Check to ACH:

The benefits of moving from check to ACH payments are many with a reduction in costs being one of the most significant.  But for nearly all Payers, moving to ACH means gathering and storing supplier’s banking information.  Securing this information is critical because a data breach has the potential to become a large liability.  A key responsibility of maintaining this information in your systems would include physical, process and technical controls, regular security reviews and the establishment of an incident response plan.  Increasingly we are talking with businesses who would like to reduce this risk and instead have the information maintained by a service provider such as SunGard with proven systems, knowledge and expertise to best secure financial information.

 Check Printing:

Some companies wonder whether their check print volume is large enough to justify outsourcing.  But check printing costs are higher than people realize when the cost of all of the inputs such as MICR toner, check stock, envelopes, postage and labor are included.  People are surprised to find out that check payments can cost $2-3 per check or more.  SunGard is able reduce that cost significantly.  Our online site, Leaving the Check Behind, explains in more detail.

 Often, A/P departments have a need to print a small percentage of their checks in-house.  This does not preclude outsourcing as there is no requirement to outsource everything. Companies can still reap the cost-savings by outsourcing most of their check printing and maintaining fewer supplies on-hand. 

 Have you implemented a payment project? We’d like to hear your concerns.

Check to Virtual Card:

The benefits of moving to virtual card are obvious, with clear savings in moving from check to electronic payments along with rebates that can be derived from moving even a small portion of payments to card. But the most frequent underlying concern is the sometimes unspoken question – why would a company take v-card when there may be a fee involved? It seems counter-intuitive, but there are several reasons that it makes sense for many companies:

-        Reduced risk of fraud – the use of v-card removes the need to supply bank account information to all of their payers for ACH payments, and also removes the rising risk of check fraud, which now affects 85% of organizations (see my previous blog, Payments Fraud Remains High, for more information).

-        Clear remittance details and notification – Often with ACH payments, the money arrives in a company’s bank account without remittance details, leading to huge hassles in trying to apply the payment.  Companies have been known to miss budget due to this problem. In addition, companies like to receive notification ahead of the payment. Our system provides both an email notification and clear remittance details with every payment. 

-        Simplified bank management – If a company has given out bank payment details to receive ACH payments and they change banks, it can be a project of enormous dimensions for A/R to get new bank information to all of their payers. Accepting v-cards can remove that maintenance step and remove dependence on the bank.

Some other concerns we hear are that A/P managers often believe that only their small suppliers will want to accept v-cards. In our experience, that’s simply not the case. We have seen six- and seven-figure v-card payments processed.  A/P managers might also be concerned about affecting their relationships with their suppliers.  Because we allow you to dictate who we call, what we discuss, and whether we make more than one attempt, we can help maintain those great relationships that they have built over time.  If a company has a discount have in place with their main suppliers that they are concerned about impacting, we can just remove that company from the contact list.  In many cases, though, suppliers have actually already built the cost of card processing into their prices.

Have you implemented a check-to-v-card project? We’d like to hear about concerns you may have had prior to implementing.

87% of survey respondents reported that checks were targeted, compared with 29% for corporate/commercial purchasing cards, 27% for ACH Debits, 11% for wire transfers and 8% for ACH credits.  Nearly three-quarters of organizations that were subject to at least one payments fraud attempt in 2012 did not suffer actual losses from the attempt.  This is largely due to effective fraud detection and controls.

External vs. Internal Threats

Most payments fraud originates outside the victimized organization.  Eighty percent of the organizations surveyed experienced attempted or actual payments fraud as a result of actions taken by an outside individual.  Eighteen percent were a result of organized crime while ten percent were subject to fraud from an internal party.  Generally less than 1% was attributed to a lost or stolen laptop or a compromised mobile device.

Controls

Positive pay, ACH filters and daily reconciliations are among the methods used to identify exception items that may include fraudulent transactions. For most of the respondents, the number of exceptions is relatively small and items can be easily identified. One best practice that organizations can follow is to segregate accounts by payment type (wire, ACH, check, card) and by purpose (taxes, payroll, AP).  This is because separation of accounts allows for more timely and focused review of payment activity.

