Federal Register, Volume 73 Issue 164 (Friday, August 22, 2008)

[Federal Register Volume 73, Number 164 (Friday, August 22, 2008)]
[Proposed Rules]
[Pages 49742-49793]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-19296]

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Part II

Department of Health and Human Services

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45 CFR Part 162

Health Insurance Reform; Modifications to the Health Insurance
Portability and Accountability Act (HIPAA) Electronic Transaction
Standards; Proposed Rule

Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 /
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 162

[CMS-0009-P]
RIN 0938-AM50

Health Insurance Reform; Modifications to the Health Insurance
Portability and Accountability Act (HIPAA) Electronic Transaction
Standards

AGENCY: Office of the Secretary, HHS.

ACTION: Proposed rule.

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SUMMARY: This rule proposes to adopt updated versions of the standards
for electronic transactions originally adopted in the regulations
entitled, ``Health Insurance Reform: Standards for Electronic
Transactions,'' published in the Federal Register on August 17, 2000,
which implemented some of the requirements of the Administrative
Simplification subtitle of the Health Insurance Portability and
Accountability Act of 1996 (HIPAA). These standards were modified in
our rule entitled, ``Health Insurance Reform: Modifications to
Electronic Data Transaction Standards and Code Sets,'' published in the
Federal Register on February 20, 2003. This rule also proposes the
adoption of a transaction standard for Medicaid Pharmacy Subrogation.
In addition, this rule proposes to adopt two standards for billing
retail pharmacy supplies and professional services, and to clarify who
the ``senders'' and ``receivers'' are in the descriptions of certain
transactions.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on October 21, 2008.

ADDRESSES: In commenting, please refer to file code CMS-0009-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the instructions for
``Comment or Submission'' and enter the file code to find the document
accepting comments.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-0009-P, P.O. Box 8014, Baltimore, MD
21244-1850.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-0009-P, Mail Stop C4-26-05, 7500
Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201.
(Because access to the interior of the HHH Building is not readily
available to persons without Federal government identification,
commenters are encouraged to leave their comments in the CMS drop slots
located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-9994 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.

FOR FURTHER INFORMATION CONTACT:
Lorraine Doo (410) 786-6597.
Gladys Wheeler (410) 786-0273.

SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period will be available for viewing by the
public, including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
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This Federal Register document is also available from the Federal
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Table of Contents

I. Background
A. Legislative Background
B. Regulatory History
C. Standards Adoption and Modification
II. Provisions of the Proposed Rule
A. Proposed adoption of Accredited Standards Committee X12 (ASC
X12) Version 005010 Technical Reports Type 3 for HIPAA Transactions
B. Proposed adoption of the National Council for Prescription
Drug Programs (NCPDP) Telecommunication Standard Implementation
Guide Version D, Release 0 (D.0) and Equivalent Batch Standard Batch
Implementation Guide, Version 1, Release 2 (1.2) for Retail Pharmacy
Transactions
C. Proposed adoption of a standard for Medicaid Pharmacy
Subrogation: NCPDP Medicaid Subrogation Standard Implementation
Guide, Version 3.0 for pharmacy claims
D. Proposal to adopt NCPDP Telecommunication Standard D.0 and
ASC X12 Version 005010 Technical Reports Type 3 for billing retail
pharmacy supplies and services
E. Proposed Modifications to Descriptions of Transactions
F. Proposed Compliance and Effective Dates
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Analysis

I. Background

The Health Insurance Portability and Accountability Act of 1996
(HIPAA)

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Public Law 104-191, mandated the adoption of standards for
electronically conducting certain health care administrative
transactions between certain entities. In the August 17, 2000 final
rule, the Secretary adopted standards for eight electronic health care
transactions (65 FR 50312). The Secretary adopted modifications to some
of those standards in a February 20, 2003 final rule (68 FR 8381).
Since the standards compliance date of October 2003, a number of
technical issues with the standards, including issues resulting from
new business needs have been identified. Industry stakeholders
submitted hundreds of change requests to the standards maintenance
organizations, with recommendations for improvements to the standards.
These requests were considered, and many were accepted, resulting in
the development and approval of newer versions of the standards for
electronic transactions. However, covered entities are not permitted to
use the newer versions we are proposing herein until the Secretary of
Health and Human Services (HHS) adopts them by regulation for covered
transactions.
In addition to technical issues and business developments
necessitating consideration of the new versions of the standards, there
remain a number of unresolved issues that had been identified by the
industry early in the implementation period for the first set of
standards, and those issues were never addressed through regulation
(for example, which is the correct standard to use for billing retail
pharmacy supplies and professional services). This proposed rule
addresses those outstanding issues.

A. Legislative Background

The Congress addressed the need for a consistent framework for
electronic transactions and other administrative simplification issues
in HIPAA, which was enacted on August 21, 1996. HIPAA requires the
adoption and use of standards to facilitate the electronic transmission
of certain health information and the conduct of certain business
transactions.
Through subtitle F of title II of HIPAA, the Congress added to
title XI of the Social Security Act (the Act) a new Part C, entitled
``Administrative Simplification.'' Part C of title XI of the Act
consists of sections 1171 through 1179. These sections define various
terms and impose several requirements on HHS, health plans, health care
clearinghouses, and certain health care providers concerning the
electronic transmission of health information. Section 1171 of the Act
establishes definitions for purposes of Part C of title XI for the
following terms: code set, health care clearinghouse, health care
provider, health information, health plan, individually identifiable
health information, standard, and standard setting organization (SSO).
Section 1172(a) of the Act makes any standard adopted under Part C
applicable to: (1) Health plans; (2) health care clearinghouses; and
(3) health care providers who transmit health information in electronic
form in connection with a transaction for which the Secretary has
adopted a standard(s). Current standards are at 45 CFR part 162
subparts K through R.
Section 1172 of the Act requires any standard adopted by the
Secretary under Part C of Title XI to be developed, adopted, or
modified by a standard setting organization, except in the special
cases where no standard for the transaction exists, as identified under
section 1172(c)(2) of the Act. Section 1172 of the Act also sets forth
consultation requirements that must be met before the Secretary may
adopt standards. In the case of a standard that has been developed,
adopted, or modified by an SSO, the SSO must consult with the following
organizations in the course of the development, adoption, or
modification of the standard: the National Uniform Billing Committee
(NUBC), the National Uniform Claim Committee (NUCC), the Workgroup for
Electronic Data Interchange (WEDI) and the American Dental Association
(ADA). Under section 1172(f) of the Act, the Secretary must also rely
on the recommendations of the National Committee on Vital and Health
Statistics (NCVHS) and shall also consult with appropriate Federal and
State agencies and private organizations.
Section 1173(a) of the Act requires the Secretary to adopt
transaction standards and data elements for such transactions, to
enable the electronic exchange of health information for specific
financial and administrative health care transactions and other
financial and administrative transactions as determined appropriate by
the Secretary. Under sections 1173(b) through (f) of the Act, the
Secretary is also required to adopt standards for: specified unique
health identifiers, code sets, security for health information,
electronic signatures, and the transfer of certain information among
health plans.
Section 1174 of the Act requires the Secretary to review the
adopted standards and adopt modifications to the standards, including
additions to the standards, as appropriate, but not more frequently
than once every 12 months. Modifications must be completed in a manner
that minimizes disruption and cost of compliance. The same section
requires the Secretary to ensure that procedures exist for the routine
maintenance, testing, enhancement, and expansion of code sets.
Moreover, if a code set is modified, the code set that is modified must
include instructions on how data elements that were encoded before the
modification may be converted or translated to preserve the information
value of the data elements that existed before the modification.
Section 1175(b) of the Act provides for a compliance date not later
than 24 months after the date on which an initial standard or
implementation specification is adopted for all covered entities except
small health plans, which must comply not later than 36 months after
such adoption. If the Secretary adopts a modification to a HIPAA
standard or implementation specification, the compliance date for the
modification may not be earlier than the 180th day following the date
of the adoption of the modification. The Secretary must consider the
time needed to comply due to the nature and extent of the modification
when determining compliance dates, and may extend the time for
compliance for small health plans, if the Secretary deems it
appropriate.

B. Regulatory History

On August 17, 2000, we published a final rule entitled, ``Health
Insurance Reform: Standards for Electronic Transactions'' in the
Federal Register (65 FR 50312) (hereinafter referred to as the
Transactions and Code Sets rule). That rule implemented some of the
HIPAA Administrative Simplification requirements by adopting standards
for eight electronic transactions and for code sets to be used in those
transactions. Those transactions were: health care claims or equivalent
encounter information; health care payment and remittance advice;
coordination of benefits; eligibility for a health plan; health care
claim status; enrollment and disenrollment in a health plan; referral
certification and authorization; and health plan premium payments. We
defined these transactions and specified the adopted standards at 45
CFR part 162, subparts I and K through R.
The standards that we adopted were developed by two American
National Standards Institute (ANSI) accredited standard setting
organizations (commonly and hereinafter referred to as Standards
Developing Organizations (SDO)): the National Council for Prescription
Drug Programs (NCPDP)

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and the Accredited Standards Committee ASC X12, which will hereinafter
be abbreviated and referred to as X12. In our regulations and guidance
materials to date, we have always referred to ``X12N'' where the ``N''
indicates the particular subcommittee. However, we have been informed
by the X12 committee that it no longer uses the ``N'' to indicate the
subcommittee. Therefore, in keeping with the current practice of the
X12, we will not continue to use the ``N'' either, and we will simply
refer to the standards of that organization as ``X12'' standards. We
adopted the NCPDP Telecommunication Standard version 5.1 (hereinafter
referred to as NCPDP 5.1) and its equivalent batch standard for retail
pharmacy drug claims under the health care claims or equivalent
encounter transaction, as well as the eligibility for a health plan
transaction for retail pharmacy drugs, the retail pharmacy drug claims
remittance advice transaction, and the coordination of benefits
information transaction for retail pharmacy drug claims. We adopted a
number of X12 standards, all in Version 4010, for the remaining
transactions (see Sec. 162.1101 through 1802).
On February 20, 2003, we published a final rule entitled, ``Health
Insurance Reform: Modifications to Electronic Data Transaction
Standards and Code Sets,'' in the Federal Register (68 FR 8381)
(hereinafter referred to as the Modifications rule). In that rule, we
adopted certain modifications to some of the standards for the eight
electronic standard transactions. These modifications resulted in part
from recommendations of the industry because the original versions of
the X12 standards had certain requirements (for example, requiring
information that is not available or not needed) that impeded
implementation. Since the industry did not have extensive prior
experience with the X12 standards, implementation problems were
compounded. It is likely that this lack of expertise also contributed
to limited input during the Version 4010 ballot process (to approve the
``original'' standards). For information about the ballot process for
any particular SDO, interested parties should visit the individual Web
sites for a full explanation of the process and how to participate. The
result is that the standards were not thoroughly analyzed to identify
problems before Version 4010 was adopted. The X12 agreed to create
``addenda'' to the original versions of the standards, called Version
4010A, in order to facilitate implementation for the industry, and the
Secretary adopted those addenda into regulations in every instance
where the Secretary had adopted Version 4010. (See 68 FR 8381).
(Readers will note that we have removed the numeral ``1'' from the end
of Version 4010/4010A1 for ease of reference. Since there is only one
addendum, we did not feel the need to include the number ``1'' after
each citation in this proposed rule.)
In Table 1 below, we summarize the full set of transaction
standards adopted in the Transactions and Code Sets rule and as
modified in the Modifications rule. The table uses abbreviations of the
standards and the names by which the transactions are commonly
referred, as a point of reference for the readers. The official
nomenclature and titles of each standard and transaction are provided
later in the narrative of this preamble.

Table 1--Adopted Standards for HIPAA Transactions
------------------------------------------------------------------------
Standard Transaction
------------------------------------------------------------------------
ASC X12 837 D................ Health care claims--Dental.
ASC X12 837 P................ Health care claims--Professional.
ASC X12 837 I................ Health care claims--Institutional.
ASC X12 837.................. Health care claims--Coordination of
Benefits.
ASC X12 270/271.............. Eligibility for a health plan (request
and response).
ASC X12 276/277.............. Health care claim status (request and
response).
ASC X12 834.................. Enrollment and disenrollment in a health
plan.
ASC X12 835.................. Health care payment and remittance
advice.
ASC X12 820.................. Health plan premium payment.
ASC X12 278.................. Referral certification and authorization
(request and response).
NCPDP 5.1.................... Retail pharmacy drug claims
(telecommunication and batch standards).
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C. Standards Adoption and Modification

In addition to adopting the first set of transaction standards and
code sets, the Transactions and Code Sets rule adopted procedures for
the maintenance of existing standards and for adopting new standards
and modifications to existing standards (see Sec. 162.910).
1. Designated Standards Maintenance Organizations (DSMO)
Section 162.910 sets out the standards maintenance process and
defines the role of SDOs and the DSMO. An SDO is an organization
accredited by the ANSI that develops and maintains standards for
information transactions or data elements. SDOs include the X12, the
NCPDP, and Health Level Seven (HL7). In August 2000, the Secretary
designated six organizations (see Health Insurance Reform: Announcement
of Designated Standard Maintenance Organizations Notice (65 FR 50373))
to maintain the health care transaction standards adopted by the
Secretary, and to process requests for modifying an adopted standard or
for adopting a new standard. The six organizations include the three
SDOs referenced above. The other three organizations are the National
Uniform Billing Committee (NUBC), the National Uniform Claim Committee
(NUCC), and the Dental Content Committee (DCC) of the American Dental
Association. The DSMO operate through a coordinating committee. For
additional information about the DSMO process and procedures, refer to
the Web site at http://www.hipaa-dsmo.org/Main.asp.
2. Process for Adopting Modifications to Standards
In general, HIPAA requires the Secretary to adopt standards that
have been developed by an SDO with certain exceptions. In addition to
directing the Secretary to adopt standards, HIPAA, at section 1172(d)
of the Act, also requires the Secretary to establish specifications for
implementing each adopted standard.
The process for adopting a new standard or modifications to
existing standards is described in the Transactions and Code Sets rule
(65 FR 50312 at 50344) and implemented at Sec. 162.910. Under Sec.
162.910, the Secretary considers recommendations for proposed
modifications to existing standards or a proposed new standard, only if
the recommendations are

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developed through a process that provides for--
Open public access;
Coordination with other SDOs;
An appeals process for the requestor of the proposal or
the DSMO that participated in the review and analysis if either of the
preceding were dissatisfied with the decision on the request;
An expedited process to address HIPAA content needs
identified within the industry; and
Submission of the recommendation to the NCVHS.
Any entity may submit change requests with a documented business
case to support the recommendation to the DSMO. The role of the DSMO
committee is to receive and manage those change requests. The DSMO
review the request and notify the SDO of the recommendation for
approval or rejection. If the changes are recommended for approval, the
DSMO also notifies the NCVHS and suggest that a recommendation for
adoption be made to the Secretary of HHS. Instructions for the DSMO
process and access to the submission tools are available at http://www.hipaa-dsmo.org.
All of the modifications and the new transaction standard proposed
in this rule were developed through a process that conforms with Sec.
162.910. The suggested modifications and new standard recommended for
approval by the DSMO were submitted to NCVHS for consideration. In
2007, the NCVHS conducted two days of hearings with health care
providers, health plans, clearinghouses, vendors, and interested
stakeholders on the adoption of the new ASC X12 Version 005010
Technical Reports Type 3 and the NCPDP Telecommunication Standard,
Version D.0, to replace Versions 4010/4010A and the NCPDP Version 5.1.
Testimony was also presented for the NCPDP Medicaid pharmacy
subrogation standard (Version 3.0). A list of organizations that
provided testimony to the NCVHS is available on the agenda for the July
2007 meetings, at http://www.ncvhs.hhs.gov/070730ag.htm. In addition to
the standards organizations, other testifiers included Delaware
Medicaid, MEDCO, Healthcare Billing and Management Association (HBMA),
BlueCross BlueShield Association (BCBSA), Integra Professional
Services, EDS, LabCorps, the American Dental Association, the American
Hospital Association, the National Community Pharmacists Association
(NCPA), the Medical Group Management Association (MGMA), the National
Association of Chain Drug Stores (NACDS), the Workgroup for Electronic
Data Interchange (WEDI) and Smith Premier. In a letter dated September
26, 2007 (available at http://www.ncvhs.hhs.gov/070926lt.pdf ), the
NCVHS submitted to the Secretary its recommendations to adopt the
updated versions of standards as well as the NCPDP Medicaid pharmacy
subrogation standard.
As noted above, and as indicated in the letter from NCVHS, HHS
consulted with other Federal and State agencies and private
organizations to gain input for this proposed rule regarding the
adoption and implementation of standards. We also worked with WEDI
specifically to conduct industry-focused information forums on
implementation of the modified standards proposed in this rule.
3. Implementation Specifications and Technical Reports Type 3
Each adopted standard has operating rules that are documented in an
implementation specification or guide. These implementation
specifications or guides comprise ``the specific instructions for
implementing a standard'' (Sec. 162.103). In addition to ensuring that
specific data are communicated in the same way among trading partners,
and providing instructions to users for implementing standards, these
implementation specifications dictate field size limits and provide
guidance for the type of information to be included in a particular
field. The specificity that results enables health information to be
exchanged electronically between any two entities, using the same
instructions for format and content without losing the integrity of the
data.
In 2003, the X12 initiated the concept of the Technical Reports
Type 3 to promote consistency and coherency among information
processing systems which use X12 standards and encourage uniform
standards implementation. X12 Technical Reports are in three formats:
Type 1 reports are tutorials that describe the intent of the authoring
subcommittee and provide guidance on usage of the standard; Type 2
reports provide models of business practices and data flows to assist
users in the development of software systems that would use the EDI
transmissions; and Type 3 reports are implementation guides that
address a specific business purpose (for example, a claim), and provide
comprehensive instructions for the use and content of a transaction.
The Technical Reports Type 3 are the updated equivalents of the X12
Implementation Guides referenced in the current HIPAA regulations. We
note that no format or function differences exist between previous
implementation specifications and Technical Reports Type 3. We
reference Technical Reports Type 3 in the proposed regulation text in
accordance with the way in which the X12 now refers to its
implementation guides. Documents called Type 1 Errata are used to
supplement published Technical Reports Type 3 that solve significant
problems that prevent achievement of the business purpose.
NCPDP terminology has not changed since the adoption of the current
HIPAA regulations. Therefore, the NCPDP standards continue to be
referred to as implementation guides or specifications.

II. Provisions of the Proposed Rule

A. Proposed Adoption of X12 Version 005010 Technical Reports Type 3 for
HIPAA Transactions

We propose to revise Sec. 162.1102, Sec. 162.1202, Sec.
162.1302, Sec. 162.1402, Sec. 162.1502, Sec. 162.1602, Sec.
162.1702, and Sec. 162.1802 to adopt the ASC X12 Technical Reports
Type 3, Version 005010, hereinafter referred to as Version 5010, as a
modification of the current X12 Version 4010 and 4010A1 standards,
hereinafter referred to as Version 4010/4010A, for the HIPAA
transactions listed below. In some cases, the Technical Reports Type 3
have been modified by Type 1 Errata, and these Errata are also included
in our proposal. Covered entities conducting the following HIPAA
standards would be required to use Version 5010:
Health care claims or equivalent encounter information
(Sec. 162.1101)
-- Professional health care claims
-- Institutional health care claims
-- Dental health care claims
Dental, professional, and institutional health care
eligibility benefit inquiry and response (Sec. 162.1201)
Dental, professional, and institutional referral
certification and authorization (Sec. 162.1301)
Health care claim status request and response (Sec.
162.1401)
Enrollment and disenrollment in a health plan (Sec.
162.1501)
Health care payment and remittance advice (Sec. 162.1601)
Health plan premium payments (Sec. 162.1701)
Coordination of Benefits (Sec. 162.1801)
-- Dental health care claims
-- Professional health care claims
-- Institutional health care claims
Following is a brief description of the enhancements in the updated
version of the standards and our rationale in support of its adoption.

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Justification for Adopting Version 5010 TR3 Reports
Despite the changes made to Version 4010 that prompted the
establishment of Version 4010A, which was adopted in the Modifications
rule, operational and technical gaps still exist in Version 4010A. In
addition, it has been more than 5 years since implementation of the
original standards, and business needs have evolved during this time.
While the implementation specifications continue to improve with each
new version, deficiencies in the adopted versions continue to cause
industry-wide issues. These deficiencies in the current implementation
specifications have caused much of the industry to rely on ``companion
guides'' created by health plans to address areas of Version 4010/4010A
that are not specific enough or require work-around solutions to
address business needs. These companion guides are unique, plan-
specific implementation instructions for the situational use of certain
fields and/or data elements that are needed to support current business
operations. We believe that industry reliance on companion guides has
minimized some of the potential benefits offered by the standards
because each guide has a different set of requirements, making full
standardization nearly impossible. Furthermore, as the industry worked
with the standards and became more adept at using them, opportunities
for improvement became apparent and were included in subsequent
versions of the implementation specifications. It also became apparent
that dependence on companion guides could be greatly reduced, if not
eliminated, if proposed modifications were ultimately adopted for use
by the industry.
As stated earlier, in the years following the compliance deadline,
hundreds of requests to upgrade the standards have been submitted by
the industry to the DSMO Steering committee. These requests have been
made in accordance with the DSMO Change Request process, described in
the Transactions and Code Sets rule. The DSMO Steering committee has
evaluated approximately five hundred requests for changes to Version
4010/4010A. Version 5010 changes significantly improve the
functionality of the transactions and correct problems encountered with
Version 4010/4010A. Change Description Guides detailing the specific
changes made to each new version are available at http://www.wpc-edi.com. The Medicare Fee-for-Service program is evaluating the impact
of implementing Version 5010 in the future, and has completed a gap
analysis of the standards. Medicare has prepared a comparison of the
current X12 HIPAA EDI standards (Version 4010/4010A) with Version 5010
and the NCPDP EDI standards Version 5.1 to D.0, and has made these
side-by-side comparisons available to other covered entities and their
business associates on the CMS Web site: http://www.cms.hhs.gov/ElectronicBillingEDITrans/18_5010D0.asp.
The areas of improvement included in Version 5010 can be grouped
into four main themes. Each theme is discussed in detail below:
Front Matter/Education--Information in the front matter
(hereinafter referred to as the Front Matter section) of Version 5010
now provides clearer instructions. Ambiguous language has been
eliminated and the rules for required and situational data elements are
more clearly defined.
Technical Improvements--Technical improvements in Version 5010
include new guidelines that use the same data representation for the
same purposes across all of the transactions for which Version 5010 is
used. This reduces ambiguities and reduces the number of times that the
same data could have multiple codes or qualifiers, or from appearing in
different segments for the same purpose. Consistent data representation
reduces ambiguities that result from the same data having multiple
codes or qualifiers and from the same data appearing in different
segments in different transactions. In other words, ambiguous language
has been eliminated, the rules for required and situational data
elements are more clearly defined, and instructions for many business
processes have been clarified.
Structural Changes--Modifications to the physical components of the
transaction have been made. New segments and new data elements have
been added and data elements have been modified or removed to make the
data elements longer, shorter, or of a different data type to add
functionality and improve consistency. In some cases, new
``composites,'' defined as a collection of related data elements, have
been added in order to ensure that related data is reported and
received in the same section of the transaction instead of spread out
in different areas. This increases the accuracy of processing because
programming can be consistent for each transaction.
Data Content--Redundant and unnecessary data content requirements
have been removed to eliminate confusion for implementers. Additional
requirements have been added where needed to clarify existing data
content requirements.
The following section includes a brief summary of changes for each
of the versions of the implementation guides. We note that some of the
implementation guides had significant modifications while others were
changed only moderately. In the following discussions for each
transaction, we use short-hand for referring to the current and
modified versions of the standard. Instead of writing out the full name
of the standard in each case, we refer to ``Version 4010/4010A'' and
``Version 5010.'' The Version 4010/4010A and Version 5010 short-hand
refers to the particular transaction standard discussed in each section
below. For example, in the first section below, we address the Health
Care Claims or Equivalent Encounter Information transaction for
institutional health care claims. Rather than refer to the ASC X12
837I, Version 4010/4010A and the X12 837 Version 5010 Technical Report
Type 3 for the Health Care Claims or Equivalent Encounter Information
transaction for institutional claims, we refer to Version 4010/4010A
and Version 5010, respectively, with the understanding that we are
referring to those versions in the context of the health care claims or
equivalent encounter information transactions for institutional claims.
This is true also for our discussion of the NCPDP transaction
standards. Finally, the standards are presented in the order we believe
best represents the level of utilization within the industry; in other
words, the transactions which are used most often by the industry, such
as claims and eligibility verification, are listed before lesser used
transactions, such as enrollment and premium billing. In the section
below, the order of the transactions does not follow the order of the
regulation text. However, in the regulation text section of this
proposed rule, the standards are represented in the same order in which
they have been published in each of the earlier regulations.
Health Care Claims or Equivalent Encounter Information Transaction
(837)
Institutional Health Care Claims (837I)
We propose to revise Sec. 162.1102 by adding a new paragraph
(c)(4) that would replace the ASC X12N 837I Version 4010/4010A with the
Health Care Claim: Institutional (837) ASC X12 Standards for Electronic
Data Interchange Technical Report Type 3 and Type 1 Errata to Health
Care Claim: Institutional for the Health Care Claims

