[Federal Register Volume 70, Number 226 (Friday, November 25, 2005)]
[Rules and Regulations]
[Pages 71008-71020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-23080]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 424
[CMS-0008-F]
RIN 0938-AM22
Medicare Program; Electronic Submission of Medicare Claims
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Final rule.
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SUMMARY: This final rule adopts as final, and makes amendments to, the
interim final rule published on August 15, 2003. That interim final
rule implemented the statutory requirement that claims for
reimbursement under the Medicare Program be submitted electronically as
of October 16, 2003, except where waived. These regulations identify
those circumstances for which mandatory submission of electronic claims
to the Medicare Program is waived.
DATES: Effective date: These regulations are effective on December 27,
2005.
FOR FURTHER INFORMATION CONTACT: Kathleen Simmons, (410) 786-6157.
Stewart Streimer, (410) 786-9318.
SUPPLEMENTARY INFORMATION:
I. Background
Section 3 of the Administrative Simplification Compliance Act
(ASCA), Pub. L. 107-105, was enacted by the Congress to improve the
administration of the Medicare Program by facilitating program
efficiencies gained through the electronic submission of Medicare
claims. Section 3 of ASCA amends subsection (a) of section 1862 of the
Social Security Act (the Act) (42 U.S.C. 1395y(a)) and adds a new
subsection (h) to section 1862 (42 U.S.C. 1395y). The amendment to
subsection (a) requires the Medicare Program, subject to subsection
(h), to deny payment under Part A or Part B for any expenses for items
or services ``for which a claim is submitted other than in an
electronic form specified by the Secretary.'' Subsection (h) provides
that the Secretary shall waive such denial in two types of cases and
may also waive such denial ``in such unusual cases as the Secretary
finds appropriate.''
Section 3 of ASCA operates in the context of the Administrative
Simplification provisions of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), Pub. L. 104-191. Those provisions
require the Secretary to adopt, among other standards, standards for
financial and administrative transactions for the health care industry,
including health claims transactions (see section 1173(a) of the Act).
In the August 17, 2000 Federal Register (65 FR 50311), the Secretary of
Health and Human Services (the Secretary) published a final rule
(generally known as the Transactions Rule) that adopted standards for
eight electronic transactions. The transactions standards adopted by
that final rule, as subsequently modified by final rule published on
February 20, 2003 (68 FR 8381), are codified at 45 CFR part 162,
subparts A and I through R.
The HIPAA standards apply to health plans, health care
clearinghouses, and certain health care providers; collectively, these
entities are known as ``covered entities.'' An additional category of
covered entities--prescription drug card sponsors--was added by the
Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA), Pub. L. 108-173. Covered entities are required to comply not
only with the standards established by the Transactions Rule, but also
with those established via other HIPAA Administrative Simplification
rules--such as the Privacy Rule, the Employer Identifier Rule, the
Security Rule, and the National Provider Identifier Rule--by the
respective applicable compliance dates specified in those rules.
Compliance with the standards for the electronic transactions
established by the Transactions Rule was required for all covered
entities other than small health plans by October 16, 2002; compliance
by small health plans was required by October 16, 2003. However,
section 2 of ASCA extended the October 16, 2002 compliance deadline to
October 16, 2003 for covered entities that were not small health plans
and that submitted a compliance plan by October 15, 2002. In accordance
with 45 CFR 162.900(c), covered entities that were not small health
plans and that did not timely submit a compliance plan under ASCA were
required to comply by October 16, 2002. Thus, all covered entities,
regardless of type, were required to be in compliance no later than
October 16, 2003.
Since a significant number of covered entities had expressed strong
concern over the health care industry's state of readiness to conduct
fully compliant HIPAA transactions and we wanted to promote compliance
while ensuring that cash flow and health care operations would not be
unnecessarily disrupted, the Department of Health and Human Services
(HHS) issued guidance on the approach CMS would take to enforce the
HIPAA electronic transactions and code sets provisions. In accordance
with the July 24, 2003 guidance, the Secretary explained that we would
focus on voluntary compliance, use a complaint-driven approach, and
would not impose penalties on covered entities that deployed temporary
contingency plans, if they made reasonable and diligent efforts to
become compliant and, in the case of health plans, facilitated the
compliance of their trading partners.
By statute, the Medicare Program is a health plan under HIPAA (see
section 1171(5)(D) of the Act). It is, therefore, a covered entity. In
45 CFR 160.102(a)(3), we specify that, in accordance with section
1172(a)(3) of the Act, health care providers are covered entities if
they transmit health information in electronic form in connection with
a transaction for which the Secretary has adopted a standard (covered
transaction). In 45 CFR 162.923(a), we specify that if a covered entity
electronically conducts a covered transaction with another covered
entity, it must conduct it as a standard transaction.
Approximately 86.1 percent of claims submitted to the Medicare
Program are submitted electronically, which means that approximately
139 million claims are submitted on paper per year (fiscal year (FY)
2002). Section 3 of ASCA required Medicare providers to submit Medicare
claims electronically by October 16, 2003, unless one of the specified
grounds for waiver applies. As the October 16, 2003 deadline
approached, we made the decision to implement our own contingency plan
after reviewing statistics showing that an unacceptably low number of
Medicare providers would likely be capable of submitting compliant
claims
[[Page 71009]]
by the compliance date. Concerned that many of its trading partners
were still completing their transition to HIPAA-compliant transactions,
Medicare implemented a contingency plan permitting the submission and
processing of claims in electronic formats that were then in use and
giving providers additional time to complete the testing processes.
Neither CMS's contingency plan for Medicare nor HHS's enforcement
guidance modified the October 16, 2003 compliance date for HIPAA
transactions.
Section 3 of ASCA, thus, in general has the effect of requiring
Medicare providers that are not already covered entities to conduct a
covered transaction (the health claim transaction) electronically and,
thereby, become covered entities. In submitting claims electronically,
the providers are required to comply with the applicable HIPAA standard
for the health claim transaction. Thus, section 3 of ASCA promotes the
submission of standard transactions and will further the goal of
improved health care delivery by reducing the administrative burden and
paperwork associated with Medicare claims submissions.
Although 86.1 percent of Medicare claims are submitted
electronically, the volume of Medicare claims submitted in paper form
is substantial. Moving from paper to electronic submission has the
potential for significant savings and efficiencies for Medicare
physicians, practitioners, facilities, suppliers, and other health care
providers, as well as for the Medicare program itself. Although these
Medicare physicians, practitioners, facilities, suppliers, and other
health care providers would incur a cost to comply with the mandatory
electronic billing requirement, we believe their savings will offset
the costs they incur. Further, the use of the HIPAA electronic claim
standards could result in additional savings if these entities begin
electronically billing other payers. However, the statute recognizes
that certain circumstances may effectively prevent some providers from
transacting claims with Medicare electronically or as standard
transactions. ASCA, thus, identifies exceptions to the mandatory
submission of electronic Medicare claims. This final rule reiterates
and interprets these exceptions.
We considered whether the amendment to section 1862(a) of the Act
in section 3 of ASCA could be interpreted to apply to payments made by
Medicare + Choice (M+C) organizations to providers for services
provided to Medicare beneficiaries. (Note: The MMA, enacted December 8,
2003, changed and renamed M+C to Medicare Advantage. For discussion
purposes and to remain consistent with the interim final rule, the term
``M+C'' will continue to be used in this preamble.) The question was
raised by the provision in section 4 of ASCA that expressly adds
Medicare Part C, found in Part C of Title XVIII, to the definition of
Medicare ``health plans'' found in section 1171(5)(D) of the Act.
The plain language of section 1862(a) of the Act, however, provides
that ``payment may not be made under Part A or Part B'' for a number of
activities. The Congress could have amended this provision, just as it
amended section 1171(5) of the Act, if it had wanted to prohibit M+C
organizations from paying for claims for services given to M+C
enrollees by the M+C organization's participating providers if those
claims were not submitted electronically. The fact that it did not so
amend this provision indicates that it did not intend to apply the ASCA
payment prohibition to the M+C organizations. The Congress's intent to
apply the broader definition of ``health plan'' in section 4 of ASCA
solely to the Administrative Simplifications provisions of HIPAA and
not to the electronic submission requirement for Medicare claims is
further suggested by the title of section 4 of ASCA: ``Clarification
with Respect to Applicability of Administrative Simplification
Requirement to M+C Organizations.''
The M+C organizations, as health plans for the purposes of HIPAA
Administrative Simplification, were required to come into compliance
with the regulatory requirements related to transactions no later than
October 16, 2003. We understand that all M+C organizations properly
filed ASCA compliance plans before October 16, 2002. Therefore, they
obtained extensions and had a compliance date of October 16, 2003.