Social Engineering

Corporate Account Takeover (CAT) typically involves gaining access to a company’s online banking site in order to create fraudulent transactions.  Attacks are often introduced through “social engineering” that relies on human interaction and tricking people into performing actions that can compromise security.  A good example of this is an innocent looking email containing links that when clicked, install malware or keystroke loggers to capture access credentials.  The good news is that the incidence of this is still very low – only 2% of respondents reported being attacked and actually having had credentials compromised or an unauthorized transaction initiated.  One effective way to mitigate CAT is to conduct daily reconciliations of transaction activity and following up on a timely basis when questionable activity is detected. Other effective techniques include separation of duties and dual controls for payment release.

How does this report align with your experience?  We’d like to hear from you!

• Permits all SEC Codes except International ACH Transactions (IAT), Check Truncated Entry (TRC)
• and Check Truncated Entries Exchange (TRX)
• Allows credits as well as debits
• Accommodates business as well as consumer transactions
• Places no dollar cap limits other than those set by NACHA on check-conversion transactions

Availability of these services is dependent upon those ODFIs and RDFIs who choose to opt-in.  The significance of this service offering is that business accounts may now take advantage of this service.  This provides a low-cost option for accelerated clearing and settlement.  

How do you envision your organization benefiting from this capability?  We’d like to hear from you.

I thought I would share best practices of a company, Zachry Industrial Inc., that has been able to convert 31% of their payments away from check to ACH and virtual card helping them eliminate their payment execution costs and generate more than $100k in virtual card rebates annually.  Aside from the dollar benefits, they have improved visibility to cash and remittance, tightened process controls and improved security.

 You can read the case study to learn how they did it. 

 Are you considering migrating to virtual card programs? I’d like to hear from you.

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 explored the differences between in-band versus out-of-band remittance delivery and how it reletes to EFT standards. In Part III, I discussed which message format is best to use for Health Care EFT. In Part IV, I will review NACHA’s SEC Code.

As mentioned in my previous post, transporting personal health information (PHI) through CTX would require that the ACH Networks be HIPAA compliant. A healthcare-specific version of the CTX, perhaps the “HTX”, has been suggested that would allow health care transactions to be identified, segregated from other ACH standard transactions for HIPAA-compliant handling as necessary and expanded to accommodate ERA data volumes that exceed the limits of the current CTX. While the greatest long-term administrative simplification cost savings may be achieved when the EFT and ERA seamlessly flow together, it remains to be seen whether this might occur due to a natural evolution within the industry or by regulatory mandate.

Challenges Remain

In general, the HIPAA transaction standards enable electronic data interchange using a common interchange structure. The X12 EDI 835 message is the electronic standard for defining the healthcare payment remittance information associated with a payment, but the use of conditional and optional fields creates variations from almost each payer. These inconsistencies in the 835 can make it difficult to post to the provider’s practice management system (equivalent to AR). Somehow the providers must normalize the transactions into a form that their system can ingest. This process typically involves using the payer’s EDI 835 “Companion Guide” in order to convert the various “standard” messages into a truly standard data stream.

These guides vary in format, structure and size and the variance among them can be confusing to trading partners and providers who must implement them. It is estimated that there are more than 1,200 such guides in use today. The regulations will now require the use of a standard document template with a common structure that health plans must use. Unfortunately while the documentation may be standardized, inconsistencies in 835 implementations will remain. Thus reassociation services will continue to be offered by banks, technology service providers, vendors of practice management system and health care clearinghouses into the foreseeable future.

The NACHA Operating Rules require that the financial institution provide the remittance information in the Payment Related Information Field if the Receiver requests it. Financial institutions must be ready to deliver this information to Providers; if they currently lack the capability, they should talk with their vendors or third-party service providers to ensure that they can comply with the NACHA Operating Rules and support their healthcare customers. Failure to deliver the requested information constitutes a NACHA Rules violation, potentially subjecting the RDFI to penalties and fines for non-compliance through the National System of Fines.

