```

[Federal Register Volume 76, Number 131 (Friday, July 8, 2011)]
[Rules and Regulations]
[Pages 40458-40496]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-16834]

[[Page 40457]]

Vol. 76

Friday,

No. 131

July 8, 2011

Part II

Department of Health and Human Services

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45 CFR Parts 160 and 162

Administrative Simplification: Adoption of Operating Rules for 
Eligibility for a Health Plan and Health Care Claim Status 
Transactions; Interim Final Rule

Federal Register / Vol. 76, No. 131 / Friday, July 8, 2011 / Rules 
and Regulations

[[Page 40458]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 160 and 162

[CMS-0032-IFC]
RIN 0938-AQ12

Administrative Simplification: Adoption of Operating Rules for 
Eligibility for a Health Plan and Health Care Claim Status Transactions

AGENCY: Office of the Secretary, HHS.

ACTION: Interim final rule with comment period.

-----------------------------------------------------------------------

SUMMARY: Section 1104 of the Administrative Simplification provisions 
of the Patient Protection and Affordable Care Act (hereafter referred 
to as the Affordable Care Act) establishes new requirements for 
administrative transactions that will improve the utility of the 
existing HIPAA transactions and reduce administrative costs. 
Specifically, in section 1104(b)(2) of the Affordable Care Act, 
Congress required the adoption of operating rules for the health care 
industry and directed the Secretary of Health and Human Services to 
``adopt a single set of operating rules for each transaction * * * with 
the goal of creating as much uniformity in the implementation of the 
electronic standards as possible.''
    This interim final rule with comment period adopts operating rules 
for two Health Insurance Portability and Accountability Act of 1996 
(HIPAA) transactions: eligibility for a health plan and health care 
claim status. This rule also defines the term ``operating rules'' and 
explains the role of operating rules in relation to the adopted 
transaction standards. In general, transaction standards adopted under 
HIPAA enable electronic data interchange through a common interchange 
structure, thus minimizing the industry's reliance on multiple formats. 
Operating rules, in turn, attempt to define the rights and 
responsibilities of all parties, security requirements, transmission 
formats, response times, liabilities, exception processing, error 
resolution and more, in order to facilitate successful interoperability 
between data systems of different entities.

DATES: Effective Date: These regulations are effective on June 30, 
2011. The incorporation by reference of the publications listed in this 
interim final rule is approved by the Director of the Office of the 
Federal Register June 30, 2011.
    Compliance Date: The compliance date for this regulation is January 
1, 2013.
    Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on September 6, 2011.

ADDRESSES: In commenting, please refer to file code CMS-0032-IFC. 
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 ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-0032-IFC, P.O. Box 8013, 
Baltimore, MD 21244-8013.
    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 to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-0032-IFC, 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 before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey 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. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-1066 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 information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Shannon Whetzel (410) 786-3267.
Matthew Albright (410) 786-2546.
Denise Buenning (410) 786-6711.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are 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://regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will be also 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, 
phone 1-800-743-3951.

I. Background

A. Introduction

    The background discussion below presents a partial statutory and 
regulatory history related only to the statutory provisions and 
regulations that are important and relevant for purposes of this 
interim final rule with comment period. For further information about 
electronic data interchange, the complete statutory background, and the 
regulatory history, see the proposed rule entitled ``Health Insurance 
Reform; Modifications to the Health Insurance Portability and 
Accountability Act (HIPAA) Electronic Transaction Standards,'' 
published in the Federal Register on August 22, 2008 (73 FR 49742).
    Congress addressed the need for a consistent framework for 
electronic health care transactions and other administrative 
simplification issues through the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA), (Pub. L. 104-191), enacted on 
August 21, 1996. HIPAA amended the

[[Page 40459]]

Social Security Act (hereinafter referred to as the Act) by adding Part 
C--Administrative Simplification--to Title XI of the Act requiring the 
Secretary of the Department of Health and Human Services (hereinafter 
referred to as the Secretary) 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 (EDI) enables providers 
and payers to process financial and administrative transactions faster 
and at a lower cost than manual transactions.
    In the August 17, 2000 Federal Register (65 FR 50312) we published 
a final rule entitled ``Health Insurance Reform: Standards for 
Electronic Transactions'' (hereinafter referred to as the Transactions 
and Code Sets rule). This rule implemented some of the HIPAA 
Administrative Simplification requirements by adopting standards for 
electronic health care transactions developed by standard setting 
organizations (SSOs), and medical code sets to be used in those 
transactions. Accordingly, we adopted the Accredited Standards 
Committee (ASC) X12 standards Version 4010 and the National Council for 
Prescription Drug Programs (NCPDP) Telecommunication standard Version 
5.1, which are specified at 45 CFR part 162, subparts K through S. All 
health plans, health care clearinghouses, and health care providers who 
transmit health information in electronic form (referred to as covered 
entities) are required to comply with these adopted standards.
    In the January 16, 2009 Federal Register, we published a final rule 
entitled, ``Health Insurance Reform; Modifications to the Health 
Insurance Portability and Accountability Act (HIPAA) Electronic 
Transaction Standards'' (74 FR 3296) (hereinafter referred to as the 
Modifications final rule), that, among other things, adopted updated 
versions of the standards [(ASC X12 Version 5010 (hereinafter referred 
to as Version 5010)] and NCPDP Version D.0) for the electronic health 
care transactions originally adopted in the Transactions and Code Sets 
final rule. Covered entities are required to comply with the updated 
standards for electronic health care transactions on January 1, 2012. 
Table 1 lists HIPAA standard transactions.

        Table 1--Current 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.
NCPDP D.0.........................  Health care claims--Retail pharmacy
                                     drug.
ASC X12 837 P and NCPDP D.0.......  Health care claims--Retail pharmacy
                                     supplies and professional services.
NCPDP D.0.........................  Coordination of Benefits--Retail
                                     pharmacy drug.
ASC X12 837 D.....................  Coordination of Benefits--Dental.
ASC X12 837 P.....................  Coordination of Benefits--
                                     Professional.
ASC X12 837 I.....................  Coordination of Benefits--
                                     Institutional.
ASC X12 270/271...................  Eligibility for a health plan
                                     (request and response)--dental,
                                     professional, and institutional.
NCPDP D.0.........................  Eligibility for a health plan
                                     (request and response)--Retail
                                     pharmacy drugs.
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 D.0.........................  Referral certification and
                                     authorization (request and
                                     response)--retail pharmacy drugs.
NCPDP 5.1 and D.0.................  Retail pharmacy drug claims
                                     (telecommunication and batch
                                     standards).
NCPDP 3.0.........................  Medicaid pharmacy subrogation (batch
                                     standard).
------------------------------------------------------------------------

    In general, the transaction standards adopted under HIPAA enable 
electronic data interchange using a common interchange structure, thus 
minimizing the industry's reliance on multiple formats. While the 
standards significantly decrease administrative burden on covered 
entities by creating greater uniformity in data exchange, and reduce 
the amount of paper forms needed for transmitting data, gaps created by 
the flexibility in the standards permit each health plan to use the 
transactions in very different ways, which remains an obstacle to 
achieving greater health care industry administrative simplification. 