[[Page 49747]]

or Equivalent Encounter Information Transaction for institutional
claims.
Version 4010/4010A does not provide a means for identifying an ICD-
10 procedure or diagnosis code on an institutional claim. Version 5010
anticipates the eventual use of ICD-10 procedure and diagnosis codes
and adds a qualifier as well as the space needed to report the number
of characters that would permit reporting of ICD-10 procedure and
diagnosis codes on institutional health care claims.
Other significant changes include the following:
Version 5010 separates diagnosis code reporting by
principal diagnosis, admitting diagnosis, external cause of injury and
reason for visit, allowing the capture of detailed information (for
example, mortality rates for certain illnesses, the success of specific
treatment options, length of hospital stay for certain conditions, and
reasons for hospital admissions).
Version 4010/4010A does not allow for the identification
of a ``Present on Admission'' indicator (POA) on the institutional
claim. Present on Admission means the condition or diagnosis that is
present at the time the order for inpatient admission occurs--
conditions that develop during an outpatient encounter, including
emergency department, observation, or outpatient surgery, are
considered as present on admission. This information is being captured
through a workaround in Version 4010/4010A by placing this information
in an unassigned segment. This has created confusion for hospitals and
has limited access to information that is critical to identifying
hospital acquired conditions and the ability to track utilization of
the POA indicator and treatment outcomes as specified by section 5001
of the Deficit Reduction Act. Version 5010 allows the POA indicator to
be associated with each individual diagnosis code allowing the capture
of detailed information (for example, mortality rates for certain
illnesses, length of hospital stay for certain conditions and reasons
for hospital admissions).
Version 5010 includes clear and precise rules that clarify
how and when the NPI is to be reported. Instructions require submitters
to report the same organizational type NPI in the same position for all
payers. This improves the accuracy of information that is needed to
conduct coordination of benefits by ensuring that the NPI information
that is submitted to a secondary or tertiary payer reflects the NPI
information that was processed by the primary payer. Version 4010/4010A
does not have clear rules about how an NPI should be reported for
subparts, or how to identify atypical providers (for example, taxi
services, home and vehicle modifications services, and respite services
that are not required to obtain an NPI), resulting in confusion among
providers about who needs an NPI and when an NPI for a subpart or an
individual provider should be reported.
Version 5010 provides clear definitions and precise rules
with instructions for consistently reporting provider information in
the same position and with the same meaning throughout the transaction.
Version 4010/4010A lacks a clear definition for the various types of
providers (other than attending and operating) who participate in
providing health care and who could be named in the claim transaction
(for example, ordering provider and referring provider).
Version 5010 makes programming more efficient because it uses the
same structure for all data elements across the transactions for which
5010 is used. Therefore, the structure for patient information in the
institutional health care claims transaction would be the same as that
for eligibility for a health plan transaction. Version 4010/4010A does
not structure certain data (for example, patient information)
consistently with the standards for other transactions, such as the
eligibility for a health plan transaction.
Professional health care claims (837P).
We propose to revise Sec. 162.1102 by adding a new paragraph
(c)(3) that would replace the ASC X12N 837P Version 4010/4010A with the
837 Health Care Claim: Professional ASC X12 Technical Report Type 3 for
the Health Care Claims or Equivalent Encounter Information Transaction
for professional claims.
Like the institutional health care claim transaction, Version 4010/
4010A does not provide a means for identifying an ICD-10 diagnosis code
on a professional claim. Version 5010 anticipates the eventual use of
ICD-10 diagnosis codes and adds a qualifier as well as the space needed
to report the number of characters that would permit reporting of ICD-
10 diagnosis codes on professional claims.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
Version 5010 only allows the reporting of minutes for
anesthesia time, ensuring consistency and clarity across transactions.
Version 4010/4010A lacks consistency in allowing for the reporting of
anesthesia time, in either units or minutes. This inconsistency creates
confusion among providers and plans, and frequently requires electronic
or manual conversions of units to minutes or vice versa, depending on a
health plan's requirement, and is especially complicated when
conducting COB transactions with varying requirements among secondary
or tertiary payers.
Version 5010 allows ambulance providers to report pick-up
information for ambulance transport electronically and makes it a
requirement on all ambulance claims. Version 4010/4010A does not allow
ambulance providers to report pick-up information for ambulance
transport. Plans that need this information to adjudicate an ambulance
claim must request this information after the claim is received. This
means that providers are required to submit the information separately
or on paper, which complicates the claim submission substantially.
Version 5010 includes an implementation note that states that the
provider specialty information applies to the entire claim unless there
are individual services where the provider specialty information
differs. This feature eliminates redundant reporting. Version 4010/
4010A contains redundant requirements for reporting a referring
provider's medical specialty when a claim contains more than one
service, and the referring provider specialty information differs for
at least one of the services.
Dental health care claims (837D).
We propose to revise Sec. 162.1102 by adding a new paragraph
(c)(2) that would replace the ASC X12N 837D Version 4010/4010A with the
837 Health Care Claim: Dental ASC X12 Technical Report Type 3 and Type
1 Errata for Health Care Claims or Equivalent Encounter Information for
dental claims.
Certain services performed by dentists are considered to be medical
services and are covered as medical benefits by insurance plans. In
Version 4010/4010A, a dental claim cannot be processed as a medical
claim because not all the required or situational information for a
medical claim is included in the dental claim. In Version 5010 for
dental claims, data requirements are closely aligned with the data
requirements for medical claims, which supports coordinating benefits
between dental and medical health plans.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
Version 5010 includes a designated location for treatment
start and stop

[[Page 49748]]

dates for dental crowns or bridges, which health plans need to
appropriately administer their dental benefits. Version 4010/4010A does
not allow for this information to be reported.
Version 5010 supports the reporting of specific tooth
numbers with the International Tooth Numbering System (ITNS) code.
Version 4010/4010A does not support this reporting, which makes
submitting claims for dental services that may be covered under a
medical plan complicated and burdensome. The services typically relate
to wisdom teeth extraction and traumatic dental injuries, and are
generally provided by oral and maxillofacial surgeons. Since these
services often are covered by a medical benefit, they are reported on
the 837 professional claim. Without support for the ITNS on the 837
professional claim, providers face denials, claim re-works and the
manual submission of paper documentation to provide the tooth number
information that is needed by plans to properly adjudicate claims and
electronically conduct coordination of benefits. Version 5010
eliminates these cumbersome processes by providing a standardized field
for reporting the ITNS code on claims that may be required to report
certain dental services on an 837 professional claim, rather than the
dental version.
Version 5010 includes an enhancement that supports the
reporting of an address for the place of treatment for dental claims.
Version 4010/4010A does not support the recording of this information.
The place of treatment is typically the dentist's address and it is
needed by health plans for claims adjudication. The support for this
information is available in Version 4010/4010A but only for
institutional and professional claims.
Version 5010 requires a first name only when the entity is
a person, whereas Version 4010/4010A requires a first name even in
instances when the entity is not a person. The deficiency in Version
4010/4010A means that, even if an organization or company is the
subscriber for a workers' compensation claim, in which case there would
be no first name, the submitter is still required to provide a first
name.
Health Care Payment and Remittance Advice Transaction (835)--For All
Claim Types
We propose to revise Sec. 162.1602 by adding a new paragraph (c)
that would replace the ASC X12N 835 Version 4010/4010A with the 835
Health Care Claim Payment/Advice ASC X12 Technical Report Type 3 for
the Health Care Payment and Remittance Advice transaction. This would
apply to all claim types, including retail pharmacy claims.
Many of the enhancements in Version 5010 involve the Front Matter
section of the Technical Report Type 3, which contains expanded
instructions for accurately processing a compliant 835 transaction.
Version 5010 provides refined terminology for using a standard, and
enhances the data content to promote clarity. The benefits of these
refinements could include more accurate use of the standard, reduction
of manual intervention and could motivate vendors and billing services
to provide a more cost-effective solution for the submission and
receipt of electronic remittance advice transactions.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
Version 5010 makes improvements to permit better use of
remittance advice by tightening business rules and reducing the number
of available code value options. Version 4010/4010A for remittance
advice lacks standard definitions and procedures for translating
remittance information and payments from various health plans to a
provider which makes automatic remittance posting difficult.
Version 5010 provides instructions for certain business
situations where none had existed before. For example, Version 5010
instructs providers on how to negate a payment that may be incorrect
and post a correction.
Version 5010 for the 835 transaction does not affect the
processing of Version 4010/4010A claim transactions. This compatibility
with the earlier standard would permit implementers to begin testing
Version 5010 for the 835 transaction before the compliance date, and,
at the same time, continue to process 837 claims using Version 4010/
4010A. This flexibility is important because there may be a transition
period with claims for services rendered before the compliance date
that will be in the older version of the standard because data elements
required in Version 5010 might not have been captured at the time
services were rendered.
Version 5010 includes a new Medical Policy segment that
provides more up-to-date information on payer policies and helps in
detail management, appeals, and reduces telephone and written inquiries
to payers. The new segment helps providers locate related published
medical policies that are used to determine benefits by virtue of the
addition of a segment for a payer's URL for easy access to a plan's
medical policies. Version 4010/4010A does not provide the ability to
include information or resources for policy-related payment reductions
or omissions.
Version 5010 eliminates codes marked ``Not Advised,'' but
leaves the code representing ``debit'' as situational, with
instructions on how and when to use the code. Version 4010/4010A
contains codes marked ``Not Advised,'' which means that the guide
recommends against using it, but does not prohibit its use. For
example, in Version 4010/4010A, there are codes to indicate whether a
payment is a debit or a credit, and the debit code is marked ``Not
Advised'' because the transaction is a payment, and a credit code is
expected instead. There is no use for the debit code, so the
instruction ``Not Advised'' appears for that field.
Version 5010 provides clear instructions for use of the
claim status indicator codes. Version 4010/4010A includes status codes
that indicate a primary, secondary, or tertiary claim, but no
instructions for the use of these codes. This creates confusion when a
claim is partially processed, or when a claim is processed but there is
no payment.
Enrollment and Disenrollment in a Health Plan (834)
We propose to revise Sec. 162.1502 by adding a new paragraph (c)
that would replace the ASC X12N 834 Version 4010/4010A with the 834
Benefit Enrollment and Maintenance ASC X12 Technical Report Type 3 for
the Enrollment and Disenrollment in a health plan transaction.
The most significant differences between Version 4010/4010A and
Version 5010 for the enrollment and disenrollment in a health plan
transaction is the addition of functionality in Version 5010 that did
not exist in Version 4010/4010A. For example, Version 5010 can use ICD-
10 diagnosis codes for reporting pre-existing conditions and additional
ICD-10 disease classifications. This functionality was added in
anticipation of the adoption of the ICD-10 code sets.
Other changes in Version 5010 that were added in response to
requests for improvements to Version 4010/4010A include:
Version 5010 adds the ability to designate certain
information as confidential and restrict access to member information.
This new function provides privacy protection by safeguarding
confidential information.
Version 5010 adds maintenance reason codes to explain
coverage

[[Page 49749]]

changes. The new codes reflect changes in student status, age
limitations, additional coverage information, life partner changes,
termination due to non-payment, and other changes. This information is
important for establishing coverage patterns and recording accurate
information on coverage status.
Version 5010 provides the ability to report enrollment
subtotals by employees and dependents or grand totals, unlike Version
4010/4010A; although not a critical change, this is a feature of
Version 5010 that facilitates use of the 834 transaction.
Version 5010 eliminates date range confusion by adding
fields for a ``start'' date and an ``end'' date. Version 4010/4010A
lacks definitions and instructions for reporting date ranges that
indicate coverage ``to'' a certain date, versus coverage ``through'' a
certain date, and instructions as to when to send the dates of
effectiveness for coverage changes. Without accurate coverage
effectiveness and coverage change information, the administration of
enrollment and disenrollment in a health plan becomes inefficient and
cumbersome and frequently requires manual intervention, negating the
benefits of electronic data interchange (EDI).
Health Plan Premium Payments (820).
We propose to revise Sec. 162.1702 by adding a new paragraph (c)
that would replace the ASC X12N 820 Version 4010/4010A with the 820
Payroll Deducted and Other Group Premium Payment for Insurance
Products, ASC X12 Technical Report Type 3 for the Health Plan Premium
Payments Transaction.
A deficiency in Version 4010/4010A is the inability for health plan
sponsors to report additional deductions from payments. The addition of
this data element is an important improvement in Version 5010 because
it helps reduce confusion for health plans when payments are not the
amount expected. Version 4010/4010A does not have a way to indicate the
method used to deliver the remittance. Version 5010 includes an
indicator for the delivery method, and options include file transfer,
mail, and online. This permits trading partners to select and indicate
the method that best meets their business needs.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
Version 5010 permits a health plan sponsor to adjust an
entire transaction for a previous payment without tying it to an
individual member record. Version 4010/4010A requires a health plan
sponsor to link a transaction payment adjustment for a previous payment
to an individual member record, creating extra work and additional
administrative tasks.
To eliminate confusion, Version 5010 changes the premium
remittance detail information from ``situational'' to ``required,'' so
that all entities must provide the specific data regarding premiums. In
Version 4010/4010A, premium remittance detail information is
situational and only required for HIPAA transactions. Plan sponsors
always use the transaction for premium payments to health plans so the
transaction is always a HIPAA transaction and, therefore, premium
remittance detail information is always required.
Eligibility for a Health Plan (270/271).
We propose to revise Sec. 162.1202 by adding a new paragraph
(c)(2) that would replace the ASC X12N 270/271 Version 4010/4010A with
the 270/271 Health Care Eligibility/Benefit Inquiry and Information
Response ASC X12 Technical Report Type 3 for the Eligibility for a
Health Plan Transaction. This transaction is used to determine
eligibility for institutional, professional and dental services, and
for eligibility and benefit inquiries between prescribers and Part D
Plan Sponsors. (It is not used between pharmacies and health plans for
a pharmacy's eligibility inquiries--that standard is an NCPDP standard,
and its use is discussed in the section on Version D.0 later in this
preamble.)
Version 4010/4010A does not require health plans to report relevant
coverage information, for example, coverage effectiveness dates--health
plans are only required to provide a response that coverage does exist.
Version 5010 corrects this deficiency by requiring the payer to report
specific coverage information (for example, the name of plan coverage,
beginning effective date, benefit effective dates, and primary care
provider (if available)). This additional information significantly
improves the value of the transaction to the provider community.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
Version 5010 adds nine categories of benefits that must be
reported if they are available to the patient. Some examples of those
categories are pharmacy, vision, and mental health. Version 4010/4010A
contains no requirement to report categories of benefits.
Version 5010 adds 38 additional patient service type codes
to the ones that are available in Version 4010/4010A. This expands the
use of patient service type codes available to submit in an eligibility
inquiry. The use of a more specific patient services type code enriches
the data that is returned in the eligibility response, matching the
information in the eligibility response to that in the eligibility
inquiry.
Version 5010 provides clearer instructions for describing
subscriber and dependent relationships. Health plan subscriber and
dependent relationships are unclear in Version 4010/4010A, creating
ambiguity and confusion about when to use ``subscriber'' and when to
use ``dependent'' when one of them is also the patient.
Referral Certification and Authorization (278).
We propose to revise Sec. 162.1302 by adding a new paragraph
(c)(2) that would replace the ASC X12N 278 Version 4010/4010A with the
278 Health Care Services Request for Review and Response ASC X12
Technical Report Type 3 and Type 1 Errata for the Referral
Certification and Authorization transaction.
This transaction is not commonly used in the industry today because
of the many implementation constraints of Version 4010/4010A. These
constraints include the inability to report specific information on
patient conditions (for example, mental status), functional limitations
of the patient (for example, handicapped), and the specialty
certifications of a provider. Version 4010/4010A also does not provide
a way for the requestor to limit the number of occurrences of a service
within a defined time frame (for example, limiting the number of visits
to three within a ninety-day period). Version 5010 corrects these
deficiencies.
Version 5010 includes the following additional improvements over
Version 4010/4010A:
Version 5010 includes rules and separate implementation
segments for key patient conditions, including: ambulance certification
information; chiropractic certification; durable medical equipment
information; oxygen therapy certification information; patient
functional limitation information; activities currently permitted for
the patient information; and patient mental status information. Version
4010/4010A lacks differentiating rules for various conditions, making
the standard cumbersome to use for both providers and health plans.

[[Page 49750]]

Version 5010 supports or expands support for, a variety of
business cases deemed important by the industry, including: Medical
services reservations (permitting requesters to reserve a certain
number of service visits within a defined period of time, for example,
number of physical therapy visits); dental service detail (for tooth
numbering and other dental related services); and ambulance transport
requests to capture multiple address locations for multiple trips.
Version 5010 supports or expands authorization exchanges,
including requests for drug authorization procedure code modifiers and
patient state of residence, which may be important from a coverage
determination standpoint. Version 4010/4010A does not support
authorizations for drugs and certain pharmaceuticals, and a number of
other common authorization exchanges between covered entities.
Health Care Claim Status (276/277)
We propose to revise Sec. 162.1402 by adding a new paragraph (c)
that would replace the ASC X12N 276/277 Version 4010/4010A with the
Health Care Claim Status Request and Response ASC X12 Technical Report
Type 3 and Type 1 Errata for the Health Care Claim Status Transaction,
for institutional, professional and dental claims.
One of the deficiencies of the Version 4010/4010A 276 inquiry is
that it does not identify prescription numbers and the associated 277
response cannot identify which prescription numbers are paid or not
paid at the claim level of the transaction. The ability to identify a
prescription by the prescription number is important for pharmacy
providers when identifying claims data in their systems. Version 5010
includes new functionality that allows for identification of
prescription numbers and the associated response allows for
identification of which prescription numbers are paid or not paid at
the claim level.
Other changes in Version 5010 that were added in response to
requests for improvements to Version 4010/4010A include:
Version 5010 eliminates a number of requirements to report
certain data elements which are considered sensitive personal
information specific to a patient, and which are not necessary to
process the transaction. The Version 4010/4010A requirements for the
collection and reporting of sensitive patient health information have
raised concerns about privacy and minimum necessary issues. For
example, the Version 4010/4010A standard requires the subscriber's date
of birth and insurance policy number, which often is a social security
number. This information is not needed to identify the subscriber
because the policy number recorded for the patient already uniquely
identifies the subscriber.
To reduce reliance on companion guides, and ensure
consistency in the use of the Implementation Guides, situational rules
that were ambiguous in Version 4010/4010A are clarified in Version
5010. For example, Version 4010/4010A contains a number of situational
rules that are unclear and open to different interpretations. Based on
industry requests for changes, the DSMO reviewed all of the 4010/4010A
situational rules and revised each standard as appropriate to reduce
multiple interpretations. For example, Version 5010 clarifies the
relationships between dependents and subscribers, and makes a clear
distinction between the term ``covered status'' (whether the particular
service is covered under the benefit package) and ``covered
beneficiary'' (the individual who is eligible for services). Since
Version 4010/4010A does not provide clear rules for the interpretation
of these terms, industry use of the fields is inconsistent, and subject
to entity-specific determinations. An additional example of a
clarification is the creation of a new section in the Version 5010
Referral Certification and Authorization transaction, where a separate
segment was created to allow for the entry of information to clearly
indicate that a patient's medical condition met certification
requirements for ambulance or oxygen therapy. The creation of a
specific section to capture such information eliminates the need to
request or send that information later.
Version 5010 implements consistent rules across all TR3s
regarding the requirement to include both patient and subscriber
information in the transaction. Some current implementation guides
(Version 4010/4010A) require that subscriber information be sent even
when the patient is a dependent of the subscriber and can be uniquely
identified with an individual identification number, whereas other
transactions (for example, eligibility for a health plan inquiry (270)
and referral certification and authorization request (278)) permit
sending only the patient dependent information if the patient has a
unique member ID. These standards do not require the subscriber ID. The
requirement to include the subscriber information with the dependent
member information for a uniquely identifiable dependent is an
administrative burden for the provider.
Version 5010 provides clear instructions for users on how
to use the transaction in either batch or real time mode. Version 4010/
4010A does not provide any such guidance, which is needed by the
industry.
Coordination of Benefits (COB)--(837)
We propose to revise Sec. 162.1802 by adding new paragraphs
(c)(2), (c)(3), and (c)(4) that would replace the ASC X12N 837 Version
4010/4010A implementation guides for the Coordination of Benefits (COB)
Transaction, with Version 005010 Technical Report Type 3 and Type 1
Errata for institutional, professional and dental claims. COB is a
claim function included in each of the individual named claim Type 3
Technical Reports (837I, 837P and 837D).
There are a number of deficiencies with Version 4010/4010A,
including the lack of clear instructions for several important
scenarios, including how to create a COB claim when the prior payer's
remittance information came to the provider in a paper format and how a
receiver can calculate a prior payer's allowed amount. Additional
deficiencies that have made coordination of benefits transactions among
payers difficult is the presence of statements such as ``if needed by a
payer for adjudication'' and similar statements that have allowed for
varying interpretations within the health care industry. These
obstacles to successfully completing an electronic compliant COB
transaction using Version 4010/4010A, and accepting and adjudicating
COB transactions among a variety of payers, have been removed or
significantly mitigated in Version 5010.
Other changes in Version 5010 that were added in response to
industry requests for improvements to Version 4010/4010A include:
A number of sections have been added or modified in
Version 5010 to provide the broad-based instructions necessary to
ensure a standard implementation of COB transactions, including
instructions for balancing dollar amounts on a claim.
The Front Matter section of Version 5010 includes an
explanation of the destination payer's specific information (for
example, claims data and provider identifiers that are needed for
conducting COB).

[[Page 49751]]

B. Proposed Adoption of NCPDP Telecommunication Standard Implementation
Guide Version D Release O (D.0) and Equivalent Batch Standard Batch
Implementation Guide, Version 1, Release 2 (1.2) for Retail Pharmacy
Transactions

We propose to revise Sec. 162.1102, Sec. 162.1202, Sec.
162.1302, and Sec. 162.1802 by adding new paragraphs (c)(1) to each of
those sections to adopt the NCPDP Telecommunication Standard
Implementation Guide, Version D, Release 0 (Version D.0) and equivalent
NCPDP Batch Standard Implementation Guide, Version 1, Release 2
(Version 1.2) (hereinafter collectively referred to as Version D.0) in
place of the NCPDP Telecommunication Standard Implementation Guide,
Version 5, Release 1 and equivalent NCPDP Batch Standard Batch
Implementation Guide, Version 1, Release 1 (hereinafter collectively
referred to as Version 5.1), for the following retail pharmacy drug
transactions: Health care claims or equivalent encounter information;
eligibility for a health plan; referral certification and
authorization; and coordination of benefits.
Since the adoption of Version 5.1 as a transaction standard in the
Transactions and Code Sets rule, the industry has submitted requests to
NCPDP for modifications to Version 5.1. These modification requests
were for similar reasons as those for the X12 standards--changing
business needs, many necessitated by the requirements of the Medicare
Prescription Drug Improvement and Modernization Act of 2003 (MMA).
In NCVHS hearings held in July 2007, industry stakeholders cited
business needs that would be addressed by the increased functionality
in Version D.0 to include:
Enhanced guidance for Coordination of Benefits (COB). In
Version D.0, extensive clarification is made to the implementation
guide for coordination of benefits processing. New data elements, for
example, patient responsibility and benefit stage were added, along
with a refined use of the Other Coverage Code field.
Processing of Medicare Part D claims. Changes in Version
D.0 include the addition of three new data elements and rejection
codes.
Enhanced eligibility checking. Version D.0 provides more
complete eligibility information for Medicare Part D and other
insurances.
Specific COB for Medicare Part D. Version D.0 includes
identification of patient responsibility, benefit stage, and coverage
gaps on secondary claims.
Streamlined claims processing for compounded drugs. In
Version D.0, the compound segment has been modified to allow for the
billing of multiple ingredients. To standardize this process, the two
alternative ways of billing compounded claims have been removed.
As a result of the hearings, the NCVHS Subcommittee on Standards
and Security determined that the business needs identified by the
industry would be met by Version D.0. The NCVHS expressed its support
for Version D.0, and recommended that it be proposed for adoption as a
HIPAA transaction standard through rulemaking. Based on the comments
from industry stakeholders (as discussed above), the NCVHS specifically
referenced several of the improvements in Version D.0, including: The
modified field and segment defined situations; resolution of the
situational versus optional data requirements to accommodate the HIPAA
privacy regulations; and segment usage matrices that clarify which
segments and fields are sent for each transaction type, and segments
and fields within each transaction type. It also cited the enhancements
made to accommodate Medicare Part D, which include the addition of a
``facilitator'' entity and eligibility transaction to provide coded
patient eligibility information for Medicare Part D and enhancements to
identify and process Medicare Part D long term care claims.
Enhancements with respect to Medicare Part B claims include additional
segments for processing Medicare certificates of medical necessity, new
data elements for processing those transactions, and assistance in the
crossover of claims from Medicare to Medicaid. Finally, the NCVHS
stated that Version D.0 also supports the following: COB and collection
of rebates for compounded claims; clarification for pricing guidelines;
the addition of new data elements that give more specificity to the COB
process; a new section on prior authorization added to the
implementation guide; a prescription/service reference number increase
to 12 digits; and transaction codes for service billings.
Because we believe Version D.0 would better support the business
needs of the industry, for the reasons cited by the NCVHS, we propose
to adopt Version D.0. We solicit comments regarding the proposed
adoption of Version D.0 as the HIPAA standard, set forth in proposed
revisions to Sec. 162.1102, Sec. 162.1202, Sec. 162.1302, and Sec.
162.1802.

C. Proposed Adoption of a Standard for Medicaid Pharmacy Subrogation:
NCPDP Medicaid Subrogation Implementation Guide, Version 3.0 for
Pharmacy Claims

We propose to add a new subpart S to 45 CFR part 162 to adopt a
standard for the subrogation of pharmacy claims paid by Medicaid. The
transaction would be the Medicaid Pharmacy Subrogation transaction,
defined at proposed Sec. 162.1901, and the new standard would be the
NCPDP Batch Standard Medicaid Subrogation Implementation Guide, Version
3, Release 0 (Version 3.0), July 2007 (hereinafter referred to as
Version 3.0) at proposed Sec. 162.1902. The standard would be
applicable to Medicaid agencies in their role as health plans, but not
to providers or health care clearinghouses because this transaction is
not utilized by them. As a condition of Medicaid eligibility, an
individual must assign to the State Medicaid agency his or her rights
to payments for medical services from other liable third parties. This
allows the Medicaid agency the right to stand in the place of the
Medicaid recipient for the purpose of collecting reimbursement from
liable third parties wherever the Medicaid agency has paid claims on
behalf of a Medicaid recipient. This is referred to as ``Medicaid
subrogation.''
Federal law requires, with some exceptions, that Medicaid be the
payer of last resort. Health plans that are legally required to pay for
health care services received by Medicaid recipients are to pay for
services primary to Medicaid. However, Medicaid agencies sometimes pay
claims for which a third party may be legally responsible. This can
occur when the Medicaid agency is not aware of the existence of other
coverage. There are also specific circumstances for which States are
required by Federal law to pay claims and then seek reimbursement
afterward. Whenever Medicaid pays claims for which another party is
legally responsible, the State is required to seek recovery.
For the purpose of adopting a HIPAA standard, we propose to define
a Medicaid pharmacy subrogation transaction as the transmission of a
claim from a Medicaid agency to a payer for the purpose of seeking
reimbursement from the responsible health plan for a pharmacy claim the
State has paid on behalf of a Medicaid recipient.
A majority of health plans use a pharmacy benefit manager (PBM) to
manage prescription drug coverage and handle claims processing. Some
health

[[Page 49752]]

plans administer the prescription coverage in-house, but contract with
a claims processor to handle claims adjudication. A few of the large
health plans perform their own claims processing. When PBMs process
claims on behalf of health plans, they are considered to be business
associates of the health plans. Section 162.923(c) requires a covered
entity that chooses to use a business associate to conduct all or part
of a transaction on behalf of the covered entity, to require the
business associate to comply with all applicable requirements of the
HIPAA regulations. Therefore, while entities such as PBMs and claims
processors do not necessarily have ultimate financial liability, to the
extent they are required by contract or otherwise to process claims on
behalf of health plans, they will need to be able to receive the
Medicaid pharmacy subrogation transaction in the standard format.
There are many different formats utilized for submitting Medicaid
pharmacy subrogation claims. To meet the many different requirements of
the third party payers, States must maintain and utilize a variety of
pharmacy billing formats. This is because different third party payers
require different pieces of information. According to a study conducted
by the Office of the Inspector General (OIG) entitled, ``Medicaid
Recovery of Pharmacy Payments from Liable Third Parties'' (OEI-3-00-
00030, August 2001, available at http://oig.hhs.gov/oei/reports/oei-03-00-00030.pdf), 29 States indicated that the lack of universal
formatting and data elements on pharmacy claims leads to the denial of
Medicaid claims, contributing to millions of dollars of lost revenue to
Medicaid. States have had to work through numerous changes and
challenges to submit claims that are correctly formatted for various
health plans. When States' claims are denied for formatting or missing
data, and have to be reworked and resubmitted; there is additional
administrative and financial burden on States and third parties.
According to the OIG study, some PBMs have reimbursed claims at a lower
rate as a penalty for the claim being in the wrong format. In order to
recover Medicaid funds, some States have found it necessary to recoup
from the pharmacies and it is left up to the pharmacies to seek
reimbursement from the third party payers.
In 1999, representatives from CMS and the Medicaid agencies began
working closely with NCPDP to develop a standard electronic format that
could be used to facilitate electronic transmission of pharmacy
subrogation claims from Medicaid agencies to other payers. The standard
combines a subset of elements from the NCPDP Version 5.1 drug claim
standard with additional elements that Medicaid specifically needs to
conduct subrogation, such as the Medicaid paid amount and the Medicaid
agency identification number. The additional Medicaid-specific elements
had to be placed in other NCPDP fields that were not discretely defined
in Version 5.1. In June 2000, as a result of these collaborative
efforts, NCPDP issued the Medicaid Subrogation Implementation Guide
Version 2.0 for the Batch Standard.
At least two-thirds of the States utilize Version 2.0 voluntarily,
many through the use of a business associate that bills pharmacy claims
on the State's behalf. The States, or their business associates, use
the NCPDP format with some modifications to accommodate the various
other health plan requirements. There are at least ten major third
party payers that have entered into an agreement with States and/or
their business associates to accept the NCPDP format. However, the
absence of full standardization now presents challenges for States,
which must continue to maintain and use many billing formats.
We did not adopt a standard for Medicaid pharmacy subrogation at
the time the first set of HIPAA transaction standards were adopted
because it was not one of the specified transactions mandated in the
law. However, we believe that, in light of the challenges noted above,
deriving from the lack of full standardization, it is now appropriate
to propose a standard for the Medicaid pharmacy subrogation
transaction. Section 1173(a)(1)(B) of the Act authorizes the Secretary
to adopt standards for any other financial and administrative
transactions as deemed appropriate, consistent with the goals of
improving the operation of the health care system and reducing
administrative costs. We believe that adopting a standard for Medicaid
pharmacy subrogation would facilitate electronic data interchange;
thereby reducing administrative costs and improving the operations of
the health care system by eliminating multiple formats and methods of
performing this transaction.
We solicit comments regarding the proposed adoption of the NCPDP
Batch Standard Medicaid Subrogation Implementation Guide, Version 3.0
as the HIPAA standard for the Medicaid pharmacy subrogation
transaction, and the proposed dates for compliance with the standard
addressed in proposed Sec. 162.1902.