An M+C organization that pays a non-compliant electronic claim
after October 16, 2003, would accordingly be out of compliance with the
HIPAA transactions regulations, but would not violate the provisions of
section 1862(a)(22) of the Act or the requirements of this regulation.
This final rule applies only to providers, practitioners, and suppliers
who submit claims under Part A or Part B of Medicare. It does not apply
to the submission of claims by providers to M+C organizations.
Moreover, the waiver provisions for small providers, practitioners, and
suppliers established by section 3 of ASCA and this regulation do not
extend to claims submitted by these providers to any health plans other
than Medicare.
Section 902 of the MMA amended section 1871(a) of the Act and
requires the Secretary, in consultation with the Director of OMB, to
establish and publish timelines for the publication of Medicare final
regulations based on the publication of Medicare proposed or interim
final regulations. Section 902 of the MMA also states that the
timelines for these regulations may vary but shall not exceed 3 years
from the previous publication of the proposed or interim final rule,
except under exceptional circumstances.
The MMA also introduced Part D of the Medicare Program. Future
rulemaking may be needed to explore the applicability of section 3 of
ASCA to Part D. We will initiate such rulemaking, if needed, upon
further evaluation as we get closer to the Part D implementation date.
We note that this rule finalizes the provisions of the August 15,
2003 interim final rule. The final rule is, thus, being published
within the 3-year time period identified in section 902 of the MMA.
II. Provisions of the Interim Final Rule
Section 3 of ASCA established the requirements and exceptions under
the Medicare Program for the mandatory submission of claims in
electronic form. In the August 15, 2003 Federal Register (68 FR 48805),
we published an interim final rule that implemented these statutory
requirements.
A. Definitions Used for Electronic Claim Submission
The interim final rule added a new paragraph (d) to Sec. 424.32.
Section 424.32(d)(1) specified the following definitions for the
purposes of paragraph (d): Claim; electronic claim; direct data entry;
electronic media; initial Medicare claim; physician, practitioner,
facility, or supplier; provider of services; and small provider of
services or small supplier. We defined ``claim'' to mean the
transaction defined at 45 CFR 162.1101(a) (that is, ``health care
claim''). We specified the definition of ``electronic claim'' to mean a
claim that is submitted via electronic media. In addition, we specified
that the definitions of ``direct data entry'' and ``electronic media''
are defined as those terms are defined in 45 CFR 162.103 and 160.103,
respectively.
In Sec. 424.32(d)(1)(v) of the interim final rule, we defined an
``initial Medicare claim'' as a claim submitted to Medicare for payment
under Part A or Part B of the Medicare Program for the first time for
processing, including claims sent to
[[Page 71010]]
Medicare for the first time for secondary payment purposes. This
definition also specified that an initial Medicare claim excludes any
adjustment or appeal of a previously submitted claim. This final rule
adds the phrase ``for initial processing'' to the definition of
``initial Medicare claim'' to clarify that the requirement for
electronic submission applies to claims that have been previously
rejected before being accepted into the Medicare processing system.
In Sec. 424.32(d)(1)(vi), we defined a ``physician, practitioner,
facility, or supplier'' as a Medicare provider other than a provider of
services. The final rule adds the words ``or supplier'' to make the
definition precise, so that the term is defined as ``a Medicare
provider or supplier other than a provider of services.'' In Sec.
424.32(d)(1)(vii), we defined a ``provider of services'' as a provider
of services as defined in section 1861(u) of the Act. In Sec.
424.32(d)(1)(viii), we defined a ``small provider of services or small
supplier'' as a provider of services with fewer than 25 full-time
equivalent employees; or a physician, practitioner, facility, or
supplier (other than provider of services) with fewer than 10 full-time
equivalent employees.
B. Submission of Electronic Claims Required
Electronic submission of Medicare claims is required for initial
Medicare claims, including initial claims with paper attachments,
submitted for processing by the Medicare fiscal intermediary (FI) or
carrier that serves the physician, practitioner, facility, supplier, or
other health care provider. No other transactions, including changes,
adjustments, or appeals to the initial claim, are required to be
submitted electronically in accordance with ASCA.
In Sec. 424.32(d)(2), we specified that, except for claims to
which Sec. 424.32(d)(3) or (d)(4) applies, an initial Medicare claim
under Part A or Part B or both may be paid only if submitted as an
electronic claim for processing by the Medicare FI or carrier that
serves the physician, practitioner, facility, supplier, or other health
care provider. This requirement does not apply to any other
transactions, including adjustment or appeal of the initial Medicare
claim.
C. Exceptions to Requirement To Submit Electronic Claims
The regulations at 45 CFR 162.923 state that, ``except as otherwise
provided in this part, if a covered entity conducts with another
covered entity (or within the same covered entity), using electronic
media, a transaction for which the Secretary has adopted a standard
under this part, the covered entity must conduct the transaction as a
standard transaction.'' HIPAA does not require that a health plan be
able to accept claims via every type of electronic media, only that
claims received via such media comply with the standard format and
content requirements of HIPAA (www.wpc-edi.com/HIPAA). The reference in
section 3 of ASCA to the filing of claims ``in electronic form'' does
not dictate the use of a particular electronic form. Thus, the Medicare
program will continue to accept only those forms identified in Chapter
24 of the Medicare Internet Only Claims Processing Manual (IOM Pub. L.
100-04) that we issue. At present, Medicare does not accept claims via
the Internet, an extranet or, in many cases, via removable/
transportable storage media. This final rule does not change this
Medicare policy. The interim final rule stated that an advance notice
of any future plans for expansion or contraction in the electronic
media accepted for submission of Medicare claims would be published in
Medicare program instructions and via routine contractor notification
and instructional media.
In the interim final rule, we specified that we will consider
claims submitted via a direct data entry screen maintained for
Medicare, and as permitted by 45 CFR 162.923, to be electronic claims
for purposes of this requirement. Also, we stated that claims
transmitted to a Medicare contractor using the free or low cost claims
software issued by Medicare fee-for-service plans will be considered
electronic claims for purposes of this requirement.
The ASCA provided for exceptions to the requirement for mandatory
electronic submission of Medicare claims. In accordance with ASCA, the
interim final rule established that the Secretary of HHS could waive
the application of the electronic claim requirement in specific cases.
To implement the statutory mandate, we provided more explicit
requirements that are specified in Sec. 424.32(d). Specifically, Sec.
424.32(d)(3) states that there are two exceptions to electronic
submission of initial Medicare claims.
The first exception, specified in Sec. 424.32(d)(3)(i), applies
when there is no method available for the submission of an electronic
claim. For example, we could not reasonably expect Medicare
beneficiaries to submit electronic claims. Even though the statute
requires, with very few exceptions, that providers of health care bill
Medicare on behalf of a beneficiary (sections 1814(a) and 1848(g)(4) of
the Act), some beneficiaries will still submit claims to Medicare.
However, those relatively few beneficiaries who submit claims are not
likely to possess the capability to submit a HIPAA compliant claim.
Further, there are situations in which the standard adopted by the
Secretary at 45 CFR 162.1102 does not support all of the information
necessary for payment of the claim. We identified three other
situations that fall into this category:
Roster billing of vaccinations covered by the Medicare
Program. In order to promote an increase in the flu vaccinations for
Medicare beneficiaries, since 1993 Medicare has allowed mass immunizers
to bill the program using a single claim form with an attached list of
beneficiaries to whom a flu vaccine was administered. Many mass
immunizers bill electronically, but in a non-standard format. This
roster billing simplifies provider billing but is not available in
electronic form under the Transactions Rule.
Claims for payment under Medicare demonstration projects.
Medicare demonstration projects often allow for unusual situations not
normally handled by the transactions standards; and
Claims where more than one health plan is responsible for
payment before Medicare. The interim final rule indicated that efforts
were underway to resolve the confusion in the reporting of per service
payments by more than one primary payer and allowed these claims to
continue to be submitted to Medicare on paper for the time being.
Although a number of alternatives were considered, a clear process for
electronic billing of Medicare in this case is not yet finalized. Once
a solution is reached, we will then notify the public of the effective
date of the change.
Providers to whom an exception does not apply will then be required
to submit Medicare claims electronically. In the interim final rule, we
established that specific program guidance would be issued to Medicare
providers concerning submission of these claims on paper effective
October 16, 2003. We stated that we would also issue specific guidance
or regulations, as necessary, informing covered entities if this or
another exception no longer applies.
The second exception, described in Sec. 424.32(d)(3)(ii), provided
that electronic submission would be waived when the entity submitting
the claim is a small provider of services or small supplier. The
statute is quite specific as to the size requirements, and the interim
final rule simply incorporated the statutory requirements. This final
rule
[[Page 71011]]
makes a slight technical revision, in order to use a defined term
consistently.