These gaps include all of the following:
     Performance and system availability. Because the standards 
permit the flexibility of conducting the transactions in batch mode or 
real-time, in order to minimize the number of different 
implementations, some submitters have resorted to contracting with 
clearinghouses for transaction exchanges that require batch 
submissions, and simultaneously are utilizing internal resources for 
real-time submissions. Some batch submissions are only conducted 
overnight. Typically batch submissions can be substantially slower than 
real-time transmissions, and systems may be available only at certain 
times for conducting certain transactions.
     Connectivity and transportation of information. In 
traditional trading partner agreements, health plans specify their 
connectivity options for conducting the standard transactions. These 
options can vary from plan to plan. For example, some payers only 
conduct the transactions through a contracted clearinghouse. Others 
offer a direct connection to their system. Still others use both--
contract with a clearinghouse for some transactions, and offer direct 
connect solutions for other transactions. Also, there are some plans 
that offer a number of options, and negotiate a choice with each 
trading partner, including providers.
     Security and authentication. Currently, security standards 
do not prescribe requirements for levels of security and authentication 
when conducting the standard transactions and accessing protected 
health information. A covered entity's level of security and 
authentication requirements is determined by the individual entity's 
periodic assessments for security risk and vulnerabilities. 
Organizations have latitude to determine and document the number and 
types of security safeguards that they implement. Although this 
flexibility supports the implementation

[[Page 40460]]

of security safeguards that are consistent with the uniqueness of 
various organizations, it also limits standardization for security 
compliance.
     Business scenarios and expected responses. The standards 
do not define methods by which trading partners, including providers, 
establish electronic communication links, or types of hardware and 
software to exchange EDI data. Each trading partner, including 
providers, separately provides specific requirements; for example, the 
number of transactions that are submitted in a file. Transaction 
processing in each entity's system will vary from one trading partner, 
including providers, to another. The responses to compliantly 
implementing these various transaction processing systems are 
identified by trading partners, including providers, in documentation 
that is in addition to the adopted implementation guides. These types 
of documented business requirements can vary in terms of number and 
complexity.
     Data content refinements. In accordance with trading 
partner agreements, plans can ignore certain data that are submitted if 
not needed by them to conduct the transaction. They also can refine 
certain data elements and require their submission. Trading partner 
agreements and additional documentation that plans develop permit plans 
to define specific types of data and to clarify the specific data that 
is required to be submitted for successful completion of a transaction. 
Although the standards limit the number of data elements that can be 
defined or optionally submitted, a plan's individual business flow and 
operations may impose specific data definition and submission 
requirements.
    These gaps, among other challenges in the implementation of the 
standards, have spurred the creation of companion guides by health 
plans. Health plans have created these companion guides to describe 
their unique implementation of HIPAA transactions and how they will 
work with their business partners. Historically, companion guides have 
been used to establish business practices such as response time, system 
availability, communication protocols, hours of operation, amount of 
claim history available for inquiries and real-time adjustments, 
security practices, and more. Health plans' companion guides vary in 
format and structure. Such variance can be confusing to trading 
partners (those entities, including providers, who exchange HIPAA 
compliant electronic transactions), who must implement them in addition 
to the specifications in the transaction standard implementation 
guides. Further, each companion guide is unique for each different 
health plan.
    Currently, according to the American Medical Association (AMA) 
there are over 1,200 such companion guides in existence (http://www.ama-assn.org/ama1/pub/upload/mm/368/hipaa-tcs.pdf). As mentioned 
previously, companion guides require providers and trading partners, 
including providers, to adhere to different transaction implementation 
rules for different health plans. Therefore, the widespread 
proliferation of health plan companion guides is particularly 
burdensome to health care providers, and we believe has subverted the 
goal of administrative simplification.
    Over the past 5 years, this proliferation of health plan companion 
guides has given rise to the development of operating rules. To 
facilitate successful interoperability between data systems of 
different entities, operating rules more clearly define the rights and 
responsibilities of all parties, security requirements, transmission 
formats, response times, liabilities, exception processing, error 
resolution and more. Operating rules have been shown to reduce costs 
and administrative complexities as will be described later in this 
interim final rule with comment period.
    The use of operating rules is widespread and varied among other 
industries. For example, uniform operating rules for the exchange of 
Automated Clearing House (ACH) payments among ACH associations are used 
in compliance with U.S. Federal Reserve regulations (12 CFR Part 370), 
and maintained by the Federal Reserve and the Electronic Payments 
Network. Additionally, credit card issuers employ detailed operating 
rules (for example, Cirrus Worldwide Operating Rules) describing types 
of members, their responsibilities and obligations, licensing and 
display of service marks, etc.

B. Operating Rules Mandated by the Affordable Care Act

    Congress sought to address the aforementioned problems in the 
health care industry by requiring the adoption of operating rules for 
the health care industry as outlined in the Patient Protection and 
Affordable Care Act (Pub L. 111-148), enacted on March 23, 2010, and by 
the Health Care and Education Reconciliation Act of 2010, (Pub. L. 111-
152), which was enacted on March 30, 2010 (hereinafter referred to as 
the Affordable Care Act). Section 1173(g)(1) of the Act, as added by 
section 1104(b)(2) of the Affordable Care Act, requires the Secretary 
to ``adopt a single set of operating rules for each transaction * * * 
with the goal of creating as much uniformity in the implementation of 
the electronic standards as possible.''
    The role of operating rules is to support the adopted standards for 
health care transactions in order to foster and enhance uniform use of 
the adopted standards and implementation guides across the health care 
industry. Standards and operating rules overlap in their functions to 
increase uniformity, but differ in their purposes. While standards are 
mainly concerned with the content transmitted in a transaction, 
operating rules provide for the method of how the information should be 
transmitted, as well as the elimination of certain situationality in 
the use of data content contained in the standards. Situationality 
refers to the fact that many transaction requirements only apply if the 
situation is presented. For example, in the 271 eligibility response 
transaction, the health plan name is only required when a specific plan 
name exists for the plan for which the individual has coverage.
    Operating rules augment the standards in the following three 
important ways:
     They contain additional requirements that help implement 
the standard for a transaction in a more consistent manner across 
health plans. For example, when a provider currently sends an 
eligibility for a health plan inquiry to a health plan, the standard 
allows responses ranging from a simple ``yes'' or ``no'', to the 
inclusion of a complete range of information. The operating rule 
requires the health plan to return patient eligibility and financial 
responsibility for a specified list of service type codes including, 
but not limited to, dental, vision, medical, hospital inpatient, and 
emergency care. This requirement ensures that a provider, who submits 
the same inquiry to multiple payers, receives a consistent response for 
an eligibility for a health plan inquiry. This reduces the number of 
customized transactions when dealing with multiple health plans, thus 
saving both time and money.
     They address ambiguous or conditional requirements in the 
standard and clarify when to use or not use certain data elements or 
code values. For example, the standard may leave it to the discretion 
of the health plan whether or not to return the health plan's name in a 
particular field, creating the possibility of inconsistency in health 
plan responses. An operating rule may require that the health plan name 
always be returned and that it

[[Page 40461]]

always be returned in one particular specified manner. This encourages 
uniformity and alleviates the problem of providers receiving 
inconsistent information.
     They specify how trading partners, including providers, 
should communicate with each other and exchange patient information, 
with the goal of eliminating connectivity inconsistencies. Currently, 
individual health plans specify the transmission methods they expect 
each of their trading partners, including providers, to use for 
electronic transactions. Mandating one uniform method decreases the 
amount of work and inconsistencies providers experience when dealing 
with multiple payers with differing transmission methods.
