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The New Era of Paperless Claims
The New Era of Paperless Claims by William A. Lockwood, Jr.
F
OLTP systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country.
inding better ways to move and manage information quickly is high on everyone's agenda these days. And why not? A critical principle in pharmacy - especially when it comes to prescription medications covered by third party payers - is that the value of information increases with its timeliness. Though computers have contributed substantially to an unprecedented level of efficiency in billing third party payers for prescription reimbursement, rejected claims continue to be a nagging after-thefact problem for pharmacists. This is due in large part to the increasingly complex nature of the third party prescription drug business. Exceptions and exclusions abound, and virtually every payer has its own specific submission requirements. However, at least in theory, on-line transaction processing (OLTP) technology is the solution to achieving a rejection rate of zero and eliminating payment lags from resubmissions. OLTP is not a new technology. In fact, it has revolutionized the banking industry, which has long been using autornated teller machines (ATMs) and point-of-sale (PaS) terminals to authorize debit and credit card transactions. A similar phenomenon is now taking place in pharmacy. High-speed modems coupled with powerful, low-cost personal computers are making it practical William A. Lockwood, Jr., is cofounder, president, and publisher of Com-
puterTalk Associates, Inc., in Blue Bell, Pa. He is also executive director of the American Society for Automation In Pharmacy.
20
American Pharmacy, Vol. NS30, No.1 January 1990/20
to verify a cardholder's eligibility and approve the prescription order before dispensing it. OLTP's use in phannacy ranges from simple verification of the cardholder's eligibility to complete data capture and claim adjudication. Consequently, third party billing is becoming "real-time" - on the spot, as the transaction takes place.
Exponential Growth
O
f the roughly two billion prescription medications currently dispensed in community pharmacies each year in the United States, approximately 600 million, or one-third, are covered by a prescription drug plan or Medicaid. Of these, upward of 70 million are currently being handled through OLTP. This already constitutes more than a 10% share of third party prescription drug claims in the two years since real-time systems were introduced. By all indications OLTP will increase at an exponential rate over the next few years. By the mid-'90s, if not sooner, OLTP will be the predominant system for processing claims, and submitting claims on magnetic tape or on paper will become a footnote in pharmacy history. Not surprisingly, the driving force behind on-line transaction processing is cost containment. Real-time systems make it possible to accommodate plans with deductibles, and they shorten the lead time for implementing changes in copayments, drug exclusions, and the like. In other words, third party prescription drug programs can become more complex, yet complex in a way that is easy for pharmacists to manage. In addition, OLTP substantially reduces cardholder fraud, because eligibility is verified on the spot.
Saving Time Through 'Front-end Edits' LTP's promise of increasing the O efficiency of third party billing can be achieved only when the computers used by pharmacists contain good "front-end data edits." This means the computers will not let phannacists process the prescription order if information required by the plan is missing or the prescription order as written by the
By the mid-'90s, if not sooner, OLTP will be the predominant system for processing third party claims for prescription reimbursement. physician is not covered. Pharmacists save time if they can avoid resubmitting a claim, since total turnaround averages 30 to 40 seconds for each transaction from the time they log on to the computer to the time they log off. Consequently, the more on-board edits that are done to catch ineligible drugs, dosage fonns, and days' supply before the claim is submitted, the better. Also, edits of fields such as cardholder's birth date, dependent code, and group number will alert the pharmacist to incomplete data. But care must be taken when this infonnation is entered, since a transposition error in a group number or a national drug code will mean that the pharmacist must resubmit the claim.
Resource Requirements
W
hen OLTP was introduced to phannacy, some people were concerned that prescription counters would become overrun with POS tenninals, or "black boxes." Fortunately, the scenario they feared has not materialized. Thanks to computer companies that took the initiative to write software allowing pharmacists to make computer-to-computer submissions, the need to double enter prescription order infonnation through a POS
American Pharmacy, Vol. NS30, No.1 January 1990/21
tenninal has been averted. In fact, many computer companies have programmed the computer to dial up and transmit claims as a background task; meanwhile, the pharmacist can process the next prescription order while awaiting a response. Still, not all pharmacists are so lucky. For anyone using a system that is no longer supported by its original distributor, claim submission may require double entry. POS tenninals, therefore, will continue to serve as the solution for these phannacists until the day when they decide to replace their pharmacy computers. As more and more third party plans implement realtime systems, pharmacists will find the burden of double entering claims overwhelming. In much the same way that pharmacists migrated toward computers as the paperwork in submitting claims manually became too time-consuming, pharmacists will replace their computers to eliminate double entry.
