What Is Electronic Remittance Advice?
Understand Electronic Remittance Advice (ERA), the digital explanation of payments for efficient financial reconciliation.
Electronic Remittance Advice (ERA) is an electronic explanation of payment, detailing how a payment amount was determined. It streamlines payment reconciliation and provides transparent financial information in a standardized electronic format. ERA helps organizations move away from paper-based processes, enhancing efficiency and accuracy in financial operations.
Understanding Electronic Remittance Advice
An Electronic Remittance Advice is the digital equivalent of a paper Explanation of Benefits (EOB) or a traditional remittance advice. It is typically sent by a payer, such as an insurance company, to a healthcare provider or vendor, detailing how a claim or invoice has been processed. This document explains payment decisions for specific claims or services, providing a breakdown of amounts billed, approved, and paid.
The ERA clarifies any adjustments made to the original billed amount, including denials, partial payments, and patient responsibilities like co-pays or deductibles. The standardized electronic format, such as the HIPAA X12N 835, ensures consistent communication across different payers and providers.
Key Components and Data Elements
An ERA contains information for detailed payment reconciliation. Each ERA includes identifying information for the patient (if applicable), unique claim numbers that link the payment to the original service, and service dates.
The document details billed amounts, allowed amounts determined by the payer’s contract, and actual paid amounts. It also includes adjustment codes, such as Claim Adjustment Reason Codes (CARCs) and Remittance Advice Remark Codes (RARCs). These codes provide standardized explanations for discrepancies between billed and paid amounts, or for claim denials.
How ERA Information is Processed
Once an organization receives an ERA, the information undergoes a processing workflow. ERAs are commonly transmitted through clearinghouses, which act as secure intermediaries between payers and healthcare providers. Some payers may also send ERAs directly to providers.
The ERA data is then imported into the organization’s accounting or practice management systems. This integration allows for automated or semi-automated payment posting, where the system matches ERA details to outstanding claims or invoices. This automation reduces manual data entry, minimizes errors, and streamlines reconciliation. The workflow enables organizations to promptly identify paid claims, address denials, and manage patient balances.
ERA and Electronic Funds Transfer
Electronic Remittance Advice (ERA) and Electronic Funds Transfer (EFT) are distinct but complementary components of modern financial transactions. While an ERA provides the detailed explanation of how a payment was calculated and what services it covers, EFT is the electronic movement of money. EFT facilitates the direct transfer of funds from a payer’s bank account to a provider’s bank account.
The ERA provides the necessary context for the EFT payment, allowing organizations to match the received funds to the corresponding services and adjustments. This matching process ensures that financial records are accurate and complete. Both ERA and EFT work in tandem to create a comprehensive and efficient electronic payment system, reducing reliance on paper checks and manual reconciliation.