    The Affordable Care Act presents a definition of operating rules 
and provides a great deal of guidance about the role Congress 
envisioned for operating rules in relation to the standards. Operating 
rules are defined by section 1171(9) of the Act (as added by section 
1104(b)(1) of the Affordable Care Act) as ``the necessary business 
rules and guidelines for the electronic exchange of information that 
are not defined by a standard or its implementation specifications as 
adopted for purposes of this part.'' Additionally, 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 individual's eligibility and financial responsibility for 
specific services prior to or at the point of care;
    (ii) be comprehensive, requiring minimal augmentation by paper 
or other communications;
    (iii) provide for timely acknowledgment, 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).''

    Section 1104(b)(2) of the Affordable Care Act also amended section 
1173 of the Act by adding new subsection (a)(4)(B), which states that, 
``[i]n adopting standards and operating rules for the transactions* * 
*, the Secretary shall seek to reduce the number and complexity of 
forms (including paper and electronic forms) and data entry required by 
patients and providers.''
    Section 1104(b)(2) of the Affordable Care Act added section 
1173(g)(1) to the Act, which states that, ``[s]uch operating rules 
shall be consensus-based and reflect the necessary business rules 
affecting health plans and health care providers and the manner in 
which they operate pursuant to standards issued under Health Insurance 
Portability and Accountability Act of 1996.''
    New sections 1173(g)(2)(D), (g)(3)(C), and (g)(3)(D) of the Act 
also clarify the scope of operating rules. They provide that,

    In adopting operating rules under this subsection, the Secretary 
shall consider recommendations for operating rules developed by a 
qualified nonprofit entity that meets the following requirements * * 
* (D) The entity builds on the transactions issued under Health 
Insurance Portability and Accountability Act of 1996. * * * The 
National Committee on Vital and Health Statistics shall * * * (C) 
determine whether such operating rules represent a consensus view of 
health care stakeholders and are consistent with and do not conflict 
with other existing standards; (D) evaluate whether such operating 
rules are consistent with electronic standards adopted for health 
information technology

    We take from the statutory context the following information about 
operating rules to be adopted under HIPAA:
     They are business rules and guidelines;
     They are necessary for the electronic exchange of 
information;
     They are not defined by a standard;
     They do not conflict with the existing HIPAA standards;
     They are consensus based;
     They are consistent with HIPAA and Health Information 
Technology (HIT) standards adopted by the Secretary; and
     Together with standards they encourage the use of 
electronic transactions by reducing ambiguities currently permitted by 
the standard, resulting in better-defined inquiries and responses that 
add value to provider practice management and health plan operations.

II. Provisions of the Interim Final Rule With Comment Period

A. Definition of Operating Rules

    Section 1171(9) of the Act, as added by section 1104(b)(1) of the 
Affordable Care Act, defines operating rules as ``the necessary 
business rules and guidelines for the electronic exchange of 
information that are not defined by a standard or its implementation 
specifications as adopted for purposes of this part.'' We are adding 
the term ``operating rules'' to the definitions in regulations at 45 
CFR 162.103, and defining it just as it appears in the statute. We note 
that, in the statutory reference, ``this part'' refers to Part C of 
Title XI of the Act, Administrative Simplification. In the regulation 
at 45 CFR 162.103, ``this part'' refers to Part 162 of the CFR, the 
part in which the definition appears, which contains the regulations 
that pertain to, among other things, the HIPAA transactions and code 
sets. The following discussion further explains operating rules and 
their scope, in light of their relationship to the standards.
    Business rules and guidelines are not defined by the statute, nor 
has the health care industry specifically defined business rules or 
guidelines for itself. These are very broad terms and there are many 
ways to define them. Generally, business rules and guidelines are 
statements that refine and specify. For purposes of operating rules, 
business rules and guidelines are statements that refine and specify.
    While operating rules may have a very broad scope as business rules 
and guidelines in order to cover the full spectrum of data content, 
from data elements to standards, we believe there are limitations. To 
meet the definition of operating rules, business rules and guidelines 
must be ``necessary * * * for the electronic exchange of information 
that are not defined by a standard or its implementation 
specifications.'' We interpret the term ``necessary'' to be those 
operating rules needed to facilitate better communication between 
trading partners, including providers, to fill gaps in the standards, 
and to fulfill the purposes and principles set out in sections 
1173(a)(4)(A)(i) through (iv) and (B) of the Act.
    If a business rule or guideline is necessary for the electronic 
exchange of information, it must also be one that is ``not defined by'' 
a HIPAA standard or its implementation specifications in order to meet 
the definition of an operating rule. We consider a business rule or 
guideline that does not duplicate what is in the standard to be one 
that is not defined by the standard. Business rules and guidelines that 
duplicate what is in the standard are not operating rules under our 
interpretation.
    The National Committee on Vital and Health Statistics (NCVHS) is 
tasked with reviewing any operating rule developed and recommended to 
the Secretary for adoption. The NCVHS is to make recommendations to the 
Secretary and determine whether such operating rules represent a 
consensus view of the health care stakeholders and are consistent with 
and do not conflict with other

[[Page 40462]]

existing standards under section 1173(g)(3)(C) of the Act. The NCVHS 
must also determine if such operating rules are consistent with 
electronic standards adopted for health information technology under 
section 1173(g)(3)(D) of the Act. From these statutory provisions, we 
understand that operating rules should be consistent with and not be in 
conflict with the adopted HIPAA standards and HIT standards (for 
example, those standards that address governance, funding and 
infrastructure of controlled vocabularies, value sets and vocabulary 
subsets to be used primarily to further interoperability between 
providers and systems). We believe that, if an operating rule imposes a 
requirement that would make it impossible for a party to comply with 
both the associated HIPAA standard and the operating rule, then the 
operating rule conflicts with the standard. This interpretation is 
consistent with fundamental principles and precedents regarding when a 
conflict exists. If a party is able to satisfy both the requirements of 
the standard and the requirements of the operating rule, there is no 
conflict and the operating rule is consistent with the standard. Table 
2 illustrates what we consider to be a conflict by presenting 
hypothetical scenarios that illustrate when an operating rule could or 
could not conflict with a standard.

                           Table 2--Could an Operating Rule Conflict With a Standard?
----------------------------------------------------------------------------------------------------------------
                                                               Does the operating
                                        Statement in the        rule's statement
     Statement in the standard           operating rule         conflict with the           Justification
                                                              standard's statement?
----------------------------------------------------------------------------------------------------------------
``X is recommended.''..............  ``X is ``required.''..  No....................  It is possible for an
                                                                                      entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule.
``X is not required.''.............  ``X is required.''....  No....................  It is possible for an
                                                                                      entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule.
``X cannot be required.''..........  ``X is required.''....  Yes...................  It is impossible for an
                                                                                      entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule.
``X is required.''.................  ``X is required.''....  No....................  It is possible for an
                                                                                      entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule. (However,
                                                                                      to the extent that the
                                                                                      statement in the operating
                                                                                      rule duplicates the
                                                                                      statement in the standard,
                                                                                      the operating rule
                                                                                      statement would not be
                                                                                      considered an operating
                                                                                      rule.)
``X is at the discretion of person   ``X is required.''....  No....................  It is possible for an
 1. Person 2                                                        entity to comply with both
 cannot require it.''                                                                 the standard and the
                                                                                      operating rule.
``X is required.''.................  ``X is required, so is  No....................  It is possible for an
                                      Y.''.                                           entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule.