D. Unusual Cases
In the interim final rule, we established that the Secretary may
waive the electronic submission requirement in certain unusual
situations as the Secretary finds appropriate. In Sec. 424.32(d)(4),
we specified that such an exception would exist in the following three
situations:
The submission of dental claims. This exception is being
included because, under HIPAA, dentists who are covered entities are
required to submit electronic transactions to other payers in a format
different from that generally used in the Medicare Program. Since
Medicare does not generally cover dental services, this exception is
added to minimize the burden on dentists who may, at times, need to
bill the Program.
A service interruption in the mode of submitting the
electronic claim that is outside of the control of the entity
submitting the claim, for the period of the interruption. This
exception would apply only if the physician, practitioner, facility,
supplier, or other health care provider temporarily loses electricity,
or telephone or other communication service. If electricity, telephone,
or other communication services exist, but one or the other is
unavailable for a period of time (for example, because of inclement
weather or due to telephone company technical breakdowns), paper claims
will be accepted during the period of disrupted power or communication
service.
On demonstration, satisfactory to the Secretary, of other
extraordinary circumstances precluding submission of electronic claims.
The interim final rule specified that entities would not generally
need to make a special request to determine whether an exception
applies that would make them eligible for a mandatory waiver under
Sec. 424.32(d)(3) or a discretionary waiver under Sec. 424.32(d)(4).
A special request would have to be submitted to a Medicare FI or
carrier when an entity did not meet the mandated exceptions at Sec.
424.32(d)(3), or the specified discretionary waiver criteria at Sec.
424.32(d)(4)(i) and (d)(4)(ii), but believed there were other
extraordinary circumstances that precluded its submission of electronic
claims. We also proposed to issue program guidance to Medicare FIs and
carriers to enable them to handle, on a case-by-case basis, requests
for relief in extraordinary circumstances. This program guidance was
issued on December 19, 2003 (Transmittal 44, CR 2966, Instructions for
the Mandatory Electronic Submission of Medicare Claims), and may be
found at www.cms.hhs.gov/manuals/. Publication of this final rule will
result in some changes to Transmittal 44, CR 2966, which will be
reissued following publication of this final rule.
This final rule adds two more unusual situations under Sec.
424.32(d)(4) for which an exception would exist. Specifically, the
requirement to submit electronic claims may be waived when the entity
submitting the claim (1) submits, on average, less than 10 claims per
month, or (2) furnishes services only outside of the U.S. territory.
See our response to comments in section III of this preamble for
further discussion regarding these additional exceptions.
E. Enforcement
ASCA's amendment to section 1862(a) of the Act prescribes that ``no
payment may be made under Part A or Part B of the Medicare Program for
any expenses incurred for items or services'' for which a claim is
submitted in a non-electronic form. Consequently, absent an applicable
exception, paper claims submitted to Medicare will not be paid.
We specified that the Secretary may review entities that bill
Medicare non-electronically. We stated that entities determined to be
in violation of the statute or the interim final rule would be subject
to claim denials, overpayment recoveries, and applicable interest on
overpayments.
F. Effective Date
In accordance with section 3(b) of ASCA, we specified, in Sec.
424.32(d)(5) of the regulations, that the effective date for these
amendments would be for claims submitted on or after October 16, 2003.
III. Analysis of and Responses to Public Comments
We received 17 timely public comments on the August 15, 2003
interim final rule. Based upon some of the comments we received from
members of the health care provider community who bill Medicare, there
remain questions about Medicare's electronic claim submission
requirement and how this rule applies in certain situations. Additional
information was provided through Medicare manual instructions to FIs
and carriers (Transmittal 44, CR 2966, December 19, 2003, which may be
found at www.cms.hhs.gov/manuals/). Several providers are uncertain
about how to determine if they meet the definition of ``small provider
of services or small supplier,'' especially when deciding who should be
included in the ``full time equivalent'' (FTE) employee calculation.
Furthermore, some providers have questions concerning whether they are
required to submit a request to HHS for a small provider waiver, which
would allow them to continue submitting their claims to Medicare on
paper.
A. General Issues
Comment: One commenter stated that the August 15, 2003 interim
final rule did not provide sufficient time for providers to comply with
the October 16, 2003 statutory effective date and that we should change
the implementation date.
Response: We understand the commenter's concern. However, we are
not able to change the effective date of implementation and compliance,
because the October 16, 2003 effective date is mandated by the statute.
B. Determining Small Provider Status
To qualify for a waiver as a small provider of services or small
supplier, and thus, be permitted to continue billing Medicare on paper,
the entity submitting a claim must be either: (1) A provider of
services with fewer than 25 FTEs that submits its claims to a Medicare
FI; or (2) a physician, practitioner, facility, or supplier with fewer
than 10 FTEs who bills a Medicare carrier or Durable Medical Equipment
Regional Carrier (DMERC).
Comment: Several commenters believe many in the provider community
remain unaware that providers do not need to request a waiver for a
small provider exception from Medicare electronic claims submission. In
addition, other commenters requested a small provider waiver.
Response: Providers who in good faith believe they qualify as
``small providers of services or small suppliers'' automatically
qualify for the small provider waiver unless, upon subsequent review,
the Department determines that the waiver requirements in fact are not
met. In that case, if the Department finds that none of the exceptions
applies, the provider must submit all claims to Medicare
electronically. Providers must assess their own situation and determine
for themselves whether they meet the small provider criteria.
Small providers of services and small suppliers may elect to submit
some of their claims to Medicare electronically, and some claims on
paper. Submission of some claims electronically does not revoke or
cancel their status as a small provider of services or small supplier,
[[Page 71012]]
nor obligate them to submit all of their claims electronically. (More
information about this will be published through the Medicare
contractors. The first in a series of publications was Transmittal 44,
CR 2966 dated December 19, 2003.)
Comment: Several commenters requested additional guidance on the
term ``FTE,'' including direction on who is considered an FTE and how
the number of FTEs should be calculated for a small provider of
services or small supplier. One commenter suggested that only clinical
staff should be included in the FTE count. Other commenters believe
owners of practices should not count toward the FTE total.
Response: ASCA and its implementing regulation do not modify pre-
existing laws or employer policies defining full-time employment.
Employers have established policies and practices, subject to State and
Federal laws, which define ``full-time equivalent'' and provide methods
for calculating the number of hours their employees must work on
average on a weekly, biweekly, monthly, or yearly basis to constitute a
``full-time equivalent'' employee. Some employers classify employees
who work an average of 32 hours per week as one FTE, whereas other
employers consider only employees who work 35 to 40 hours per week on
average as one FTE. An employee who works an average of 40 or more
hours a week would virtually always be considered full-time and one
FTE, but employees who work fewer hours weekly could also be considered
full-time and one FTE according to the policies of, and laws applicable
to, a different employer.
Everyone on staff for whom a health care provider withholds taxes
and files reports with the Internal Revenue Service (IRS) using an
Employer Identification Number (EIN) is considered an employee
including, if applicable, the physician(s) who owns a practice and
provides hands-on services, and those support staff who do not furnish
health care services but do retain records of, perform billing for,
order supplies related to, provide personnel services for, and
otherwise perform support services to enable the provider to function.
Unpaid volunteers would not be considered employees for purposes of
calculating FTEs. Individuals who perform services under independent
contract for a provider, such as individuals employed by a billing
agency or medical placement service, for whom a provider does not
withhold taxes, are not considered members of a provider's staff for
FTE calculation purposes when determining whether a provider of
services or supplier can be considered as ``small'' for electronic
billing waiver purposes.
Medical staff members may sometimes work part-time, or may work
full-time but their time is split among multiple providers. Part-time
employee hours must also be counted when determining the number of FTEs
employed by a provider. For example, if a provider has a policy that
anyone who works at least 35 hours per week on average qualifies as
full-time (that is, as one FTE), and has five full-time employees and
seven part-time employees, each of whom works 25 hours a week, that
provider would have ten FTEs (5+[7 x 25 = 175 divided by 35 = 5]).
In some cases, the employer identification number (EIN) of a parent
company may be used to file employee tax reports for multiple providers
under multiple Medicare provider numbers. In that instance, it is
acceptable to consider only those staff, or staff hours worked for a
particular provider as identified by Medicare provider number to
calculate the number of FTEs employed by that provider. For example,
ABC Health Care Company owns hospital, home health agency (HHA),
ambulatory surgical center (ASC), and durable medical equipment (DME)
subsidiaries. Some of those providers bill intermediaries and some
carriers. All have separate provider numbers, but the tax records for
all employees are reported under the same EIN to the IRS. There is a
company policy that staff must work an average of 40 hours a week to be
considered full-time.
