DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
 
Center for Medicaid and CHIP Services 
 
 
DATE:    March 21, 2012 
  
FROM:   Cindy Mann, Director  
                 Center for Medicaid and CHIP Services (CMCS)  
 
SUBJECT:  Section 1104 of the Affordable Care Act 
 
This bulletin is one of a series intended to provide guidance on the implementation of the Patient 
Protection and Affordable Care Act (P.L. 111-148), as amended by the Health Care and 
Education Reconciliation Act of 2010 (P.L. 111-152), together referred to as the Affordable Care 
Act.  This letter provides guidance on section 1104 of the Affordable Care Act pertaining to the 
Health Insurance Portability and Accountability Act of 1996 (P.L. 104-191) (HIPAA) 
Administrative Simplification.  Specifically, the bulletin describes standards for the adoption of 
operating rules for eligibility for a health plan and health care claim status transactions.  
 
By implementing these requirements, States will improve the automation of health care 
administrative processes and benefit from reduced transaction costs (e.g., reduced time and effort 
related to contacting physicians and health plans for resolution of claims, denial of claims, and 
additional postage and paperwork costs).  
 
Background 
 
Congress addressed the need for a consistent framework for electronic health care transactions 
and other Administrative Simplification issues through HIPAA, enacted on August 21, 1996.  
HIPAA amended the Social Security Act (the Act) by adding Part C, Administrative 
Simplification, to Title XI of the Act, and required the Secretary of the Department of Health and 
Human Services (HHS) to adopt standards for certain transactions to enable health information 
to be exchanged electronically, and to achieve greater uniformity in the transmission of health 
information.  Electronic data interchange enables providers and payers to process financial and 
administrative transactions faster and at a lower cost than paper transactions.   
 
The National Committee on Vital and Health Statistics (NCVHS), established by Congress to 
serve as an advisory body to HHS on health data, statistics, and national health information 
policy, was assigned a significant role in the Secretarys adoption of operating rules under 
section 1173(g)(3) of the Act, as amended by section 1104(b)(3)(C) of the Affordable Care Act.  
Section 1173(a)(4)(A) of the Act (as added by section 1104(b)(2) of the Affordable Care Act) 
requires that the standards and associated operating rules adopted by the Secretary shall: 
 
i.  To the extent feasible and appropriate, enable determination of an individuals eligibility 
and financial responsibility for specific services prior to or at the point of care; 
 
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  ii.  Be comprehensive, requiring minimal augmentation by paper or other communications; 
iii.  Provide for timely acknowledgement, response, and status reporting that supports a 
transparent claims and denial management process (including adjudication and appeals); 
and  
iv.  Describe all data elements (including reason and remark codes) in unambiguous terms, 
require that such data elements be required or conditioned upon set values in other fields, 
and prohibit additional conditions (except where necessary to implement State or Federal 
law, or to protect against fraud and abuse).  
 
On July 8, 2011, HHS published an Interim Final Rule with Comment (IFC) to adopt operating 
rules to support the adopted standard transactions for the eligibility for a health plan and health 
care claim status transactions effective January 1, 2013 (76 FR 40458).  This rule implements 
section 1173(g) of the Act, as amended by section 1104(b)(2) of the Affordable Care Act.  This 
IFC and these operating rules are expected to assist providers in receiving more robust and 
complete responses to their inquiries for eligibility and claim status information.   For 
convenience, the IFC can be reviewed at http://edocket.access.gpo.gov/2011/pdf/2011-
16834.pdf.    Frequently Asked Questions can be viewed on CMS Web site at 
https://questions.cms.hhs.gov/app/answers/list/kw/operating%20rules/search1  
 