``X is required. No other can be     ``X is required, so is  Yes...................  It is impossible for an
 required.''                          Y.''.                                           entity to comply with both
                                                                                      the standard and the
                                                                                      operating rule.
----------------------------------------------------------------------------------------------------------------

    Our current definition of standard at 45 CFR 160.103 is very broad. 
In fact, it is so broad that it could include operating rules as we are 
defining that term at Sec.  162.103. Therefore, we are revising the 
definition of standard at Sec.  160.103 to be clear that standards and 
operating rules are separate and distinct. See the ``Additional 
Requirements'' section for discussion of this change.

B. National Committee on Vital and Health Statistics and the Affordable 
Care Act

    The National Committee on Vital and Health Statistics (NCVHS) was 
established by Congress to serve as an advisory body to the Department 
of Health and Human Services (DHHS) on health data, statistics and 
national health information policy, and has been assigned a significant 
role in the Secretary's adoption of operating rules under section 
1173(g)(3) of the Act (as added by section 1104(b)(2) of the Affordable 
Care Act).
    In July 2010, the NCVHS' Subcommittee on Standards convened a 
hearing to discuss the Affordable Care Act's provisions pertaining to 
operating rules for the eligibility for a health plan and health care 
claim status transactions. Section 1173(g)(3) requires the NCVHS to do 
the following:
     Advise the Secretary whether a nonprofit entity meets the 
requirements for development of operating rules.
     Review the operating rules developed and recommended by 
such nonprofit entity.
     Determine whether such operating rules represent a 
consensus view of the health care stakeholders and are consistent with 
and do not conflict with other existing standards.
     Evaluate whether such operating rules are consistent with 
electronic standards adopted for health information technology.
     Submit to the Secretary a recommendation as to whether the 
Secretary should adopt such operating rules.
    The NCVHS engaged in a comprehensive review of health care 
operating rules and their authors, with the goal of determining whether 
an entity was qualified to develop operating rules for transactions and 
to evaluate existing operating rules for purposes of making a 
recommendation to the Secretary as to whether those operating rules 
should be adopted. The process consisted of a full day of public 
testimony on July 20, 2010, with participation by more than 20 
stakeholders representing a cross section of the health care industry, 
including health plans, provider organizations, health care 
clearinghouses, pharmacy industry representatives, health care industry 
associations, standards developers, professional associations, 
representatives of Federal and State health plans, the banking 
industry, and the entities proposing to serve as operating rules 
authoring entities.
    During the hearing, testifiers reiterated the need for greater 
consistency and standardization in HIPAA transactions consistent with 
the Affordable Care Act amendments to the HIPAA, which highlight the 
need to improve the use of standard transactions, increase industry 
adherence to the implementation specifications of the standards, 
encourage greater adoption of electronic transactions, and enable more 
timely

[[Page 40463]]

updates and adoption of the HIPAA standards. Testifiers claimed that 
all of these could help reduce the clerical burden on the industry in 
the use of paper and the non-standard use of the current transaction 
standards.
    We believe that the considerable public participation in the NCVHS 
hearings for adoption of operating rules demonstrates an increasing 
level of support and interest from broader segments of the health care 
industry. Per the NCVHS' recommendation, we will work with industry to 
continue this public exchange of information regarding operating rules, 
standards and their respective roles in administrative simplification.
    Based on the NCVHS testimony (http://www.ncvhs.hhs.gov/100719ag.htm) and the NCVHS' analysis of the operating rules and 
qualifications of the candidate authoring entities, the NCVHS developed 
a set of recommendations to the Secretary, which are outlined in the 
following discussions.

C. Operating Rules Authoring Entities

    Section 1173(g)(3)(A) of the Act charges the NCVHS with advising 
the Secretary as to whether a nonprofit entity meets the statutory 
requirements for developing the operating rules to be adopted by the 
Secretary. Those requirements, at section 1173(g)(2) of the Act, 
include all of the following:
     The entity focuses its mission on administrative 
simplification.
     The entity demonstrates a multi-stakeholder and consensus-
based process for development of operating rules, including 
representation by or participation from health plans, health care 
providers, vendors, relevant Federal agencies, and other standards 
development organizations.
     The entity has a public set of guiding principles that 
ensure the operating rules and process are open and transparent, and 
supports nondiscrimination and conflict of interest policies that 
demonstrate a commitment to open, fair, and nondiscriminatory 
practices.
     The entity builds on the transaction standards issued 
under the Health Insurance Portability and Accountability Act of 1996.
     The entity allows for public review and updates of its 
operating rules.
    Of those organizations testifying at the July 2010 NCVHS hearing, 
two organizations formally requested to be considered authoring 
entities for operating rules. These entities were the Council for 
Affordable Quality Healthcare's (CAQH) Committee on Operating Rules for 
Information Exchange (CORE) and the National Council for Prescription 
Drug Programs (NCPDP).
    The CAQH, a nonprofit alliance of health plans and trade 
associations, supports industry collaboration on initiatives that 
simplify health care administration (http://www.caqh.org/about.php). 
The CAQH launched the CORE with the goal of giving providers access to 
eligibility and benefits information before or at the time of service. 
The CAQH CORE is engaged in the development of voluntary operating 
rules for the facilitation of administrative health care transactions. 
It has already developed operating rules for the eligibility for a 
health plan and health care claim status transactions. The CAQH CORE 
has also demonstrated that the use of these rules yields a return on 
investment for both business operations and systems within today's 
complex health care environment (http://www.caqh.org/COREIBMstudy.php).
    The NCPDP is a not-for-profit standards development organization 
(SDO) accredited by the American National Standards Institute (ANSI), 
with over 1,500 members representing the pharmacy services industry 
(http://ncpdp.org/WP.aspx). It is one of several SDOs involved in 
health care information technology and standardization, with a focus on 
retail pharmacy services, and has member representation from the 
pharmacy services sector of health care (http://ncpdp.org/about.aspx). 
The operating rules the NCPDP brought forth to NCVHS focus on the 
retail-pharmacy sector.
    The July 2010 NCVHS hearings were followed by a request from the 
NCVHS Subcommittee on Standards to both the CAQH CORE and the NCPDP as 
authoring entity candidates, to respond to detailed questionnaires 
about their ability to meet the statutory requirements of the 
Affordable Care Act as authoring entities for health care operating 
rules. The NCVHS request solicited specific documentation from the two 
candidates to validate their previous testimony, including minutes, 
voting records and copies of bylaws. Both the CAQH CORE and the NCPDP 
responded to the Subcommittee's request and submitted their respective 
applicable materials. A synopsis of the candidates' responses can be 
found on the Internet at http://www.ncvhs.hhs.gov/100930lt2.pdf.
    Upon review of the CAQH CORE's and the NCPDP's respective responses 
to the NCVHS questionnaire, the NCVHS determined that both 
organizations met the statutory requirements to be an operating rules 
authoring entity. The NCVHS noted, however, that there are still 
adjustments to process and procedures that may be required of both 
organizations to enhance transparency, citing the need for more 
formalized relations with each other and with other SDOs, inclusion of 
a more diverse cadre of stakeholders, and a more formal public review 
process. Both the CAQH CORE and the NCPDP acknowledged these issues in 
their submitted responses to the NCVHS (http://www.ncvhs.hhs.gov/100930lt2.pdf).