Things to Remember

Private-sector Health Plans must have the ability to send ACH and ERA to the healthcare Providers by January 1, 2014, although there is no mandate within the healthcare legislation for the Provider to accept ACH for reimbursement of private-sector Health Plan payments. That being said, health plans can still require a Provider to accept ACH payment as part of their contract.

Failure to comply with requests made by Providers to receive the Payment Related Information (Reassociation Trace Number) constitutes a violation to the NACHA Operating Rules, making the financial institution subject to potential fines under NACHA’s System of Fines.

As of January 1, 2014, health plans and providers are not prohibited from using other networks such as Fedwire, card payment networks, etc. However, if a provider requests that a health plan conduct EFT using the ACH Network, the health plan is required to do so.

Are you struggling with health care EFT? I’d like to hear from you…

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 explored the differences between in-band versus out-of-band remittance delivery and how it reletes to EFT standards.   In Part III, I will discuss which message format is best to use for Health Care EFT.

Which message format should you use for health care EFT?  How can you best address timely delivery, reassociation keys or in-band or out-of-band delivery?  Testimony during the December 2010 hearing (held by the National Committee on Vital and Health Statistics (NCVHS) indicated that currently, when payments are made via EFT (as opposed to paper check), the majority are already being transmitted through the ACH network. A much smaller percentage is processed through Fedwire or card networks.

What about EDI?  Although the X12 EDI 835 can contain payment instructions in addition to remittance, no  testimony was given to support that use of it.  Currently it appears to be used solely for the delivery of remittance advice data. Nor was X12 EDI 820 suggested as an alternative for EFTs.  Neither were there any suggestions in support of standardizing any proprietary formats currently in use.

Of particular significance is the NACHA Corporate Trade Transaction (CTX), which was mentioned but not endorsed.  Testimony was given that while 99+% of ERA data could be carried as the message payload in a CTX transaction, exceptions would nevertheless need to be addressed.  Also, the ERA data is typically generated and sent from a health plan’s claims system, not their treasury system.

More critical to the discussion was the recognition that passing personal health information (PHI) through CTX would require that the ACH Networks be HIPAA compliant.  Some in the financial industry are reluctant to be subject to HIPAA’s privacy and security requirements with respect to such information.  On the other side, providers and payers are reluctant to send PHI through the ACH network without assurances that the PHI is adequately protected under HIPAA.  While bank testimony indicated a preference for passing “data and dollar” together, representatives of the health care industry have mixed opinions about whether they would want to send or receive EFTs and ERAs together in the future.

Consensus Reached

Ultimately, the NACHA CCD+ was chosen as the standard message format for health care EFT send over the NACHA network.  Many health plans use it today to initiate payment instructions with their ODFI, and it is used for nearly all health care claim payments transmitted between banks.  The Payment Related Information Field of the CCD+ has the capacity to carry the reassociation key which, as part of the standard, will be the TRN segment from the EDI 835 used to carry the ERA.  Using the addenda record to carry the TRN Segment will facilitate reconciliation downstream and out-of-band delivery avoids the challenges of HIPAA compliance within the ACH network.  Timeliness of transmission is addressed in the regulations, with payers required to send the EFT and ERA within 3 days of each other.

In my final post in the Understanding Health Care EFT Standards blog series, I will explore the NACHA SEC Code.

Are you using the NACHA CCD+message format for Health Care EFTs?  I’d like to hear from you…

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.  In an earlier blog Post-Sibos 2011 Thought: The Remittance Data Transport Conundrum for Banks, I briefly discussed these two approaches for delivering payments and associated remittance.  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.   

Are you experiencing similar health care EFT challenges? I’d like to hear from you…

During 2010, NACHA collaborated with the Council for Affordable Quality Healthcare (a non-profit alliance of health plans and trade associations) Committee on Operating Rules for Information Exchange (CAQH CORE) on a research project to better understand how health plans and providers use EFTs and ERAs. 