Some of the same staff split hours between the hospital and the
ASC, or between the DME and HHA subsidiaries. To determine total FTEs
by provider number, it is acceptable to base the calculation on the
number of hours each staff member contributes to the support of each
separate provider by provider number. First, each provider would need
to determine the number of staff members who work on a full-time basis
under a single provider number only; not more than 40 hours a week
should be counted for these employees. Then each provider would need to
determine the number of part-time hours a week worked on average by all
staff who furnished services for the provider on a less than full-time
basis, and divide that total by 40 hours to determine their full-time
equivalent total. If certain staff members regularly work an average of
60 hours per week, but their time is divided 50 hours to the hospital
and 10 hours to the ASC, for FTE calculation purposes, consider the
person as one FTE for the hospital and .25 FTE for the ASC.
In some cases, a single provider number and EIN may be assigned,
but the entity's primary mission is not as a health care provider. For
instance, a grocery store's primary role is the retail sale of
groceries and ancillary items including over-the-counter medications,
but the grocery store has a small pharmacy section that provides
prescription drugs and some DME to Medicare beneficiaries. A large drug
store has a pharmacy department that supplies prescriptions and DME to
Medicare beneficiaries, but most of the store's revenue and most of
their employees are not involved with prescription drugs or DME and
concentrate on non-related departments of the store, such as groceries,
film development, cosmetics, electronics, cleaning supplies, etc. A
county government uses the same EIN for all county employees but their
health care provider services are limited to furnishing of emergency
medical care and ambulance transport to residents.
For FTE calculation purposes, it is acceptable to include only
those staff members of the grocery store, drug store, or county
government involved with, or that support the provision of, health care
in the FTE count when assessing whether a small provider waiver may
apply. Support staff who are to be included in the FTE calculation in
these instances include, but are not necessarily limited to, those that
restock the pharmacy or ambulance, order supplies, maintain patient
records, or provide billing and personnel services for the pharmacy or
emergency medical services department if under the same EIN. FTEs
should be calculated according to the number of hours on average that
each staff member contributes to the department that furnishes the
services or supplies for which the Medicare provider number was issued.
Neither unpaid volunteers nor individuals that perform services for
a provider under independent contract, such as individuals employed by
a billing agency or medical placement service, for whom a provider does
not withhold taxes, should be considered toward an entity's FTE count
when determining if a provider of services or supplier can be
considered as ``small'' for electronic billing waiver purposes.
C. Contingency for Paper Billers
Comment: Several commenters requested that the Medicare HIPAA
contingency plan extend to paper claims so as to avoid cash flow
problems among providers.
Response: The ASCA enacted on December 27, 2001 (Pub. L. 107-105)
[[Page 71013]]
requires the electronic submission of Medicare claims in an electronic
form specified by the Secretary of the HHS. The statute waives this
requirement only in limited situations, which are detailed in Sec.
424.32 of this regulation. The ``electronic form'' specified by the
Secretary generally means the electronic transactions and code sets
standards adopted as part of the HIPAA as detailed in 45 CFR parts 160
and 162.
In response to HHS contingency plan guidance for the electronic
transactions and code sets standards under HIPAA, issued on July 24,
2003, Medicare announced its HIPAA contingency plans on September 23,
2003. Medicare's contingency plans allowed for the submission of claims
in non-compliant electronic formats on and after October 16, 2003, for
an unspecified period of time. However, Medicare has revised its
contingency plan; it is paying electronic, HIPAA non-compliant claims
no sooner than 27 days after receipt, beginning with claims received on
or after July 1, 2004. Continued paper submission of Medicare claims is
not a part of Medicare's HIPAA transactions contingency plan. The
statute affords no latitude for those who do not meet one of the
exceptions, but Medicare will take into consideration the good faith
efforts by a provider to comply with the electronic billing requirement
when enforcing the provision.
Comment: One commenter expressed concerns that Medicare would not
be able to handle an increase in paper claims submission if a larger
portion of providers eligible for the ``small provider of services or
supplier'' waiver opted to continue, or drop back to, paper claims
submission.
Response: Approximately 98 percent of claims submitted to FIs, and
83 percent of carrier claims are electronic. With the benefits and
efficiencies gained through electronic billing, we do not believe that
electronic billers who are eligible to bill on paper will indeed revert
to paper. Paper claims are more cumbersome to complete and are paid
less timely than electronic claims. Moreover, we do not expect
difficulty with Medicare contractors' ability to handle paper claims if
there were an increase in volume. Since the interim final rule's
October 16, 2003 effective date, Medicare contractors have not
experienced any problems in receiving and processing electronic claims,
and we have not observed any increase in electronic billers who are
eligible to bill by paper reverting to paper claims submissions.
D. Definition of Initial Medicare Claim
We received a number of comments related to our definition of
``initial Medicare claim.'' In the interim final rule, this term was
defined in Sec. 424.32(d)(1)(v) as a claim submitted to Medicare for
payment under Part A or Part B of the Medicare program for the first
time for processing, including for secondary payment purposes. Some
disagree with our decision to require electronic submission of Medicare
Secondary Payer (MSP) claims. We have responded to comments submitted
on this definition below and provided added clarity. Some commenters
also expressed concerns with their ability to submit an electronic MSP
claim with a paper attachment.
Comment: We received one comment on resubmission of initial
Medicare claims. The commenter was concerned that claims submitted
before the compliance deadline of October 16, 2003 on paper and then
resubmitted after the deadline on paper would be rejected.
Response: We understand the concerns of the provider community
regarding resubmission of claims previously submitted on paper in an
electronic format; however, the statute does not afford us any
flexibility in allowing for paper claims submission following the
compliance deadline.
We have interpreted the intent of the statute to mean claims
submitted to the Medicare claims processing system for the first time,
including claims submitted after having been previously rejected (which
were not previously considered as submitted claims since they were
never accepted into the processing system), claims with paper
attachments, demand bills, claims where Medicare is secondary and there
is only one primary payer, and non-payment claims, as claims that must
be submitted electronically barring any waiver or exception. Initial
Medicare claims do not include adjustments submitted to intermediaries
on previously submitted claims or appeal requests.
Comment: One commenter expressed concerns with our inclusion of a
claim sent to Medicare for secondary payment (MSP) purposes in our
definition of ``initial Medicare claim.'' They argued that although
primary claims and MSP claims use the same HIPAA 837 standard, the
HIPAA regulations make a distinction between the two transactions and,
as a result, MSP claims should be treated differently than other
Medicare claims.
Response: While MSP claims were not specifically highlighted, the
statutory language does not exclude them from consideration as initial
Medicare claims. Furthermore, we do not believe that MSP claims should
be treated as a different type of claims transaction for purposes of
Medicare electronic claims submission, because submission of a
secondary claim would still constitute an initial submission of a claim
to Medicare. Therefore, we have interpreted the statute to mean they
must not be excluded from the electronic submission requirement. Our
definition of an ``initial Medicare claim'' is consistent with this
interpretation.
Claims submitted to Medicare when there is more than one primary
payer must be submitted on paper as it is difficult to submit service
level data for more than one primary payer electronically at this time.
The only alternative is for providers to submit those claims to
Medicare on paper with copies of the explanation of benefits (EOBs)/
remittance advices (RAs) from the primary payers attached.
Comment: We received comments from providers concerning submission
of EOBs/RAs. For instance, one commenter was under the impression that
an 835 electronic remittance advice transaction is needed to submit an
837 MSP claim. The commenter proposed as an alternative that the
electronic submission of claims for which Medicare is secondary be
phased in and only required when providers receive an 835.
Response: In order for a provider to be reimbursed for an MSP
claim, the provider must submit to Medicare certain payment information
contained in the EOB/RA from the primary payer(s). We encourage
providers to work with their payers to receive the remittance advice in
the 835 electronic format, but that is not mandated by HIPAA or ASCA. A
provider may receive this information from the primary payer(s) either
on paper or electronically. A provider does not need to receive an 835
electronic remittance advice transaction from a primary payer, however,
in order to generate a secondary claim for Medicare.
E. Attachments
Comment: We received some comments on timely reimbursement of
electronic claims submitted with paper attachments. In one case, a
provider believed that it was unable to receive reimbursement for an
electronic claim unless a paper claim was also submitted.
Response: Transmittal 44, CR 2966, December 19, 2003, required
Medicare contractors to issue further guidance to providers and
submitters on the
[[Page 71014]]
submission of electronic claims when there are paper attachments.
Providers and submitters who experience difficulty getting their
electronic claims that have paper attachments processed must first
contact their Medicare contractor. If problems persist, providers and
submitters are encouraged to contact their regional CMS office to
troubleshoot these issues. Phone numbers for Medicare contractors and
CMS regional offices can be found on our Web site at: http://www.cms.hhs.gov/physicians/default.asp.
Comment: Another commenter was concerned with Medicare connecting
paperwork and hard copy EOBs with an electronic claim, resulting in
untimely reimbursement and extra follow-up time.