    The NCVHS advised the Secretary in its letter dated September 30, 
2010, (http://www.ncvhs.hhs.gov/100930lt2.pdf) that the CAQH CORE meets 
the requirements of section 1173(g)(2) of the Act to be the operating 
rules authoring entity for the non-retail pharmacy-related eligibility 
for a health plan and health care claim status standard transactions 
with additional qualifying requirements. In the same letter, the NCVHS 
stated that the NCPDP met the requirements to be the authoring entity 
for operating rules for retail pharmacy-related eligibility 
transactions (as outlined in the Telecommunications Standard 
Implementation Guide Version D.0) also with additional qualifying 
requirements. Those requirements for both the CAQH CORE and the NCPDP 
are as follows:
     Require authoring entities to maintain minutes, 
attendance, voting records, and other appropriate documentation that 
will help the NCVHS conduct verification that the authoring entities 
have utilized an open, consensus-driven process with broad stakeholder 
participation and provided an opportunity for public comment in 
authoring any new operating rules or new versions of existing operating 
rules, consistent with such processes followed by ANSI-accredited 
standards development organizations.
     Continue to use the NCVHS and its open process to 
evaluate, select, and recommend any new qualifying operating rules 
authoring entities when it comes time to adopt operating rules for 
other transactions, or for newer versions of the operating rules for 
the transactions for which the CAQH CORE and the NCPDP are being 
recommended to be named authoring entities at this time.
    After our own review and analysis of the CAQH CORE and the NCPDP 
applications for consideration to be authoring entities for their 
respective developed operating rules, and the NCVHS' recommendation, we 
have determined that the CAQH CORE is qualified to be the operating 
rules authoring entity for non-retail

[[Page 40464]]

pharmacy-related eligibility for a health plan and health care claim 
status standard transactions per section 1173(g)(2) of the Act.
    At the time of the hearing, the NCVHS based its recommendation to 
appoint the NCPDP as an operating rules authoring entity on the 
testimony presented. However, upon further review and consultation, we 
have determined that the NCPDP's standard provides enough detail and 
clarity to operationalize the standards to the point where no gaps 
exist that operating rules would need to fill and no further 
infrastructure or data content rules need to be adopted. (For a more 
detailed discussion, see section III. of this interim final rule with 
comment period).

D. Adoption of Operating Rules

1. Adoption of the CAQH CORE Phase I and Phase II Operating Rules for 
the Non-Retail Pharmacy Eligibility for a Health Plan and Health Care 
Claim Status Transactions (Updated for Version 5010)
    The CAQH CORE builds consensus among health care industry 
stakeholders on a set of operating rules that facilitate administrative 
interoperability between health plans and providers by building on 
applicable HIPAA transaction requirements, enabling providers to submit 
transactions from any system, and facilitating administrative and 
clinical data integration. The CAQH CORE uses a phased approach for 
developing operating rules. This approach allows for developing rules 
and implementing them via incremental, achievable milestones, and helps 
to maximize rule adoption. The CAQH CORE Phase I operating rules were 
developed in 2006 and focused on the eligibility for a health plan 
transaction. The CAQH CORE Phase II rules, developed in 2008, added 
operating rules for the health care claim status transaction, and more 
rules for the eligibility for a health plan transaction that were not 
included in Phase I. Both the CAQH CORE Phase I and Phase II operating 
rules were updated to accommodate the Version 5010 HIPAA standards, 
which were adopted by the Secretary via the final rule published in the 
Federal Register on January 16, 2009 (74 FR 3296) and with which HIPAA 
covered entities must be compliant on January 1, 2012.
    The CAQH CORE operating rules (updated for Version 5010) include 
both infrastructure rules and data content rules. The infrastructure 
rules help improve data content flow between provider and payer. They 
improve interoperability by addressing all of the following:
     Connectivity--provide a uniform way for stakeholders to 
connect (through the Internet).
     Response Times--specify that information will be available 
in real time.
     System Availability--specify systems delivering 
information be available a certain amount of time.
     Patient Identification--help assure patient matching/
identification can occur.
    The CAQH CORE's first set of operating rules (updated for Version 
5010) are Phase I rules for eligibility for a health plan transaction. 
They help electronically confirm patient benefit coverage, copay, 
coinsurance, and base deductible. In addition, through requirements to 
use common Internet protocols, they allow providers to access needed 
patient information prior to or at the point of care. The CAQH CORE's 
second set of operating rules (updated for Version 5010) are the Phase 
II rules for the eligibility for a health plan and health care claim 
status transactions. They expand on the first set by adding a 
requirement for transaction recipients to send back patient remaining 
deductible amounts, rules to improve patient matching, health care 
claim status infrastructure requirements (for example, response time) 
and more prescriptive connectivity requirements.
    We have examined each of the CAQH CORE Phase I and Phase II 
operating rules and are adopting those that we believe further enhance 
the HIPAA transactions by better facilitating communication between 
trading partners, including providers, filling gaps in the associated 
standards, and fulfilling the requirements, purposes, and principles 
set out in the statute at sections 1173(a)(4)(A)(i through iv) and (B). 
Of the eight CAQH CORE Phase I operating rules (updated for Version 
5010), we are adopting the following six:
     Phase I CORE 152: Eligibility and Benefit Real Time 
Companion Guide Rule, version 1.1.0, March 2011, and CORE Version 5010 
Master Companion Guide Template, 005010, 1.2, March 2011.
     Phase I CORE 153: Eligibility and Benefits Connectivity 
Rule, version 1.1.0, March 2011.
     Phase I CORE 154: Eligibility and Benefits 270/271 Data 
Content Rule, version 1.1.0, March 2011.
     Phase I CORE 155: Eligibility and Benefits Batch Response 
Time Rule, version 1.1.0, March 2011.
     Phase I CORE 156: Eligibility and Benefits Real Time 
Response Time Rule, version 1.1.0, March 2011.
     Phase I CORE 157: Eligibility and Benefits System 
Availability Rule, version 1.1.0, March 2011.
    We are adopting all five of the CAQH CORE Phase II operating rules 
(updated for Version 5010). They include the following:
     Phase II CORE 250: Claim Status Rule, version 2.1.0, March 
2011, and CORE Version 5010 Master Companion Guide Template, 005010, 
1.2, March 2011.
     Phase II CORE 258: Eligibility and Benefits 270/271 
Normalizing Patient Last Name Rule, version 2.1.0, March 2011.
     Phase II CORE 259: Eligibility and Benefits 270/271 AAA 
Error Code Reporting Rule, version 2.1.0, March 2011.
     Phase II CORE 260: Eligibility & Benefits Data Content 
(270/271) Rule, version 2.1.0, March 2011.
     Phase II CORE 270: Connectivity Rule, version 2.2.0, March 
2011.
    Both the CAQH CORE Phase I and Phase II operating rules (updated 
for Version 5010) that we are adopting in this interim final rule with 
comment period can be found on the CAQH CORE Web site at http://www.caqh.org/COREVersion5010.php. Below we briefly describe those 
operating rules.
    The Phase I CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule (updated for Version 5010) and CORE Version 5010 Master 
Companion Guide Template provide a standardized format for health plan 
companion guides. As mentioned previously, health plans have the option 
of creating a companion guide that describes the specifics of how they 
implement the HIPAA transactions. Currently, health plans have 
independently created companion guides that vary in format and 
structure, which can be confusing to trading partners, including 
providers, and providers who must review numerous companion guides 
along with the Version 5010 Implementation Guides. To address this 
issue, the CAQH CORE developed the CORE Version 5010 Master Companion 
Guide Template to ensure that the structure of each health plan's 
companion guide is similar to every other health plan's companion 
guide, making it easier for providers to find information quickly.
