Comp Clues


Cut Workers’ Compensation Costs with EDI Transfer

By Bruce Smiley, Sr. VP - Indiana Health Network
| Date: 02/01/2006

Direct electronic data interchange (EDI) transfer of claims is something we are beginning to take for granted in the health benefits arena.  EDI, however, is an untapped resource in the workers’ compensation arena that could revolutionize the ability to more effectively utilize PPO networks.  In a direct EDI setting the workers’ compensation claims manager receives and records the provider bill, then extracts and posts key claim information on an Internet FTP site.  The managed care organization is then able to download the claim information, reprice the claim and return it to the organization’s FTP site in an encrypted, secured manner, generally within 24 hours.  This process provides the workers’ compensation managers more flexibility in their use of PPO networks, which has resulted in significant increases in cost savings.

The effect of HIPPA: The first viable option available to payors and providers wishing to transfer claim data electronically were the national clearinghouses.  These remain the best resources for many providers submitting claims to payors as the multiple site connections can reach into the thousands.  Payor to PPO/MCO arrangements, however are more direct in nature and less numerous.  This provided an opportunity for direct electronic claim transfer thereby eliminating the expense of the clearinghouse.  However, even with the growing Internet as a communication platform, the market place lacked a common language with which to communicate.

It was not long ago that the health benefits industry was faced with the federally mandated Health Insurance Portability and Accountability Act (a.k.a. HIPPA) that required, among other things, a standard format for EDI claims transfer.  Although the HIPPA “standard” has room for a degree of interpretation, it did create a fairly uniform platform that allowed claims administrators and PPO’s a format that was much more uniform and defined.  Familiarity with the common HIPPA format (or ANSI 837) promoted the ability for organizations on different systems to communicate claims transfer.  This transfer was further assisted by the use of FTP or file transfer protocol sites via the Internet.  The cumulative effect has been to create a situation where direct claims transfer is now fairly commonplace and can be achieved without significant programming resources.

So why have we not seen the workers’ compensation industry embrace direct EDI? The issue revolves primarily around the claims and management systems utilized by many of the workers’ compensation managers.  Workers’ compensation claims systems are primarily “liability” claim systems.  For instance, these systems view a “claim” as an incident of injury as opposed to an individual provider “bill”.  Such claim may include other forms of compensation than direct medical treatment.  One result of this is that the liability claims systems simply do not have the flexibility that health claims systems have in their ability to interface with managed care networks and pricing.  Health claims systems made the transition to allow fairly flexible interface with internally and externally repriced managed care claims some years ago.  The liability claims systems utilized by workers’ compensation administrators are generally not this flexible.  Certainly there are exceptions to this, however these systems often require a programming effort to literally build a program module to administer and load each specific managed care arrangement with which they interface.

What are the advantages of direct EDI transfer to workers compensation administrators?  Primarily, direct EDI transfer allows the workers’ compensation management organization the ability to significantly decrease their administrative costs, increase accuracy, and allows the flexibility to utilize multiple networks in order to maximize cost savings in specific geographic areas.  Administratively, there is a very direct savings in both programming time and system maintenance.  Workers’ compensation management organizations have reported the need for up to 120 hours of programmer time to implement a load a new PPO network option.  Updates can easily run to over 1000 field changes per month for a single state PPO.  These costs can be reduced or completely eliminated by an EDI claims transfer as it places the repricing function back at the PPO.  Repricing at the PPO also increases accuracy.  The intricacies of any given PPO’s fee structures and provider arrangements are best understood and administered by that PPO.  This reduces the amount of claim corrections and subsequently reduces customer service issues with the payor client and providers.

Most significantly, however, the EDI process provides the workers’ compensation industry a new degree of flexibility with their PPO options.  Currently the workers’ compensation administrators and managers are tied into network arrangements that may not be the best fit for them in all of their market places, but the administrative cost of “building” a module for a new PPO vendor is cost prohibitive.  Direct EDI transfer of claims allows the claims administrator the freedom to select from a variety of PPO options on a national, regional or local basis that best fit their client’s needs and maximize cost savings.

An example of direct EDI at work: 

The ASU Group (Recovery Unlimited) is a workers’ compensation management organization providing medical management, PPO management (bill review), and recovery services to the workers’ compensation payor community.  In early 2004, ASU contracted with a workers’ compensation carrier that had network needs in Indiana.  The decision was made to implement the connection with the network as a direct EDI claims transfer.  In addition to the advantages listed above, this was a major benefit simply in claim handling.  As in many situations the provider bill was often submitted to the employer first, went to the carrier, then was forwarded to the bill review agency (ASU).  Interjecting another step in the process would have complicated the process and caused a customer service delay.

The completion of the direct EDI claims transfer was tested and implemented in under 30 days resulting in: 1) the reduction of a step in the physical claim process, 2) reduction of overall administrative expense, 3) reduction in claim processing time, and 4) increased cost savings by accessing a local network that provides greater provider access.

The business of cost savings in the medical arena moves very quickly to adopt technology but it sometimes takes some time to move into all areas of our market place.  The opportunities presented by direct EDI claim transfer can work to revolutionize the relationship between workers’ compensation managers and PPO’s.  Increasing the flexibility to use appropriate network choices and decreasing administration efforts result in material and quantifiable cost savings.  Carriers and employers who are self-funded for their workers’ compensation should consider the question of whether they are really accessing the best PPO networks to maximize their savings or simply utilizing what is “hard-wired” into their claims systems.  Technology has provided us better options.

For more information about this article of Indiana Health Network please contact Bruce Smiley at 317.284.7642 or via e mail at   You can also visit their website at