Response: Once the electronic claims attachment standard is adopted
and entities have properly implemented it, this issue will be resolved.
In the meantime, and prior to the claims attachment standard compliance
date, paper attachments must be properly associated with the
corresponding electronic claims by incorporating correct and
appropriate data and indicating in the electronic claims transaction
that separate paper documentation is being sent. Separate submission of
electronic claims and related paper attachments should consequently not
cause a discernable delay in payment of claims. Providers and other
electronic claim submitters are advised to contact the Medicare
contractor to which they submit their claims if they have further
questions about the locally published process.
Pending issuance of the future instructions concerning submission
of medical records for electronic claims, providers and Medicare
contractors can continue current policies and practices regarding
submission of attachments with claims, whether in a proprietary format,
on paper, via fax, or by other means.
F. Unusual Cases
While commenters expressed their support for electronic claims
submission, they were also pleased with the flexibility afforded by the
outlined exceptions, which permit continued paper claims submission
such as in the case of roster vaccinations billing and certain Medicare
demonstration claims. We received a number of comments on ``unusual
cases,'' asking for further clarity.
Comment: One commenter stated the interim final rule was unclear
concerning whether paper claims would be allowable after the compliance
deadline. The commenter proposed designating the HIPAA transition
period to a largely electronic submission environment for Medicare, an
``unusual case.''
Response: The ``unusual case'' provision is intended to operate as
an exception to a situation in which Medicare providers are generally
submitting claims electronically. The commenter, however, proposes
making the exception to be the norm, which would appear to be contrary
to what the Congress intended.
Comment: Another commenter suggested we expand the criteria for the
service interruption to include power outages, which result in a phone
or communication service interruption.
Response: We have interpreted an ``unusual case'' exception to be
one applied to a temporary situation outside of a provider's control
that effectively precludes electronic submission of claims. For a
situation to fall under an ``unusual case'' exception, the
circumstances must be truly out of the ordinary and they must genuinely
prevent the provider from complying with the applicable electronic
submission requirement.
In the August 15, 2003 interim final rule, we described three
situations that we believe meet the criteria for an unusual case
exception. The three situations we listed were submission of dental
claims, a service interruption outside the control of the submitter,
and other extraordinary circumstances deemed satisfactory to the
Secretary.
We also specified that the service interruption exception is
limited to submitters who have experienced a loss of phone or
communication service. We agree with the commenter that it may be
possible for an interruption in the mode of service used to submit a
claim to occur resulting from something other than inclement weather or
phone company problems. We further recognize that a loss of power could
occur that does not result in the loss of the use of a phone or other
communication services but precludes or severely inhibits a submitter
from sending claims electronically. In this rare and unanticipated
situation, a waiver may be granted for service interruption. This is
addressed in Medicare manual instructions, Transmittal 44, CR 2966,
December 19, 2003.
Based on comments received and our assessment of the reasonableness
of an entity's ability to comply, we have identified the following two
additional ``unusual case'' situations we consider to be eligible for a
waiver under Sec. 424.32(d)(4). First, an unusual case is deemed to
exist when an entity submits fewer than 10 claims to Medicare per month
on average. We believe entities that submit such low volumes of
Medicare claims are ``unusual cases'' in that the volume does not
support mandating the acquisition of hardware/software to submit claims
electronically. The exception for small providers indicates to us the
Congress's intention that the electronic submission requirement not
apply to providers for whom the electronic submission requirement of
claims would be truly burdensome. This would be the case for providers
who submit fewer than 10 claims per month, as the cost of converting
their billing systems for so few claims would be uneconomic. If the
volume increases, then electronic claim submission would be required,
unless another exception applies. This is self-assessable and the
entity need not submit a waiver request. Second, it is deemed to be an
unusual case when the entity submitting a claim furnishes services only
outside of the U.S. territory. The HIPAA transactions and code sets
standards are consensus-based, American National Standards Institute
(ANSI)-accredited standards that rely upon hardware and software that
meet certain specifications, which may not be readily available outside
of the U.S. territory. We believe that entities furnishing services
solely outside of the U.S. in many cases could not properly submit
electronic claims. Moreover, we think those entities are few in number
and truly constitute an unusual case. This is also self-assessable and
the entity need not submit a waiver request. Section 424.32(d)(4) is
revised to include these two additional ``unusual case'' situations.
Instructions to the Medicare contractors that describe how to go
about requesting an ``unusual case'' waiver were issued December 19,
2003 (Transmittal 44, CR 2966).
Comment: One commenter urged Medicare contractors to furnish all
providers and mass immunizer billers and suppliers with free electronic
roster billing software, in order to reduce dependence on paper roster
billing and increase cost savings to the program. Another commenter
suggested there remains a need for continued outreach to educate
providers on these topics.
Response: We are considering these suggestions; however, claims
submission for roster billing for vaccinations is still considered
exempt from the electronic claims submission requirement. To the extent
certain Medicare contractors' software permits electronic submission of
roster bills, we
[[Page 71015]]
encourage providers to use it; however, it is not required.
We have issued instructions to the Medicare contractors that
describe in greater detail how this regulation is operationalized,
including instructions for requesting an ``unusual case'' waiver (refer
to Transmittal 44, CR 2966, dated December 19, 2003). In addition,
Medicare contractors will be instructed to include information on their
provider Web sites and in their newsletters that addresses these and
other issues pertinent to operationalization of the regulation.
G. Testing With Medicare
Comment: Several commenters expressed concerns regarding low HIPAA
transaction testing rates between providers and Medicare.
Response: Medicare testing has increased over the past several
months and rose steadily in the weeks leading up to the HIPAA
compliance deadline. As of September 10, 2004, approximately 97.7
percent of inbound claims were being submitted to Medicare in the
HIPAA-compliant format.
Medicare invoked its HIPAA contingency plan to afford added
flexibility to providers and submitters who were not ready to submit
claims in the HIPAA electronic format on the deadline of October 16,
2003, to continue to prepare for the electronic claims submission
requirement in the adopted formats. Many Medicare contractors were
ready to test the 837 and 835 for 6 or more months before the October
16, 2003 deadline. Medicare's revised HIPAA contingency plan encourages
further HIPAA compliance because, effective July 1, 2004, non-compliant
electronic claims are paid no sooner than 27 days after the date of
receipt while compliant claims are paid sooner.
Comment: Another commenter requested that Medicare relax the
technical edits to HIPAA transactions so that claims may continue to be
processed after the deadline.
Response: We believe that Medicare has tried to make reasonable
accommodations regarding its technical edits, while remaining
considerate of how changes in its claims processing systems may affect
various other submitters (some of whom could be adversely affected by
inappropriate technical edits).
H. Impact of HIPAA Standards
Comment: Several commenters expressed concerns surrounding the
overall level of readiness by the industry for implementing the HIPAA
transaction and code set standards due to possible industry variations
in the interpretation of the standards. They were concerned that
unresolved questions pertaining to complying with the HIPAA standards
could impact a provider's ability to submit claims electronically and,
therefore, comply with the Medicare electronic claims submission
requirement.
Response: We recognize that a number of HIPAA implementation issues
exist and present obstacles to HIPAA compliance; however, these issues
and obstacles extend beyond the scope of this regulation. We are
addressing these concerns through other channels. Medicare's HIPAA
contingency plan may afford some additional latitude to entities as
they work toward compliance with the HIPAA standards. In the meantime,
Medicare's contingency plan allows for providers, under specified
circumstances, to continue to send HIPAA non-compliant electronic
claims to Medicare and, therefore, facilitate compliance with the ASCA
mandate.
I. Enforcement
Comment: One commenter identified a few issues related to
compliance with HIPAA's electronic transactions and code sets standards
such as a request for new data elements, which could impact compliance
with the Medicare electronic claims submission requirement.
Response: For any change to a standard to become effective and
compliance required, the designated standard maintenance organization
would first have to hold public hearings and ultimately the Secretary
would need to adopt the change formally.
Comment: Another commenter suggested we find an alternate term for
``audit'' when discussing enforcement.
Response: We accept this comment; therefore, in the future we will
reference the Secretary's ability to ``audit'' an entity as the ability
to ``review'' an entity for compliance. In addition, the preliminary
enforcement process will be conducted on a prospective basis and will
focus on providers that appear to be submitting extraordinarily high
numbers of paper claims. If a review establishes that a provider is
submitting paper claims without properly qualifying for a waiver, the
provider will be notified that any paper claims submitted after a
certain date will be rejected by Medicare. However, providers will be
afforded a reasonable amount of time under the circumstances to come
into compliance with the electronic claim submission requirement.
A future Medicare manual instruction to Medicare contractors will
explain the criteria for review and the enforcement requirements for
providers that are determined to have incorrectly submitted paper
claims.