    Developed with input from multiple health plans, system vendors, 
provider representatives and healthcare and HIPAA industry experts, the 
CAQH CORE template organizes information into several sections 
including, general information (sections 1 through 9) and

[[Page 40465]]

transaction-specific information (section 10), as well as appendices 
that provide helpful information, such as an information checklist, 
descriptions of typical business scenarios, transmission examples, 
FAQs, and a summary of the changes between companion guides. The CAQH 
CORE recognizes that different health plans may have different 
requirements, so the CORE v5010 Master Companion Guide Template gives 
health plans the flexibility to tailor companion guides to meet each of 
their own particular needs.
    The Phase I CORE 153: Eligibility and Benefits Connectivity Rule 
(updated for Version 5010) addresses usage patterns for both batch and 
real time transactions, the exchange of security identifiers, and 
communications-level errors and acknowledgements. It does not define 
the specific content of the message.
    Currently, multiple connectivity methods, some based on open 
standards, others on proprietary approaches, are in use for 
administrative electronic transactions in the health care industry. 
Health care providers and health plans support multiple connectivity 
methods to connect to different health plans, clearinghouses, provider 
organizations and others, which add costs for health plans and 
providers. This rule is designed to provide a ``safe harbor'' that 
providers and health plans can be assured will be supported by any 
trading partner, including providers. Safe harbors are essentially 
connectivity requirements. When trading partners including providers, 
agree to follow the same connectivity requirements, connectivity is 
better enabled. This rule is not intended to require trading partners, 
including providers, to remove existing connections that do not match 
the rule, nor is it intended to require that all trading partners, 
including providers, must use this method for all new connections. It 
is expected that some trading partners, including providers, may agree 
to use different communication mechanism(s) and/or security 
requirements than that described by this rule. The rule simply provides 
a secure connection for those entities that do not currently have one.
    The Phase I CORE 154: Eligibility and Benefits 270/271 Data Content 
Rule (updated for Version 5010) provides more robust and consistent 
information prior to or at the point of care. It specifies the minimum 
requirements for using the ASC X12 005010X279A1 Eligibility Benefit 
Request and Response (270/271) to inquire about health plan insurance 
coverage and to respond to such an inquiry using the ASC X12 
005010X279A1 Eligibility Benefit Request and Response (270/271). The 
requirements address certain situational elements and codes and are in 
addition to requirements contained in the Version 5010 270/271 
implementation guides. This rule provides for not only determination of 
an individual's eligibility but also his financial responsibility 
information for co-pay, deductible, and coinsurance prior to or at the 
point of care. This rule covers, for example, the following content in 
the Version 5010 271:
     The dates of eligibility under the health plan (contract) 
level for past and future dates and the dates of eligibility at the 
benefit level if different from the contract level.
     The patient financial responsibility for each specified 
benefit at the base contract amounts for both in-network and out-of-
network.
     The name of the health plan when it exists in the health 
plan's system.
    Compliance with the requirements of this operating rule will 
ultimately reduce the time it takes providers to track down such 
information after the service has been rendered, and decrease the 
provider's accounts receivable.
    The Phase I CORE 155 and 156: Eligibility and Benefits Batch 
Response and Real Time Response Rules (updated for Version 5010) 
streamline and improve the flow of transactions by imposing timeframe 
requirements for when a response is to be submitted for an eligibility 
for a health plan inquiry.
    For a Version 5010 270 batch mode response to a provider's inquiry 
submitted by 9:00 pm Eastern time of a business day, the response must 
be returned by 7:00 am Eastern time the following business day. The 
maximum response time when processing in real time mode must be 20 
seconds or less.
    The Phase I CORE 157: Eligibility and Benefits System Availability 
Rule (updated for Version 5010) also streamlines and improves the flow 
of transactions. It recognizes that many institutional providers need 
to be able to conduct health plan eligibility activities at any time. 
It also recognizes that health plans have a business need to take their 
eligibility and other systems offline periodically in order to perform 
system maintenance, which means that some systems will not be available 
for eligibility inquiries and responses on certain nights and weekends. 
The rule requires that systems be available to process eligibility 
inquiries no less than 86 percent of the time per calendar week for 
real and batch modes, and requires health plans to publish regularly 
scheduled downtime. It ensures that systems are up and running in a 
consistent manner and that trading partners, including providers, are 
aware of any downtime so they can plan accordingly.
    The Phase II CORE 250: Claim Status Rule (updated for Version 5010) 
encourages and increases the use of the health care claim status 
transaction by providing for batch and real-time response times, system 
availability, the use of a companion guide template, and support for 
the CORE ``safe harbor'' connectivity requirement. These elements 
included in the CORE 250 rule follow the same requirements as and build 
upon the same requirements as for the eligibility for a health plan 
transaction infrastructure rules included in Phase I CORE 152, Phase I 
CORE 155, Phase I CORE 156 and Phase I CORE 157 rules we are adopting 
in this interim final rule with comment period. This means that Phase 
II CORE 250 rule (updated for Version 5010) requires each health plan 
to: follow the companion guide format requirement as provided in CORE 
152, which is the CORE Version 5010 Master Companion Guide Template; 
support the CORE ``safe harbor'' connectivity requirements; support a 
maximum response time of 20 seconds from the time of submission of a 
Version 5010 276 for real time and for batch mode response to a 
provider's inquiry submitted by 9 p.m. Eastern time of a business day, 
the response must be returned by 7 a.m. Eastern time the following 
business day; ensure system availability of no less than 86 percent per 
calendar week for both real time and batch modes; and follow the 
companion guide format requirement as provided in CORE 152, which is 
the CORE v5010 Master Companion Guide Template.
    The CORE 258: Eligibility and Benefits 270/271 Normalizing Patient 
Last Name Rule (updated for Version 5010). Health plans and health care 
providers must be able to uniquely identify patients in order to 
ascertain patient eligibility. Although the Version 5010 270/271 
standards specify data elements and data element attributes that may be 
used to identify an individual, the standards do not address the use of 
punctuation and special characters. Therefore, the way health plans 
identify individuals does not always match the way providers identify 
individuals, which results in the rejection or denial of eligibility 
transactions. The CAQH CORE 258 rule addresses certain aspects of 
individual identification that enhance the real time processing of 
eligibility inquiries and responses.
    The Phase II CORE 259: Eligibility and Benefits 270/271 AAA Error 
Code

[[Page 40466]]

Reporting Rule (updated for Version 5010) provides consistent and 
specific patient identification information on reasons for patient 
identification errors on an eligibility for a health plan inquiry. This 
allows providers to know specifically why they did not receive a match 
in an eligibility for a health plan inquiry, instead of trying to 
determine for themselves the reasons for the error and what corrective 
action is needed. This rule improves the specificity and standardized 
use of the AAA codes that would give providers better feedback to 
understand what information is missing or incorrect in order to obtain 
a valid match. It defines a standard way for health plans to report 
errors in the eligibility response that cause a health plan not to be 
able to respond with a Version 5010 271 showing eligibility information 
for the requested patient or subscriber. The goal is to use a unique 
error code wherever possible for a given error condition so that the 
re-use of the same error code is minimized. Where this is not possible, 
the goal (when re-using an error code) is to return a unique 
combination of one or more AAA segments along with one or more of the 
submitted patient identifying data elements such that the provider will 
be able to determine as precisely as possible what data elements are in 
error and take the appropriate corrective action.
