI notifies Payee of $

Payee reconciles ERA with $
©2003 Remettra, Inc.
Page 19
ERA with Payment by Separate EFT
Payer
EFT
Payer
DFI
EFT
Payee
DFI
FDN
Payee
ERA

“Gotchas”:

Payer must maintain account/routing numbers and payment
preferences for payees

Payer must generate CCD+ file for ODFI, or establish BA with ODFI
before sending 835; ODFI must generate CCD+ from 835

Payee must set up account/routing number and payment preferences
with each payer he transacts with
©2003 Remettra, Inc.
Page 20
ERA and Payment Delivered Separately but Processed
by a Value-Added Bank (VAB)
Funds
Payer
Payer
DFI
Funds
Payee
DFI
(VAB)
FDN
Payee
ERA

Payer sends $ as appropriate for EFT or check to Payee’s DFI.

Payer sends ERA to Payee’s DFI

Payee’s DFI reconciles ERA and $ and notifies Payee

Reassociation performed by VAB
©2003 Remettra, Inc.
Page 21
ERA and Payment Delivered Separately but Processed
by a Value-Added Bank (VAB)
Funds
Payer
Payer
DFI
Funds
Payee
DFI
(VAB)
FDN
Payee
ERA

“Gotchas”:

This is HHS legalese for “lockbox operations”. Provider’s bank (RDFI)
receives payment and remittance, either electronically or via paper, and
processes the information for consolidated delivery to provider.
Inherently involves reformatting if received as a standard transaction
and consolidated to paper, or if received as paper and delivered as 835:
RDFI would be a covered entity.
©2003 Remettra, Inc.
Page 22
ERA and Payment Delivered Separately but Processed
by a Value-Added Bank (VAB)
Funds
Payer
Payer
DFI
Funds
Payee
DFI
(VAB)
FDN
Payee
ERA

More “Gotchas”:

Payer separates dollars and data then delivers ERA to RDFI (VAB)

Payer must have mechanism to communicate with each RDFI directly.
With mailed remittance, this is not a problem, but for ERA either the
payer or the payer’s clearinghouse would have to electronically transmit
the ERA to the receiving bank.

The reassociation trace number (TRN segment) would still have to be
transmitted through the ACH from ODFI to RDFI.
©2003 Remettra, Inc.
Page 23
ERA with Debit EFT
Debit
Request
835
Payer
Payee
EFT/FDN
Debit
Request
Payee
DFI
Funds
Payer
DFI
Debit Notice

Payer sends 835 with ERA and debit authorization to Payee

Payee instructs DFI to take funds from the Payer’s DFI

Payee’s DFI gets funds from Payer’s DFI and notifies Payee

Reassociation is necessary
©2003 Remettra, Inc.
Page 24
ERA with Debit EFT
Debit
Request
Payer
835
Payee
EFT/FDN
Debit
Request
Payee
DFI
Funds
Payer
DFI
Debit Notice

“Gotchas”:

More risk for payer (operating account authorized for debits)

More complexity and effort for provider (provider must set up with his
RDFI as a debit originator)

Payer (or clearinghouse) must still deliver 835 directly to payee
©2003 Remettra, Inc.
Page 25
Other DFI Issues

NACHA/ABA believe they should be exempt from HIPAA rules
due to privacy mandates of Graham/Leach/Bliley, and
exemptions outlined in Section 1179.

GLB requires bank to restrict outside entities from access to
collected data: no restrictions for internal use. HIPAA Privacy
requires entities with access to PHI to have measures in place
to restrict access internally.

Section 1179 refers to exemption for “payment” activities;
remittance is not exempted.
©2003 Remettra, Inc.
Page 26
Still a Problem?

Alternate Strategies

ERA Delivered by Payer, Payment Delivered by 3rd-party
payment processor

ERA Delivered by a Healthcare Clearinghouse, Payment
Delivered by 3rd-party payment processor

ERA and Payment Delivered Separately but Processed by a
Healthcare Clearinghouse
©2003 Remettra, Inc.
Page 27
ERA Delivered by Payer, Payment Delivered by
3rd-party payment processor
ERA
Payer

Payment
Processor
EFT
Or
ERA
Payee
FDN
EFT Order
(CCD+)
Payer
DFI
Funds
Payee
DFI
Funds
Payer sends $ via EFT instructions (via CCD+ ERA) to the Payer’s DFI

Payer sends ERA directly to Payee

Payer’s DFI sends $ to Payee’s DFI

Payee’s DFI notifies Payee of $

Payee reconciles ERA with $
©2003 Remettra, Inc.
Page 28
ERA Delivered by Payer, Payment Delivered by
3rd-party payment processor
ERA
Payer