J. Costs To Convert From the Submission of ``Paper Claims'' to
``Electronic Claims''
Comment: One commenter requested that we provide a more realistic
estimate of the costs associated with converting from paper claims
submission to electronic claims submission. Several commenters believe
that the requirement to submit Medicare claims electronically
represents a costly expense without the potential for reimbursement to
providers.
Response: When considering this comment, we reviewed again the
basis for the cost estimate and considered further possible paperwork
burden and capital investment issues in the impact analysis of the
interim final rule. We concluded that the cost estimate remains the
most accurate, given the data that were available.
Due to the high number of Medicare claims already submitted
electronically and the waivers issued for ``small providers,''
moderately sized providers are most likely to be affected by this
requirement. While we do agree that a provider's staff will need some
time to become fully familiar and proficient with the use of the free/
low cost Medicare billing software, a physician's office (which
presently submits claims on paper) can purchase hardware to enable
compliance with this requirement for less than $1,000. Although the
electronic conversion will not be reimbursed, we continue to believe
that we have tried to provide the most economical software for
providers, and we will even provide free technical support on the
installation and usage through our Medicare contractors.
K. Outside the Scope of This Rule
Comment: One commenter requested that Medicare guidance
communications or program changes to physicians be completed on paper
rather than electronically.
Response: Although we appreciate this commenter's concern, because
these issues were not addressed in the August 15, 2003 interim final
rule, we are not able to address this concern in this final rule.
Comment: Another commenter suggested that we reimburse for nursing
service claims.
Response: Although we appreciate the commenter's concerns, nursing
service claim reimbursement was not covered
[[Page 71016]]
in the August 15, 2003 interim final rule. Therefore, we are unable to
address this concern in this final regulation.
IV. Provisions of This Final Rule
With some minor editing and modification to include two additional
``unusual cases'' for an automatic exception and changed ``unusual
circumstances'' to ``unusual cases'', we are adopting all of the
provisions set forth in the August 15, 2003 interim final rule as
final.
V. Collection of Information Requirements
Under the Paperwork Reduction Act (PRA) of 1995, we are required to
provide 30-day notice in the Federal Register and solicit public
comment before a collection of information requirement is submitted to
the Office of Management and Budget (OMB) for review and approval. In
order to fairly evaluate whether an information collection should be
approved by OMB, section 3506(c)(2)(A) of the PRA of 1995 requires that
we solicit comment on the following issues:
The need for the information collection and its usefulness
in carrying out the proper functions of our agency.
The accuracy of our estimate of the information collection
burden.
The quality, utility, and clarity of the information to be
collected.
Recommendations to minimize the information collection
burden on the affected public, including automated collection
techniques.
Therefore, we are soliciting public comments on each of these
issues for the information collection requirements discussed below.
The information collection requirements and associated burdens in
Sec. 424.32 are subject to the PRA. The burden of submitting the
information required is addressed under OMB approval number:
0938-0866, HIPAA Standards for Coding Electronic Transactions, with
a one-time burden of 34,000,000 hours. The current approval expires 5/
31/05.
0938-0279, Medicare Uniform Institutional Provider Bill, with an
annual burden of 1,666,208 hours (form CMS-1450). The current approval
expires 12/31/05.
0938-0008, Common Claim form, instructions, and supporting
regulations at Sec. 414.40, Sec. 424.32, and Sec. 414.40, with an
annual burden of 44,189,007 hours (form CMS-1500). The current approval
expires 3/31/06.
Approximately 205,409 providers and suppliers will be affected by
this final rule and will have to change the format for the claims they
submit. They will incur some costs, either that of switching to
clearinghouses, which will not affect the time it takes to submit the
information for a claim, but may cost them approximately $.30 per
claim, or that of purchasing computer equipment, which we estimate at
$500 to $1,000.
In the final rule published to implement the electronic
transactions and code sets standards, we estimated that it would take
an average of 10 hours per entity to switch over to the mandated
standard transaction. (The switch could be from paper to electronic or
from another electronic format to the standard format.)
For purposes of this discussion, we are estimating that 37.5
percent of the affected providers and suppliers (that is, those not
meeting one of the exceptions) already own computers and will not incur
capital costs. We are also estimating that 50 percent of the affected
providers and suppliers will start using a clearinghouse or billing
service, which will not impose any capital costs subject to the PRA.
The remaining 12.5 percent (25,676) will buy computers at an average of
$750, for a total capital cost of $19.3 million.
On the other hand, the providers and suppliers who own or who will
buy a computer will require less time to submit claims. Form CMS-1450
takes approximately 9 minutes to submit in hard copy and 0.5 minutes to
submit electronically; form CMS-1500 takes 15 minutes and 1 minute,
respectively.
If 50 percent of the entities that will bill us directly are
responsible for 25 percent of the paper bills (we assume that half of
the bills are submitted by entities that will be excepted from the
requirements, and that 25 percent will be submitted through an
intermediate party), they will save 7,651,089 million hours for form
1500 and 129,196 hours for form 1450. Mailing costs will be reduced by
approximately $.40 per claim on average and the cost of the forms by
$.03 for the form 1450 and form 1500 (the third form is furnished by
us).
As required by section 3504(h) of the PRA of 1995, we have
submitted a copy of the revision to Sec. 424.32 to OMB for its review
of the information collection requirements. The revision is not
effective until OMB has approved it.
If you comment on these information collection and recordkeeping
requirements, please mail copies directly to the following:
Centers for Medicare & Medicaid Services, Office of Strategic
Operations and Regulatory Affairs, Regulations Development and
Issuances Group, Attn: Jimmy Wickliffe, CMS-0008-F, Room C5-11-04, 7500
Security Boulevard, Baltimore, MD 21244-1850.
Office of Information and Regulatory Affairs, Office of Management
and Budget, Room 10235, New Executive Office Building, Washington, DC
20503, Attn: Christopher Martin, Desk Officer, CMS-0008-F.
Comments submitted to OMB may also be e-mailed to the following
address: e-mail: [email protected]; or faxed to OMB at
(202)395-6974.
VI. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this rule as required by Executive
Order 12866 (September 1993, Regulatory Planning and Review), the
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354),
section 1102(b) of the Social Security Act, the Unfunded Mandates
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
For the purpose of this analysis, we use a pre-statute baseline;
therefore, all costs and benefits identified in this impact analysis
are attributed to this final rule. Nevertheless, the ASCA mandates most
aspects of this final rule. In particular, the ASCA requires Medicare
providers to submit claims electronically and stipulates the exceptions
that will and may be granted. However, we did have discretion in
setting the conditions for exceptions, and believe that these
exceptions reduce the burden relative to the burden that was imposed by
ASCA without this implementing regulation.
Executive Order 12866 directs agencies to assess all costs and
benefits of available regulatory alternatives and, if regulation is
necessary, to select regulatory approaches that maximize net benefits
(including potential economic, environmental, public health and safety
effects, distributive impacts, and equity). A regulatory impact
analysis (RIA) must be prepared for major rules with economically
significant effects ($100 million or more in any 1 year). This is not a
major rule. While additional costs will be imposed on those entities
that do not meet any of the exception requirements and which must
purchase the capability to bill Medicare electronically, we estimate
the impact to be less than $100 million. Our estimates of the cost
impact are based on the following analysis. (Note: The primary sources
of data contained herein are the Medicare Program's ``Contractor
Reporting of Operational Workload Data'' (CROWD), the ``2002 CMS
Statistics'' Handbook, and the Year
[[Page 71017]]
2000 ``Statistics of U.S. Business'' issued by the U.S. Census Bureau.)
The Administrative Simplification provisions under HIPAA establish
the standards for electronic data transmission when transactions are
conducted electronically, but they do not require physicians,
practitioners, facilities, suppliers, and other health care providers
to transmit claims and other transactions electronically. ASCA,
however, does require Medicare physicians, practitioners, facilities,
suppliers, and other health care providers (except those for which this
rule provides for an exception) to submit claims electronically to
Medicare. Consequently, Medicare claims must be submitted in the HIPAA-
prescribed electronic format. Thus, this rule will only have an impact
on that group of entities that now submit paper claims to the Medicare
Program and that do not fall into one of the excepted groups.
Approximately 139 million paper claims were submitted to Medicare
in FY 2002. This represents about 13.9 percent of all claims processed.
Broken down between paper claims submitted to FIs and carriers, the
number of paper claims in FY 2002 was 3.4 million and 136 million,
respectively (source of data is CROWD).
Over the past 4 years, Medicare's electronic media claims (EMC)
rate has slowly grown at an average of 0.3 percent per year for FIs and
0.9 percent per year for carriers (source of data is CROWD). We do not
expect a change in this trend for the immediate future. Therefore, we
assume that similar changes will continue for FY 2004, the first year
of implementation of mandatory Medicare electronic media claims (EMC).