    The Phase II CORE 260: Eligibility & Benefits Data Content (270/
271) Rule (updated for Version 5010) builds on and enhances the Phase I 
CORE 154: Eligibility and Benefits 270/271 Data Content Rule (updated 
for Version 5010) by requiring the provision in the eligibility 
response of the remaining patient deductible amounts for certain 
service type codes. The use of this rule further reduces the time it 
takes to track down this information manually or eliminates the time 
completely after the service has been rendered and decreases the 
provider's accounts receivable.
    The CAQH CORE determined that Phase I CORE rules should focus on 
improving electronic eligibility and benefits verification, as 
eligibility is the first transaction in the claims process. Thus, if 
eligibility and benefits are accurately known to health care providers, 
all the associated electronic transactions that follow will be more 
effective and efficient. The Phase I CORE 154: Eligibility and Benefits 
270/271 Data Content Rule (updated for Version 5010) primarily outlined 
a set of requirements for health plans to return base (not remaining or 
accumulated) patient financial responsibility related to the 
deductible, co-pay and co-insurance for a set of 12 services in the ASC 
X12 005010X279A1 Eligibility Benefit Request and Response (270/271), 
and for vendors, clearinghouses and providers to transmit and use that 
financial data. The Phase II CORE 260: Eligibility & Benefits Data 
Content (270/271) Rule (updated for Version 5010) extends and enhances 
the CORE Phase I Version 5010 271 transaction by requiring the 
provision of remaining deductible amounts for both the Phase I required 
12 service type codes and an additional set of 39 other service type 
codes.
    The Phase II CORE 270: Connectivity Rule (updated for Version 
5010), which applies to both the eligibility for a health plan and 
health care claim status transactions, builds on CORE 153: Eligibility 
and Benefits Connectivity Rule (updated for Version 5010) by requiring 
additional connectivity specifications which further facilitate 
interoperability. This rule addresses the message envelope metadata 
(that information which defines the context for interpretation of the 
rest of the data in the message, for example, response codes, request 
methods, etc.) and the message envelope, (a fixed number of fields that 
show source, destination, tag, and communicator) and the submitter 
authentication requirements for both batch and real time transactions, 
and communications-level errors.
    This rule improves utilization of electronic transactions by 
enabling more entities to interoperate with other entities, including 
reducing the implementation barrier for small entities (for example, 
small providers). It also extends the Phase I CORE 153: Eligibility and 
Benefits Connectivity Rule (updated for Version 5010) and establishes a 
safe harbor by further specifying the connectivity that all covered 
entities must demonstrate and implement.
    Tables 3 and 4 summarize each of the CAQH CORE Phase I and Phase II 
Version 5010 operating rules, which we are adopting in this interim 
final rule with comment period, as reflected in 45 CFR 162.920, 
162.1203, and 162.1403.

             Table 3--The CAQH Core Phase I Operating Rules
                       [Updated for version 5010]
------------------------------------------------------------------------
                  Rule                       High level requirements
------------------------------------------------------------------------
Phase I CORE 152: Eligibility and        Goal: Standardize template/
 Benefit Real Time Companion Guide        common structure of companion
 Rule, Version 1.1.0, March 2011 and      guides for more efficient
 CORE Version 5010 Master Companion       reference.
 Guide Template, 005010, 1.2, March      Requirements: Standard template/
 2011.                                    structure for companion
                                          guides.
Phase I CORE 153: Eligibility and        Goal: Provide a ``safe harbor''
 Benefits Connectivity Rule, Version      that application vendors,
 1.1.0, March 2011.                       providers, and health plans
                                          can be assured will be
                                          supported by any trading
                                          partner including providers,
                                          to facilitate connectivity
                                          standardization and
                                          interoperability across the
                                          exchange of health
                                          information.
                                         Requirements: Supports data
                                          exchange over the public
                                          Internet (HTTP/S).
Phase I CORE 154: Eligibility and        Goal: Enable more robust and
 Benefits 270/271 Data Content Rule,      consistent exchange of
 Version 1.1.0, March 2011.               eligibility information.
                                         Requirements: Specifies what is
                                          to be included in the 271
                                          eligibility for a health plan
                                          response to a 270 eligibility
                                          for a health plan inquiry.
Phase I CORE 155: Eligibility and        Goal: Streamline and improve
 Benefits Batch Response Time Rule,       flow of transactions.
 Version 1.1.0, March 2011.              Requirements: Response time is
                                          20 seconds or less for real
                                          time, next day for batch.
Phase I CORE 156: Eligibility and
 Benefits Real Time Response Time Rule,
 Version 1.1.0, March 2011.
Phase I CORE 157: Eligibility and        Goal: Streamline and improve
 Benefits System Availability Rule,       flow of transactions.
 Version 1.1.0, March 2011.              Requirements: Systems must be
                                          available 86 percent per
                                          calendar week, and regular
                                          downtime must be published.
------------------------------------------------------------------------

[[Page 40467]]

              Table 4--The CAQH Core Phase II Version 5010
------------------------------------------------------------------------
                  Rule                       High level requirements
------------------------------------------------------------------------
Phase II CORE 250: Claim Status Rule,    Goal: Promote increased
 Version 2.1.0, March 2011.               availability and usage of the
                                          health care claim status
                                          transaction through rules for
                                          real-time and batch response
                                          times, system availability,
                                          and connectivity.
                                         Requirements: Application of
                                          real-time and batch response
                                          times, system availability,
                                          and connectivity rules for
                                          health care claim status
                                          transactions, which were
                                          derived from the eligibility
                                          Phase I infrastructure rules.
Phase II CORE 258: Eligibility and       Goal: Improve patient matching.
 Benefits 270/271 Normalizing Patient    Requirements: Normalize the
 Last Name Rule, Version 2.1.0, March     submitted and stored last name
 2011.                                    (e.g., remove special
                                          characters, suffixes/prefixes)
                                          before trying to match.
Phase II CORE 259: Eligibility and       Goal: Provide better
 Benefits 270/271 AAA Error Code          information on why a match did
 Reporting Rule, Version 2.1.0, March     not occur in an eligibility
 2011.                                    for a health plan request.
                                         Requirements: Return specified
                                          AAA codes for each error
                                          condition.
Phase II CORE 260: Eligibility &         Goal: Provide additional
 Benefits Data Content (270/271) Rule,    financial responsibility/
 Version 2.1.0 , March 2011.              patient liability information
                                          in response to an inquiry and
                                          support more high volume
                                          service type codes.
                                         Requirements: Includes
                                          remaining deductible amount
                                          (plus static copay and
                                          coinsurance information) in
                                          response to an eligibility for
                                          a health plan inquiry, along
                                          with 39 additional service
                                          type codes beyond the service
                                          type codes provided in Phase
                                          I.
Phase II CORE 270: Connectivity Rule,    Goal: Provide more
 Version 2.2.0, March 2011.               comprehensive connectivity
                                          specifications to further
                                          interoperability.
                                         Requirements: Includes
                                          requirements for two message
                                          envelope standards submitter
                                          authentication (i.e., username/
                                          password, digital
                                          certificates) and metadata.
------------------------------------------------------------------------

    In 45 CFR 162.103, we provide that a standard transaction means ``a 
transaction that complies with an applicable standard adopted under 
this part.'' In this interim final rule with comment period we are 
adopting operating rules and requiring that covered entities comply 
with those operating rules when conducting a transaction for which we 
have adopted a standard. In order to reflect that requirement in 
regulation text, in part, we need to modify the definition of standard 
transaction to be clear that a standard transaction is one that 
complies with the adopted standard and the adopted associated operating 
rule. Therefore, we are amending the definition of standard transaction 
at 45 CFR 162.103. See the ``Additional Requirements'' section for 
discussion of this change.