In December of 2010, a hearing was held by the National Committee on Vital and Health Statistics (NCVHS).  The NCVHS engaged in a comprehensive review of potential standards and operating rules for the EFT and ERA transactions.  The hearing included public testimony by stakeholders representing a cross section of the health care industry, banking industry and standards development organizations.

In March of 2011, NCVHS recommended to the Secretary of Health and Human Services (HHS) that CAQH CORE and NACHA draft the healthcare operating rules for EFT and ERA transactions.  Over the next 6 months, a working group developed operating rules that addressed barriers to healthcare providers’ acceptance of EFT and ERA. 

In December 2011, the NCVHS recommended to the Secretary of HHS that the health care EFT standard for payments made via ACH be the NACHA CCD+ format and that the ERA content be as specified in the X12 835 TR3 Report.

On January 10, 2012, the Administrative Simplification: Adoption of Standards for Health Care electronic Funds Transfers (EFTs) and Remittance Advice; Interim Final Rule was published in the Federal Register. This regulation became effective on that date and has a compliance date of January 1, 2014.

On August 10, 2012, the Administrative Simplification: Adoption of Operating Rules for Health Care electronic Funds Transfers (EFTs) and Remittance Advice; Final Rule was published in the Federal Register. This regulation became effective on that date and has a compliance date of January 1, 2014.

Four Areas Major Problem Areas

The research performed by NACHA and CORE and the testimony provided during the Dec. 2010 NCVHS hearing identified several major obstacles for health care providers to adopt EFT and ERA, resulting in increased administrative costs and offering opportunities for efficiency improvements.

• There were no standards related to how a provider enrolls to receive EFT and ERA
• The use of 835 is non-standard due to conditional and optional fields
• There can be a considerable elapsed time between the origination of the ERA and the associated EFT
• There was no standard regarding the use of a key value to reassociate the data in the ERA with the EFT

The Challenges of Leaving the Check Behind

For 2013, it is estimated that slightly less than 70 percent[1] of health care claim payments will be made in paper check form and 65% of remittance advice will be sent through the mail in paper form.  The reasons for this are nearly identical to the reasons that B2B invoice payments continue to be made via paper check. 

• No reassociation is necessary when the dollars and data arrive together in the mail. 
• Information on printed EOBs is more easily understood than the EDI 835. 
• Providers have limited budget for investments in payments technology, particularly at smaller practices. 
• Delivery and processing of ERA by the provider requires a custom implementation. 

Just as in B2B payments, checks still rule in health care despite the acknowledged advantages of EFT including cost savings, fraud control and improved cash flow and cash forecasting. 

In my next post, I’ll discuss In-Band vs. Out-of-Band Remittance Delivery and how it relates to Health Care EFT Standards. 

Are you still burdened by paper checks processes?  I’d like to hear from you.

I often get asked though, what is the return on investment (ROI) for migrating checks to an electronics payments process?  Here is an example. 

An average sized corporation processing 2,500 checks per month with an average cost of $1.51 per check can expect the following benefits: 

• With a 50% migration to ACH, the corporation could save about $1,575 per month, or $18,900 per year.
• Even better, a corporation with an average check amount of $1,100 that migrates just 25% of its paper checks to virtual cards can expect immediate cost savings of $944, along with a monthly rebate of $8,594, yielding a monthly net difference of $9,538, or $114,456 per year.

The costs savings of migrating to ACH alone are significant, but the additional revenue a corporation can earn by migrating just a portion of their checks to a virtual card program is staggering.

Corporations can also feel good about these cost savings and the additional revenue because they are also helping the environment. In the same scenario as above, in which a corporation has saved tens of thousands of dollars, the elimination of thousands of printed checks and paper envelopes also saves trees, water, gasoline, greenhouse gases, and more. It’s not every day that a corporation can save and earn money while also helping to sustain our environment.

You can actually input your current payments processing costs into this ROI calculator to determine how much your corporation can save each month by switching from paper checks to ACH, how much you can earn by migrating paper checks to a virtual card program, and how you can help the environment.

I encourage you to check out this calculator and share your ROI scenario with me.