D. Proposed adoption of the National Council for Prescription Drug
Programs (NCPDP) Telecommunication Standard D.0 and the Health Care
Claim: Professional ASC X12 Technical Report Type 3 for Billing Retail
Pharmacy Supplies and Services

We propose to revise Sec. 162.1102 to adopt both Version D.0 and
the 837 Health Care Claim: Professional ASC X12 Technical Report Type 3
for billing retail pharmacy supplies and professional services. The use
of either standard would be determined by trading partner agreements.
The Transactions and Code Sets rule adopted two transaction
standards relating to the billing of retail pharmacy claims. Version
5.1 is required for the transmission of retail pharmacy drug claims,
and the X12 837 for professional services and supplies. (Sec.
162.1102). The final rule, however, does not define what or who
constitutes ``retail pharmacies'' and further, what a ``retail pharmacy
drug claim'' is in the context of the NCPDP, Version 5.1 standard. The
regulations also do not specify, define, or describe the items or
services that are to be billed on the X12N 837P standard, only that the
services are ``health care services.'' As a result, different
interpretations of the regulations exist as to whether a ``retail
pharmacy drug claim,'' which is to be billed using Version 5.1,
includes claims only for drug products, for drug products and
associated pharmacy services and supplies, or for drug products and any
retail pharmacy services or supplies. CMS has interpreted the
regulation as requiring that Version 5.1 be used only for drug products
and that the X12N 837P be used for retail pharmacy services and
supplies other than drug products.
Since publication of the Transactions and Code Sets rule, there has
been ongoing debate in the industry about which is the appropriate
standard for billing retail pharmacy supplies and professional
services. Retail pharmacy supplies and professional services include
syringes, applicators, inhalers and nebulizers, and home infusion IV
supplies. These are often tied to a retail pharmacy claim for a
prescription, such as insulin, ointments, and inhaler solutions. For
example, a patient could get a prescription and/or refill for insulin
and the syringes. Under the current rule, pharmacies are expected to
submit the insulin claim in real-time, using the NCPDP standard, and
get immediate benefit coverage and co-pay insurance information.
However, they must bill the prescription for the syringes with the X12
standard, which

[[Page 49753]]

is typically a batch billing process so the pharmacist would not get
immediate notification of coverage and co-pay insurance information.
The transaction could be further complicated if the patient is
prescribed consultation or Medication Therapy Management (MTM) services
for the use and dosage of the insulin with the syringes. The issue of
MTM is discussed later in this section.
At the time the Transactions and Code Sets rule was published, HHS'
opinion that the NCPDP standard should be used for retail pharmacy and
the X12 standard should be used for professional pharmacy claims was
based on the inability of NCPDP to accommodate HCPCS codes that could
be used to identify pharmacy procedures and services. The code set has
since expanded, and Version 5.1 is now capable of accommodating the
National Drug Codes (NDC) and the HCPCS codes to identify pharmacy
procedures and services more accurately. In the Modifications rule (68
FR 8387), there was additional discussion regarding the complications
of not allowing the use of NCPDP for pharmacy supplies and services,
and there is significant discussion in that rule that supports the
industry need to be able to use the NCPDP standard in place of the
Version 4010 standard for these claims. Since publication of the
Transactions and Code Sets rule and the Modifications rule, we have
responded to substantial correspondence and provided guidance in a
Frequently Asked Question (FAQ) clarifying that the NCPDP standard is
to be used for billing retail pharmacy drug claims and that the X12 837
standard is to be used for billing retail pharmacy supplies and
professional services. Nonetheless, there continues to be a lack of
consensus in the industry regarding which standard to use for billing
retail pharmacy supplies and professional services because of the
disagreement as to what is a retail pharmacy drug claim. Some segments
of the pharmacy industry interpret a retail pharmacy drug claim as one
that could include pharmacy supplies and professional services, and
therefore would permit the use of the NCPDP standard. Others believe
that retail pharmacy drug claims do not include retail pharmacy
supplies and professional services and, therefore, permit the X12
standard to be used. There are also entities that believe it is
appropriate to use one or the other standard depending on whether the
insurance benefit is medical, in which case X12 is used for retail
pharmacy supplies and professional services, or whether it is a
pharmacy benefit, in which case the NCPDP standard should be used.
Whether the benefit is covered under medical or pharmacy is typically
determined by the design of an employer's or health plan's benefit
package. We also continue to receive input from the industry that it is
common practice for pharmacies to use the NCPDP standard instead of the
X12 standard because of the convenience and accuracy NCPDP provides for
these services and claim types.
In 2006, the debate escalated due to implementation of the Medicare
Part D Program under the Medicare Prescription Drug, Improvement, and
Modernization Act (MMA). The MMA provides coverage for certain
professional pharmacy services, referred to as Medication Therapy
Management (MTM) services. MTM services are a distinct service or group
of services that optimize therapeutic outcomes for individual patients.
MTM services are independent of, but can occur in conjunction with, the
provision of a medication product. MTM encompasses a broad range of
professional activities and responsibilities within the licensed
pharmacist's, or other qualified health care provider's, scope of
practice. Some pharmacies believe it is appropriate to use the NCPDP
standard for MTM services because the service is part of a
prescription. Other segments, notably the small independent pharmacies,
believe it is appropriate to use the X12 standard because they
interpret ``professional services'' to mean that a ``professional''
(837P) claim is required and their vendor software offers that
capability.
The industry acknowledges advantages and disadvantages for use of
both standards, and has provided evidence that both standards should be
considered compliant and that the use of either would be appropriate
under HIPAA. In August 2007, a national organization sent a letter to
CMS in support of using the NCPDP for both retail pharmacy service and
supply type claims. The letter explained that chain drug stores feel
strongly that they should be able to bill using NCPDP 5.1. Entities
supporting the use of NCPDP 5.1 make the argument that NCPDP 5.1 offers
real-time adjudication of claims, whereas the X12 837P is a batch
process. According to the National Association of Chain Drug Stores,
pharmacies are not coding for the X12 837 transaction because it is too
cumbersome. Instead, when forced to use this transaction, pharmacies
must use an outside vendor or clearinghouse, even though it is an added
expense because they already have the capability to exchange the same
information in real time with NCPDP 5.1. On the other side of the
discussion, the independent pharmacies argue that X12 837 is the
appropriate standard for ``supplies and professional services'' as
evidenced by the fact that they have purchased software from their
national association to accommodate this standard. Further, they
believe that the X12 837 is more robust in its support of the data
elements needed to bill for MTM services.
After discussions with representatives of national organizations as
well as the NCPDP, CMS posted an addendum to its Frequently Asked
Question (FAQ) on the CMS website in October 2007. This FAQ now also
includes the following: ``While CMS adheres to its foregoing
interpretation of the regulations requiring that MTM retail pharmacy
services be reported using the X12 837P standard, we recognize that a
reasonable argument could be advanced in response to the Department
seeking to enforce this regulation, contending that the regulations
could be read to instead direct the use of the NCPDP, Version 5.1
standard for such services. We further realize that notice and comment
rulemaking, which the Department anticipates initiating in the near
future will resolve the apparent ambiguity of these regulatory
provisions. In light of the foregoing planned rulemaking and the
uncertain outcome of any enforcement action, we elect not to take
enforcement action against those covered entities that continue to use
the NCPDP, Version 5.1 standard for this transaction.''
The implementation guides for both adopted standards accommodate
the transaction, including the use of the appropriate code sets, and
neither guide states clearly which standard applies for billing retail
pharmacy services and supplies. This is a unique situation--no other
HIPAA transactions can be adequately supported by two implementation
guides. Based upon the input we have received from the industry on the
use of these standards, we believe that allowing for the use of either
the NCPDP or ASC X12 standards would accommodate prevailing business
practices, ensure efficiency, and prevent redundant costs. For example,
a pharmacy provider would no longer need to bill two separate claims
(that is, one for a drug, and a separate claim for the supplies
associated with the drug's administration). Health plans already accept
both transaction types, and have the systems in place to adjudicate the
retail and professional claims using either transaction. Therefore we
do not believe this will be

[[Page 49754]]

an additional burden to plans. We do not believe that the proposed
approach would be disruptive to current industry practice, as we have
stated, and we do not believe that there will be any negative impact on
providers or consumers in accommodating this existing business process.
Rather, we believe our proposed approach would be the least disruptive
to the industry because it accommodates prevailing business practices
and permits entities to use the standard that is most appropriate,
efficient and accurate for processing certain kinds of pharmacy
transactions. Furthermore, the NCPDP standard accommodates the billing
of supplies and services as well, if not more effectively than the X12
standard, because it was designed by the industry, with a specific
focus on the full set of requirements for all types of pharmacy
transactions. Both Version D.0 and Version 5010 accommodate the billing
of supplies and services. This is also consistent with NCVHS
recommendations dated June 17, 2004.
We solicit comments on the proposal to adopt both the NCPDP
standard and the X12 standard for billing retail pharmacy supplies and
professional services.

E. Modifications to the Descriptions of Standards

We propose to revise the descriptions of the transactions at Sec.
162.1301, Sec. 162.1401, and Sec. 162.1501 to more clearly specify
the senders and receivers of those transactions.
In the Transactions and Code Sets rule, we identified eight health
care transactions and adopted standards for each of them. Included in
most of the descriptions of those transactions is a specification of
``to whom'' and ``from whom'' the transaction is transmitted. This
specification enables covered entities to be able to determine more
easily when they may be conducting transactions for which a HIPAA
standard is adopted and, therefore, when they need to comply with the
transaction standard. However, descriptions for three of the
transactions do not specify the ``to'' and ``from'' criteria--that is,
the sender and receiver are not identified. This lack of specificity
creates confusion and uncertainty in the industry about when a
particular electronic transmission meets the definition of a
transaction. In addition, in 2003 the Secretary's Advisory Committee on
Regulatory Reform recommended that we adopt ``to'' and ``from'' data
submission requirements for all of the standard transactions. We wish
to make our existing policies as clear as possible, and we use this
proposed rule as the opportunity to do so.
In this proposed rule, we would revise descriptions for three of
the standard transactions to ensure that ``to'' and ``from''
requirements are specified.
1. Enrollment and Disenrollment in a Health Plan Transaction
In Sec. 162.1501, the text does not specify the sender of the
transmission. We propose to clarify, by revising the regulation text,
that the enrollment and disenrollment in a health plan transaction is
the transmission of subscriber enrollment information from the sponsor
of the insurance coverage, benefits or policy to a health plan, to
establish or terminate insurance coverage. The Version 5010
Implementation Guide also defines the transaction this way: ``The 834
is used to transfer enrollment information from the sponsor of the
insurance coverage, benefits, or policy to a payer.''
We note that when enrollment and disenrollment information is
currently sent electronically from a sponsor to a health plan, a
sponsor that is not otherwise a covered entity is not required to use
the transaction standard because, as a non-covered entity, HIPAA does
not apply to it. A sponsor is an employer that provides benefits to its
employees, members or beneficiaries through contracted services.
Numerous entity types act as sponsors in providing benefits, including,
for example, unions, government agencies, and associations. While it is
not mandatory for plan sponsors that are not covered entities to use
the transaction standard, such an entity may nevertheless voluntarily
use the standard or may contract with a health care clearinghouse to
translate nonstandard data into a standard transaction on its behalf in
order to take advantage of available efficiencies and cost saving
opportunities through EDI.
2. Referral Certification and Authorization Transaction
In Sec. 162.1301, the text does not indicate who the senders and
receivers of the referral certification and authorization transactions
are--it simply states that the transmission is a request or response.
We therefore propose to clarify the senders and receivers by stating
that the referral and certification authorization transaction is any of
the following transmissions:
A request from a health care provider to a health plan for
the review of health care to obtain an authorization for the health
care.
A request from a health care provider to a health plan to
obtain authorization for referring an individual to another health care
provider.
A response from a health plan to a health care provider to
a request described in the first or second bullet above.
3. Health Care Claim Status Transaction
In Sec. 162.1401, the text does not indicate who the senders and
receivers of the health care claim status transaction are--it simply
states that the transmission is an inquiry or response. We therefore
propose to clarify the parties to this transaction by stating that the
health care claim status transaction is the transmission of either of
the following:
An inquiry from a health care provider to a health plan to
determine the status of a health care claim, or
A response from a health plan to a health care provider
about the status of a health care claim.

F. Proposed Compliance and Effective Dates

We propose to revise Sec. 162.900 to reflect that, for the
Medicaid pharmacy subrogation transaction, all covered entities, except
for small health plans, would be required to be in compliance no later
than 24 months after the effective date of the final rule. Small health
plans would have an additional 12 months for compliance. Willing
trading partners would be able to agree to use the Medicaid subrogation
standard voluntarily at any time after the effective date and before
the compliance date. For example, covered entities that implement
Version D.0 may choose to implement the Medicaid subrogation standard
at the same time because such an action can be accommodated in the work
flow.
CMS recognizes that transactions often require the participation of
two covered entities, and when one covered entity is under a different
set of compliance requirements, the second covered entity may be put in
a difficult position. For the Medicaid subrogation of pharmacy claims
transaction, small health plans would have an extra year to comply with
the regulation. Therefore, if a Medicaid agency attempted to transmit
Version 3.0 to a small health plan before the small health plan was
required to be compliant, the small health plan could reject the
transaction. This would require the Medicaid agency to use two versions
of the transaction, or to use one compliant version, and one
proprietary version, depending on the trading partner agreement with
the small health plan for this interim period. We propose to resolve
this problem of different

[[Page 49755]]

compliance dates by revising the language in Sec. 162.923. Section
162.923, entitled ``Requirements for covered entities'' currently
states, ``(a) General rule. 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.'' We
propose to revise Sec. 162.923 by making paragraph (a) applicable only
to a covered entity that conducts transactions with another entity that
is required to comply with the transaction standards. We believe that
such a change would result in a less disruptive process by recognizing
and resolving the difficult position covered entities may face when
conducting transactions with trading partners who have different
compliance deadlines. Accordingly, we would revise Sec. 162.923 as
follows: ``(a) General rule. Except as otherwise provided in this part,
if a covered entity conducts with another covered entity that is
required to comply with a transaction standard adopted under this part
(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.'' If we change Sec. 162.923(a) in this way, a Medicaid
agency, which would have a different compliance date than a small
health plan with whom it is conducting the subrogation transaction,
would not be required to conduct the transaction in the standard format
until the date by which the small health plan must be in compliance
with the standard.
We invite comments regarding the proposed compliance dates for our
proposal to adopt the Medicaid pharmacy subrogation transaction
standard. We further propose to revise section Sec. 162.900 to remove
the provisions related to the Administrative Simplification Compliance
Act of 2001 (ASCA) Public Law 107-105.
The revised transactions descriptions would be effective on the
effective date of the final rule.
NCVHS noted that, according to testimony, there were no expected
implementation issues with Version D.0, but that implementation of
Version 5010 would likely prove slightly more challenging because of
the number of standards and the diversity of trading partners. However,
because most covered entities will need to program for both Version
5010 and Version D.0, we believe that it is most practical to propose
the same compliance dates for both. We propose that for Versions 5010
and D.0, health plans, including small health plans, health care
clearinghouses and covered health care providers, be required to be
compliant on and after April 1, 2010. We do not propose a 2-year time
frame for compliance, as recommended by NCVHS, because we believe the
industry has sufficient experience with implementation issues
associated with the HIPAA standards to enable them to conduct their
design/build activities, and schedule and perform testing within a 12-
month period. Furthermore, the ability to implement and use the ICD-10
code set is contingent upon implementation of Version 5010. Since we
anticipate timely publication of regulations to adopt the ICD-10 code
set, we wish to give the industry sufficient time in which to
effectively plan and implement the Version 5010 transaction standards.
We anticipate the compliance date for ICD-10 to be in 2011. Presuming
that, given this anticipated schedule, and in order to give the
industry at least eighteen months of experience with Version 5010, the
compliance date for those standards must be April 2010. We have not
surveyed the industry broadly, other than the interviews conducted for
the impact analysis, and while we acknowledge the logistical and
implementation issues associated with the transition to Version 5010
and Version D.0, we maintain that the industry is capable of planning
and designing the technical and operational infrastructure requirements
in time for the proposed deadline. We believe that the benefits of the
new versions, the potential for mitigating existing inefficient work
arounds, and streamlining business processes will outweigh any benefits
to be derived from a two-year compliance time frame recommended by the
NCVHS. We specifically ask for industry comment on the timing and the
costs of this proposed implementation schedule.
We also do not propose an additional year for small health plans to
comply because we believe this allowance is unnecessary. Small health
plans have had sufficient time to be compliant with the HIPAA
transaction standards as well as the NPI, and to have made the
appropriate investments in technology and infrastructure, as have their
larger counterparts. The system and business process changes to
accommodate Version 5010 and Version D.0 are not significant enough to
warrant an additional year for those organizations that should now have
sufficient experience with the standards.
We did consider, as an alternative, a proposal in which all health
plans and all health care clearinghouses would be required to be
compliant one year after the effective date, and covered health care
providers would be required to be compliant 12 months later. In this
way, providers would have ample time to test with their trading
partners, and problems would be identified and resolved timely. We are
not proposing the staggered compliance date option. Our discussion of
the issues follows.
NCVHS testimony and subsequent industry input clearly support the
adoption of Version 5010 for the affected X12 transactions and Version
D.0 for the NCPDP transactions, but also confirm that it would be a
significant undertaking for the industry, particularly in light of
other potential Health IT initiatives such as migrating from the ICD-9
to ICD-10 code sets and implementing the new standards for claims
attachments after that final rule is published.
The difficulties associated with implementation of the first set of
HIPAA transaction standards and the National Provider Identifier (NPI)
standard highlights the criticality of testing to ensure that
transactions can be successfully exchanged between trading partners
before the compliance date. The testing process is complex and time-
consuming, especially for health plans and health care clearinghouses,
which must test with very large numbers of trading partners.
Historically, industry testing of the HIPAA standards has been
concentrated at the very end of the compliance period, often resulting
in insufficient time to identify and resolve all of the problems soon
enough; this compression of the testing process has led to late
identification of problems and has necessitated relief in the form of a
flexible enforcement approach and contingency plans to avoid widespread
noncompliance and cash flow disruption.
The July 2007 NCVHS letter, referenced earlier in this document,
also recommended moving to a staggered compliance schedule for most of
the standards proposed in this rule, which would require health plans
and health care clearinghouses to be prepared for trading partner
testing at the end of the first year of the implementation period, and
to allow the second year to be used for testing. According to the
NCVHS, this schedule would ensure that covered entities have ample time
for communication, outreach, internal and external testing, corrective
action, and

[[Page 49756]]

implementation. The NCVHS also recommended that CMS adopt certain
levels of compliance for the standards. For example, Level 1 compliance
would mean that the covered entity could demonstrate that it could
create and receive compliant transactions. Level 2 compliance would
demonstrate that covered entities had completed end-to-end testing with
all of their partners.
Testing appears to be the key to successful timely implementation
of standards. In fact, the NCVHS letter noted that testifiers
emphasized that there was a need to test Version 5010 in real-life
settings to ensure its interoperability and ability to support the
transactions. Three types of testing needs were identified: (1) Testing
of the standards for workability; (2) conformance testing of products
and applications that send and/or receive the transactions; and (3)
end-to-end testing to ensure interoperability among trading partners.
NCVHS observed that, with the previous HIPAA transaction standards
implementation, these three types of testing occurred unevenly,
resulting in delays that could be minimized or avoided by staggering
the various types of testing.
To accommodate an effective testing schedule, a variety of options
for staggering the implementation of the Version 5010 and D.0
modifications were offered by testifiers to the NCVHS. There was a
proposal to NCVHS that the compliance date for plans and clearinghouses
could be a year before the date for providers in order to facilitate
end-to-end testing. Alternatively, different compliance dates could be
assigned to different transactions (for example, implement the claim
and related transactions first). Testifiers at the July 30, 2007
hearings also attested to the importance of allowing dual processing
(old plus new versions) for a sufficient period to allow end-to-end
testing to occur.
Because of the importance of testing in achieving a smooth
transition to the updated standards, we did consider proposing two
different compliance dates for covered entities--a strategy in which
health plans and health care clearinghouses would have to be compliant
1 year before covered health care providers to allow for adequate
testing. However, such a proposal would shorten the overall
implementation period for the entire industry and we believe it would
present a number of other potential challenges to the industry.
First, a staggered implementation schedule would require all
entities to use dual systems for the duration of the testing period,
which could add to the cost of implementation, in part because plans
and clearinghouses would have to implement a robust trading partner
tracking system to know which providers were testing Version 5010,
which were using Version 4010, and then, which successfully completed
testing and had fully converted to Version 5010. Providers would have
additional operational costs to manage their own testing and
implementation schedule with plans and clearinghouses. The logistics
could be complex, costly, and disruptive. Second, staggered compliance
dates could impact plan-to-plan COB transactions because plans and
providers would be implementing Version 5010 at different times. In
order to conduct compliant Version 5010 transactions, all plans would
have to be compliant at the same time, and all providers would have to
be using Version 5010 as well, to take advantage of plan-to-plan COB.
In addition, compliance in the case of a staggered implementation
schedule would mean that, on the compliance date for plans and
clearinghouses, those entities would have to be able to send and
receive compliant transactions. However, it would be inappropriate to
require plans and clearinghouses to reject noncompliant transactions
received from providers during the one year period before providers
would be required to be compliant, since the providers would not be
required under this proposal to be able to conduct compliant
transactions until the end of that period.
We believe we have the authority under the statute to propose
different compliance dates for different entity groups, and we believe
that exercising that authority could be in the interest of the industry
to facilitate an orderly and effective transition to the use of the
standards. However, for the reasons noted above, we are not proposing
this approach. We are, however, interested in comments on the
advantages and disadvantages of a staggered implementation schedule,
specifically with respect to its effect on the testing process.
Although we are not proposing a staggered compliance schedule, we
strongly encourage health plans and clearinghouses to begin to get
their systems ready as early as possible, and providers to work with
their trading partners to schedule testing timely as well. We also
encourage clearinghouses and vendors to take advantage of the market
opportunity to develop leading edge tools for implementing Version
5010, and support early testing for their provider clients. We note
that NCVHS recognized the widespread use of compliance testing
services, which allow entities to test products and applications to
ensure they can create and accept compliant transactions. We agree that
such services could simplify end-to-end testing by ensuring that
individual products are compliant in advance. While HHS does not
recognize or promote any specific organizations or tools for such
services, we do support the use of such testing services for software
and/or applications that would demonstrate a covered entity's ability
to create, send, and receive compliant transactions.
We anticipate that upon publication of this proposed rule in the
Federal Register, the industry will actively initiate and/or complete
planning for implementation of Version 5010. While not included under
the auspices of this proposed rule, we also acknowledge the impact of
the implementation of the ICD-10 code set on the Version 5010 and
Version D.0 implementation timelines. Once the Version 5010/Version D.0
and ICD-10 final rules are published, we estimate that the industry
will begin documenting the requirements for the necessary system
changes for each standard, initiate and/or complete any gap analyses,
and then undertake design and system changes. The Version 5010/Version
D.0 rule implementation would progress first, based on the need to have
those updated standards in place prior to ICD-10 implementation in
order to accommodate the increase in the size of the fields for the
ICD-10 code sets. In the case of Version 5010 and Version D.0, system
testing could commence approximately 8 months prior to a Version 5010
compliance date. We anticipate that ICD-10 testing could start shortly
after the Version 5010 compliance date, and approximately one year
prior to the October 2011 compliance date. Upon publication of these
proposed rules for both Version 5010/Version D.0 and ICD-10 in the
Federal Register, HHS, through CMS, plans on proactively conducting
outreach and education activities, as well as engaging industry leaders
and other stakeholder organizations to provide a variety of educational
and communication programs to their respective constituencies. These
activities would include roundtable conference calls with the industry,
including Medicare contractors, fiscal intermediaries and carriers;
health plans, clearinghouses, hospitals; physicians; pharmacies, other
providers; and other stakeholders. CMS will also develop and make
available ``Frequently Asked Questions'' on the website, fact

[[Page 49757]]

sheets, and other supporting education and outreach materials for
partner dissemination. Other potential activities will be identified
and developed based on stakeholder input.
The draft proposed timeline shown below is for preliminary planning
purposes only, and represents our best estimate, given our current
knowledge, of what an implementation timetable might look like. It is
subject to revision as updated information becomes available.

