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The Clock is Ticking

May 1, 1998
by Lindsay Smith
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When President Clinton signed the Health Insurance Portability and Accountability Act (HIPAA) into law on Aug. 21, 1996, he started the clock on several timetables, agendas and initiatives, within both the federal government and the private healthcare sector. Not all of them are running on time.

Of primary concern to healthcare’s managed care and payor communities are the electronic data interchange (EDI) standards included in the administrative simplification section of HIPAA.

Under this law, Donna Shalala, secretary of the Department of Health and Human Services (HHS) is required to adopt standards for electronic claims transactions by Feb. 21. As this issue goes to press, the department is behind schedule. The good news, according to informed insiders, is that the standards will be worth the wait.

EDI and clearinghouse benefits
The administrative simplification section of HIPAA is intended to reduce the costs and administrative burdens of healthcare by enabling the standardized, electronic transmission of certain administrative and financial transactions currently processed on paper.

According to J. Michael Fitzmaurice, PhD, director of the Center for Information Technology at the Agency for Health Care Policy and Research, Rockville, Md., simplifying the administrative processes will reduce the hassles of paperwork, claims and enrollment that often burden payors.

"Providers will get paid with fewer hassles because the payors will have to accept the claims in [Shalala’s] standard form," Fitzmaurice says. "Providers can still raise questions about whether it is a reasonable and necessary service for the patient, but they can’t say the claim is not in the right format. If it’s in the secretary’s format, they have to accept it and process it."

Another benefit to administrative simplification is the possibility of building the standardized claim forms into physicians’ billing systems within their offices. "The physician will no longer have to pay a separate billing service to take the paper and turn it into an electronic claim," Fitzmaurice says. "The billing clerk could enter the information in the computer and the computer could turn it into [Shalala’s] format. It has the potential for reducing system costs for providers who submit claims."

Although there will be some upfront costs involved in changing software, Fitzmaurice insists that the long-term payoffs will be positive. "The industry estimates savings in the billions of dollars and the government agrees. It’s a case of the private sector working with the government to get what it wants."

So there’s good news for health plans and payors that can implement these new standards. But for those groups that can’t supply these standard electronic transactions on schedule, there is another option.

Health plans and payors unable to meet the standards on schedule may comply by contracting with an outside clearinghouse to conduct these transactions.

Susan Novacoski, healthcare electronic commerce consultant for EDS in Plano, Texas, says that clearinghouses will be uniquely positioned with the advent of the HIPAA legislation. Clearinghouses must meet the standards for electronic claims transmission, but payors simply need to be able to work with the electronic claims. "Noncompliant standards can go to the clearinghouse, then get translated," Novacoski says. "The law mandates that all payor organizations have the ability to accept electronic transactions. There’s a great business opportunity for clearinghouses."

Whether a clearinghouse is used or not, healthcare organizations will have two years to implement the standards once Shalala adopts them. If these requirements are not met, healthcare organizations will face penalties of $100 per violation--up to a maximum of $25,000 per standard per year.

"The penalties aren’t very large," Fitzmaurice says. "The purpose isn’t to drive the industry into the standards, but to let them know that [the government is] serious and to try to encourage them to adopt the standards."

He continues: "The burden is on HHS and the people working on these standards to get industry acceptance. If we don’t do things to make it easier for the industry, then we haven’t done the job."

Not an easy process
The primary delay in standards implementation is publication of the Notices of Proposed Rule Making for administrative simplification. As officials from the Department of Human Services point out on their Web site (, "The goal is simplification, but the process is far from simple."

Indeed, the process is deliberate, designed to achieve consensus within the department and among other federal departments. The three-stage process requires that the Notices of Proposed Rule Making must be reviewed and approved by the HHS Data Council’s Committee on Health Data Standards, advisors to Shalala and the Office of Management and Budget. After clearing those hurdles, the notices can be published in the Federal Register for a 60-day public comment period.

"The original plan was to have these NPRMs published by the end of 1997," explains Kathleen Frawley, vice president of Legislative and Public Policy Services for the American Health Information Management Association, Washington, D.C. "The deadline was February for the secretary to publish the final rules. That timeline was relaxed in order to provide an opportunity for the industry to comment."

Standards Shalala will adopt apply to the entire healthcare industry--not just Medicare and Medicaid. All health plans, payors and clearinghouses that process health data must comply.