What Is EFT in Medical Billing & How Does It Work?

Electronic Funds Transfer (EFT) has become a common method for financial transactions across many sectors, offering a streamlined approach to moving money. Its role in medical billing continues to grow, fundamentally changing how healthcare providers receive payments. By enabling direct digital transfers from payers to providers, EFT significantly enhances the efficiency and security of the payment process, moving beyond traditional paper-based systems. This shift helps medical practices manage their revenue more effectively, reducing administrative burdens and accelerating cash flow.

Understanding Electronic Funds Transfer

EFT broadly refers to the electronic movement of money between bank accounts. In the context of medical billing, EFT specifically allows insurance companies and other healthcare payers to deposit reimbursement payments directly into a healthcare provider’s designated bank account. This system replaces the traditional practice of sending physical paper checks, offering a faster and more secure alternative.

The EFT Process in Medical Billing

The EFT process in medical billing begins after a healthcare provider submits a claim to a payer and that claim is processed and approved. The payer then initiates an electronic payment, transferring funds from their financial institution directly to the provider’s bank account. This electronic transfer often occurs through the Automated Clearing House (ACH) network, a secure and efficient system for interbank transactions. The actual money transfer is intrinsically linked with an Electronic Remittance Advice (ERA), also known as an ANSI 835 file.

The ERA (ANSI 835 file) is the electronic equivalent of a paper Explanation of Benefits (EOB), providing a detailed breakdown of the payment. It contains information such as the patient, the services rendered, the amount paid, any adjustments, denials, deductibles, or co-pays. While the EFT deposits the funds, the ERA explains exactly what those funds are for, detailing multiple claims and their respective payment statuses within a single electronic file. This electronic pairing ensures that providers receive not only the payment but also the data for financial reconciliation and account posting.

Steps to Implement EFT for Medical Practices

To begin receiving EFT payments, a medical practice must first enroll with each payer or through a clearinghouse. This enrollment process typically requires the practice to provide specific financial and identification details. Essential information includes the practice’s bank account number, routing number, Tax Identification Number (TIN), and National Provider Identifier (NPI).

Providers can usually find enrollment forms on payer portals, clearinghouse websites, or by contacting the payers directly. It is important to accurately complete all informational fields on these forms. Some payers may utilize a centralized enrollment hub, which allows a practice to enroll with multiple health plans simultaneously by entering information once. This step establishes the necessary electronic connection for direct payment deposits.

Reconciling EFT Payments

After an EFT payment is deposited into a medical practice’s bank account, the next step involves reconciling this electronic fund deposit with its corresponding Electronic Remittance Advice (ERA/835 file). Practices commonly use their practice management or billing software to facilitate this process. The software can automatically or manually post payments to individual patient accounts based on the detailed information provided in the ERA.

This reconciliation ensures that the deposited amount matches the expected payment detailed in the ERA. It also helps identify and resolve any discrepancies, such as underpayments, denials, or unmatched claims. The ERA includes a Reassociation Trace Number, which helps link the EFT payment to the correct remittance advice, streamlining the matching process. Efficient reconciliation supports accurate accounting, a healthy revenue cycle, and identifying trends in claim processing.