Draft Proposed Timeline for ICD-10 and Versions 5010/D.0 Implementation
------------------------------------------------------------------------
ICD-10 Version 5010/D.0
------------------------------------------------------------------------
8/08: Publish proposed rule............ 8/08: Publish proposed rule.
------------------------------------------------------------------------
9/08: Industry begins
requirements documentation for
systems changes; CMS and
industry initiate education
and outreach.
------------------------------------------------------------------------
12/08: CMS and industry begin ongoing
education and outreach.
------------------------------------------------------------------------
4/09: Industry builds and tests
systems changes (internal and
external testing).
------------------------------------------------------------------------
06/09: Industry begins design
documentation.
------------------------------------------------------------------------
12/09: Industry builds and internally
tests systems changes.
------------------------------------------------------------------------
4/10: Compliance date for all
covered entities.
------------------------------------------------------------------------
07/10-10/11: Conduct testing with
trading partners.
------------------------------------------------------------------------
10/11: ICD-10 compliance date for all
covered entities.
------------------------------------------------------------------------

We solicit industry and other stakeholder comments on our timeline
assumptions and our proposed education and outreach strategy.
In sum, the challenges and difficulties encountered with previous
standards implementation have informed the industry, which we believe
now more meaningfully appreciates the benefits of collaboration,
communication, and coordinated testing in making a substantial
difference in successful implementation. Furthermore, we believe the
industry is eager to move forward with Versions 5010 and D.0, and an
aggressive timetable will be the right incentive to move the industry
to proactive action and collaboration. We invite public comment on our
proposed compliance dates.

III. Collection of Information Requirements

The burden associated with the information collection requirements
contained in Sec. 162.1102, Sec. 162.1202, Sec. 162.1301, Sec.
162.1302, Sec. 162.1401, Sec. 162.1402, Sec. 162.1501, Sec.
162.1502, Sec. 162.1602, Sec. 162.1702, and Sec. 162.1802 of this
document are subject to the PRA; however, these information collection
requirements are currently approved under OMB control number 0938-0866.
This package will be revised to incorporate any proposed additional
transaction standards and proposed modifications to transaction
standards not currently captured in the PRA package associated with OMB
approval number 0938-0866.

IV. Response to Comments

Because of the large number of public comments we normally receive
on Federal Register documents, we are not able to acknowledge or
respond to them individually. We will consider all comments we receive
by the date and time specified in the DATES section of this preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Overall Impact

We have examined the proposed impacts of this rule as required by
Executive Order 12866 (September 1993, Regulatory Planning and Review),
as amended by Executive Order 13258 (February 26, 2002) and further
amended by Executive Order 13422 (January 18, 2007), the Regulatory
Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section
1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of
1995 (Pub. L. 104-4), Executive Order 13132 on Federalism, and the
Congressional Review Act (5 U.S.C. 804(2)).
Executive Order 12866 (as further amended) 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 proposed rule is anticipated to have an annual benefit on the
economy of $100 million or more, and would have economically
significant effects, making it a major rule under the Executive Order
and the Congressional Review Act. We believe that covered entities have
already largely invested in the hardware, software and connectivity
necessary to conduct the new version of the standards, and the new
standard proposed. We anticipate that the adoption of these new
versions and the new standard would result in costs that would be
outweighed by the benefits. Accordingly, we have prepared a Regulatory
Impact Analysis that to the best of our ability presents the costs and
benefits of the proposed rulemaking.

B. Regulatory Flexibility Analysis

The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354,
requires agencies to describe and analyze the impact of the proposed
rule on small entities unless the Secretary can certify that the
regulation will not have a significant impact on a substantial number
of small entities. In the health care sector, a small entity is one
with between $6.5 million and $31.5 million in annual revenues or is a
nonprofit organization. For the purposes of this analysis (pursuant to
the RFA), nonprofit organizations are considered small entities;
however, individuals and

[[Page 49758]]

States are not included in the definition of a small entity. We have
attempted to estimate the number of small entities and provide a
general discussion of the effects of the proposed regulation, and where
we had difficulty, or were unable to find information, we solicit
industry comment. We believe that the conversion to Versions 5010 and
D.0 would have an impact on virtually every health care entity, since
at least some personnel in every covered entity would have to adjust to
certain new business rules and procedures to accommodate the
improvements in the data available from the transactions.
In our analysis, we combine Versions 5010 and D.0 because these two
standards would be implemented at the same time, and in some cases are
dependent on each other. For example, a health plan may use Version
5010 to send a remittance advice notification to a pharmacy, even
though the pharmacy has used Version D.0 to submit its claim. This
means that both the health plan and the pharmacy will have to implement
both Version 5010 and Version D.0 in order to effectively exchange
transactions. Similarly, a pharmacy may use Version 5010 to bill for
supplies (for example, syringes), yet use Version D.0 for the retail
pharmacy service of the insulin. The pharmacy will have to implement
both Versions 5010 and D.0.
Table 27a in the impact analysis presents the implementation costs
of Versions 5010, D.0 and 3.0 on all entities we anticipate would be
affected by the rule. The data in that table are used in this analysis
to provide cost information.
Because most health care providers are either nonprofit or meet the
SBA's size standard for small business, we treat all health care
providers as small entities. For providers, the changes may be minimal
involving no more than a software upgrade for practice management and
billing systems. Thus, we expect that the vast majority of physicians
and practitioners will need to make relatively small changes in their
systems and in their processes. We include pharmacies in this analysis,
and consider some of them to be small businesses, and they are thus
represented in our tables and the accompanying narrative. A number of
health plans are considered small businesses, but we were unable to
identify data for these entities, and therefore solicit industry
feedback to complete this analysis for the final rule. We address
clearinghouses and Pharmacy Benefit Managers (PBMs) in our discussion,
but we do not believe that there are a significant number of
clearinghouses that would be considered small entities because of the
consolidation that has been occurring in the marketplace over the past
5 years. This was confirmed by a number of associations, including the
Maryland Commission for Health Care. PBMs are excluded from the
analysis because we have no data to indicate that they would qualify as
a small entity. For example, as of 2006, the top four PBMs in the
country accounted for about 75 percent of the prescription market, and
of the top 10 PBMs, the largest showed revenues of more than $35
billion, with the smallest having revenues of $75 million (http://www.managedcaremag.com/archives/0609/0609.pbms.html). We invite comment
and data from the industry regarding our assumptions.
State Medicaid agencies are excluded from this analysis because
they have annual estimated revenues that exceed the small entity
threshold of $31.5 million under the regulatory flexibility analysis
guidelines. Furthermore, States are not considered small entities in
any Regulatory Flexibility Analysis.
Initial Regulatory Flexibility Analysis (IRFA)
1. Number of Small Entities
In total, we estimate that there are more than 300,000 health care
organizations that may be considered small entities either because of
their nonprofit status or because of their revenues. On the provider
side, practices of doctors of osteopathy, podiatry, chiropractors,
mental health independent practitioners with annual receipts of less
than $6.5 million are considered to be small entities. Solo and group
physicians' offices with annual receipts of less than $9 million (97
percent of all physician practices) are also considered small entities,
as are clinics. Approximately 92 percent of medical laboratories, 100
percent of dental laboratories and 90 percent of durable medical
equipment suppliers are assumed to be small entities as well. The
American Medical Billing Association (AMBA) (http://www.ambanet.net/AMBA.htm) lists 97 billing companies on its web site. It notes that
these are only ones with Web sites.
The Business Census data shows that there are 4,786 firms
considered as health plans and/or payers (NAICS code 5415) responsible
for conducting transactions with health care providers. In the proposed
rule's impact analysis, we use a smaller figure based on a report from
AHIP. But for purposes of the RFA, we did not identify a subset of
small plans, and instead solicit industry comment as to the percentage
of plans that would be considered small entities.
We identified the top 78 clearinghouses/vendors in the Faulkner and
Gray health data directory from 2000--the last year this document was
produced. Health care clearinghouses provide transaction processing and
translation services to both providers and health plans.
We identified nearly 60,000 pharmacies, using the National
Association of Chain Drug Stores Industry Profile (2007, http://www.nacds.org), and for the purposes of the initial regulatory
flexibility analysis we are proposing to treat all independent
pharmacies reported in the Industry Profile as ``small entities.'' The
number of independent pharmacies reported for 2006 is approximately
17,000 entities. We specifically invite comments on the number of small
pharmacies.
Based on Figure 2 of the Industry Profile, independent pharmacy
prescription drug sales account for 17.4 percent of total pharmacy drug
sales of $249 billion sales for 2006. Allocating the 5010 and D.0 costs
based on the share of prescription drug revenues to independent
pharmacies (the small businesses), implementation costs are expected to
range between $7.06 and $13.7 or 0.00 and 0.03 percent of revenues.
These figures indicate that there is minimal impact, and the affect
falls well below the HHS threshold, referred to at the beginning of
this section.
2. Costs for Small Entities
To determine the impact on health care providers we used Business
Census data on the number establishments for hospitals and firms for
the classes of providers and revenue data reported in the Survey of
Annual Services for each NAICS code. Because each hospital maintains
its own financial records and reports separately to payment plans, we
decided to report the number of establishments rather than firms. For
other providers, we assumed that the costs to implement the 5010 would
be accounted for at the level of firms rather than at the individual
establishments. Therefore, we reported the number of firms for all
other providers.
Since we are treating all health care providers as small entities
for the purpose of the initial regulatory flexibility analysis, we
allocated 100 percent of the implementation costs reported in the
impact analysis for provider type. Table 1 shows the impact of the
Version 5010 implementation costs as a percent of the provider
revenues. For example, dentists, with

[[Page 49759]]

reported 2005 revenues of $87.4 billion and costs ranging from $299
million to $598 million have the largest impact on their revenues of
between $0.19 percent and 0.39 percent. We are soliciting comments
specifically on the number of providers affected by the proposed rule
and information that will help us in our analysis of the burden on
providers.
We do not include an analysis of the impact on small health plans
here, because we were not able to determine the number of plans that
meet the SBA size standard of $6.5 million in annual receipts.
In evaluating whether there were any clearinghouses that could be
considered small entities, we consulted with three national
associations (EHNAC, HIMSS and the Cooperative Exchange), as well as
the Maryland Commission for Health Care, and determined that the number
of clearinghouses that would be considered small entities was
negligible. Revenues cited on the Cooperative Exchange Web site
(www.cooperativeexchange.org/faq.html) divided clearinghouses into
three revenue categories--small ($10 million); medium ($10 million to
$50 million) and large ($50 million or greater). We identified the top
78 clearinghouses, and determined that they are typically part of large
electronic health networks, such as Siemens, RxHub, Availity, GE
Healthcare etc., none of which fit into the category of small entity.
Finally, we contacted industry experts who have also been trying to
gather revenue data from the industry without success. As referenced
earlier, in a report by Faulkner and Gray in 2000, the top 51 entities
were listed, and the range of monthly transactions was 2,500 to 4
million, with transaction fees of $0.25 per transaction to $2.50 per
transaction. We determined that even based on this data, few of the
entities would fall into the small entity category, and we do not count
them in this analysis.
With respect to Version 3.0, we point out that while we do not know
how many health plans/payers will exchange the subrogation standard
with Medicaid agencies, those entities would be counted in the health
plan category and addressed under the analysis for Version 5010 and
D.0. We do not provide a separate analysis here.
In sum, we assumed that the financial burden would be equal to or
less than three percent of revenues. HHS policy states that if a rule
imposes a burden equal to or greater than three percent of a firm's
revenues, it is significant (see: ``Guidance on Proper Consideration of
Small Entities in Rulemakings of the U.S. Department of Health and
Human Services'' at http://www.hhs.gov/execsec/smallbus.html). Based on
the results of this analysis, we are reasonably confident that the rule
will not have a significant impact on a substantial number of small
entities. Nevertheless, we are specifically requesting comments on our
analysis and asking for any data that will help us determine the number
and sizes of firms implementing the standards proposed in this notice.
Table 2 below summarizes the impact of the rule on the health care
industry.

Table 2--Analysis of Implementation of the Burden of Versions 5010, D.0 and 3.0 on Small Covered Entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
Small
entity Small entity
Total Revenue or receipts of Version 5010/ share of Implementation
NAICS Entities Number of Small Receipts total D.0 annual version 5010/ cost revenue-
entities entities ($ receipts costs (in D.0 Costs (in receipts (in
millions) (in millions) millions $) percent)
percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6221..................... General Acute Care Hospitals 5,386 5,386 612,245 100 $536-$1,072 .............. 0.09-0.18
(establishments).
6211..................... Physicians (firms).......... 189,562 189,562 330,889 100 250-501 .............. 0.08-0.15
6212..................... Dentists (firms)............ 118,163 118,163 87,405 100 172-344 .............. 0.19-0.39
44611.................... Pharmacies (includes 5010 56,946 17,482 249,000 17.4 49-96 7.1-13.7 0.02-0.03
and D.0).
--------------------------------------------------------------------------------------------------------------------------------------------------------

In column 1 we display the NAICS code for class of entity. Column 2
shows the number of entities that are reported in the Business Census
for 2006 or ``Chain Pharmacy Industry Profile.''
Column 3 shows the number of small entities that were computed
based the Business Census and Survey of Annual Service when the data
was available. All health care providers were assumed to be small. We
assumed that all independent pharmacies reported in Table 2 of the
Industry profile are small entities.
Column 4 shows revenues that were reported for 2005 in the Survey
of Annual Services, or in the case of pharmacies, in Figure 2 of the
Industry profile. In the case of health plans and third party
administrators, we used the consumer payments reported for private
health insurance in 2006 in the National Health Expenditure accounts.
Column 5 shows the percent of small entity revenues.
Column 6 shows the implementation costs for Version 5010, D.0 and
3.0 taken from Table 27a of the impact analysis.
Column 7 shows the costs allocated to the small entities based on
the percent of small entity revenues to total revenues.
Column 8 presents the percent of the small entity share of
implementation costs as a percent of the small entity revenues. As
stated in the guidance cited earlier in this section, HHS has
established a baseline threshold of 3 percent of revenues that would be
considered a significant economic impact on affected entities. None of
the entities exceeded or came close to this threshold.
We note that the impact in our scenarios is consistently under the
estimated impact of 3 percent for all of the entities listed above,
which is below the threshold the Department considers as a significant
economic impact. As expressed in the Department guidance on conducting
regulatory flexibility analyses, the threshold for an economic impact
to be considered significant is 3 percent to 5 percent of either
receipts or costs. As is clear from the analysis, the impact does not
come close to the threshold. Thus based on the foregoing analysis, we
conclude that some health care providers may encounter significant
burdens in the course of converting to the modified Versions 5010 and
D.0. However, we are of the opinion that, for most providers, health
plans, and clearinghouses the costs will not be significant.
3. Alternatives Considered
As stated in section V.D of this proposed rule, we considered
various policy alternatives to adopting Versions 5010, D.0 and 3.0. For
Version 5010, one alternative considered was that we not adopt the
modifications, but allow the industry to continue using the current
versions. This would not have been an appropriate solution because it
does

[[Page 49760]]

nothing to address the existing shortcomings of the current versions,
such as issues with inconsistent instructions, situational rules that
preclude the full benefits of standardization for the industry, limited
eligibility and secondary payer information, and continued reliance on
companion guides from health plans. The existing shortcomings of the
currently adopted standards continue to impact the industries' ability
to meet evolving business needs and advanced technology.
We considered a number of options for implementing a staggered
transition to Version 5010--phasing in the implementation of the new
standards by covered entity type. For example, clearinghouses and
health plans would modify their systems first, followed by providers.
We rejected this option as being too costly and too burdensome. This
option would require clearinghouses and health plans, which are largely
national, covering multiple states, to maintain and operate both
Version 4010/4010A and Version 5010. Programmers would have to
accommodate the new standards, but maintain programs for the older
version. This could increase the likelihood of errors in payments and
incorrect eligibility information, and could create confusion and
uncertainty for providers. It is likely that there would be delays in
claims processing. We believe the cost of maintaining two systems
concurrently would impose a very significant burden on health plans,
providers, and clearinghouses.
Another alternative considered and rejected was to delay
implementation for small entities. However, because we treat all health
care providers as small entities, we did not see any benefit to be
gained from delaying implementation of Version 5010 beyond the 18 month
implementation period being proposed in the rule, and therefore
rejected this alternative.
A final alternative considered was waiting and adopting later
versions of the X12 standards. In large part, this is not a feasible
option since the adoption of Version 5010 is critical to the use of
ICD-10. Given our expectation that use of the ICD-10 code set will be
mandated in the next few years, the industry must have experience using
Version 5010 in order to effectively implement ICD-10. We recognize
that other relevant Federal Rules, current or future, may overlap and/
or affect this proposed rule. We do not believe that this proposed rule
conflicts with the expected ICD-10 rule, but rather supports the
industry's ability to implement that code set in a more timely fashion.
We considered various alternatives to adopting NCPDP Version D.0.
One alternative that was considered but not proposed was to do nothing
and keep the current Version 5.1 as a HIPAA transaction standard. This
option, however, would not support the health care industry's needs for
better and enhanced claims information. If the Department continues to
require Version 5.1, the enhancements that were made in Version D.0 to
improve Part D eligibility and claims processing would put those who
rely on this information at a disadvantage.
Another alternative we considered was to stagger the implementation
dates for the Version D.0 among the entities that utilize the affected
NCPC transaction. This alternative is not feasible since pharmacies,
PBMs, and health plans all rely on the information transmitted though
the NCPDP transaction. If any one of these three entities is not using
the same NCPDP version at the same time, the information needed to
process claims and check eligibility would be deficient. Pharmacies
need the most current eligibility data from the plans to determine
correct coverage and payment information. Plans and PBMs would suffer
because they would not have the most current information reflected
though the claims data to maintain the beneficiaries' most current
benefits.
We considered a number of alternatives to proposing the adoption of
the NCPDP 3.0 Medicaid pharmacy subrogation standard. We considered not
adopting the standard, which would allow the industry to continue using
Version 2.0 or other proprietary electronic and paper formats. This
option would mean that the Medicaid plans would have to continue to
support multiple formats in order to bill pharmacy claims to third
party payers. The current multiplicity of claim formats creates a
significant barrier to Medicaid agencies being able to comply with
Federal law in ensuring that Medicaid is the payer of last resort.
We also considered adopting the Version 2.0 standard which would
require a number of workarounds to be compatible with Version D.0 or
other NCPDP claim standards (except for NCPDP, Version 5.1). The NCPDP
testified to the NCVHS in January 2008 that adopting Version 3.0 for
Medicaid subrogation is a cost-saving tool and will improve the
efficiency of those already using Version 2.0. The NCPDP testified that
adopting Version 3.0 will make it more feasible for states and payers
to invest in system upgrades to accommodate one specific standard. The
NCVHS did not recommend any viable alternatives to Version 3.0 for
handling Medicaid subrogation transactions because it believes that
Version 3.0 adequately addresses the business needs of Medicaid
agencies and industry partners.
4. Conclusion
As stated in the HHS guidance cited earlier in this section, HHS
uses a baseline threshold of 3 percent of revenues to determine if a
rule would have a significant economic impact on affected entities.
None of the entities exceeded or came close to this threshold. Based on
the foregoing analysis, we could certify that this proposed regulation
would not have a significant economic impact on a substantial number of
small entities. However, because of the relative uncertainty in the
data, the lack of consistent industry data, and our general
assumptions, we invite public comments on the analysis and request any
additional data that would help us determine more accurately the impact
on the various categories of entities affected by the proposed rule.
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule would have a significant impact on
the operations of a substantial number of small rural hospitals. This
analysis must conform to the provisions of section 603 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. This proposed rule would
affect the operations of a substantial number of small rural hospitals
because they are considered covered entities under HIPAA and must
comply with the regulations; however, we do not believe the rule would
have a significant impact on those entities, for the reasons stated
above in reference to small businesses. Therefore, the Secretary has
determined that this proposed rule would not have a significant impact
on the operations of a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates would require spending in any 1 year
$100 million in 1995 dollars, updated annually for inflation. In 2008,
that threshold is approximately $130 million. This proposed rule
contains proposed mandates that would impose spending costs on State,
local, or tribal governments in the aggregate, or by the private
sector, in excess of the current

[[Page 49761]]

threshold. This impact analysis addresses these impacts both
qualitatively and quantitatively. In general, each State Medicaid
Agency and other government entity that is considered a covered entity
would be required to invest in software, testing and training to
accommodate the adoption of the modified versions of the standards, and
the new standard. UMRA does not address the total cost of a rule.
Rather, it focuses on certain categories of cost, mainly those
``Federal mandate'' costs resulting from (A) imposing enforceable
duties on State, local, or tribal governments, or on the private
sector, or (B) increasing the stringency of conditions in, or
decreasing the funding of, State, local, or tribal governments under
entitlement programs.
Executive Order 13132 establishes certain requirements that an
agency must meet when it promulgates a proposed rule (and subsequent
final rule) that imposes substantial direct requirement costs on State
and local governments, preempts State law, or otherwise has Federalism
implications. This proposed rule would have a substantial direct effect
on State or local governments, could preempt State law, or otherwise
have a Federalism implication because even though State Medicaid
agencies would be converting to a modified version of an existing
standard (Version 4010/4010A to Version 5010 and NCPCP 5.1 to NCPDP
D.0) with which they are already familiar, there are expenses for
implementation and wide-scale testing. State Medicaid agencies are
currently required to conduct pharmacy subrogation, and in accordance
with this proposed rule, would be able to use either the new Medicaid
pharmacy subrogation standard or contract with trading partners and/or
contractors who specialize in this field to fulfill its subrogation
requirement, but there would still be some level of implementation
costs to bear. With respect to subrogation for pharmacy claims, we note
that this proposed rule would not add a new business requirement for
States, but rather would mandate a standard to use for this purpose
which would be used consistently by all States. There will also be
expenditures for States as they convert from Version 5.1 to D.0 for
other pharmacy transactions, and this transition will have
implementation and testing costs as well, meaning there will be
additional fiscal impacts on States based on this rule.

C. Anticipated Effects

The objective of this regulatory impact analysis is to summarize
the costs and benefits of the following proposals:
Migrating from Version 4010/4010A to Version 5010 in the
context of the current health care environment;
Migrating from Version 5.1 to Version D.0; and
Adopting a new standard for the Medicaid subrogation
transaction.
We assume for purposes of this analysis that maintaining existing
practices with respect to claims submissions for retail pharmacy
supplies and services (as discussed in section II.D above) would have
no impact on the industry.
The remainder of this section provides details supporting the cost
benefit analysis for each of the three above-referenced proposals.
1. Adoption of Version 5010
This portion of the analysis is based on industry research
conducted for us by Gartner, Incorporated (Gartner) to assess the costs
and benefits associated with the adoption of Version 5010. As part of
this endeavor, Gartner worked with us to establish a segmentation
strategy to identify the individual segments across the full spectrum
of health care that would be affected by the proposed migration to
Version 5010. These segments were identified:
Providers
Hospitals
Physicians
Dentists
Pharmacies
Health Plans
Commercial Health Plans and Blue Cross/Blue Shield Plans
Government Plans: Medicare and Medicaid
Clearinghouses and Vendors
Clearinghouses
Vendors
Based on this segmentation, Gartner identified and interviewed
select credible individuals with representative perspectives. These
individuals addressed both the business and technical areas for their
respective organizations or associations, and were capable of
understanding and articulating the potential cost-benefit of changes to
their existing systems and processes. In addition to these interviews,
Gartner conducted research to complement the existing data on the
current state of HIPAA transactions. This research included dialog and
data collection from leading associations and other stakeholder
constituencies that represented one or more of the segments identified.
We note that we did not interview any ``non-hospital'' institutions,
but made the assumption that skilled nursing facilities (SNFs) and
other types of organizations may be affiliated with some of the larger
hospital systems, which were included in the analysis. Furthermore, we
have not broken the data out to reflect any particular sub-segment of
the industry, other than hospitals, physicians, dentists and
pharmacies. The benefits were based on the total number of all claims
throughout the health care system, including non-hospital institutions.
We believe that while not all possible organization types were
interviewed, the assumptions and findings can be extrapolated to
provide fair insight into the financial impacts across the industry.
This applies to any federal agency that must comply with the rule;
these entities will have similar costs and benefits to their private
sector cohorts. We invite public comment and cost or benefit data to
support any concerns about the accuracy or consistency in our
assumptions and estimates, particularly related to non-hospital
institutions.
Throughout this process, Gartner constructed a cost-benefit model
that synthesized the findings from the interviews as well as the inputs
from the secondary research. This model was developed to estimate the
net impact of implementing Version 5010 across the entire health care
spectrum inclusive of all of the individual segments. When the model
was completed, Gartner conducted a series of internal quality assurance
steps, a sensitivity analysis, and peer review to properly validate the
results.
Affected Entities
All HIPAA covered entities would be affected by this proposed rule.
Covered entities include all health plans, all health care
clearinghouses, and health care providers that transmit health
information in electronic form in connection with a transaction for
which the Secretary has adopted a standard. We note that health care
providers may choose not to conduct transactions electronically.
Therefore, they would be required to use these standards only for
transactions that they conduct electronically. See the Transactions and
Code Sets rule for a discussion of affected entities (65 FR 50361).
Covered entities would incur a number of one-time costs to
implement Version 5010. These costs would include analysis of business
flow changes, software procurement or

[[Page 49762]]

customized software development, integration of new software into
existing provider/vendor systems, staff training, collection of new
data, testing, and transition processes. Systems implementation costs
would account for most of the costs, with system testing alone
accounting for 60 to 70 percent of costs for all covered entities.
Ongoing operational costs are expected to initially grow as
transmissions increase, but would result in lower costs per transaction
as higher volumes are handled. The costs would be offset by the
benefits of increased Electronic Data Interchange (EDI) and operational
savings.
Through the interview process, Gartner estimated the cost of
implementing Version 5010 by establishing an estimated baseline cost
for implementing Version 4010/4010A for each individual entity.
Subsequently, it determined the comparative costs for Version 5010 as a
percentage of the total estimated Version 4010/4010A costs. Since the
costs of implementing Version 4010/4010A are now more quantifiable,
this methodology provided the most reliable means of estimating the
Version 5010 costs. Most sources agreed that Version 5010 costs would
represent 20 to 40 percent of the total cost of implementing Version
4010/4010A. This is because the Version 4010/4010A implementation
represented a shift to completely new standards, while Version 5010 is
a less complex move from one version of a standard to another. Most
start up investments, such as hardware procurement made during the
Version 4010/4010A implementation, would not need to be repeated for
Version 5010. The estimated total cost for implementing Version 4010/
4010A during its 2 year implementation period for each segment is:
$4,661 million for hospitals; $2,175 million for physicians; $1,493
million for dentists; $336 million for pharmacies; $18,021 million for
private plans/health plans: $1,202 million for government plans and
$125 million for clearinghouses. In calculating the minimum and maximum
costs for implementing Version 5010, the 20 and 40 percent ranges have
been applied to each of the minimum and maximum estimates for
implementing Version 4010/4010A, except for pharmacies. In analyzing
cost projections for the pharmacy industry, we use an estimate of 20
percent because, as will be explained below, some portion of the
implementation costs would be addressed by the pharmacy efforts to
comply with Version D.0.
The current limitations of Version 4010/4010A and anticipated
benefits of Version 5010 are discussed in detail in Section II.A. This
cost benefit analysis considers those anticipated benefits in analyzing
how affected entities would convert to key financial and business
advantages, including:
Lower transaction costs resulting from movement from paper
to electronic transactions and;
Reduction in staff resource time resulting from a decrease
in phone calls to check eligibility and claim status and obtain
referral authorizations via electronic transactions that provide the
same information;
Gartner estimated the benefits of implementing Version 5010 by
identifying three specific categories of savings: (1) Savings due to
better standards for electronic claims transactions; (2) cost savings
due to an increase in use of the electronic claims transactions by more
covered entities; and (3) operational savings due to increased use of
electronic auxiliary transactions by more covered entities. We refer to
auxiliary transactions as those non-claims electronic transactions such
as eligibility and referral requests and responses. The savings
categories are further described as follows:
Savings due to better standards--increased use of the
electronic claims transactions resulting in a decreased need for manual
intervention
Cost Savings--increased use of claims related electronic
transactions by entities that had not used them before (remittance
advice, claims status)
Operational Savings--increased use of auxiliary, non-
claims electronic transactions by entities that had not used them
before (eligibility requests and responses).
Each savings category is explained in more detail in the
assumptions section below and we encourage readers to refer back to
this assumptions section during the review of the cost benefit
analysis.
All financial analysis is calculated over a 10-year planning
horizon, including an assumption that there would be a 2-year
implementation period. System implementation costs are assumed to be
incurred over that 2-year implementation period and are distributed
evenly in our analysis. Benefits are assumed not to be realized until
post-implementation, in 3 to 10 years.
Assumptions for Version 5010 Impact Analysis
In calculating the costs and benefits, Gartner made a number of
assumptions, based on interview data and secondary research. The
interviews provided information that was used to reflect the size of
the industry segments, the segment implementation costs, and the
application of benefits and savings. We provide those assumptions and
estimates here for reference throughout this portion of the impact
analysis. We are specifically soliciting comments on the assumptions
related to costs and benefits, as they are presented in this section of
the proposed rule.
In Table 2 below, we show the projected annual claims volumes for
providers over a ten-year period. Gartner projected the annual increase
in the number of claims at four percent, and used the base from the
estimates that were identified in the Claims Attachments proposed rule.
These figures are used as a base to calculate the provider benefits.