Lack of Standards Means Higher Cost \ A #hen a third party plan that V V requires on-line transmission is set up in the pharmacy computer, the system must indicate telecommunication requirements. For example, the system must be preset for each processor with such information as tone or pulse dial, parity (even or odd), record length to be transmitted, baud rate, and stop bits. Unfortunately, there are no standards. Differences in log-on protocols, timing sequences, and network directives imposed by the third party processors and insurance carriers require that your system have specific programming in order to comply. Even the record length and data elements vary from processor to processor, as do the error response messages received at the pharmacy. All of these factors increase software complexity. The result is a higher software support cost, which ultimately is passed along to pharmacists. This is why the recently fonned American Society for Automation in Pharmacy has made automation standards a top priority. There is little argument that cur21
rent-day systems running on 80286* or 80386* platforms have the processing power and speed to handle real-time submissions. Modems are also more than up to the task of handling increasing volumes. Digital lines and fiber optics are certain to improve the quality of data transmissions. In fact, digital data lines will obviate the need for modems. But the critical path is the telephone connect line, which is what runs up the seconds to complete a transmission.
fault-tolerant manufacturers such as Stratus Computer, Sequent Computer Systems, and Tandem Computers to interface with the computers in the pharmacies. Fault-tolerant computers remove the burden of maintaining third party files at the pharmacy and handle data edits before switching off for payment approval by the third party. For chains that maintain eligibility files, these computers will even verify a patient's eligibility.
Who Should Pay? OLTP systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country.
Networks and Switches
O
LTP involves an infrastructure of telecommunications technology at its finest. Networks such as CompuServe, Tymnet, Telenet, or WATS direct a transaction to a processor's computer: The transaction may, however, be directed to a switch where certain validation functions and format conversions take place before the transaction is routed to the appropriate third party processor's computer. The response then comes back through the same switch and is routed to the transmitting pharmacy, all within a few seconds (see diagram). Crucial to this process are faulttolerant computers. These are highperformance computers that can handle 10 to 65 or more transactions per second without missing a beat if a component fails. Such machines are designed to avoid crashes through the use of redundant processors and to run software written specifically to handle a large number of transactions that need fast turnaround. A current trend among the large pharmacy chains is to install computers from
* Chips that help determine a computer's processing speed. 22
hould pharmacists be asked to pay a transaction charge to participate in a real-time program? This is a hotly contested issue. Third party processors see pharmacists coming out ahead by not having to absorb the cost of a prescription medication that has been dispensed to an ineligible cardholder or that is not covered by the plan. Furthermore, they claim there are no cost savings at their end and, in fact, point out the higher cost of maintaining such systems. Pharmacists, on the other hand, view the transaction charge as cutting into their profits and consider double entry, when necessary, a free service to third party processors.
S
Transaction charges notwi thstanding, it is safe to say that in the main, pharmacists stand to realize substantial benefit from knowing the disposition of a prescription order claim while the patient is still in the pharmacy. Further, once OLTP becomes the routine method of claims processing, enhancements that will add value to the whole system are certain to take place. The entire pharmacy community will form one large communication network that will become a cornerstone for receiving and sending information in a timely fashion. Product recall notices from manufacturers, clinical updates on interactions, new-product announcements, queries on drug availability, and answers to therapeutic management questions in general are just a few of the possible extensions of OLTP systems. Even new third party plan notifications can be transmitted electronically. The systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country. Pharmacy is fast becoming an information profession, and OLTP is one technology application that will advance this role.®
Two ways of communicating with processors in a real-time system: A) direct to processor or B) through a network switch that routes claims to proper processor.