Using workload growth projections from our FY 2004 budget submission to
the Congress, we estimate the FY 2004 volume of paper claims impacted
by the ASCA, factoring out Medicare's continuing trend of higher EMC
rates, will be 2.5 million for Medicare FIs and 133.7 million for
carriers. These volumes could be even smaller in FY 2004 due to the
simultaneous implementation of HIPAA. However, the impact of HIPAA,
coupled with Medicare's EMC trends, cannot be quantified, though the
impact would only further reduce the cost/savings impact of ASCA and
further support that a RIA is not needed.
We do not know at this time how many providers will be excepted
from the ASCA requirements, but projections have been made based upon
the percentage of health care providers reported in the Census Bureau's
``Year 2000 Statistics of U.S. Businesses,'' which includes data on the
number of health care providers by type with fewer than 20 employees
and the numbers of physician, practitioner, and supplier entities with
fewer than 10 employees. The Census figures do not differentiate
between part-time and full-time employees, and would be expected to
result in inflated numbers on the whole when applied to Medicare, but
that is acceptable for impact assessment purposes. The Census did not
have a category for fewer than 25 employees; fewer than 20 employees
was their closest statistic. Overall, the Census data would still be
reliable indicators of the anticipated worse case scenario of the
maximum number of Medicare providers, physicians, practitioners, and
suppliers likely to be impacted by this regulation. The percentages of
small providers, physicians, practitioners, and suppliers based on
employment numbers for the universe of all U.S. providers, physicians,
practitioners, and suppliers should be comparable to the percentage of
the subset of those providers that bill the Medicare program.
The Census figures did not include each of the same provider,
physician, practitioner, and supplier breakouts as tracked by
Medicare's statistics, but the Census figures did include the largest
provider, physician, practitioner, and supplier types. The Census
figures included 90 percent of all Medicare providers, physicians,
practitioners, and suppliers by type. The provider types, tracked
differently by the Census Bureau and us, include regional referral
centers, Christian Science Sanitoria, rural health clinics, critical
access facilities, and hospices. The ``2002 CMS Statistics'' directory
(number of providers) and the 2000 Census data health care
establishment totals (percentage of providers with less than 20
employees) reported the following:
----------------------------------------------------------------------------------------------------------------
Percentage of
Number of providers with Likely number
Provider type providers less than 20 excepted
employees
----------------------------------------------------------------------------------------------------------------
Hospitals....................................................... 6,031 10.6 639
Home Health Agencies............................................ 7,099 69.2 4,913
ESRD Facilities................................................. 3,991 16.6 663
Skilled Nursing Facilities...................................... 14,841 25.7 3,814
-----------------
Totals...................................................... 31,962 31.4 10,029
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
Percentage of
Number of providers with Likely number
Type of physician, practitioner or supplier providers less than 10 excepted
employees
----------------------------------------------------------------------------------------------------------------
Clinical Labs................................................... 168,333 41.4 69,690
Ambulatory Surgical Centers..................................... 3,147 34.9 1,098
Physicians...................................................... 567,412 70.6 400,593
All Other Practitioners......................................... 297,967 71.8 213,940
Totals...................................................... 1,036,859 66.1 685,321
----------------------------------------------------------------------------------------------------------------
As there was a 10 percent difference between the Census provider,
physician, practitioner, and supplier types and the Medicare provider
types, due to differences in type of collection, the numbers impacted
would need to be increased by 10 percent to account for the difference.
Increased by 10 percent, approximately 11,032 (31.4 percent) of all
Medicare providers, and 753,853 (66.1 percent) of all Medicare
physicians, practitioners, and suppliers
[[Page 71018]]
could qualify for an exception of the electronic claim-filing
requirement based on provider size, leaving approximately 24,126
providers and 386,692 physicians, practitioners, and suppliers (a total
of 410,818) potentially affected by the ASCA Medicare requirement
nationally.
Approximately 98 percent of providers, and 83 percent of
physicians, practitioners, and suppliers already submit claims to
Medicare electronically, and are expected to continue doing so, so the
total impacted must be further reduced to determine the approximate
number of current paper claim submitters that would likely be affected.
It is reasonable to assume that the majority of the paper claims
received by Medicare are submitted by smaller providers, physicians,
practitioners, and suppliers. As a result, it would not be accurate to
reduce the number of affected providers by the full 98 percent or 83
percent. In the absence of reliable statistics to project the current
source of all paper claims, however, the number of providers
potentially affected by the mandatory Medicare electronic claim
requirement will be conservatively estimated at a maximum of 50 percent
of the entities that would not qualify for a waiver. This leaves 12,063
providers and 193,346 physicians, practitioners, and suppliers (a total
of 205,409) that would need to begin submitting claims to Medicare
electronically.
Statistics collected for PRA clearance of the Medicare paper claim
forms and referenced in the ``Collection of Information Requirements''
section of this preamble indicate that, in the absence of a mandatory
electronic claim requirement effective for FY 2004, 2.5 million paper
claims are expected to be sent to Medicare intermediaries and 133.7
million paper claims are to be sent to Medicare carriers.
Prior to HIPAA, many Medicare providers used billing agents or
clearinghouses to bill the Medicare program. Many providers,
physicians, practitioners, and suppliers that submitted paper claims
indicated anecdotally that they used paper as they would rather avoid
the ``hassle'' of dealing with the multiple electronic claim formats
required by payers, and the need to have staff keep abreast of the
updates to those formats. HIPAA largely eliminates format differences
among payers, but there will always be differences concerning use of
certain ``situational'' segments and data elements in the formats. It
is reasonable to assume that up to half (205,409 x 50 percent =
102,704) of those entities that do not submit claims to Medicare
electronically today would prefer to contract with a third party to
deal with such differences on their behalf.
A small sampling of Medicare contractors indicated an average cost
of $0.30 per claim for billing agent and clearinghouse services. The
total cost to physicians, practitioners, facilities, suppliers, and
other health care providers to use a billing agent or clearinghouse
should not be more than $7,055,895 (that is, $.30 x {the sum of 2.5
million paper claims sent to intermediaries as estimated previously for
FY 2004 multiplied by the 68.6 percent of providers that would not meet
the exception criteria, plus 133.7 million paper claims estimated to be
sent to carriers multiplied by the 33.9 percent of physicians,
practitioners, and suppliers that would not meet the exception
criteria{time} ).
Finally, in regard to the balance of 102,704 (205,409 x 50 percent)
providers, physicians, practitioners, and suppliers that would not be
expected to meet the criteria to submit paper claims, we conservatively
estimate that approximately 75 percent of these already own personal
computers that are used to prepare the paper claim forms they currently
submit to Medicare. Very few hand-written or manually typed claims are
submitted to Medicare. Although many paper claim submitters have not
used personal computers for electronic billing, they have used them for
claims preparation, patient scheduling, and other aspects of their
practice.
We estimate that, at a maximum, the remaining total of 25,676 (25
percent of 102,704) providers, physicians, practitioners, and suppliers
will obtain personal computers to allow them to submit their claims
directly to Medicare electronically. A recent review of computer costs
in the marketplace indicated that personal computers sufficient to meet
the mandatory electronic claim requirement could be obtained for $500
to $1,000 for hardware (personal computer, monitor, printer, and
modem). Billing software is available free or at low cost (less than
$25 for shipping and handling) from Medicare. At the average rate of
$750, it would cost $19.3 million to purchase 25,676 personal computer
systems. More expensive equipment and peripherals could be used, but
would not be necessary for basic compliance. Therefore, the total
maximum cost should be no higher than $26.4 million ($7.1 million for
users of clearinghouses or billing services, and $19.3 million for
those that obtain personal computers).
Following the HIPAA savings calculation used in the Transaction
Rule, but projected to FY 2004 to account for inflation, a savings of
$615 per provider could result in a total provider savings of
approximately $15.8 million (that is, 25,676 times $615).
We note that the Transaction Final Rule (65 FR 50353 through 50359)
used a 10-year timeframe to capture the full extent of costs and
savings that could be attributed to the use of the transactions adopted
under HIPAA. Data from the 2000 edition of Faulkner and Gray's ``Health
Data Directory,'' from a Workgroup for Electronic Data Interchange
study report, and from the Department of Labor was used in those
calculations to determine total claims in the health care industry,
costs to use the transactions electronically, savings expected to be
realized, the historical growth rate for claims overall as well as
electronic claims, the percentage of electronic health care claims
nationally in 2000, and the anticipated inflation rate for the 10-year
period.
Thus, we estimate that the total cost-plus savings would be
approximately $42.2 million, which is less than the $100 million
threshold for an RIA. Again, these total costs and savings attributable
to ASCA could be even less if we were able to factor in the impact
HIPAA may have on electronic billing growth.