Table 2--Annual Claim Volume Projections (In Millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
--------------------------------------------------------------------------------------------------------------------------------------------------------
Physician (low)..................................... 3,186 3,313 3,446 3,583 3,727 3,876 4,031 4,192 4,360 4,534
Physician (high).................................... 4,142 4,307 4,480 4,659 4,845 5,039 5,241 5,450 5,668 5,895
Hospital (low)...................................... 796 828 861 896 932 969 1,008 1,048 1,090 1,134
Hospital (high)..................................... 1,036 1,077 1,121 1,165 1,212 1,260 1,311 1,363 1,418 1,475
Dentist (low)....................................... 540 561 584 607 631 657 683 710 738 768
Dentist (high)...................................... 660 686 713 742 772 802 834 868 903 939
---------------------------------------------------------------------------------------------------
Total claims (low).............................. 4,552 4,702 4,891 5,086 5,290 5,501 5,721 5,950 2,264 6,607
---------------------------------------------------------------------------------------------------
Total claims (high)............................. 5,837 6,071 6,314 6,566 6,829 7,102 7,386 7,681 7,989 8,309
--------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 49763]]

Table 3 below reflects the estimated current adoption rate for each
of the HIPAA standards, and the projected rate of adoption for each of
the modified versions of the standards over the 10-year planning
horizon. For the enrollment (834) and payroll deducted and other group
premium payment (820) standards, we assume utilization would apply only
to health plans since providers do not use either of these two
standards. We assume that acceptance rates would gradually increase in
the first 5 years after implementation, through 2016, and after that
time would remain level.

Table 3--Current and Projected Rates of Use for HIPAA Standards Across
All Covered Entities--Over 10 Years [In percent]
------------------------------------------------------------------------
Current Increase Increase
Standard Acceptance (minimum) (maximum)
------------------------------------------------------------------------
837--claims...................... 75 2 5
835--remittance advice........... 60 5 10
278--referral request & response. **0 10 20
276/277--claims status request & 10 10 20
response........................
270/271--eligibility request and 10 10 20
response........................
834--enrollment/disenrollment.... 3 0 0
820--premium..................... 2 0 0
------------------------------------------------------------------------
Source: Gartner interviews and secondary research.
** Minimal use--while there is not quite zero percent uptake, the use of
this transaction is so minimal, it does not register on any scale;
therefore, we state its current acceptance rate as negligible.

General Assumptions for the Cost-Benefit Analysis for Providers and
Health Plans
For the cost benefit analysis for each of the provider segments--
hospitals, physicians, pharmacies, and dentists as well as the health
plans, we apply the following set of assumptions, which are listed
below. (These assumptions will not be repeated in each individual
section of the impact analysis to follow.) Benefits that would accrue
to each provider segment include:
All providers currently using 835/837 messages would
accrue benefits in the way of savings (for example, through reduced
phone calls).
Physicians that have not yet implemented 835/837 would
accrue future savings through lower transaction costs for these
electronic exchanges.
An expected uptake of between 2-5 percent in the first
five years following implementation, for all providers implementing 837
transactions (for example, 75 percent in 2010; 77 percent in 2015).
An expected uptake of between 5-10 percent over ten years
for all providers for 835 transactions.
Costs and benefits for the Coordination of Benefit
transaction (COB) are included in the estimates for the 837 claim
standard transaction and are not broken out separately.
Providers would benefit from fewer phone calls to health
plans to check eligibility or claims status for auxiliary transactions
(270/271, 276/277, 278).
An expected increase in the usage of auxiliary
transactions across the entire provider community and new adopters
would see net benefits that would compound the aforementioned benefits
as adopters utilize EDI more often.
The operational savings would result from reductions in manual
efforts, particularly phone calls that must be made to resolve issues
with a transaction that is manual today, such as a claim status or
eligibility check. Each phone call avoided for a claim transaction is
estimated to save 10 minutes of time for a provider's staff member, and
each required manual intervention avoided is estimated to save 5
minutes of time. The following are estimates of the potential volume of
avoided phone calls for providers:
835--A reduction in phone calls between 1.45 percent and
2.90 percent as a percentage of pended claims. This would equate to
millions of phone calls for providers in the first year with increasing
amounts in subsequent years as claim volumes increase.
837--A reduction in phone calls between 0.28 percent and
0.70 as a percentage of pended claims. This also would equate to
millions fewer phone calls for all providers.
For all other transactions, the current call volume would
be reduced proportional to their total transaction volume. Because of
the smaller volumes for these transactions, the additional savings was
deemed to be too small for inclusion into the overall model.
Cost savings from reduced phone calls were estimated based on
annual loaded compensation for plan or provider staff members (customer
service, claims or billing) at $40,000 and billing/claims resources at
$60,000 which equates to $0.32 per minute and $0.48 per minute
respectively.
As a corollary to the operational and uptake benefits identified
for the providers, health plans would expect corresponding benefits
including:
For 835/837 messages, plans would receive benefits in the
way of savings through reduced phone calls related to ambiguity in the
current messages.
As uptake of the 835/837 transactions increase between
trading partners, there would be savings through lower transaction
costs; in other words, unit costs would decrease.
For auxiliary transactions (270/271, 276/277, 278), plans
would receive benefit in the way of operational savings through reduced
phone calls.
Since we would expect an increase in the market for auxiliary
transactions within the physician community as new uptake occurs with
trading partners, plans would receive some cost savings through lower
transaction costs.
Explanation of Cost Calculations
To determine the costs for each sub-segment (that is, hospitals,
physicians, and dentists), we established an estimate for what the
total approximate Version 4010/4010A costs were for an individual
entity within that sub-segment (based on the interviews and other data
available through research) and then applied an estimated range of 20
to 40 percent of those costs to come up with estimated minimum and
maximum costs for Version 5010. The range was accepted as a realistic
proxy by all providers and plans who participated in the interviews.
Through the course of the interviews, we identified more granular cost
categories and reviewed these with the participants to help analyze and
validate overall cost estimates by entity.
Table 4 below shows Gartner's estimates of costs for Version 4010/

[[Page 49764]]

4010A implementation, which again, were calculated based on estimates
of implementation for each individual entity within a segment, and
multiplying that estimate by the number of entities.

Table 4--Gartner Estimated Total Cost for Implementation of Version 4010/
4010A
------------------------------------------------------------------------
Costs (in
Segment millions)
------------------------------------------------------------------------
Hospitals*.............................................. $4,661
Physicians.............................................. 2,175
Dentists................................................ 1,493
Pharmacy................................................ 336
Private Plans........................................... 18,021
Government Plans........................................ 1,202
Clearinghouses.......................................... 125
------------------------------------------------------------------------
Source: Gartner interviews and secondary research.
* Includes some long term care and skilled nursing facilities when
connected to a hospital or hospital system.

Table 5 reflects our assumptions regarding the percent of the total
costs allocated to each cost category (for example, testing and
training) for the provider and plan segments. Specifically, we
estimated that 60 percent of all implementation costs would go towards
testing for providers, and 70 percent for plans. We invite comment from
the industry on these assumptions and estimates, particularly on the
assumption that there would be no new hardware costs for implementing
Version 5010, since the interviews did not yield information on
providers who do not currently have electronic capability.

Table 5--Percentage and Total Amounts for Cost Items Used for Version
5010 Calculations--Providers and Health Plans
------------------------------------------------------------------------
Percent of total costs
-----------------------
Cost item Health
Providers plans
------------------------------------------------------------------------
Hardware Procurement............................ 0 0
Software Costs.................................. 15 10
Transmission Costs.............................. 0 0
New Data Collection............................. 0 0
Customized Software Development................. 5 2.5
Testing Cost.................................... 60 70
Training Costs.................................. 5 2.5
Transition Costs................................ 15 15
-----------------------
Totals...................................... 100 100
------------------------------------------------------------------------
Source: Gartner interviews and secondary research.

Transition costs, which we assume will occur in the third year of
implementation, are defined as the post-implementation costs for
monitoring, maintaining, and adjusting the upgraded systems and related
processes with trading partners until all parties reach a ``steady
state.'' An example of this type of cost might be additional bug fixes
and the associated testing required on the Version 5010 platform after
the system has been fully cut over. In addition, some interviewees
expected there to be some laggards in implementing Version 5010 after
the regulation timeline and expected to incur additional costs during
this transition period as a result of late entrants. We note that we do
not include hardware costs even for providers who might move from a
paper-based system to an EDI system because we do not believe that the
number of providers who have no electronic capability is very high. We
do believe that providers who move away from a paper-based system are
likely to have software and/or vendor costs, and we account for this.
We invite stakeholder comment on these assumptions, and welcome any
data regarding the number of providers who do not have any hardware to
support electronic transactions.
Explanation of Benefits and Savings Calculations
In our analysis, we assume that benefits would accrue in three
categories which arise from: (1) Better standards--improvements in the
claims standards which would increase their usability and reduce manual
intervention; (2) an increase in the adoption and use of the electronic
claim transactions themselves, which would result in financial savings
through an increased use of EDI; and (3) an increase in use of the
auxiliary transactions, such as eligibility, claims status, and
referral, which would reduce manual intervention (personnel
involvement) and increase efficiencies and cash flow. For ease of
understanding, we label the three savings categories as Better
Standards, Cost Savings and Operational Savings, though all three
represent savings to the entities. We further explain each category
again here, and include the ``titles'' we have given them:
(1) Better standards or savings due to improved claims standards:
The improvements in Version 5010 that would reduce manual intervention
to resolve issues related to the claim or remittance advice, due to
ambiguity in the standards;
(2) Cost savings or savings due to new users of claims standards:
Increased use of electronic transactions for claims and remittance
advice that would accrue to parties who had previously avoided the
electronic transactions because of their deficits and shortcomings; and
(3) Operational savings or savings due to increased auxiliary
standards usage: Increase use of auxiliary transactions through EDI
that would result from a decrease in manual intervention to resolve
issues with the data (handled through phone calls or correspondence).
To calculate the savings in the ``better standards'' savings
category, which is specific to the increased use of electronic
transactions for claims and remittance advice, we use data from a 2007
report compiled by America's Health Insurance Plans (AHIP) which
indicated that savings due to EDI were in the range of $.73 per
transaction. Using the $.73 as the baseline, Gartner used the
interviews to refine this estimate for both providers and plans. We
apportion the amount between providers and plans, and based on the
interviews, anticipate that providers would receive at least $.55 in
savings for moving transactions from paper to EDI and plans would
benefit by at least $.18. All of the operational benefits were based on
reduced phone calls and manual intervention as a percentage of total
claims. Because we do not have any concrete numbers for how many claims
the private plans process versus the government plans, we used the
percentage of covered lives as stated in the Harvard/JFK School of
Public Policy study as the best way to approximate how much of the
benefits would go to private plans versus government plans (82 percent
covered lives in private plans versus 16 percent for government plans)
(Harvard JFK School of Public Policy--``Health care delivery covered
lives--Summary of Findings--2007'') We further assumed that there are
no material differences in the number of claims handled with the
government-covered lives versus private-covered lives.
Table 6 details the business activities such as manual
interventions and phone

[[Page 49765]]

calls that make up the calculations for the other two categories of
projected savings: Cost and operational savings related to an increase
in users of the electronic transactions for claims, and an increase in
use of the auxiliary transaction standards by all covered entities.
Where we speak of ``manual intervention,'' we mean that a human
resource must take some action related to a particular claim or inquiry
because the transaction has been delayed, pended or rejected.
Calculations are based on the number of interventions and the
amount of time spent per intervention, multiplied by the average cost
per intervention (based on average salaries for certain full-time
employees). Affected entities can use the categories and calculations
shown here to compare against their own operations, in order to
evaluate the proposed impact to their own organization.
Based on industry interviews, we identified the average annual
compensation packages, amount of time for certain business activities
(manual interventions) related to claims and other transactions, and
determined the cost per minute for these activities. According to
Gartner's interviews, and for purposes of this analysis, we estimate
the average annual compensation package (salary plus benefits) for a
health plan or plan service representative to be $40,000 and for a
provider billing specialist to be $60,000. The cost per minute for a
service representative is $0.32 ($40,000/(2080*60)) and for a provider
representative is $0.48. We invite industry comment on these estimates.

Table 6--Phone Calls and Manual Interventions Required by Providers and
Health Plans Due to Lack of EDI or Non Use of EDI
------------------------------------------------------------------------
Industry segment Amount of time
------------------------------------------------------------------------
Providers:
Time taken by a provider billing agent 10 minutes.
to process manual intervention for a Example: 10 minutes x .48 =
pended claim. $4.80 per call
Time taken by a provider billing agent 6 minutes.
to process non Auto adjudicated claims.
Time taken by a provider's office staff 5 minutes.
member to find out Eligibility
information.
Time taken by a provider billing agent 12 minutes.
to find out the status of the claim.
Time taken by a provider's office staff 10 minutes.
member to find out the status of a
referral.
Health Plans:
Time taken by a plan claims processor 5 minutes.
to process manual intervention for a
pended claim.
Time taken by a plan claims processor 5 minutes.
to process non Auto adjudicated claims.
Time taken by a plan customer service 5 minutes.
representative to give eligibility
information.
Time taken by a plan customer service 8 minutes.
representative to give status of the
claim pended claim.
Time taken by a plan Utilization Review 8 minutes.
representative to give status of a
referral.
------------------------------------------------------------------------
Source: Gartner interviews and secondary data.

The formulas for the three savings categories are as follows:
(1) Better standards: Number of estimated claims transactions (835/
837) requiring a phone call times the number of minutes per call, times
the average cost per minute (for example: 1,000 claims x 10 minutes x
$0.48 = $4,800)
(2) Cost savings (new use of EDI for 835/837): Number of
transactions converted from paper to EDI (estimated to have a range of
2 to 5 percent over 10 years) times estimated cost savings per
transaction (total savings of $0.73, where the provider benefit is
$0.55 and the plan benefit is $0.18).
(3) Operational savings for increased use of EDI for auxiliary
transactions: Number of estimated transactions (for the 270/271, 276/
277, 278) requiring a phone call times the number of minutes per call
times the average cost per minute. For example: 1,000 transactions x 10
minutes x 0.48 = 4,800.
Other data points of relevance to this analysis include the number
of health care claims exchanged between covered entities. Based on its
research, Gartner assumed a low estimate of 4,522 million and a high
estimate of 5,837 million claims annually, beginning in 2010. Table 7
depicts the percent of transactions that are electronic, and their
disposition. Gartner also assumes that 14 percent of all claims
annually are pended, meaning that they are not paid upon receipt, and
may be held for additional information.

Table 7--Disposition of Claims Transactions
------------------------------------------------------------------------
Percent
------------------------------------------------------------------------
Electronic Claims...................... 75 percent.
Auto Adjudication of electronic claims. 71 percent.
Pended claims.......................... 14% (of all claims).
Cost savings from electronic $0.73 ($0.55 for providers;
transactions. $0.18 for plans).
------------------------------------------------------------------------
Source: AHIP Report: ``An Updated Survey of Health Care Claims Receipt
and Processing Times,'' May 2006.

[[Page 49766]]

1. Health Care Providers
As discussed above, providers are covered entities under HIPAA if
they transmit health information in electronic form in connection with
a HIPAA transaction. Providers are not required by HIPAA to conduct
transactions electronically, but if they do, they must use the HIPAA
standards adopted by the Secretary. However, Medicare providers, with a
few limited exceptions, are required to submit Medicare claims
electronically under the Administrative Simplification Compliance Act
of 2001 (ASCA) Public Law 107-105. Providers may conduct the following
transactions: Health care claims or equivalent encounter information,
health care payment and remittance advice, eligibility for a health
plan, referral certification and authorization, and health care claim
status. They do not conduct the enrollment and disenrollment in a
health plan or health plan premium payment transactions. Many providers
submit claim transactions electronically, and somewhat fewer accept
electronic remittance advices. Usage of the auxiliary transactions
(eligibility, claim status, and referral/authorization) is much lower
than the claims transactions.
Providers that conduct a transaction electronically would be
required to implement Version 5010 of that transaction. As stated, we
assume that the improvements in Version 5010 would result in more
providers conducting those transactions electronically. Use of the
claims transaction (837) is already high for providers and would be
moderately affected by improvements in Version 5010. While the 835
remittance advice is also used, there are a number of technical issues
that have hampered its wide-scale deployment. These issues were
discussed in the preamble of this proposed rule. Utilization overall
would increase due to the technical improvements in Version 5010. More
providers will use any or all of the non-claims electronic transactions
because the improvements will make them more useful. The auxiliary
transactions for eligibility, claims status and referrals currently
have relatively low utilization under Version 4010/4010A because of the
perceived lack of business value. We believe adopting these
modifications will change that trend. For example, the Version 4010/
4010A eligibility transaction only requires that minimum data about an
individual patient and his/her coverage be returned on the response,
and that minimum data set is not useful to providers. Thus, very few
providers or health plans have implemented this transaction, preferring
instead to use existing voice and interactive voice response (IVR)
systems. Improvements in the Front Matter section and instructions for
Version 5010 would yield a modest increase in use, which would have a
positive financial impact on providers and health plans. Our
assumptions regarding the providers' current acceptance of the
transactions and the projected adoption rate are shown in Table 2 in
the assumptions section. In the remainder of this section, we discuss
the costs and benefits of implementing Version 5010 for each segment of
the provider industry, including hospitals, physicians, pharmacies and
dentists.
a. Hospitals
For purposes of this cost/benefit analysis, hospitals were divided
into three categories based on bed-size (See table 8 below).

Table 8--Hospital Breakdown
------------------------------------------------------------------------
Number of
Hospital size hospitals
------------------------------------------------------------------------
400+ Bed Hospitals...................................... 521
100-400 Bed Hospitals................................... 2,486
Fewer than 100 bed hospitals............................ 2,757
---------------
Total............................................... 5,764
------------------------------------------------------------------------
Source: AHA Hospital Statistics 2007 edition.

Hospitals have pursued various implementation models of the HIPAA
standards, including Direct Data Entry (DDE), internally managed EDI,
use of clearinghouses or billing vendors, and a variety of hybrids of
these models. All of these implementation models were considered in
this analysis. Larger hospitals typically have pursued hybrid models
but favor the use of clearinghouses and internally managed EDI where
possible. Smaller hospitals typically rely more heavily on direct data
entry, clearinghouses, and/or billing vendors to manage their EDI
operations.
A subset of hospitals have reached a level of maturity with Version
4010/4010A transactions and believe that many of the benefits that
would be attained by converting to Version 5010 have been mostly
achieved. In other words, some hospitals have already taken extensive
advantage of EDI, and of the auto adjudication opportunities afforded
by Version 4010/4010A, so there may be only incremental benefits for
that group, through adoption of Version 5010. These hospitals typically
have implemented the full set of transactions (including the
eligibility and claim status transactions). Based on the Gartner
research, hospitals falling into this category include the 521
hospitals with 400+ beds as well as 20 percent of the mid-sized
hospitals with 100-400+ beds and 10 percent of the hospitals with less
than 100 beds. These hospitals have consistently deployed an internally
managed EDI system and/or a hybrid solution and have invested in
substantial development efforts to create workarounds to any problem
segments within Version 4010/4010A that were particularly important to
their organization. For this subset, the transition to Version 5010 may
be more streamlined than for the smaller or less advanced entities
because there would be fewer new system and business changes, and more
expertise available to resolve implementation issues. However, the
benefits would also be less pronounced because those hospitals that
have implemented the full suite of transactions with the majority of
their partners have already realized the benefits associated with
moving from paper, phone or fax transactions to electronic
transactions.
Some hospitals (mid-sized and small) have not yet taken full
advantage of technical solutions to maximize the use or benefits of the
HIPAA standards, and continue to depend on a variety of manual efforts
to conduct the various business functions. The transition to Version
5010 would provide significant benefits with respect to a reduction in
these manual procedures, resulting in decreased costs and increased
efficiencies.
We anticipate the total cost for all hospitals to implement Version
5010 would be within a range of $932 million to $1,864 million. This
estimated cost was calculated by applying a 20 percent (minimum) and 40
percent (maximum) factor to the estimated cost of implementing Version
4010/4010A. We provided the cost estimates for Version 4010/4010A for
each industry segment in the assumptions section above. While the
average costs by hospital would vary based on size and complexity of
the hospital system, they would fall within the 20-40 percent range
compared to the investments made for implementing Version 4010/4010A.
Smaller hospitals typically rely on a billing vendor and/or a
clearinghouse for a large majority of their electronic claims
exchanges. We assume that these hospitals implemented the 837
transactions only. We assume these hospitals are subject to vendor
release schedules and would be dependent on these partners to upgrade
their current transactions to the Version 5010 standards. Furthermore,
these

[[Page 49767]]

smaller hospitals may have to absorb some costs for testing, as testing
would represent a significant portion of the overall costs for
implementation. Nonetheless, we assume that these costs would be lower
for this group than for the larger entities. We assume that many of
these hospitals have regulatory compliance clauses in their vendor
contracts, which would result in many costs largely being absorbed by
their vendors. Our assumptions are based on industry interviews which
indicate that small organizations will rely on their vendors for most
of the heavy lifting for testing. We believe the impact on the
individual entity will be minimal, comparatively. However, we welcome
comments and data from the industry and other stakeholders on this
matter.
Hospitals would enjoy savings and benefits in the same three
categories we identified earlier in the assumptions section of this
analysis. Savings due to better standards are estimated to be a minimum
of $403 million. Cost savings, due to an increase in use of the
electronic claims transactions (837 and 835) are estimated to be a
minimum of $67 million. (This figure is derived by multiplying the
number of claims times the savings of $.55 per claim (from the AHIP
report).) The operational savings for use of the auxiliary transactions
(270/271, 276/277, 278) are projected to be a minimum of $1,313
million. (This figure is calculated by taking the number of calls that
would be avoided, times the time each of those calls would take times
the cost per call.) The benefits related to increased use of the
auxiliary transactions would be realized in a reduction in the amount
of time that manual intervention would be needed to address the same
``issues'' that can be handled by a transaction. In other words, use of
electronic eligibility transactions would save a provider's employee 10
minutes of time per avoided manual intervention or phone call to verify
eligibility.
We specifically solicit industry comments on the assumptions made
here relative to the costs and benefits for hospitals for the
implementation of Version 5010. Table 9b below shows the costs and
benefits for all hospitals.

Table 9--Version 5010 Cost Benefit Summary for Hospitals
[In millions]
----------------------------------------------------------------------------------------------------------------
Minimum Maximum
----------------------------------------------------------------------------------------------------------------
Costs:
System Implementation.................. $792 $1,584
Transition............................. 140 280
----------------------
Total costs............................ 932 1,864
Benefits: Formula:
Operational Savings--better standards.. 403 1,096 Number of estimated transactions (835/837)
requiring a phone call x number of
minutes per call x $ average cost per
minute.
Cost Savings--increase in electronic 66 219 Number of transactions converted from
claims transactions. paper to EDI x estimated cost savings per
transaction ($.55).
Operational Savings--increase in use of 1,314 3,414 Number of estimated transactions (270/271,
auxiliary transactions. 276/277, 278) requiring a phone call x
number of minutes per call x $ average
cost per minute.
-----------------------
Total benefits......................... 1,783 4,729
Net Benefits........................... 851 2,865
----------------------------------------------------------------------------------------------------------------

b. Physicians and Other Providers
Physicians have also pursued a variety of implementation models for
the HIPAA transactions. They are largely dependent on the requirements
of their trading partners (the health plans with whom they conduct
transactions) and the services of their vendors and clearinghouses, who
provide a range of support and technology, to process the transactions.
A full range of implementation methods were considered in this
analysis. Larger physician practices have pursued direct transmission
with health plans, but many mid-sized practices and small physician
practices are dependent on the use of clearinghouses and rely on
billing vendors to manage their EDI operations.
For purposes of this cost benefit analysis, Gartner divided
physicians practices into four size-based categories, as shown in table
10 below:

Table 10--Physician Breakdown by Practice Size
------------------------------------------------------------------------
Number of
Practice size practices
------------------------------------------------------------------------
100+ Physicians............................................ 393
50-100 Physicians.......................................... 590
3-49 Physicians............................................ 38,961
1-2 Physicians............................................. 194,278
------------
Total.................................................. 234,222
------------------------------------------------------------------------
Source: AMA.