American Pharmacy, Vol. NS30, No.1 January 1990/22
F
OLTP systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country.
inding better ways to move and manage information quickly is high on everyone's agenda these days. And why not? A critical principle in pharmacy - especially when it comes to prescription medications covered by third party payers - is that the value of information increases with its timeliness. Though computers have contributed substantially to an unprecedented level of efficiency in billing third party payers for prescription reimbursement, rejected claims continue to be a nagging after-thefact problem for pharmacists. This is due in large part to the increasingly complex nature of the third party prescription drug business. Exceptions and exclusions abound, and virtually every payer has its own specific submission requirements. However, at least in theory, on-line transaction processing (OLTP) technology is the solution to achieving a rejection rate of zero and eliminating payment lags from resubmissions. OLTP is not a new technology. In fact, it has revolutionized the banking industry, which has long been using autornated teller machines (ATMs) and point-of-sale (PaS) terminals to authorize debit and credit card transactions. A similar phenomenon is now taking place in pharmacy. High-speed modems coupled with powerful, low-cost personal computers are making it practical William A. Lockwood, Jr., is cofounder, president, and publisher of Com-
puterTalk Associates, Inc., in Blue Bell, Pa. He is also executive director of the American Society for Automation In Pharmacy.
20
American Pharmacy, Vol. NS30, No.1 January 1990/20
to verify a cardholder's eligibility and approve the prescription order before dispensing it. OLTP's use in phannacy ranges from simple verification of the cardholder's eligibility to complete data capture and claim adjudication. Consequently, third party billing is becoming "real-time" - on the spot, as the transaction takes place.
Exponential Growth
O
f the roughly two billion prescription medications currently dispensed in community pharmacies each year in the United States, approximately 600 million, or one-third, are covered by a prescription drug plan or Medicaid. Of these, upward of 70 million are currently being handled through OLTP. This already constitutes more than a 10% share of third party prescription drug claims in the two years since real-time systems were introduced. By all indications OLTP will increase at an exponential rate over the next few years. By the mid-'90s, if not sooner, OLTP will be the predominant system for processing claims, and submitting claims on magnetic tape or on paper will become a footnote in pharmacy history. Not surprisingly, the driving force behind on-line transaction processing is cost containment. Real-time systems make it possible to accommodate plans with deductibles, and they shorten the lead time for implementing changes in copayments, drug exclusions, and the like. In other words, third party prescription drug programs can become more complex, yet complex in a way that is easy for pharmacists to manage. In addition, OLTP substantially reduces cardholder fraud, because eligibility is verified on the spot.
Saving Time Through 'Front-end Edits' LTP's promise of increasing the O efficiency of third party billing can be achieved only when the computers used by pharmacists contain good "front-end data edits." This means the computers will not let phannacists process the prescription order if information required by the plan is missing or the prescription order as written by the
By the mid-'90s, if not sooner, OLTP will be the predominant system for processing third party claims for prescription reimbursement. physician is not covered. Pharmacists save time if they can avoid resubmitting a claim, since total turnaround averages 30 to 40 seconds for each transaction from the time they log on to the computer to the time they log off. Consequently, the more on-board edits that are done to catch ineligible drugs, dosage fonns, and days' supply before the claim is submitted, the better. Also, edits of fields such as cardholder's birth date, dependent code, and group number will alert the pharmacist to incomplete data. But care must be taken when this infonnation is entered, since a transposition error in a group number or a national drug code will mean that the pharmacist must resubmit the claim.
Resource Requirements
W
hen OLTP was introduced to phannacy, some people were concerned that prescription counters would become overrun with POS tenninals, or "black boxes." Fortunately, the scenario they feared has not materialized. Thanks to computer companies that took the initiative to write software allowing pharmacists to make computer-to-computer submissions, the need to double enter prescription order infonnation through a POS
American Pharmacy, Vol. NS30, No.1 January 1990/21
tenninal has been averted. In fact, many computer companies have programmed the computer to dial up and transmit claims as a background task; meanwhile, the pharmacist can process the next prescription order while awaiting a response. Still, not all pharmacists are so lucky. For anyone using a system that is no longer supported by its original distributor, claim submission may require double entry. POS tenninals, therefore, will continue to serve as the solution for these phannacists until the day when they decide to replace their pharmacy computers. As more and more third party plans implement realtime systems, pharmacists will find the burden of double entering claims overwhelming. In much the same way that pharmacists migrated toward computers as the paperwork in submitting claims manually became too time-consuming, pharmacists will replace their computers to eliminate double entry.