The RFA requires agencies to analyze options for regulatory relief
of small businesses. For purposes of the RFA, small entities include
small businesses, nonprofit organizations, and government agencies.
According to the Small Business Administration's (SBA's) data,
approximately 95 percent of offices of physicians are considered small
businesses (see the Small Business Administration's final rule titled
``Small Business Size Standards, Health Care,'' published in the
Federal Register on November 17, 2000, 65 FR 69432). Most
practitioners, facilities, suppliers, and other providers are small
entities either because of nonprofit status or because of having
revenues of $6 million to $29 million or less in any 1 year. For
purposes of the RFA, all physicians, practitioners, facilities,
suppliers, and other health care providers that serve Medicare
beneficiaries are considered to be small entities. However, as stated
earlier, this rule in and of itself does not impose a regulatory
burden. The ASCA mandates most aspects of this rule, in particular, the
ASCA requires Medicare providers to submit claims electronically and
stipulates the exceptions that will and may be granted. We did have
discretion however, in setting conditions for exceptions, and believe
these exceptions reduce the burden relative to the burden
[[Page 71019]]
that may have been imposed by ASCA without this implementing
regulation. If this final rule has an average annual impact that
exceeds 3 to 5 percent of total costs or revenues, it would be
considered significant according to the Department of Health and Human
Services (HHS) Guidelines. However, at a cost of $750 per computer and
savings of $615 ($750-$615), we expect this to fall significantly below
the revenue rule given by the HHS. Therefore, we have determined that
this rule will not have a significant economic impact on a substantial
number of small entities. Individuals and States are not considered
small entities. Therefore, no regulatory relief options are considered.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 604 of the RFA. For
purposes of section 1102(b) of the Act, we define a small rural
hospital as a hospital that is located outside of a Metropolitan
Statistical Area and has fewer than 100 beds. As indicated above, this
rule could have an impact on those small rural hospitals that bill
Medicare and that do not meet one of the exceptions. However, we do not
believe the impact is significant since the cost of compliance is
relatively small ($500 to $1,000) and small rural hospitals may be able
to qualify for the small provider exception. Therefore, no regulatory
impact analysis is required as the impact on small rural hospitals is
not significant.
Section 202 of the Unfunded Mandates Reform Act of 1995 also
requires that agencies assess anticipated costs and benefits before
issuing any rule that may result in expenditure in any 1 year by State,
local, or tribal governments, in the aggregate, or by the private
sector, of $100 million. This final rule will not have an impact of
that size on State, local, or tribal governments or on the private
sector. Instead, the primary impact on State, local, or tribal
governments, or the private sector will be that entities that must
begin billing Medicare electronically as a result of the ASCA are
likely to use that capability to also bill other payers (such as State,
local, or tribal governments and the private sector).
Executive Order 13132 establishes certain requirements that an
agency must meet when it publishes a final rule that imposes
substantial direct requirement costs on State and local governments,
preempts State law, or otherwise has Federalism implications. This
final rule will not have a substantial effect on State or local
governments for the reasons noted in this section of this final rule.
B. Anticipated Effects
1. Effects on Beneficiaries, Physicians, Practitioners, Facilities,
Suppliers, and Other Health Care Providers
The anticipated effects on Medicare's beneficiaries will be that
additional attention and services may be provided by their health care
physician because, for example, electronic billing should reduce
administrative paperwork. (This assertion was made by the medical
community in numerous forums over the years, although documentation to
this effect is not available.)
The anticipated effects on the entities required to bill
electronically will reduce or eliminate paper in their administrative
operations, realizing increased efficiencies and indeterminable
savings. These savings may be increased by the fact that the
Administrative Simplification provisions of HIPAA mandate a standard
transaction for electronic claim submissions, and this will facilitate
electronic claims submissions to all health care payers. At this time,
we do not have additional data to estimate those savings to Medicare
physicians, practitioners, facilities, suppliers, and other healthcare
providers. As previously stated, there will be a cost incurred by those
entities that cannot satisfy one of the exceptions and would be
required to bill Medicare in electronic form.
2. Effects on the Medicare and Medicaid Programs
Implementation of this final rule will result in a savings to the
Medicare program. If the FY 2004 projected paper claims submissions of
136.2 million (HHS FY 2004 Budget submission to the Congress and
estimated electronic media claims rate), are reduced by half and we
assume a savings of $1.40 per claim as a result, the program could
realize administrative savings of over $95 million per year. (Note: The
$1.40 per claim savings is our estimate of savings based upon a 1990
Industrial Engineering Study, contracted by CMS (then HCFA). The study
documented that FI paper claims cost about $3.30 more to process than
electronic claims and, similarly, carrier paper claims cost about $1.00
more to process than electronic claims. Weighing these differences by
the 2004 workloads and combining them yields the $1.40 estimated per
claim savings.)
We might expect similar types of savings for the States, which
administer the Medicaid Program. That is, Medicare providers who become
electronic billers due to ASCA may decide to begin billing Medicaid
electronically as well. However, this would depend on which of the
affected Medicare physicians, practitioners, facilities, suppliers, and
other healthcare providers also bill Medicaid. Again, the fact that the
Administrative Simplification provisions of HIPAA mandate a standard
transaction for electronic claim submissions will facilitate electronic
claims submissions to all health care payers.
C. Alternatives Considered
Section 3 of the ASCA mandated that all Medicare claims on or after
October 16, 2003, be submitted electronically. Since the statute
requires the electronic submission of claims, no alternatives to
electronic submission were considered. However, we are interpreting the
statutory provisions of the ASCA to allow for reasonable and limited
exceptions to the electronic submission requirement.
D. Conclusion
As described above in section VI.A., this final rule establishes
the requirements for implementing the statutory provisions under
section 3 of the ASCA. The statute requires, with few exceptions, that
physicians, practitioners, facilities, suppliers, and other health care
providers that bill Medicare do so electronically. Coupled with the
electronic standard transaction requirements under HIPAA, this rule
facilitates greater administrative efficiencies for the Medicare
program as well as for those that bill Medicare. There will be a cost
incurred for those entities that are unable to meet one of the
statutory exceptions, but we expect these initial costs to be offset by
increased efficiencies and lower ongoing costs attributable to Medicare
claims processing.
In accordance with the provisions of Executive Order 12866, the
Office of Management and Budget reviewed this regulation.
List of Subjects in 42 CFR Part 424
Emergency medical services, Health facilities, Health professions,
Medicare, Reporting and recordkeeping requirements
0
For the reasons set forth in the preamble, the interim rule amending 42
CFR part 424 that CMS published on August 15, 2003 (68 FR 48805) is
adopted as a final rule with the following amendments:
[[Page 71020]]
PART 424--CONDITIONS FOR MEDICARE PAYMENT
0
1. The authority citation for part 424 continues to read as follows:
Authority: Secs. 1102 and 1871 of the Social Security Act (42
U.S.C. 1302 and 1395hh).
0
2. Amend Sec. 424.32 by--
0
A. Revising paragraphs (d)(1)(v); (d)(1)(vi); (d)(3)(ii), and (d)(4)
introductory text.
0
B. Redesignating (d)(4)(iii) as paragraph (d)(4)(v).
0
C. Adding paragraphs (d)(4)(iii) and (iv).
The revisions and additions read as follows:
Sec. 424.32 Basic requirements for all claims.
(d) * * *
(1) * * *
(v) Initial Medicare claim means a claim submitted to Medicare for
payment under Part A or Part B of the Medicare Program under title
XVIII of the Act for initial processing, including claims sent to
Medicare for the first time for secondary payment purposes. Initial
Medicare claim excludes any adjustment or appeal of a previously
submitted claim, and claims submitted for payment under Part C of the
Medicare program under title XVIII of the Act.
(vi) Physician, practitioner, facility, or supplier is a Medicare
provider or supplier other than a provider of services.
* * * * *
(3) * * *
(i) * * *
(ii) The entity submitting the claim is a small provider of
services or small supplier.
(4) Unusual cases. The Secretary may waive the requirement of
paragraph (d)(2) of this section in unusual cases as the Secretary
finds appropriate. Unusual cases are deemed to exist in the following
situations:
* * * * *
(iii) The entity submitting the claim submits fewer than 10 claims
to Medicare per month, on average.
(iv) The entity submitting the claim only furnishes services
outside of the U.S. territory.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.774,
Medicare--Supplementary Medical Insurance Program)
Dated: May 2, 2005.
Mark B. McClellan,
Administrator, Centers for Medicare & Medicaid Services.
Approved: August 15, 2005.
Michael O. Leavitt,
Secretary.
Editorial Note: This document was received at the Federal
Register on November 17, 2005.
[FR Doc. 05-23080 Filed 11-23-05; 8:45 am]
BILLING CODE 4120-01-P