Within these four types of practices, a distinction can be drawn
between the groups with more than 50 physicians (large practices) and
those that are less than 50 physicians (small practices).
For the large physician practices, as in large hospitals, there are
greater levels of acceptance as well as more diversified
implementations of the Version 4010/4010A standards. Therefore, the
bulk of the costs associated with the implementation of Version 5010
for large practices would be in the category of testing, which we
estimate at 60 percent of costs, as explained in the general
assumptions section earlier in this document.
The majority of the small physician practices currently utilize
vendor supplied practice management software, billing vendors, and/or
clearinghouses to handle their HIPAA EDI transactions. For small
providers that are PC-based or have client-server systems that rely on
vendor-supplied software, we do not believe the provider would bear any
immediate costs for the software upgrades. Based on Gartner's
interviews and our own experience with the industry, most software
maintenance contracts offer free upgrades to accommodate regulatory
changes, and we believe that most contracts have clauses that require
vendors to be compliant with mandatory standards. However, as with each
provider category in which we identified dependence on vendors, there
are still testing costs that must be addressed. The impact on those
providers that have such contracts would be postponed

[[Page 49768]]

until the contract is renewed, and would be mitigated by market
factors.
We anticipate that the total conversion cost for physicians would
be in the range of $435 million and $870 million. (This was calculated
by taking the base of $2,175 million (for implementing Version 4010/
4010A), and multiplying that number by version 5010 implementation
factor of 20 percent (minimum) and 40 percent (maximum)).
As with hospitals, physicians are positioned to receive the same
benefits of using Version 5010, including the previously mentioned
savings, through reduced phone calls and reduced manual intervention.
Physicians would experience savings and benefits in the three
categories as follows: Savings due to better standards is estimated to
be $1,613 million. Cost savings, due to an increase in use of the
electronic claims transactions (837 and 835) is estimated to be $269
million. (This figure is derived by multiplying the number of claims
times the savings of $.55 per claim, as noted in the AHIP study.) The
operational savings for use of the auxiliary transactions (270/271,
276/277, 278) is projected to be $5,250 million. (The narrative for
these calculations has been provided elsewhere, and the formulas appear
in the cost benefit table for hospitals.) Again, we invite public
comment on these figures and assumptions, particularly on the
assumption that there would be no new hardware costs for implementing
Version 5010, since the interviews did not yield information on
providers who do not currently have electronic capability. Table 11
below summarizes the cost-benefits for physicians:

Table 11--Version 5010 Cost Benefit Summary for Physicians--in Millions
------------------------------------------------------------------------
Minimum Maximum
------------------------------------------------------------------------
Costs:
System Implementation............... $370 $740
Transition.......................... 65 131
-------------------------------
Total Costs..................... 435 870
Benefits:
Operational Savings--better 1,612 4,378
standards..........................
Cost Savings--increase in electronic 270 874
claims transactions................
Operational Savings--increase in use 5,251 13,562
of auxiliary transactions..........
-------------------------------
Total Benefits.................. 7,133 18,814
-------------------------------
Net Benefits.................... 6,698 17,944
------------------------------------------------------------------------

c. Dentists
There are an estimated 175,000 dentists currently covered under
HIPAA. However, the dental community has not yet widely adopted the
HIPAA standards, in large part because the standards did not meet their
practical business needs, particularly for claims and remittance
advice. The improvements in Version 5010 would increase the potential
value of the HIPAA standards for dentists, and should increase
utilization. Currently, the typical dental practice relies on vendor
solutions and clearinghouses to handle their Version 4010/4010A HIPAA
transactions, and, therefore, the costs for implementing Version 5010
would largely fall on vendors as a cost of doing business. The majority
of the dental costs would stem from testing and other related services
not covered by any pre-negotiated upgrades with their vendors.
Implementation costs for Version 5010 are anticipated to be in the
range of $299 million (20 percent) to $598 million (40 percent) based
on using the same implementation factor of the Version 4010/4010A
implementation costs of $1,493 million.
The benefits derived from implementing Version 5010 for dentists
would be the same as those for the other provider segments, as
described in the assumptions section of this analysis. For example,
based on improvements in Version 5010, we anticipate that for dental
practices, there would be an increase in the adoption rate of 2 to 5
percent in the 837 transactions, and 5 to 10 percent in 835
transactions, over a ten-year period.
Increased utilization of the standards would occur because of
improvements that specifically affect dental practices. For example,
increased utilization of the 837 would occur because the standard now
accommodates certain dental terminology to differentiate dental
services from medical services. Version 4010/4010A does not allow for
reporting diagnoses codes that are required for some specialty claims
such as oral and maxillofacial surgery. This has resulted in challenges
for this segment of the industry because many of these services are
billed using the professional claim, but the professional claim does
not have a way to provide tooth numbers or other tooth-related
information. These claims often had to be submitted on paper. The
ability to report those codes in Version 5010, with the tooth numbers,
would provide a standard means for these claims to be submitted
electronically. The 835 would be more widely adopted for its ability to
post receivables automatically.
In general, we believe dentists would achieve these benefits from
operational savings, which would result in:
Reduced time to determine eligibility
Reduced manual effort to prepare claims
Reduced burden to complete account posting
Greater visibility into claims status
We also expect that dental practices would derive similar benefits
as physicians, in the way of savings through reduced phone calls for
claims transactions as well as for auxiliary transactions (270/271 and
276/277). For dentists that have not yet implemented 835/837, there
would be savings through increased use of EDI. Dentists would
experience savings and benefits in the three categories as follows:
Minimum savings due to better standards is estimated to be $274
million; minimum cost savings due to an increase in use of the
electronic claims transactions (837 and 835) are estimated to be $45
million. (Again, this figure is derived by multiplying the number of
claims times the savings of $.55 per claim, as noted in the AHIP
study.) The operational savings for use of the auxiliary transactions
(270/271, 276/277, and 278) is projected to be a minimum of $889
million. (The narrative for these calculations has been

[[Page 49769]]

provided in the assumptions section.) Table 12 below shows the cost
benefit summary for the dental industry.

Table 12--Version 5010 Cost Benefit Summary for Dentists--in Millions
------------------------------------------------------------------------
Minimum Maximum
------------------------------------------------------------------------
Costs:
System Implementation............... $254 $508
Transition.......................... 45 90
-------------------------------
Total Costs..................... 299 598
Benefits:
Operational Savings--better 274 699
standards..........................
Cost Savings--increase in electronic 45 56
claims transactions................
Operational Savings--increase in use 889 2,173
of auxiliary transactions..........
-------------------------------
Total Benefits.................. 1,208 2,928
-------------------------------
Net Benefits.................... 909 2,330
------------------------------------------------------------------------

d. Pharmacies
Pharmacies are currently using Version 4010/4010A of the 835 and
837 transactions in their current business practices, most often for
the remittance advice (835) and pharmacy supplies and services (837).
Pharmacies would transition to the use of Version 5010 when the final
rule becomes effective, in particular for the 835 transaction. For
retail pharmacy claims, pharmacies primarily use Version 5.1. Since we
are proposing to replace Version 5.1 with Version D.0 in this
regulation, and many of the system changes, costs and benefits for
implementing both Version 5010 and Version D.0 would result from
related efforts, we have combined the impact analysis for Version 5010
and Version D.0. That analysis is detailed later in Section 3 of this
analysis.
e. Health Plans
According to estimates provided by Gartner, there are nearly 4,000
health plans in the United States. For the purposes of this analysis,
we divided plans into four categories based on their size: National and
Super Regional Private Plans; Large Private Plans; Mid-Sized Private
Plans, and Small Private Plans, as shown in table 13 below.

Table 13--Health Plan Breakdown
------------------------------------------------------------------------
Number of
Plan size plans
------------------------------------------------------------------------
National and Super Regional.................................. 12
Large........................................................ 75
Mid-sized.................................................... 325
Small........................................................ 3,537
----------
Total.................................................... 3,949
------------------------------------------------------------------------

Within these four types of private plans (as described above),
there are two distinct scenarios that emerged: Small/Midsized Plans and
Large/National/Super-Regional Plans.
The large plans could be characterized as having implemented the
full set of 4010/4010A transactions but often did not have trading
partners for certain auxiliary transactions. They have already
developed workarounds for many of the problems that were identified as
being solved in Version 5010. Furthermore, their maturity in working
with the Version 4010/4010A transaction set was at a point where they
had extracted most of the value from the standards in place.
Small plans resembled the larger plans in that they had implemented
the full set of transactions. However, the smaller plans had not
developed as many workarounds for Version 4010/4010A limitations as
their larger peers. As a result, Version 5010 may serve to provide this
segment more benefit on average than their larger peers. In order to
calculate health plan implementation costs, we calculated the costs
within a factor of 20 to 40 percent of the costs for implementing
Version 4010/4010A. Overall, private health plans recognize the
importance of continuing to maintain and upgrade the national standards
and perceive there to be qualitative benefits that warrant
considerations beyond just the quantifiable net benefit from the
change.
The benefit for all private plans falls between $5,780 and $15,114
million. Private plans would experience savings and benefits in the
three categories as follows: savings due to better standards is
estimated to be in a range of $1,283 million to $3,430 million; cost
savings, due to an increase in use of the electronic claims
transactions (837 and 835) is estimated to be in a range of $111
million and $278 million. (This time, the estimate is derived by
multiplying the total number of all claims (physician, hospital, and
dental) times the savings of $.18 per claim for plans, as noted in the
AHIP study.); the operational savings for use of the auxiliary
transactions (270/271, 276/277, and 278) is projected to be in a range
of $4,386 million to $11,406 million. (The narrative for these
calculations has been provided earlier.) Table 14 depicts total plan
cost benefits summary.

Table 14--Version 5010 Cost Benefit Summary for Private Health Plans--in
Millions
------------------------------------------------------------------------
Minimum Maximum
------------------------------------------------------------------------
Costs:
System Implementation............... $3,064 $6,128
Transition.......................... 541 1,081
-------------------------------
Total Costs..................... 3,604 7,209
Benefits:
Operational Savings--better 1,283 3,430
standards..........................

[[Page 49770]]

Cost Savings--increase in electronic 111 276
claims transactions................
Operational Savings--increase in use 4,386 11,406
of auxiliary transactions..........
-------------------------------
Total Benefits.................. 5,780 15,112
Net Benefits.................... 2,175 7,903
------------------------------------------------------------------------

Government Plans
To prepare the cost benefit analysis for government plans, we
obtained input from Medicare and from several subject matter experts
from Medicaid plans across the country. Other government entities, like
the Veteran's Health Administration, were assumed to have similar cost/
benefit structure as the Large Private plans and were estimated as
such. One of the key findings from the interviews was that even in the
case of government plans that have implemented the full set of
transactions, there is still a very limited exchange of the auxiliary
transactions at this time.
Government systems costs are expected to occur across a number of
Federal and state agencies and include transition costs. For Medicare,
since its cost structure is different from private plans, total
Medicare costs include those that would be expended by the MACs, DME
MACs, carriers, intermediaries and other contractors. The costs are
high, but the net benefit to Medicare relative to the private plans is
slightly more positive. Overall, costs for government plans were
similar in nature to private plans, and included analysis, translator/
software customization, testing, and training. The cost to government
systems in transitioning to Version 5010 is estimated to be within a
range of $252 million to $481 million over 10 years. This figure was
derived by applying a 20 percent and 40 percent factor onto the cost to
implement Version 4010/4010A, which was $1,203 million. The examples in
this impact analysis are only illustrative in nature and are based on
limited analysis. They are presented to illustrate the potential
administrative costs to the Federal government.
Derived benefits accrued for implementing Version 5010 to
government plans would be similar to those of private plans. Savings
would be acquired from reduced phone calls because current ambiguity in
the transactions (such as situational versus required information for
some of the key data elements) would be reduced. As with all other
affected entities, as more uptake of 835/837 messages occur with
trading partners, there would be cost savings through lower transaction
costs. The same estimates for increased adoption of the 837
transactions of between 2 and 5 percent and between 5 and 10 percent
for the 835 transactions would apply to government plans, and we
project similar increases in the use of the auxiliary transactions.
Since we projected an increase in the market for the auxiliary
transactions within the physician community as new uptake occurs with
the trading partners (for example, health plans), the government plans
would benefit from cost savings as well, as follows: Minimum savings
due to better standards are estimated to be $279 million. Minimum cost
savings, due to an increase in use of the electronic claims
transactions (837 and 835) are estimated to be $24 million. (Again,
this figure is derived by multiplying the number of claims times the
savings of $.18 per claim, as noted in the AHIP study.) The minimum
operational savings for use of the auxiliary transactions (270/271,
276/277, 278) is projected to be $953 million. (The narrative for these
calculations has been provided elsewhere.) Table 15 shows the cost
benefit summary for government plans.

Table 15--Version 5010 Cost Benefit Summary for Government Health Plans--
in Millions
------------------------------------------------------------------------
Minimum Maximum
------------------------------------------------------------------------
Costs:
System Implementation............... $214 $409
Transition.......................... 38 72
-------------------------------
Total Costs..................... 252 481
Benefits:
Operational Savings--better 279 746
standards..........................
Cost Savings--increase in electronic 24 60
claims transactions................
Operational Savings--increase in use 953 2,480
of auxiliary transactions..........
-------------------------------
Total Benefits.................. 1,256 3,286
-------------------------------
Net Benefits.................... 1,004 2,805
------------------------------------------------------------------------

f. Clearinghouses and Vendors
Gartner estimates that there are 162 clearinghouses, which includes
claims-related transaction vendors. This segment of the HIPAA universe
provides a critical service in today's environment. For the purposes of
this study, however, any related costs expected to be incurred by these
vendors was considered to be a ``cost of doing business'' and were not
included in the overall Cost/Benefit impact. Costs were, however,
collected from the clearinghouses/vendors and analyzed as best as could
be with the information available.
While many providers who use vendor-supplied software may be able
to defer the costs of software upgrades, the vendor industry may have
to bear, at least initially, the costs of such upgrades. Vendors have
not provided data on their costs, and this regulation does not address
the costs on the vendor industry, but welcomes input as to the
estimated costs and benefits from this industry, for inclusion in the
final rule.

[[Page 49771]]

For though vendors are not covered entities under HIPAA, their role is
significant with respect to the services they provide to health plans
and to covered health care provider clients.
We estimate the range of clearinghouse costs to be between $37
million and $45 million for the Version 5010 upgrade over the 3-year
implementation period--two years for implementation and a third year
for transition. Estimates were determined in the same fashion as the
providers and plans. Clearinghouses were estimated to have total
Version 4010/4010A costs of approximately $125 million.
We do not estimate that there would be a positive payback related
to the Version 5010 upgrade for clearinghouses or vendors, however,
there are some discrete benefits that would be realized through this
transition including:
Higher transaction volumes
Lower service and operational costs (reduced phone calls)
Operational efficiencies (Lower percent as measured
against total costs)
Increased market size
Because these benefits are predicated on several dependencies and
market circumstances beyond our ability to predict with complete
accuracy, neither HHS nor Gartner attempted to quantify those in dollar
figures. Table 16 below summarizes the clearinghouse costs.

Table 16--Version 5010 Cost Benefit Summary for Clearinghouses in
Millions
------------------------------------------------------------------------
Costs Maximum Minimum
------------------------------------------------------------------------
System Implementation............................. $33 $41
Transition........................................ 3 4
---------------------
Total Costs................................... 37 45
------------------------------------------------------------------------

Qualitative Benefits
With few exceptions, sources expressed their belief that the
advancement of the HIPAA standards was the right thing to do across the
industry. Some participants acknowledged that the advancement to
Version 5010 would not benefit their organization directly, but they
were still in support of the modifications to the standards.
There were a number of benefits that were articulated but not
quantified by the participating subject matter and industry experts
that may warrant further discussion with the industry. Among the
qualitative benefits that were consistently mentioned by interviewees
were the following:
Improved accuracy resulting from simplified messaging.
A new field specifically to capture certain hospital
acquired condition indicators that are so critical to the industry.
A new field to capture ``Present on Admission'' indicators
as directed by the Deficit Reduction Act.
Resultant quality through greater reliability of clean
message exchange.
Collaborative benefits stemming from the ability to share
more information.
It is also important to note that Version 5010 is considered a key
dependency to move towards adopting the ICD-10 CM code set for HIPAA
transactions. While there is disagreement in the industry about the
benefits of adopting ICD-10 in the next few years, such a transition is
viewed as positive over the long-term, and is acknowledged as an option
that is not available today. In summary, sources agree that all of the
qualitative benefits lead to the delivery of an improved quality of
care and allow the providers and plans to focus more of their time on
patients and less of their time on administration.
3. Version D.0 (and Version 5010 for Pharmacies)
The objective of this portion of the regulatory impact analysis is
to summarize the cost and benefits of implementing Version D.0.
Affected Entities
Almost all pharmacies, health care providers, and plans/PBMs
already use Version 5.1, as it is the claim format most widely adopted
by providers who submit retail pharmacy claims, and health plans that
process retail pharmacy claims. These entities currently use the
Version 5.1 standard to transmit retail pharmacy claim information
between provider and plans/PBMs, and between pharmacies and plans/PBMs.
This is accomplished in one of two ways, either through interactive on-
line transmission or transmission through batch mode.
Retail pharmacies use Version 5.1 to submit claims to health plans/
PBMs when they dispense a prescription medication to a patient who has
prescription drug benefits through his/her health insurance coverage.
The National Association of Chain Drug Stores (NACDS) estimates that
there are more than 38,000 retail pharmacies owned and operated by both
national and regional pharmacy chains that process more than 2.3
billion prescriptions annually. Independent community pharmacies,
according to the National Community Pharmacist Association (NCPA)
represent an additional 18,000 independent retail community pharmacies
across the United States, and process 1.4 billion prescriptions
annually.
There are approximately 3,950 health plans according to the
America's Health Insurance Plans (AHIP) and Gartner research. With
regard to PBMs, there are four national pharmacy benefit management
companies that process about 75 percent of the more than 3 billion
prescriptions dispensed annually in the United States. The remainder
are specialized PBMs.
Some health care providers who dispense medications directly to
their patients, known as dispensing physicians, may use the Version 5.1
to submit these prescription drug claims on behalf of their patients to
the PBMs and/or plans, depending on the patient's health insurance
coverage. However, we do not estimate this practice to be widespread
and therefore, do not account for it in this impact analysis. We invite
comment regarding the number of pharmacy benefit management companies
and their respective market share.
Costs
a. Chain Pharmacies
The retail pharmacy industry would be the most impacted by the
transition from Version 5.1. to Version D.0. According to the NACDS,
there are nearly 200 chain pharmacy companies in the United States. The
programming changes to incorporate the new fields that constitute the
Version D.0 are performed at systems located at the corporate level,
and then these system updates are pushed out to the individual
pharmacies within the pharmacy chain. One large national pharmacy chain
has estimated that it spent approximately $10 million when it converted
to Version 5.1. In comparison, it anticipates that corporate-wide costs
for the conversion to Version D.0, including programming, system
testing and personnel training, would be around $2 million. Another
large national pharmacy chain estimates its migration costs from
Version 5.1 to Version D.0 at $1.5 million. Chain pharmacy cost
estimates for programming these systems, testing to ensure that systems
work with Version D.0, and training of personnel are dependent on the
size of the pharmacy chain, its respective proprietary systems, and
number of employees that would require training. Overall, industry
estimates for conversion to Version D.0 range from $100,000 for a small
pharmacy chain to $1 million for

[[Page 49772]]

large national pharmacy chains. We assume that these costs would be
incurred in the first year of the implementation of Version D.0, in
2010.
We assume that there are 20 large national pharmacy chains and the
remaining 180 chains are small chains. Therefore, we estimate costs for
the migration from Version 5.1 to Version D.0 to be $20 million for
large national pharmacy chains, and $18 million for the remaining 180
small chains, for a total of $38 million. We estimate that these costs
would be incurred during the first two years of implementation.

Table 17--Chain Pharmacy Costs for Conversion to Version D.0
------------------------------------------------------------------------
Category Cost
------------------------------------------------------------------------
Large pharmacy chains (20 x $1,000,000)................. $20,000,000
Small pharmacy chains (180 x $100,000).................. 18,000,000
------------------------------------------------------------------------

b. Independent Pharmacies
Independent pharmacies would also incur costs, the majority of
which would result from upgrading their software systems to Version
D.0. These costs are harder to estimate. Independent pharmacies use
software dispensing packages purchased from pharmacy dispensing
software system vendors, and usually pay a monthly maintenance fee and
a per-claim cost of anywhere from 4 cents to 10 cents per claim.
Maintenance fees are negotiated between the software vendor and the
pharmacies, and may take the form of a flat fee, or a fee based on a
sliding scale. These maintenance fees would likely increase slightly,
as vendors pass along their cost of the upgrade to the pharmacy. We
assume this would take place not during the course of an existing
contract, but when the pharmacy's contract with the vendor comes up for
renewal, likely within two years, in this case 2010 and 2011, the first
two years of Version D.0 implementation. Based on industry feedback, we
estimate that the average monthly maintenance contract between a
pharmacy and a vendor amounts to a range of $400 to $800 per month per
pharmacy, with the average industry estimate being about $500. We
estimate a range of between .50 and 1 percent maintenance fee increase
attributable to the conversion to Version D.0, or an additional $2.50
to $5.00 per month per pharmacy, or $540,000 to $1,080,000 based on
18,000 independent pharmacies ($500 x 0 .50 percent/1 percent x 12
months x 18,000 pharmacies). We solicit industry and stakeholder
comment on our cost assumptions.

Table 18--Increase in Independent Pharmacy Monthly Maintenance Fees for
Conversion to Version D.0
------------------------------------------------------------------------
Percentage of increase to maintenance fees
-------------------------------------------------------------------------
Category .50% 1%
------------------------------------------------------------------------
Number of Independent Pharmacies........ 18,000 18,000
Average monthly maintenance fee......... $500 $500
Average annual maintenance fee increase. $540,000 $1,080,000
------------------------------------------------------------------------

With respect to costs for implementing Version 5010, we use the
same pharmacy categories of chains and independents. As stated above,
the retail pharmacy industry would be impacted by the transition from
Version 4010/4010A to Version 5010 for billing supplies and services,
and receiving the remittance advice (835). Similar to the programming
changes to accommodate D.0, the upgrade to Version 5010 would be
performed at the corporate level, and the system updates would be
pushed out to the individual pharmacies within the pharmacy chain.
Estimates from the large national pharmacy chains regarding costs for
implementation of Versions 5010 and 5.1 are outlined above. These same
entities stated that they anticipate corporate-wide costs for the
conversion to Version 5010, including programming, system testing and
personnel training, would be around 20 percent of the Version 4010/
4010A costs. This is consistent with the overall industry estimate that
implementation of Version 5010 would represent approximately 20 to 40
percent of the cost of implementing Version 4010/4010A. As with Version
D.0, chain pharmacy cost estimates for programming, testing, and
training are dependent on the size of the pharmacy chain, their
respective proprietary systems, and the number of employees that would
require training. We assume that these costs would be incurred in the
first 2 years of the implementation of Version 5010, as we do with the
other HIPAA standards and other industry segments.
Independent pharmacies would also incur costs, the majority of
which would result from upgrading software systems to Version 5010 and
Version D.0, as has been discussed. Independent pharmacies use software
dispensing packages, and usually pay a monthly maintenance fee and a
per-claim cost. We assume that these types of costs for implementing
Version 5010 would be incorporated into the costs for implementing
Version D.0, and therefore do not add additional costs. Thus, using the
same estimates for the number of chain and independent pharmacies, and
applying a rate of 20 percent to Version 4010/4010A implementation
costs, we estimate costs specific to the migration from Version 4010/
4010A to Version 5010 to be a range of $58 million to $114 for system
implementation and $10 million to $20 million for transition costs, for
a total range of $67 million to $134 million. We assume that these
costs would implicitly include testing, as this activity would be
executed jointly for Version D.0 and Version 5010. We invite the
industry to comment on our assumptions and projected cost estimates,
and to provide current data to support alternative theories or view
points, as the comparison between Version 4010/4010A costs and Version
5010 implementation costs could be overstated.
We described the benefits for all providers, including pharmacy
providers, in the assumptions section of this analysis (for example,
better standards and decreased manual effort). We identified the
largest benefits for pharmacies in the content requirements in the 835
standard (required fields versus situational or optional fields, and
improvements in the specificity of the business rules which will
minimize multiple interpretations of the guides). These enhancements
would help to reduce manual interventions needed to resolve transaction
issues. For example, Version 4010/4010A does not provide instructions
for reconciling payments. The new Front Matter section in Version 5010
explicitly details how this information is to be reported in the

[[Page 49773]]

summary section of the remittance advice. Thus, benefits and savings
would accrue through better standards. For this savings calculation, we
use the same formula as for other provider cost savings--multiplying
the number of claims that would not require manual intervention, times
the cost per call and the number of minutes estimated for each call.
Savings due to better standards (837 and 835) are estimated to be in
the range of $20 million to $27 million.
c. Health Plans and PBMs
Health plans should see minimal changes in their operations and
workflows between Version 5.1 and Version D.0. Version D.0 does not
require any substantial or additional data reporting to enhance the
eligibility or subrogation/secondary plan aspects of the transaction.
Most of that work would be performed by the pharmacy benefit managers
(PBMs) that service the plans. Plans would likely continue to provide
data to the PBMs weekly via flat file transmission. However, PBMs would
have to reprogram their systems to be able to process claims in Version
D.0. As with the large pharmacy chains, we estimate the cost for large
PBMs to migrate to Version D.0 to be approximately $1 million to $1.5
million per large national PBMs, and approximately $100,000 for
specialty PBMs. Due to mergers and acquisitions over the past 4 years,
the number of PBMs has dropped from approximately 100 to about 40 total
PBMs in the U.S. Of those, we estimate that four are considered large
PBMs and would therefore incur approximately $4 million to $6 million
in conversion costs to Version D.0, and the remainder would incur
$100,000 or $3,600,000 in the aggregate, for a total cost ranging
between $8.6 and $10.6 million. We do not estimate any additional costs
to health plans for implementing Version 5010 for pharmacies, as all
efforts are included in the overall budget towards compliance. We
solicit industry comment on these cost assumptions, and additional
information regarding how PBM costs affect health plans, and how these
costs are passed on to the plans. We also invite comment as to how the
change to Version D.0 would affect core systems, and what the costs
might be to health plans, particularly large plans with broad
operations.