Lack of Standards Means Higher Cost \ A #hen a third party plan that V V requires on-line transmission is set up in the pharmacy computer, the system must indicate telecommunication requirements. For example, the system must be preset for each processor with such information as tone or pulse dial, parity (even or odd), record length to be transmitted, baud rate, and stop bits. Unfortunately, there are no standards. Differences in log-on protocols, timing sequences, and network directives imposed by the third party processors and insurance carriers require that your system have specific programming in order to comply. Even the record length and data elements vary from processor to processor, as do the error response messages received at the pharmacy. All of these factors increase software complexity. The result is a higher software support cost, which ultimately is passed along to pharmacists. This is why the recently fonned American Society for Automation in Pharmacy has made automation standards a top priority. There is little argument that cur21
rent-day systems running on 80286* or 80386* platforms have the processing power and speed to handle real-time submissions. Modems are also more than up to the task of handling increasing volumes. Digital lines and fiber optics are certain to improve the quality of data transmissions. In fact, digital data lines will obviate the need for modems. But the critical path is the telephone connect line, which is what runs up the seconds to complete a transmission.
fault-tolerant manufacturers such as Stratus Computer, Sequent Computer Systems, and Tandem Computers to interface with the computers in the pharmacies. Fault-tolerant computers remove the burden of maintaining third party files at the pharmacy and handle data edits before switching off for payment approval by the third party. For chains that maintain eligibility files, these computers will even verify a patient's eligibility.
Who Should Pay? OLTP systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country.
Networks and Switches
O
LTP involves an infrastructure of telecommunications technology at its finest. Networks such as CompuServe, Tymnet, Telenet, or WATS direct a transaction to a processor's computer: The transaction may, however, be directed to a switch where certain validation functions and format conversions take place before the transaction is routed to the appropriate third party processor's computer. The response then comes back through the same switch and is routed to the transmitting pharmacy, all within a few seconds (see diagram). Crucial to this process are faulttolerant computers. These are highperformance computers that can handle 10 to 65 or more transactions per second without missing a beat if a component fails. Such machines are designed to avoid crashes through the use of redundant processors and to run software written specifically to handle a large number of transactions that need fast turnaround. A current trend among the large pharmacy chains is to install computers from
* Chips that help determine a computer's processing speed. 22
hould pharmacists be asked to pay a transaction charge to participate in a real-time program? This is a hotly contested issue. Third party processors see pharmacists coming out ahead by not having to absorb the cost of a prescription medication that has been dispensed to an ineligible cardholder or that is not covered by the plan. Furthermore, they claim there are no cost savings at their end and, in fact, point out the higher cost of maintaining such systems. Pharmacists, on the other hand, view the transaction charge as cutting into their profits and consider double entry, when necessary, a free service to third party processors.
S
Transaction charges notwi thstanding, it is safe to say that in the main, pharmacists stand to realize substantial benefit from knowing the disposition of a prescription order claim while the patient is still in the pharmacy. Further, once OLTP becomes the routine method of claims processing, enhancements that will add value to the whole system are certain to take place. The entire pharmacy community will form one large communication network that will become a cornerstone for receiving and sending information in a timely fashion. Product recall notices from manufacturers, clinical updates on interactions, new-product announcements, queries on drug availability, and answers to therapeutic management questions in general are just a few of the possible extensions of OLTP systems. Even new third party plan notifications can be transmitted electronically. The systems will create one gigantic electronic mailbox that will speed the flow of information to and from pharmacies throughout the country. Pharmacy is fast becoming an information profession, and OLTP is one technology application that will advance this role.®
Two ways of communicating with processors in a real-time system: A) direct to processor or B) through a network switch that routes claims to proper processor.
American Pharmacy, Vol. NS30, No.1 January 1990/22