HHS has adopted operating rules for the eligibility and claim status transactions which require 
health plans, including Medicaid plans, to: 
  Use standardized companion guide templates for the format of these guides; 
  Normalize the submitted and stored last name (e.g., remove any special characters, 
suffixes/prefixes) before matching for eligibility inquiries; 
  Return specified AAA codes for each error condition; 
  Follow certain connectivity rules; 
   Meet certain content requirements for the eligibility transaction, including that: 
  At a minimum, eligibility responses must include dates of eligibility for past and 
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future dates at a benefit level if the benefit level is different from the contract level; 
  The patients financial responsibility is included for each benefit at the base contract 
o
amount for in- and out-of-network providers, as well as the patients co-pay, 
deductible, and coinsurance amounts prior to the point of care; and 
  The name of the health plan; and 
o
  Meet certain service and performance  timeframes for eligibility and claim status 
transactions:  
  Systems be operational 86 percent of the time per calendar week and regular system 
o
downtimes are published;  
  Batch transactions, if received by 9:00 p.m. eastern standard time, must have a 
o
response sent by 7:00 a.m. eastern standard time the following day; and 
  Real-time transactions must have a response sent within 20 seconds or less. 
o
 
We are highlighting the individual operating rules here so that States are aware of the 
requirements.  It will be important for States to secure a copy of the operating rules which are 
available at no charge from the Council for Affordable Quality Healthcare (CAQH) Committee 
on Operating Rules for Information Exchange (CORE) Web site at www.caqh.org.   Further, 
CAQH CORE staff are available for technical questions and guidance, and CORE conducts 
frequent town hall meetings and webinars that are free of charge.   
 
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  In addition, we note the elements of the operating rules that HHS did NOT adopt.  HHS did not 
adopt the requirement for CORE certification.  This is the comprehensive testing process 
governed by CAQH CORE which is used to validate the use of the operating rules.  CORE 
certification is voluntary; but testing the use of the standards and operating rules is important, 
and should be included in State implementation planning.  
 
HHS also did not adopt the requirements in the operating rule regulation that pertain to the use of 
the acknowledgement standards, though they may be used on a voluntary basis between trading 
partners.  HHS did not require use of the acknowledgement standards because they had not been 
adopted through the regulatory process, even though NCVHS recommended their adoption.  
HHS is expected to publish a rule to adopt the standards, but, at this time, they are voluntary.  
 
State Medicaid agencies must conduct a gap analysis to determine if operational changes are 
needed to comply with these operating rules and to be able to provide the newly required 
information.  Further, States must analyze their current Medicaid information technology (IT) 
infrastructure to determine if hardware and/or software modifications are needed in order to meet 
these requirements and the operating rule compliance date of January 1, 2013.   
 
Federal Financial Participation (FFP) is available to States that make modifications to their 
Medicaid IT infrastructure in order to comply with these operating rules; however, in order to be  
eligible for enhanced funding, a States system must comply with seven standards and conditions 
specified by CMS through regulation (see Federal Register, Vol. 76, No. 75, dated April 19, 
2011  http://www.gpo.gov/fdsys/pkg/FR-2011-04-19/pdf/2011-9340.pdf.  Ninety percent FFP 
is available for the design, development, and implementation of the Medicaid management 
information system (MMIS) and/or the States eligibility and enrollment system that meet, 
among other things, the requirements of section 1104 of the Act.  For continuing operations of 
the Medicaid system, States can receive 75 percent FFP.  In order to be eligible for enhanced 
FFP, States must submit an Advanced Planning Document to CMS for review and prior 
approval.    
Over the next several years HHS will publish several additional regulations adopting operating 
rules for each of the transactions adopted under HIPAA.  States are encouraged to participate 
with the NCVHS as they review and make recommendations about future operating rules to 
ensure that State Medicaid program interests and needs are addressed.  We strongly encourage 
States to become involved in the development of operating rules and to ensure that there is 
consistent representation and participation in the work groups.  Information regarding current 
work on operating rules and about participation is available on the CAQH Web site at 
www.caqh.org. 
 
If you have any questions regarding the IFC or the aforementioned operating rules, please 
contact Donna Schmidt of my staff at 410-786-5532 or by email at donna.schmidt@cms.hhs.gov.   
 
We appreciate the strides States are making in ensuring a consistent framework for electronic 
health care transactions and Administrative Simplification.   
 
 
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