Table 19--PBM Costs of Conversion to Version D.0
------------------------------------------------------------------------
Category Cost
------------------------------------------------------------------------
Large PBMs (4 x $1,000,000/$1,500,000).... $4,000,000/$6,000,000
Specialty PBMs (36 x $100,000)............ $3,600,000
------------------------------------------------------------------------

d. Vendors
Software vendors have commitments to their software clients to
maintain compliance with the latest adopted e-prescribing standards.
They must incorporate these standards into their software systems,
otherwise they would not be able to sell their products competitively
in the marketplace. These systems cannot properly function using
outdated standards and/or missing key functionalities which the
industry has identified as essential to their business operations. We
expect that upgrades to these standards are anticipated by vendors, and
the cost of programming and/or updating the software is incorporated
into the vendor's routine cost of doing business. We further assume
they would pass along costs to customers through increases in the cost
of licensing and/or monthly maintenance fees, which we previously
discussed and estimated to be about 0.50 to 1 percent based on industry
interviews. We solicit industry and stakeholder comment on the
assumption that vendor costs will be passed on to the customer over
time, and solicit feedback on actual costs for vendor software upgrades
and impact on covered entities, including the conversion of historical
data.
Benefits
a. Pharmacies
Pharmacies need Version D.0 to process Medicare Part D claims.
Currently, there are many workarounds in pharmacy systems due to the
shortcomings of Version 5.1 in processing ``coordination of benefits''
claims. Pharmacies would benefit from the use of the NCPDP D.0 standard
because it provides better guidance than Version 5.1 in Medicare Part D
coordination of benefits situations, and now identifies ``patient
responsibility'' and ``benefit stage'' to help identify coverage gaps
on secondary claims. By processing the claim correctly the first time--
sending the right fields, with the right details, and additional fields
with detailed pricing segments--the result could be that pharmacies are
paid correctly, and patients pay correct co-pays, and there could be
fewer pharmacy audits and recoupments.
A recoupment is a request for refund when a pharmacy is erroneously
overpaid by a plan. A common reason for a recoupment is that the plan
was not aware of a patient's other health insurance coverage,
information that can be provided through use of the Version D.0
standard. Currently, there are issues with Version 5.1's
misinterpretation of ``coordination of benefits.'' There are extensive
customer service issues with many of these claims due to the charging
of incorrect co-pays, as the correct values do not exist in Version
5.1. Version D.0 redefines the ``other coverage codes'' and provides
claim examples in coordination of benefits situations to eliminate
future confusion. Extra information, which would be available in the
E1--Eligibility Verification transaction (this transaction resides on
the NCPDP Telecom 5.0 standard and provides information on a patient's
benefit eligibility at the time of prescription dispensing) would be
beneficial to pharmacies as well, but it is the coordination of
benefits and more precise pricing fields that would save pharmacies
time and money. One industry group estimated that large pharmacy chains
could save upwards of $1 million a year due to avoided audits and
incorrect payments. For smaller chains, the industry estimates savings
would be approximately $100,000 per chain. This does not include the
time that pharmacists and pharmacy technician staff spend on these
claims trying to process them at the pharmacy level. We assume an
annual benefit of $38 million for large and small pharmacy chains in
avoided audits and incorrect payments, and a total 10-year benefit of
$380 million, and conservatively estimate benefits at 50 percent, or
$190 million. We invite industry and stakeholder comments on this
assumption.
Table 20 below shows the amount of savings as a result of avoided
audits and incorrect payments based on implementation of Version D.0.

[[Page 49774]]

[Large and small chain pharmacy avoided audit and incorrect payment savings resulting from Version D.0 (millions)]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Benefit type 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Large Pharmacy chains (20 x $1M)................................ $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 $200
Small Pharmacy Chains (20 x $1M)................................ 18 18 18 18 18 18 18 18 18 18 180
Total (maximum)................................................. 38 38 38 38 38 38 38 38 38 38 380
50% (minimum)................................................... 19 19 19 19 19 19 19 19 19 19 190
--------------------------------------------------------------------------------------------------------------------------------------------------------

Based on a study funded by the National Association of Chain Drug
Stores (NACDS), ``Pharmacy Activity Cost and Productivity Study''
(http://www.nacds.org/user-assets/PDF_files/arthur_andersen.PDF), the
average pharmacist spends 1.1 percent of his or her time dealing with
third party plan issues. According to NACDS, there are 136,773
pharmacists employed by chain pharmacies, and 94,000 full-time
community pharmacists. In 2010, the first year of the migration from
Version 5.1 to Version D.0, that number is expected to increase to
244,829, or approximately 7,028 per year based on industry trend
information. For these 244,829 full-time pharmacists, 1.1 percent of
2,080 working hours annually equals 22.88 hours per year that a
pharmacist spends on third party plan issues, times the study's
estimated average pharmacist hourly wage of $60, which equals $1,373
per pharmacist, $1,373 x 244,829 full-time pharmacists equals
$336,101,251 in potential productivity savings to be realized by the
use of Version D.0 in the first benefit year. However, we recognize
that all call backs and inquiries would not be entirely eliminated.
Therefore, we conservatively estimate that 25 to 50 percent of the
pharmacist's time spent on third party plan questions could be
eliminated, for a total first year savings of $84 million to $168
million. Over the next 9 years, we estimate that, based on Department
statistics (http://www.hhs.gov/pharmacy/phpharm/howmany.html) the
number of pharmacists will increase by 1.3 percent per year. We
estimate 10-year productivity savings at $1,134 million to $2,268
million. We did not estimate hourly wage increases for the other job
types discussed elsewhere in this regulation, and therefore savings
calculated for other entities do not include the additional dollar
values.

[[Page 49775]]

Table 21--Pharmacist Productivity Savings From Version D.0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
No. of Pharmacists.................................... 244,829 248,012 251,236 254,502 257,811 261,162 264,557 267,996 271,480 275,010 2,596,595
Incremental Pharmacists............................... .............. 3,183 3,224 3,266 3,309 3,352 3,395 3,439 3,484 3,529 30,181
Pharmacist Hourly Wages............................... $60.00 $63.18 $66.52 $70.04 $73.75 $76.65 $80.76 $85.04 $89.54 $94.28 ................
Hours x Wages x Pharmacists........................... $336,101,251 $358,515,508 $382,375,458 $407,843,319 $435,029,477 $458,013,485 $488,845,770 $521,444,688 $556,175,087 $593,230,486 $4,537,574,528
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total (25%)....................................... $84,025,313 $89,628,877 $95,593,864 $101,960,830 $108,757,369 $114,503,371 $122,211,442 $130,361,172 $139,043,772 $148,307,621 $1,134,393,632
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total (50%)....................................... $168,050,626 $179,257,754 $191,187,729 $203,921,659 $217,514,738 $229,006,742 $244,422,885 $260,722,344 $278,087,544 $296,615,243 $2,268,787,264
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 49776]]

According to the same NACDS study, pharmacy staffs spend 0.9
percent of their time dealing with third party plan issues. Although
there are usually multiple pharmacy technicians on premises at a given
time, for purposes of this analysis we assume that one and one-half
pharmacy staff persons per pharmacy are addressing these third party
plan issues.
In projecting the growth in the number of pharmacies over the next
9 years, we used data from the NACDS, ``Community Retail Pharmacy
Outlets by Type of Store, 1996-2006'' (http://www.nacds.org/user-seets/pdfs/facts_resources/2006/Retail_Outlets2006.pdf), which showed that
while there were 2 years of negative growth, the average percentage
increase in the number of pharmacies was .835 percent per year. We
applied this percentage growth factor to our analysis, and calculated
benefits based only on the incremental growth in the number of
pharmacies, assuming that existing pharmacies would have already
accounted for their technician hours. We also assume that the salaries
of pharmacy technician staff would rise approximately $.50 cents an
hour each year, based on industry data (http://flahec.org/hlthcarers/pharmtec.htm and http://www.nacds.org/wmspage.cfm?parm1=507) showing
that their median hourly earnings rose from $11.73 in 2005, to $12.74
in 2007. Starting our analysis in the year 2010, we project there would
be 56,946 pharmacies. We assume that one and one-half full-time
pharmacy staff persons per pharmacy would spend 28.08 hours per year on
third party plan issues (0.9 percent x 3,140). The hourly wage for one
and one-half persons is $21.36 based on a per-technician hourly wage
projected at $14.24 (1.5 x $14.24=$21.36) for the year 2010. This 2010
hourly wage is based upon the current average hourly wage of $12.74,
increased 0.50 cents per year according to industry trend information.
We calculated the 2010 hourly technician wage of $21.36 times the
number of hours spent on third party plan issues, 28.08, times the
number of pharmacies, 56,946 for a total of $34,155,573 ($21.36 x 28.08
x 56,946). Once again, we recognize that all call backs and inquiries
would not be entirely eliminated. Therefore, we conservatively estimate
that 25 percent of the pharmacy staff's time spent on third party plan
questions could be eliminated, for a total 10 year productivity savings
of $98 million to $196 million.

[[Page 49777]]

Table 22--Pharmacy Technician Staff Productivity Savings From Version D.0
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
No. of Pharmacies....................................... 56,946 57,421 57,900 58,383 58,870 59,361 59,856 60,355 60,858 61,366 ..............
Incremental No. of Pharmacies........................... .............. 475 479 483 487 491 495 499 503 508 ..............
Technician Hourly Wage ( x1.5 techs.)................... $21.36 $21.86 $22.36 $22.86 $23.36 $23.86 $24.36 $24.86 $25.36 $25.86 ..............
Hours (28.080) x Wages x No. of Pharmacies.............. $34,155,573 $35,246,664 $36,353,604 $37,476,561 $38,615,706 $39,771,205 $40,943,228 $42,131,942 $43,337,517 $44,560,847 $392,592,847
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total (25%)......................................... $8,538,893 $8,811,666 $9,088,401 $9,369,140 $9,653,926 $9,942,801 $10,235,807 $10,532,986 $10,834,379 $11,140,212 $98,148,212
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total (50%)......................................... $17,077,787 $17,623,332 $18,176,802 $18,738,281 $19,307,853 $19,885,603 $20,471,614 $21,065,971 $21,668,759 $22,280,424 $196,296,424
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 49778]]

Health Plans and PBMs
We assume that if pharmacists and technicians realize productivity
savings as a result of the use of Version D.0, then conversely, health
plans and PBMs would realize commensurate savings though a reduction in
pharmacist and technician calls to customer service representatives at
health care plans and PBMs.
Using the previous assumptions, we again estimate the annual salary
of a typical plan/PBM customer service representative at $40,000, or
approximately $19.23 per hour. If pharmacists spend a total of 22.88
hours per year on the phone making third party payer inquiries, we
estimate that a customer service representative would spend the same
amount of time on the phone answering the pharmacists' third party
inquiries. At $19.23 an hour, that would equate to savings of $440 per
customer service representative. Additionally, if pharmacy technicians
each spend 28.08 hours each year on the phone making third party payer
inquiries, this would equate to $540 per customer service
representative, for a total savings of $980 per customer service
representative. If we apply a conservative benefit assumption of 25
percent, this would equate to productivity savings of $245 per customer
service representative.
We have no knowledge of the number of customer service
representatives employed by plans and PBMs, and therefore cannot draw
any quantitative conclusions from the above analysis. We assume that,
even taking a conservative approach by estimating the benefit at 25
percent as we did for the pharmacists and technicians, plans and PBMs
would greatly benefit from productivity savings among their customer
service representatives in avoided calls from pharmacists and
technicians regarding third party payer issues.
We also assume that if pharmacies are realizing savings through
avoided audits and returned payments, plans are also receiving a
commensurate benefit, but we have no data from industry to support this
assumption. We solicit industry and interested stakeholder comments on
these benefit assumptions.
With respect to benefits related to implementing Version 5010, we
described the benefits for all providers, including pharmacy providers,
in the assumptions section of this analysis (better standards and
decreased manual effort). We identified the largest benefits for
pharmacies in the content requirements in the 835 standard (required
fields versus situational or optional fields) and improvements in the
specificity of the business rules which will minimize multiple
interpretations of the guides. These enhancements will help to reduce
manual interventions needed to resolve transaction issues. For example,
Version 4010/4010A does not provide instructions for reconciling
payments. The new Front Matter section in Version 5010 explicitly
details how this information is to be reported in the summary section
of the remittance advice. Thus, benefits and savings would accrue
through better standards. For this savings calculation, we use the same
formula as for other provider cost savings--multiplying the savings
from reduced manual intervention by the number of claims and remittance
advice transactions that would be affected by the improvements. Savings
due to better standards (837 and 835) is estimated to be in the range
of $20 million to $27 million.

Table 23--Cost Savings for Pharmacies Due to Better Standards for Version 5010
[In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decrease in phone calls......................................... ...... ...... .77 .80 .83 .86 .90 .93 .97 1.01 ......
Time to process call--6 minutes................................. 0 0 $2 $2 $2 $2 $3 $3 $3 $3 $20
Cost per call--$.48/minute...................................... 0 0 $3 $3 $3 $3 $3 $4 $4 $4 $27
--------------------------------------------------------------------------------------------------------------------------------------------------------

Summary of Version D.0 and Version 5010 for Pharmacy Costs and Benefits
Costs would be incurred by pharmacy chains, independent pharmacies
and PBMs in the migration from Version 5.1 to Version D.0. Benefits
resulting from avoided audits and incorrect payments, and pharmacist
and pharmacy technician productivity savings would accrue to pharmacy
chains and independent pharmacies.

Table 24--Cost Benefit Summary for Pharmacies in Millions for Version
D.0 and Version 5010
------------------------------------------------------------------------
Minimum Maximum
------------------------------------------------------------------------
Costs (Chains and independents):
D.0 Pharmacy Chains Systems $18 $38
Implementation....................
D.0 Independent Pharmacies 540 1,080
Maintenance Fees..................
D.0 PBM Programming................ 8.6 10.6
5010 System Implementation......... 58 114
5010 Transition.................... 10 20
--------------------------------
Total Costs.................... 95.14 183.6
Benefits:
D.0 Pharmacist Productivity Savings 1,134 2,268
D.0 Pharmacy Technician 98 196
Productivity Savings..............
D.0 Avoided Audits and Accurate 190 380
Payments..........................
5010 Operational Savings--better 20 27
standards.........................
--------------------------------
Total Benefits................. 1,442 2,871
--------------------------------
Net Benefits................... 1,346 2,870
------------------------------------------------------------------------

[[Page 49779]]

3. Version 3.0

A. Introduction

All State Medicaid programs or their business associates that
conduct Medicaid pharmacy subrogation transactions for pharmacy claims
would be required to use the NCPDP Medicaid Subrogation Standard,
Version 3.0 when billing third party payers that may be legally
responsible for payment.
Based upon industry analysis and current usage, we have determined
that adopting a standard for the subrogation transaction would result
in one-time conversion costs for Medicaid State agencies, or their
business associates, as well as the third party payers of Medicaid
claims. This includes primarily pharmacy benefit managers (PBMs) and
claims processors as well as medical health plans that process their
claims in house. Some third party payers would incur system upgrade
costs directly and others would incur them in the form of a fee paid to
a contractor. We project that the accrued savings that would result
from the administrative simplification of adopting a HIPAA standard for
Medicaid pharmacy subrogation would be ongoing and offset any immediate
expenditures.

B. Current Medicaid Claims Processing Environment

Approximately 37 States are currently billing a major portion of
their Medicaid pharmacy subrogation claims electronically. At the time
of this impact analysis, 33 of the 37 States were using a contingency
fee contractor to bill their claims. This means that these States have
hired a contractor to seek reimbursement from third parties and the
contractor keeps a portion of the recoveries. The other four States
were billing electronically without the use of a contractor. The
remaining 14 States were billing primarily all of their Medicaid
pharmacy subrogation claims on paper.
It is important to note that since some payers currently require
the use of their own unique billing format, States and contractors with
electronic billing capability have found it necessary to bill a
substantial amount of subrogation claims on paper.
In addition, due to the current challenges of having to use various
formats to meet the needs of different payers, some States, on
occasion, recoup the subrogation monies directly from pharmacy
providers, and the providers are responsible for billing the payers.
The impact on pharmacy providers for implementing the NCPDP subrogation
format is discussed in section D of this proposed rule.

C. Impact Analysis on State Medicaid Programs

The current Version 2.0 for standard Medicaid pharmacy subrogation,
with some modifications to accommodate various third party payers, is
being widely used. Therefore, some of the costs referenced in this
impact analysis have already been absorbed.
The costs for States that currently bill electronically to upgrade
their systems to Version 3.0 for Medicaid subrogation transactions, and
to transition from paper Medicaid subrogation claims to electronic
Version 3.0, would be outweighed by the benefits accrued to States. The
following sections provide details to support this conclusion. We
invite public comments on this conclusion.
1. Impact on States That Use a Contingency Fee Contractor
For the 33 States that contract out their Medicaid pharmacy
subrogation billing processes, there would be no direct costs.
Contingency fee contractors generally keep a percentage, from 6 percent
to 15 percent, of the monies they recover from third parties. It is
expected that these contractors would absorb the upfront costs. If the
standard is adopted, we project that reimbursement to States would
increase proportionally to a projected increase in volume of electronic
claims, and as a result, the contractors would recover their cost on
the back-end, as they would be recouping additional contingency fees
based on the volumes.
Our estimates are based on the assumption that virtually all paper
subrogation claims would be converted to electronic transactions
because currently, some States only conduct subrogation on paper. With
the adoption of Version 3.0 as a HIPAA standard, all States (or their
contractors) will be required to utilize Version 3.0 when transmitting
Medicaid subrogation claims to plans or payers.
2. Impact on States Converting From Paper
The total costs and benefits to the Federal government and State
Medicaid programs are arrayed in Tables 24a and 24b at the end of this
section.
a. Cost of Development
The typical steps to be taken in the implementation of the Version
3.0 include:
Completing an analysis to identify gaps and weaknesses in
existing process.
Participating in internal meetings for project management
and control.
Completing documentation requirements necessary for
project management.
Providing translator training to development staff.
Completing new translator maps for both the outgoing NCPDP
claim and the returning NCPDP response files.
Completing legacy system changes to accommodate the NCPDP
transactions.
Completing acceptance testing.
Since States have already made the necessary investments in
developing electronic transaction capabilities to meet HIPAA mandates
and they anticipate upgrading their systems in order to adopt the NCPDP
D.0 standard for processing claims, we expect that additional
infrastructure costs would be relatively small. Costs would be
significantly reduced because the Medicaid subrogation standard Version
3.0 utilizes the data elements in, and operates in conjunction with,
the version D.0 claim standard.
We captured data from the State of Illinois, which recently adopted
Version 2.0 for pharmacy subrogation as a stand-alone systems upgrade.
The cost for development was estimated at $220,000 for staff and
mainframe systems. This figure does not include costs on the Local Area
Network (LAN) where the translator development and testing occurred, or
connectivity setup costs performed by another agency. Illinois is the
only state that has recently converted to Version 2.0 and was able to
provide cost data. Alabama is in the process of converting to Version
2.0, but its implementation is being done in conjunction with other
system upgrades, and the costs specific to Medicaid subrogation could
not be isolated.
Since we believe it is unlikely that a State would choose to use
the Medicaid pharmacy subrogation standard as a stand-alone upgrade,
but instead would implement it in conjunction with Version D.0, we
project the cost to be lower. Therefore, we would expect the cost of
adopting the Medicaid subrogation standard in conjunction with adopting
the Version D.0 to range from $50,000 to $150,000 per State. The State
would be responsible for 10 percent of the $50,000 to $150,000 per
State, and the Federal government would reimburse the State 90 percent
of the design, development, and installation costs related to changes
in their Medicaid Management Information Systems (MMIS).
Of the 14 States that bill paper, we project that seven would incur

[[Page 49780]]

development costs in order to conduct their own billing and the other
seven would hire a contingency fee contractor to conduct their billing.
However, since we have received a limited amount of data, we
solicit comments from States.
b. Costs of Adopting and Implementing Trading Partner Agreements (TPAs)
With Third Party Payers
Once a State has a system in place to process pharmacy claims using
the Medicaid subrogation standard, the State typically enters into
``Trading Partner Agreements'' with other payers in order to conduct
subrogation electronically. This involves--
Outreach activities.
Meetings to assure that the strategy developed will
accomplish a successful implementation.
Connectivity for file transfers and to mitigate the values
in various fields in outgoing NCPDP claim transactions and the
returning NCPDP response transaction.
Modifications to accommodate the needs in the translator
maps and legacy systems.
Acceptance testing and deployment scheduling.
According to the AHIP, there are four national PBMs that process
about 75 percent of all prescriptions dispensed annually, and there are
a small handful of specialized PBMs. Based on information provided by
States and business associates, we expect that approximately forty (40)
third party payers, primarily PBMs and claims processors as well as a
few large health plans that process claims in-house, would be affected.
Based on estimates from some at least two States (Illinois and
Alabama) that have recently, or are in the process of, billing
electronically, the cost to adopt and implement their first trading
partner agreements are estimated to range from $14,000 to $20,000. We
believe that as States and payers gain experience in negotiating these
agreements and the number of these agreements increases, the cost would
be significantly reduced. Therefore, we estimate the cost for a State
to establish and implement trading partner agreements with payers to
range from $5,000 to $15,000 for each trading partner agreement. It is
projected that each State would enter into a trading partner agreement
with an average of 15 payers. The anticipated costs per State would
range from $75,000 to $225,000. Since we believe that one half of the
14 States would hire a contractor, the costs for the other seven States
to adopt a trading partner agreement with 15 plans would range from
$525,000 to $1.6 million. The State would be responsible for 50 percent
of the cost since the Federal government reimburses States 50 percent
of their administrative costs, related to the proper and efficient
administration of the Medicaid program.
3. Impact on States That Bill Electronically (Without the Use of a
Contingency Fee Contractor)
a. Cost of Development
For the four States that are currently conducting pharmacy
subrogation transactions electronically, the changes would be minimal
and the cost impact would be much less than for the States that
currently bill paper to convert to Version 3.0.
b. Costs of Adopting and Implementing Trading Partner Agreements With
Third Party Payers
The cost to adopt and implement a trading partner agreement would
be the same: $5,000 to $15,000, for these States as it would be for the
States that are converting from paper to electronic billing. The only
difference is that these States would have already established trading
partner agreements with some payers and would be setting up trading
partner agreements with additional payers. We would estimate that these
four States would each establish trading partner agreements with an
additional 12 payers for a total cost ranging from $20,000 to $60,000.
4. Medicaid Savings
We have determined that the accrued savings to States would
outweigh the costs based on the fact that after implementation,
Medicaid agencies would no longer have to keep track of and use various
electronic formats for different payers. This would simplify their
billing systems and processes and reduce administrative expenses.
Based on our data, we estimate the total number of paper Medicaid
pharmacy subrogation claims to be between 2.5 and 3.4 million annually.
We are seeing a trend where States that have historically ``paid and
chased'' pharmacy claims are implementing cost avoidance systems. By
doing so, States are requiring pharmacy providers to bill third party
payers before billing Medicaid, thereby reducing the need for Medicaid
subrogation. We expect this trend to continue.
According to a study by Milliman in 2006, and referenced by the
American Medical Association (AMA) on their Web site, electronic claims
can save an average of $3.73 per clean claim filed. Based on this
study, the Medicaid program stands to save an estimated $12.7 million
annually once Version 3.0 is fully implemented, beginning in the third
year of implementation. For the third and fourth year when Version 3.0
is fully implemented, the administrative savings will be distributed
equally between the States and the Federal government. The total
savings over the 10 year period is estimated to be $17.6 million. After
the fourth year, savings will essentially cease as States transition to
routine use of the standard.
Rather than using the assumptions that the AHIP study referenced
earlier in this analysis for Version 5010, we use the study referenced
by the AMA because it identifies savings for the entity that generates
the claim, which, in the case of subrogation, is the Medicaid agency.
We believe that this $3.73 savings estimate represents the savings
potential of overhead, labor, and other indirect benefits applicable to
Medicaid. The AMA report referencing the study can be found at: http://www.ama-assn.org/ama/pub/category/18185.html. Select ``Follow the
Claim'' to be taken to the report. The study itself can be found at
http://transact.webmd.com/milliman_study.pdf.
The savings represents both State agencies and the Federal
government, as the Federal government would share 50 percent of any
administrative savings. We did not receive specific data from Medicaid
agencies on subrogation savings, and therefore welcome industry input
and data to validate or enhance these assumptions during the public
comment period.
In addition to the administrative savings, we anticipate that
Medicaid would realize programmatic savings resulting from an increase
in claims paid due to increased efficiency in electronic claims
processing using Version 3.0. We do not have sufficient data to
accurately project the actual savings; therefore, we solicit public
comments.
We do not anticipate a significant change in volume in subrogation
claims in future years. Even though the trend shows an increase in
prescriptions overall, States are becoming more efficient in avoiding
payment on the front-end which results in fewer subrogation claims on
the backend.

D. Impact on Medicaid Pharmacy Providers

In situations where Medicaid has been unable to successfully bill
third parties, due to the current challenges of having to use various
formats to meet the needs of different payers, States sometimes recoup
the subrogation monies from pharmacy providers and it

[[Page 49781]]

is left up to the providers to bill the appropriate third party payers.
Use of a standard format should enable States to bill third parties
successfully and therefore help to alleviate this administrative burden
on providers. We do not estimate this practice to be widespread and
therefore do not account for it in this impact analysis.

E. Impact on Third Party Payers (Includes Plan Sponsors, Pharmacy
Benefit Managers (PBMs), Prescription Drug Plans (PDPs) and Claims
Processors)

Insurers, employers and managed care plans are sometimes referred
to as plan sponsors. A majority of plan sponsors use a PBM to manage
prescription drug coverage and handle claims processing. Some plan
sponsors administer the prescription coverage in-house, but contract
with a claims processor just to handle claims adjudication. A few of
the larger plan sponsors perform their own claims processing. The total
costs and benefits to third party payers are arrayed in Table 25a and
Table 25b at the end of this section.
1. Impact on Plan Sponsors That Use a PBM or Claim Processor
As mentioned earlier, there are four PBMs that handle about 75
percent of all prescription orders dispensed annually in the United
States, and a handful of specialized PBMs. These PBMs have contracts
with hundreds of plan sponsors. We estimate that about 10 PBMs and
processors are already accepting the Version 2.0 subrogation standard
from States or their contractors.
For the majority of plan sponsors that contract out their claims
adjudication to PBMs or claims processors, the costs of implementing
Version 3.0 and establishing trading partner agreements would be
minimal. The PBMs and claims processors would likely absorb the upfront
cost and recover their expenses from their hundreds of plan sponsors on
the back-end. This could be done by charging a flat fee or by
increasing the amount of the transaction fees that are charged to plans
sponsors for processing Medicaid claims. These fees would be offset for
plan sponsors since they would no longer be paying higher fees for
processing paper claims.
2. Impact on Plan Sponsors That Do Not Use a PBM or Claim Processor
There may be a few large payers, primarily insurers and managed
care organizations that administer their own claims adjudication. These
payers would have already made the necessary investments in developing
electronic capabilities to meet HIPAA mandates. We anticipate that the
payers would upgrade their systems in order to adopt the Version D.0
for processing claims from providers. Version 3.0 utilizes a number of
the data elements found in Version D.0. Therefore, we expect that
additional infrastructure costs would be relatively small.
a. Costs of Development
We estimate the development costs to individual payers that would
need to implement Version 3.0 for the Medicaid pharmacy subrogation
standard, Version 3.0 to be similar to the cost for State Medicaid
programs which would be in the $50,000 to $150,000 range. We estimate
that there are about 20 payers that do not contract with a PBM and they
would need to upgrade their systems at a total cost of $1 to $3
million. However, since we do not have sufficient data to accurately
project actual costs, we solicit comments from third party payers.
b. Costs of Adopting and Implementing Trading Partner Agreements With
States
We estimate the plan sponsor's costs of adopting and implementing a
trading partner agreement with a State would be similar to the cost
estimated for State Medicaid programs, which would range from $5,000 to
$15,000 per agreement.
We anticipate that approximately 40 States would utilize a
contingency fee contractor, therefore, the process for setting up
trading partner agreements with a contractor versus 40 individual
States would be streamlined and much less costly. We estimate the cost
per plan sponsor for establishing agreements to include all of the
States to range from $60,000 to $180,000. However, since we do not have
sufficient data, we solicit comments from plan sponsors.
In addition to the administrative costs, we anticipate that the
increased efficiency in claims processing would result in payers paying
out more for Medicaid subrogation claims that would have otherwise been
denied. We do not have sufficient data to estimate the potential costs.
We invite public comments on the costs for the increase in Medicaid
subrogation adjudicated claims.
3. Savings Impact
Savings from the application of electronically conducting
subrogation may vary, but even small savings per claim can have a large
impact on administrative costs when dealing with large claim volumes.
According to a survey conducted by AHIP in May 2006, electronic
claims are roughly half the cost of paper claims. The average cost of
processing a clean electronic claim was 85 cents, nearly half the $1.58
cost of processing a clean paper claim. Pended claims requiring manual
or other review cost $2.05 on average per claim to process.
We do not have data for the States to distinguish the proportion of
clean claims versus those that require manual review. Using the
assumption that 50 percent of claims require manual review, the savings
of converting 3.4 million paper claims to electronic transmission would
be $3.3 million. Use of the standard would provide a source of ongoing
savings for the industry.
We do not anticipate a significant change in volume in subrogation
claims in future years. Even though the trend shows an increase in
prescriptions overall, States are becoming more efficient in avoiding
payment on the front end which results in fewer subrogation claims on
the backend. The following tables (Table 25a/b and 26a/b) show the
estimated State, Federal and payer costs and benefits for implementing
Version 3.0.