EFT
Or
ERA
Payment
Processor
Payee
FDN
EFT Order
(CCD+)
Payer
DFI
Funds
Payee
DFI
Funds
“Gotchas”:

Payer still responsible for ensuring delivery of the ERA to the Payee

Depending on the policies of the 3rd-party processor, Payer may need to maintain
payee account/routing numbers and payment prefs

If Payer maintains prefs, Payee must set up prefs with each payer he does
business with (using a payment processor of this type)

Due to state banking regulations, Payer must maintain control of funds before
release to Payee (or keep equal amount on hand); CH must access Payer
account or a new account must be established by Payer for funds access by CH.
©2003 Remettra, Inc.
Page 29
ERA Delivered by a Healthcare Clearinghouse, Payment Delivered
by 3rd-party payment processor
ERA
CH
ERA
Payee
Payer
FDN
EFT
Or
ERA

Payment
Processor
EFT Order
(CCD+)
Payer
DFI
Funds
Payee
DFI
Funds
Payer sends $ via EFT instructions (via CCD+ ERA) to the Payer’s DFI

Payer sends ERA to Clearinghouse; Clearinghouse delivers ERA to
Payee

Payer’s DFI sends $ to Payee’s DFI

Payee’s DFI notifies Payee of $

Payee reconciles ERA with $
©2003 Remettra, Inc.
Page 30
ERA Delivered by a Healthcare Clearinghouse, Payment Delivered
by 3rd-party payment processor
ERA
ERA
CH
Payee
Payer
FDN
EFT
Or
ERA

Payment
Processor
EFT Order
(CCD+)
Payer
DFI
Funds
Payee
DFI
Funds
“Gotchas”:

Payer manages multiple relationships (CH, payment processor)

Depending on the policies of the 3rd-party processor, Payer may need to maintain
payee account/routing numbers and payment prefs

If Payer maintains prefs, Payee must set up prefs with each payer he does
business with (using a payment processor of this type)

Due to state banking regulations, Payer must maintain control of funds before
release to Payee (or keep equal amount on hand); CH must access Payer
account or a new account must be established by Payer for funds access by CH.
©2003 Remettra, Inc.
Page 31
ERA and Payment Delivered Separately but Processed
by a Healthcare Clearinghouse
ERA
Payer
FDN
CH
ERA
EFT Order
(CCD+)
Funds

Payee
Payer
DFI
Funds
Payee
DFI
Funds
Payer Sends 835 to CH

Payer Sends $ to ODFI

CH creates CCD+ from 835 and transmits to ODFI

ODFI initiates funds transfer to RDFI via CCD+ instructions

CH sends Funds Deposit Notification to Payee

Payee retrieves ERA from CH
©2003 Remettra, Inc.
Page 32
ERA and Payment Delivered Separately but Processed
by a Healthcare Clearinghouse
ERA
Payer
CH
Payee
ERA
Funds

FDN
EFT Order
(CCD+)
Payer
DFI
Funds
Payee
DFI
Funds
“Gotchas”:

Due to state banking regulations (in most states), Payer must maintain
control of funds before releasing to Payee or keep equal amount on
hand, so CH must have access to Payer account or a separate account
must be established for payer to put funds into for access by CH.

Many traditional clearinghouses have indicated they do not want to
handle the EFT transaction.
©2003 Remettra, Inc.
Page 33
Summary

There are many issues, both unresolved and under
debate, regarding utilizing the ACH network for ERA
delivery.

Payers must carefully evaluate both strategy and
partners when deciding on a remittance and EFT
delivery method.

To fully realize HIPAA cost savings in the remittance
process, both payment and remittance must be delivered
electronically or outsourced to a partner.
©2003 Remettra, Inc.
Page 34
Thank You!
Remettra, Inc. (reh-‘meh-truh) is a specialized
healthcare clearinghouse providing remittance
advices (electronic or paper) and payments
(electronic or paper) to healthcare providers for
claims previously adjudicated. Unlike most
clearinghouses that provide an array of services,
Remettra has focused on services specifically
tailored to meet payers' accounts payable
objectives.
Remettra fills the role of a one-stop outsourcing
solution for converting our clients' paper-based
accounts payable processes to fully automated
electronic systems. We do this through our core
products, MedRemit and MedRing.
Brett Hacker, CIO
Remettra, Inc.
400 Hardin Rd., Ste. 140
Little Rock, AR 72211
(866) 226-9641
http://www.remettra.com
©2003 Remettra, Inc.
Page 35