[[Page 49782]]

Table 25a--Estimated State and Federal Costs in Millions--for Years 2010-2019 for Implementation of Version 3.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Cost type Government plans 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Development.................................... Federal--Minimum................. $.158 $.158 0 0 0 0 0 0 0 0 $.316
Federal--Maximum................. .472 .472 0 0 0 0 0 0 0 0 .944
State--Minimum................... .018 .018 0 0 0 0 0 0 0 0 .036
State--Maximum................... .052 .052 0 0 0 0 0 0 0 0 .104
Trading Partner Agreements..................... Federal--Minimum................. .191 .191 0 0 0 0 0 0 0 0 .382
Federal--Maximum................. .580 .580 0 0 0 0 0 0 0 0 1.160
State--Minimum................... .191 .191 0 0 0 0 0 0 0 0 .382
State--Maximum................... .580 .580 0 0 0 0 0 0 0 0 1.160
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Table 25b--Estimated State and Federal Benefits--in millions--for Years 2010-2019 for Implementation of Version 3.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Benefit type Government plans 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
General Benefit............................... Federal--Minimum................. $1.16 $2.33 $4.7 $4.7 $0 $0 $0 $0 $0 $0 $12.9
Federal--Maximum................. 1.59 3.17 6.4 6.4 0 0 0 0 0 0 17.59
State--Minimum................... 1.16 2.33 4.7 4.7 0 0 0 0 0 0 12.9
State--Maximum................... 1.59 3.17 6.4 6.4 0 0 0 0 0 0 17.59
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Table 26a--Estimated Payer Costs--in Millions--for Years 2010-2019--for Implementation of Version 3.0
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Costs:
Development.............................. Payer--Minimum.................. $.500 $.500 $0 $0 $0 $0 $0 $0 $0 $0 $1
Payer--Maximum.................. 1.5 1.5 0 0 0 0 0 0 0 0 3
Trading Partner Agreements............... Payer--Minimum.................. 1.2 1.2 0 0 0 0 0 0 0 0 2.4
Payer--Maximum.................. 3.6 3.6 0 0 0 0 0 0 0 0 7.2
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

[[Page 49783]]

Table 26b--Estimated Payer Benefits--in Millions--for Years 2010-2019--From Implementation of Version 3.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
General Savings 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Payer--Minimum................................... $.600 $1.24 $2.475 $2.475 $0 $0 $0 $0 $0 $0 $6.79
Payer--Maximum................................... .800 1.65 3.3 3.3 0 0 0 0 0 0 9.05
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Alternatives Considered

We considered a number of alternatives for each of the proposals
and eliminated each of them in favor of the recommendations in this
proposed rule.
For each of the three sections of this proposed rule, one
alternative considered was to make no changes to the status quo. That
would mean that the current versions of X12N (Version 4010/4010A) and
NCPDP (Version 5.1) would continue to be the adopted standards for
HIPAA transactions, and that a standard would not be adopted for
Medicaid subrogation transactions. In each case we rejected this
alternative because such a decision would not only continue to hamper
adoption of EDI for all covered entities, it would potentially preclude
the industry from implementing the ICD-10 code set for the HIPAA
administrative transactions. We note that Version 4010/4010A cannot
accommodate ICD-10 codes, while Version 5010 can. Keeping version 4010/
4010A as the standard would result in impeding the expansion of EDI.
Moreover, if we continue to use Version 4010/4010A, the industry
would continue to use a number of workarounds to be able to use the
standards and would continue the reliance on companion guides, which is
counter to the concept of standardization. The NCPDP testified to the
NCVHS in July 2007 that adopting Version 5010 is a cost-saving measure
that would improve the efficiency of those already using Version 4010/
4010A, and encourage others to adopt and use more of the standards.
For Version D.0, we considered not adopting this modification and
leaving intact the requirement to use Version 5.1. However, we rejected
this alternative because we believe Version 5.1 has become outdated and
is not efficient or effective in processing Medicare Part D
prescription drug benefit program claims. We also considered waiting to
adopt Version D.0 at a later date, but felt it was important to advance
the use of Version D.0 to encourage standards adoption by the industry
and enable the industry to reap the improved benefits of the standard
as soon as possible.
For Medicaid subrogation transactions, we considered allowing the
industry to continue using the proprietary formats currently in use.
However, this would not have the desired effect of increasing the use
of EDI, or of moving the industry towards a uniform standard.
With respect to the proposed adoption of the Version 3.0 Medicaid
subrogation standard, we considered the following alternatives:
Not adopt Version 3.0 and permit the industry to continue
using Version 2.0 proprietary electronic and paper formats. This would
require the Medicaid agencies to support multiple formats in order to
bill pharmacy claims to third party payers. The current multiplicity of
claim formats creates a significant barrier to Medicaid agencies being
able to comply with Federal law in ensuring that Medicaid is the payer
of last resort. Using the Version 2.0 standard would require a number
of workarounds to be compatible with version D.0 or other NCPDP claim
standards except for Version 5.1.
The NCPDP testified to the NCVHS in January 2008 that
adopting Version 3.0 for Medicaid subrogation is a cost-saving tool and
would improve the efficiency of those already using Version 2.0. It
also would make it more feasible for other states and payers to invest
in system upgrades to accommodate one specific standard. The NCVHS did
not recommend any viable alternatives to Version 3.0 for handling
Medicaid subrogation transactions because they purported that Version
3.0 adequately addresses the business need for Medicaid agencies and
industry partners.
Summary of Costs and Benefits for This Proposed Rule
The final tables, 27a and 27b, are the compilation of the minimum
and maximum costs and benefits for all of the standards being proposed
in this NPRM.
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BILLING CODE 4120-01-C

E. Accounting Statement and Table

Whenever a rule is considered a significant rule under Executive
Order 12866, we are required to develop an Accounting Statement. This
statement must state that we have prepared an accounting statement
showing the classification of the expenditures associated with the
provisions of this proposed rule. Monetary annualized Benefits and non-
budgetary costs are presented as discounted flows using three percent
and seven percent factors.

Table 28--Accounting Statement
[Accounting Statement: Classification of Estimated Expenditures, from FY 2010 to FY 2019 (in millions)]
----------------------------------------------------------------------------------------------------------------
Source citation
Category Primary estimate Minimum estimate Maximum estimate (RIA, preamble,
(millions) (millions) (millions) etc.)
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Annualized Monetized benefits:
7% Discount................. $2,930............ $1,647............ $4,214............ RIA.
3% Discount................. $3,151............ $1,769............ $4,532............ RIA.
Qualitative (un-quantified) Wider adoption of
benefits. standards due to
decrease in use
of companion
guides; increased
productivity due
to decrease in
manual
intervention
requirements.
----------------------------------------------------------------------------------------------------------------
Benefits generated from plans to providers and pharmacies, providers to plans and pharmacies, and pharmacies to
beneficiaries.
----------------------------------------------------------------------------------------------------------------
Costs
----------------------------------------------------------------------------------------------------------------
Annualized Monetized costs:
7% Discount................. $1,073............ $718.............. $1,428............ RIA.
3% Discount................. $942.............. $630.............. $1,254............ RIA.
Qualitative (un-quantified) None.............. None.............. None. ..................
costs.
----------------------------------------------------------------------------------------------------------------
Cost will be paid by health plans to contractors, programming consultants, IT staff and other outsourced
entities; providers will pay costs to software vendors, trainers and other consultants. Clearinghouses will pay
costs to IT staff/contractors and software developers; pharmacies will pay costs to contractors, software
vendors and trainers, and government plans will pay costs to consultants, vendors and staff.
----------------------------------------------------------------------------------------------------------------
Transfers
----------------------------------------------------------------------------------------------------------------
Annualized monetized transfers: N/A............... N/A............... N/A. ..................
``on budget''.
From whom to whom?.............. N/A............... N/A............... N/A. ..................
Annualized monetized transfers: N/A............... N/A............... N/A. ..................
``off-budget''.
From whom to whom?.............. N/A............... N/A............... N/A. ..................
----------------------------------------------------------------------------------------------------------------

[[Page 49790]]

In accordance with the provisions of Executive Order 12866, as
amended, this regulation was reviewed by the Office of Management and
Budget.

List of Subjects in 45 CFR Part 162

Administrative practice and procedure, Electronic transactions,
Health facilities, Health insurance, Hospitals, Incorporation by
reference, Medicare, Medicaid, Reporting and recordkeeping
requirements.

For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR subtitle A, subchapter C as
set forth below:

PART 162--ADMINISTRATIVE REQUIREMENTS

1. The authority citation for part 162 continues to read as
follows:

Authority: Secs. 1171 through 1179 of the Social Security Act
(42 U.S.C. 1320d-1320d-8), as added by sec. 262 of Public Law 104-
191, 110 Stat. 2021-2031, and sec. 264 of Public Law 104-191, 110
Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)).

Subpart I--General Provision for Transactions

2. Revise Sec. 162.900 to read as follows:

Sec. 162.900 Compliance dates for transaction standards and code
sets.

(a) Small health plans. (1) All small health plans must comply with
the applicable requirements of Subparts I through R of this part no
later than October 16, 2003.
(2) All small health plans must comply with the applicable
requirements of Subpart S of this part no later than [date 36 months
after the effective date of the final rule].
(b) Covered entities other than small health plans.
(1) All covered entities other than small health plans must comply
with the applicable requirements of Subparts I through R of this part
no later than October 16, 2003.
(2) All covered entities other than small health plans must comply
with the applicable requirements of Subpart S of this part no later
than [date 24 months after the effective date of the final rule].
3. Amend Sec. 162.920 as follows:
A. Revise the introductory text and paragraph (a) introductory
text.
B. Add paragraphs (a)(10) through (a)(18).
C. Revise paragraph (b) introductory text.
D. Add paragraphs (b)(4) through (b)(6).
The revisions and additions read as follows:

Sec. 162.920 Availability of implementation specifications.

A person or an organization may directly request copies of the
implementation specifications and the Technical Reports Type 3
described in subparts I through S of this part from the publishers
listed in this section. The Director of the Federal Register approves
the implementation specifications, which include the Technical Reports
Type 3 described in this section for incorporation by reference in
subparts I through S of this part in accordance with 5 U.S.C. 552(a)
and 1 CFR part 51. The implementation specifications and Technical
Reports Type 3 described in this section are also available for
inspection by the public at the Centers for Medicare & Medicaid
Services, 7500 Security Boulevard, Baltimore, Maryland 21244 or at the
National Archives and Records Administration (NARA). For information on
the availability of this material at NARA, call 202-714-6030, or go to:
http://www.archives.gov/federal_register/code_of_federal_regulations/i br_locations.html.
(a) ASC X12N specifications and the ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3. The implementation
specifications for the ASC X12N and the ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3 (and accompanying
Type 1 Errata) may be obtained from the Washington Publishing Company,
747 177th Lane, NE., Bellevue, WA, 98008; Telephone (425) 562-2245; and
FAX (775) 239-2061. They are also available through the Internet at
http://www.wpc-edi.com/. All ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3 adopted for use under HIPAA and any
corresponding addenda are available in three configurations:
downloadable PDFs, PDFs shipped on CD, and bound books. A fee is
charged for all implementation specifications, including Technical
Reports. Charging for such publications is consistent with the policies
of other publishers of standards. The transaction implementation
specifications are as follows:
* * * * *
(10) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim: Dental (837), May 2006,
Washington Publishing Company, 005010X224, and Type 1 Errata to Health
Care Claim: Dental (837), ASC X12 Standards for Electronic Date
Interchange Technical Report Type 3, October 2007, Washington
Publishing Company, 005010X224A1, as referenced in Sec. 162.1102 and
Sec. 162.1802.
(11) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim: Professional (837), May
2006, Washington Publishing Company, 005010X222, as referenced in Sec.
162.1102 and Sec. 162.1802.
(12) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim: Institutional (837), May
2006, Washington Publishing Company, 005010X223, and Type 1 Errata to
Health Care Claim: Institutional (837), ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3, October 2007,
Washington Publishing Company, 005010X223A1, as referenced in Sec.
162.1102 and Sec. 162.1802.
(13) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim Payment/Advice (835), April
2006, Washington Publishing Company, 005010X221, as referenced in Sec.
162.1602.
(14) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Benefit Enrollment and Maintenance (834),
August 2006, Washington Publishing Company, 005010X220, as referenced
in Sec. 162.1502.
(15) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Payroll Deducted and Other Group Premium
Payment for Insurance Products (820), February 2007, Washington
Publishing Company, 005010X218, as referenced in Sec. 162.1702.
(16) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Services Review--Request for
Review and Response (278), May 2006, Washington Publishing Company,
005010X217, and Type 1 Errata to Health Care Services Review--Request
for Review and Response (278), ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3, April 2008, Washington Publishing
Company, 005010X217E1, as referenced in Sec. 162.1302.
(17) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim Status Request and Response
(276/277), August 2006, Washington Publishing Company, 005010X212, and
Type 1 Errata to Health Care Claim Status Request and Response (276/
277), ASC X12 Standards for Electronic Data Interchange Technical
Report Type 3, April 2008, Washington Publishing Company
(005010X212E1), as referenced in Sec. 162.1402.

[[Page 49791]]

(18) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Eligibility Benefit Inquiry and
Response (270/271), April 2008, Washington Publishing Company,
005010X279, as referenced in Sec. 162.1202.
(b) Retail pharmacy specifications and Medicaid subrogation
implementation guides. The implementation specifications for the retail
pharmacy standards and the implementation specifications for the batch
standard for Medicaid subrogation transactions may be obtained from the
National Council for Prescription Drug Programs, 9240 East Raintree
Drive, Scottsdale, AZ 85260. Telephone (480) 477-1000; FAX (480) 767-
1042. They are also available through the internet at http://www.ncpdp.org. A fee is charged for all NCPDP Implementation Guides.
Charging for such publications is consistent with the policies of other
publishers of standards. The transaction implementation specifications
are as follows:
* * * * *
(4) The Telecommunication Standard Implementation Guide Version D,
Release 0 (Version D.0), August 2007, National Council for Prescription
Drug Programs, as referenced in Sec. 162.1102, Sec. 162.1202, Sec.
162.1302, and Sec. 162.1802.
(5) The Batch Standard Implementation Guide, Version 1, Release 2
(Version 1.2), January 2006, National Council for Prescription Drug
Programs, as referenced in Sec. 162.1102, Sec. 162.1202, Sec.
162.1302, and Sec. 162.1802.
(6) The Batch Standard Medicaid Subrogation Implementation Guide,
Version 3, Release 0 (Version 3.0), July 2007, National Council for
Prescription Drug Programs, as referenced in Sec. 162.1902.
4. Revise Sec. 162.923 paragraph (a) to read as follows:

Sec. 162.923 Requirements for covered entities.

(a) General rule. Except as otherwise provided in this part, if a
covered entity conducts with another covered entity that is required to
comply with a transaction standard adopted under this part (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.
* * * * *

Subpart K--Health Care Claims or Equivalent Encounter Information

5. Section 162.1102 is amended as follows:
A. Revise the introductory text to paragraph (b).
B. Add a new paragraph (c).
The revisions and additions read as follows:

Sec. 162.1102 Standards for health care claims or equivalent
encounter information transaction.

* * * * *
(b) For the period from October 16, 2003 through March 31, 2010:
* * * * *
(c) For the period on and after April 1, 2010:
(1) Retail pharmacy drug claims. The Telecommunication Standard
Implementation Guide Version D, Release 0 (Version D.0), August 2007
and equivalent Batch Standard Implementation Guide, Version 1, Release
2 (Version 1.2), National Council for Prescription Drug Programs.
(Incorporated by reference in Sec. 162.920).
(2) Dental health care claims. The ASC X12 Standards for Electronic
Data Interchange Technical Report Type 3--Health Care Claim: Dental
(837), May 2006, Washington Publishing Company, 005010X224, and Type 1
Errata to Health Care Claim: Dental (837) ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3, October 2007,
Washington Publishing Company, 005010X224A1. (Incorporated by reference
in Sec. 162.920).
(3) Professional health care claims. The ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3--Health Care Claim:
Professional (837), May 2006, Washington Publishing Company,
005010X222. (Incorporated by reference in Sec. 162.920).
(4) Institutional health care claims. The ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3--Health Care Claim:
Institutional (837), May 2006, Washington Publishing Company,
005010X223, and Type 1 Errata to Health Care Claim: Institutional (837)
ASC X12 Standards for Electronic Data Interchange Technical Report Type
3, October 2007, Washington Publishing Company, 005010X223A1.
(Incorporated by reference in Sec. 162.920).
(5) Retail pharmacy supplies and professional services claims. (i)
The Telecommunication Standard Implementation Guide Version D, Release
0 (Version D.0), August 2007, and equivalent Batch Standard
Implementation Guide, Version 1, Release 2 (Version 1.2), National
Council for Prescription Drug Programs (Incorporated by reference in
Sec. 162.920); and
(ii) The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Claim: Professional (837), May
2006, Washington Publishing Company, 005010X222. (Incorporated by
reference in Sec. 162.920).

Subpart L--Eligibility for a Health Plan

6. Section 162.1202 is amended by--
A. Revising the introductory text to paragraph (b).
B. Adding a new paragraph (c).
The revisions and additions read as follows:

Sec. 162.1202 Standards for eligibility for a health plan
transaction.

* * * * *
(b) For the period from October 16, 2003 through March 31, 2010:
* * * * *
(c) For the period on and after April 1, 2010:
(1) Retail pharmacy drugs. The Telecommunication Standard
Implementation Guide Version D, Release 0 (Version D.0), August 2007,
and equivalent Batch Standard Implementation Guide, Version 1, Release
2 (Version 1.2), National Council for Prescription Drug Programs.
(Incorporated by reference in Sec. 162.920).
(2) Dental, professional, and institutional health care eligibility
benefit inquiry and response. The ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3--Health Care Eligibility Benefit
Inquiry and Response (270/271), April 2008, Washington Publishing
Company, 005010X279. (Incorporated by reference in Sec. 162.920).

Subpart M--Referral Certification and Authorization

7. Revise Sec. 162.1301 to read as follows:

Sec. 162.1301 Referral certification and authorization transaction.

The referral certification and authorization transaction is any of
the following transmissions:
(a) A request from a health care provider to a health plan for the
review of health care to obtain an authorization for the health care.
(b) A request from a health care provider to a health plan to
obtain authorization for referring an individual to another health care
provider.
(c) A response from a health plan to a health care provider to a
request described in paragraph (a) or paragraph (b) of this section.
8. Section 162.1302 is amended by--
A. Revising the introductory text to paragraph (b).
B. Adding a new paragraph (c).

[[Page 49792]]

The revisions and additions read as follows:

Sec. 162.1302 Standards for referral certification and authorization
transaction.

* * * * *
(b) For the period from October 16, 2003 through March 31, 2010:
* * * * *
(c) For the period on and after April 1, 2010:
(1) Retail pharmacy drugs. The Telecommunication Standard
Implementation Guide Version D, Release 0 (Version D.0), August 2007,
and equivalent Batch Standard Implementation Guide, Version 1, Release
2 (Version 1.2), National Council for Prescription Drug Programs
(Incorporated by reference in Sec. 162.920).
(2) Dental, professional, and institutional request for review and
response. The ASC X12 Standards for Electronic Data Interchange
Technical Report Type 3--Health Care Services Review--Request for
Review and Response (278), May 2006, Washington Publishing Company
(005010X217), and Type 1 Errata to Health Care Services Review--Request
for Review and Response (278), ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3, April 2008, Washington Publishing
Company, 005010X217E1. (Incorporated by reference in Sec. 162.920).

Subpart N--Health Care Claim Status

9. Revise Sec. 162.1401 to read as follows:

Sec. 162.1401 Health care claim status transaction.

The health care claim status transaction is the transmission of
either of the following:
(a) An inquiry from a health care provider to a health plan to
determine the status of a health care claim.
(b) A response from a health plan to a health care provider about
the status of a health care claim.
10. Section 162.1402 is amended by--
A. Removing ``on and after October 16, 2003'' and adding in its
place ``from October 16, 2003 through March 31, 2010'' in the
introductory text in paragraph (b).
B. Adding a new paragraph (c).
The additions read as follows:

Sec. 162.1402 Standards for health care claim status transaction.

* * * * *
(c) For the period on and after April 1, 2010: The ASC X12
Standards for Electronic Data Interchange Technical Report Type 3--
Health Care Claim Status Request and Response (276/277), August 2006,
Washington Publishing Company, 005010X212, and Type 1 Errata to Health
Care Claim Status Request and Response (276/277), ASC X12 Standards for
Electronic Data Interchange Technical Report Type 3, April 2008,
Washington Publishing Company, 005010X212E1. (Incorporated by reference
in Sec. 162.920).

Subpart O--Enrollment and Disenrollment in a Health Plan

11. Revise Sec. 162.1501 to read as follows:

Sec. 162.1501 Enrollment and disenrollment in a health plan
transaction.

The enrollment and disenrollment in a health plan transaction is
the transmission of subscriber enrollment information from the sponsor
of the insurance coverage, benefits, or policy, to a health plan to
establish or terminate insurance coverage.
12. Section 162.1502 is amended by--
A. Removing ``on and after October 16, 2003'' and adding in its
place ``from October 16, 2003 through March 31, 2010'' in the
introductory text of paragraph (b).
B. Adding a new paragraph (c).
The additions read as follows:

Sec. 162.1502 Standards for enrollment and disenrollment in a health
plan transaction.

* * * * *
(c) For the period on and after April 1, 2010: The ASC X12
Standards for Electronic Data Interchange Technical Report Type 3--
Benefit Enrollment and Maintenance (834), August 2006, Washington
Publishing Company, 005010X220 (Incorporated by reference in Sec.
162.920).

Subpart P--Health Care Payment and Remittance Advice

13. Section 162.1602 is amended by--
A. Removing ``on and after October 16, 2003'' and adding in its
place ``from October 16, 2003 through March 31, 2010'' in the
introductory text of paragraph (b).
B. Adding a new paragraph (c).
The additions read as follows:

Sec. 162.1602 Standards for health care payment and remittance advice
transaction.

* * * * *
(c) For the period on and after April 1, 2010: The ASC X12
Standards for Electronic Data Interchange Technical Report Type 3--
Health Care Claim Payment/Advice (835), April 2006, Washington
Publishing Company, 005010X221. (Incorporated by reference in Sec.
162.920).

Subpart Q--Health Plan Premium Payments

14. Section 162.1702 is amended by--
A. Removing ``on and after October 16, 2003'' and adding in its
place ``from October 16, 2003 through March 31, 2010'' in the
introductory text of paragraph (b).
B. Adding a new paragraph (c).
The additions read as follows:

Sec. 162.1702 Standards for health plan premium payments transaction.

* * * * *
(c) For the period on and after April 1, 2010: The ASC X12
Standards for Electronic Data Interchange Technical Report Type 3--
Payroll Deducted and Other Group Premium Payment for Insurance Products
(820), February 2007, Washington Publishing Company, 005010X218.
(Incorporated by reference in Sec. 162.920).

Subpart R--Coordination of Benefits

15. Section 162.1802 is amended by--
A. Revising the introductory text of paragraph (b).
B. Adding a new paragraph (c).
The revisions and additions read as follows:

Sec. 162.1802 Standards for coordination of benefits information
transaction.

[[Page 49793]]

(4) The ASC X12 Standards for Electronic Data Interchange Technical
Report Type 3--Health Care Claim: Institutional (837), May 2006,
Washington Publishing Company, 005010X223, and Type 1 Errata to Health
Care Claim: Institutional (837), ASC X12 Standards for Electronic Data
Interchange Technical Report Type 3, October 2007, Washington
Publishing Company, 005010X223A1. (Incorporated by reference in Sec.
162.920).
16. Add a new Subpart S to read as follows:
Subpart S--Medicaid Pharmacy Subrogation
Sec.
162.1901 Medicaid pharmacy subrogation transaction.
162.1902 Standard for Medicaid pharmacy subrogation.

Sec. 162.1901 Medicaid pharmacy subrogation transaction.

The Medicaid pharmacy subrogation transaction is the transmission
of a claim from a Medicaid agency to a payer for the purpose of seeking
reimbursement from the responsible health plan for a pharmacy claim the
State has paid on behalf of a Medicaid recipient.

Sec. 162.1902 Standard for Medicaid pharmacy subrogation.

The Secretary adopts the Batch Standard Medicaid Subrogation
Implementation Guide, Version 3, Release 0 (Version 3.0), July 2007,
National Council for Prescription Drug Programs, as referenced in Sec.
162.1902. (Incorporated by reference at Sec. 162.920).

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical
Assistance Program)

(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

Dated: April 23, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: May 14, 2008.
Michael O. Leavitt,
Secretary.

Editorial Note: This document was received at the Office of the
Federal Register on August 15, 2008.
[FR Doc. E8-19296 Filed 8-15-08; 3:55 pm]
BILLING CODE 4120-01-P