    In the following sections, we identify and discuss several specific 
CAQH CORE operating rule requirements that we believe require further 
explanation. These include acknowledgements, certification, and the use 
of the CAQH CORE companion guide template. We believe these topics 
require additional explanation because in this interim final rule with 
comment period, we are not adopting the operating rules that pertain to 
acknowledgements or the requirements within the adopted operating rules 
that pertain to acknowledgements, nor are we adopting the CAQH CORE 
certification policies. Additionally, we believe we need to be 
especially clear that we are adopting the CAQH CORE companion guide 
template to avoid any confusion as to whether the companion guide 
template is included as part of the companion guide rules under CAQH 
CORE Phase I and Phase II rules we are adopting.
a. Acknowledgements Operating Rules
    Acknowledgements are responses transmitted by EDI that inform 
submitters whether or not their transaction has been received or if 
there are problems with the transaction. The use of acknowledgements 
adds a great deal of value to the underlying transactions for which 
they are sent by informing the sender that a transaction has been 
received or has been rejected. Without acknowledgements, it is 
difficult for the sender to know whether the intended recipient 
received the transmission, which often results in the sender repeatedly 
querying the intended receiver as to the status of the transmission.
    In the February 2010 report to the NCVHS, the Designated Standards 
Maintenance Organization (DSMO), which receives and processes requests 
for adopting new standards or modifying adopted standards recommended 
that the NCVHS consider acknowledgements for adoption as HIPAA 
transactions, using the Version 5010 999, 271, 277, and TA1 standards. 
In the DSMO recommendation, it was noted that acknowledgements help the 
health care industry better reconcile the status of transmitted EDI 
transactions, especially when sending claims and remittance 
transactions. The transaction sender benefits from knowing that the 
receiving party has successfully received the transaction or has 
encountered errors that need to be reconciled.
    We have received anecdotal reports of wide-spread industry use of 
acknowledgements on a voluntary basis, and we understand that 
provisions for acknowledgements are contained in many health plans' 
companion guides. It is our understanding also that the health care 
industry has long supported, and even anticipated, the adoption of an 
acknowledgement transaction standard under HIPAA. The CAQH CORE 150 and 
151 rules (updated for Version 5010) specifically pertain to requiring 
the use of the Version 5010 999, 271, and 277 acknowledgements. 
Additionally, the use of acknowledgements is referenced throughout many 
of the other CAQH CORE rules adopted in this interim final rule with 
comment period, including the CORE v5010 Master Companion Guide 
Template.
    Section 1173(a)(4)(A)(iii) of the Act, as added by section 1104(b) 
of the Affordable Care Act, provides that standards and associated 
operating rules shall ``provide for timely acknowledgement, response, 
and status reporting that supports a transparent claims and denial 
management process (including adjudication and appeals).'' This new 
provision is an indication of Congress' recognition of the important 
role acknowledgements play in EDI.

[[Page 40468]]

Although we are not requiring compliance with any of the CAQH CORE rule 
requirements regarding acknowledgements, we are addressing the 
important role acknowledgements play in EDI by strongly encouraging the 
industry to implement the acknowledgements requirements in the CAQH 
CORE rules we are adopting herein. We reflect the exclusion of the 
requirement to use acknowledgments in regulation text at Sec.  162.1203 
and Sec.  162.1403.
    Until such time as the Secretary adopts a standard for 
acknowledgments, we support the industry's ongoing voluntary use of 
acknowledgements and encourage even more widespread use. We welcome 
industry and stakeholder comments on this topic.
b. CAQH CORE Operating Rules Certification
    Currently, the CAQH CORE administers a voluntary certification 
process, for a fee. Once the entity passes the certification 
requirements, the CAQH CORE assigns the status of ``CORE-certified 
Entity'' and requires those entities to adhere to the CAQH CORE 
policies. The CAQH CORE operating rules are free and available for 
voluntary use today, and any trading partner, including providers, can 
opt to use them, they would simply not be able to claim that they were 
``CORE certified entities.''
    Throughout the CAQH CORE rules we are adopting, there are also many 
references to CORE certification. For example, the rules reference 
CORE-certified entity, CORE-authorized testing vendor, CORE-certified 
participant, and the like. In many places, the rules describe what is 
required for the successful completion of the approved CORE test suite, 
CORE testing requirements, etc. In this interim final rule with comment 
period, we are not requiring covered entities to obtain the CAQH CORE 
certification or to adhere to the CAQH certification policies for Phase 
I and Phase II operating rules. We want to be clear that we are not 
requiring compliance with any aspect of CORE certification.
    We note that section 1173(h)(1)(A) of the Act (as added by section 
1104(b)(2) of the Affordable Care Act) requires that health plans 
certify to the Secretary no later than December 31, 2013 that they are 
in compliance with any applicable HIPAA standards and associated 
operating rules for the eligibility for a health plan, health care 
claim status, and health care payment and remittance advice 
transactions. Until we develop a certification process in accordance 
with section 1173(h) of the Act specifying health plan compliance 
requirements, health plans and all other covered entities are not 
required to certify compliance with the CAQH CORE Version 5010 
operating rules we are adopting. We reflect the exclusion of CORE 
certification in regulation text at Sec.  162.1203 and Sec.  162.1403.
c. Use of the CAQH CORE Companion Guide Template
    During the July 2010 NCVHS hearing, the NCVHS also heard testimony 
concerning the continued use of companion guides when operating rules 
are adopted. The NCVHS indicated that it does not wish to encourage the 
perpetual use of companion guides, which subvert the goals of 
administrative simplification; however, it acknowledged that companion 
guides may continue to be necessary for proprietary information, 
transmission instructions, and other limited business purposes, and 
will likely never be totally replaced by operating rules or updated 
versions of the standards.
    The NCVHS recommended that the Secretary require that any companion 
guides deemed necessary by health plans not conflict with the HIPAA 
standards, implementation specifications and operating rules, and that 
they follow a standard format and content agreed upon by industry 
consensus across all sectors. The NCVHS stated that companion guides 
should be limited to providing basic trading partner, including 
providers, facts, such as contact information, Web sites, service phone 
numbers, and other necessary information for conducting business, etc.
    With input from health plans, system vendors, provider 
representatives and healthcare/HIPAA industry experts, the CAQH CORE 
has developed a companion guide template as part of their Phase I and 
Phase II operating rules (updated for Version 5010) that organizes 
information into several simple sections and gives health plans the 
flexibility to tailor the document to meet their particular needs. The 
CORE 152: Eligibility and Benefit Real Time Companion Guide Rule states 
that the ASC X12 005010X279A1 Eligibility Benefit Request and Response 
(270/271) transactions must follow the format/flow as defined in the 
CORE v5010 Master Companion Guide Template. The CORE 250: Claim Status 
Rule (updated for Version 5010) includes a requirement that entities 
using the ASC X12N/005010X212 Health Care Claim Status Request and 
Response (276/277) transactions must follow the format/flow as defined 
in the Phase I CORE 152, which is the CORE v5010 Master Companion Guide 
Template. The CAQH CORE companion guide template can be found on the 
CAQH CORE Web site at http://www.caqh.org/pdf/CLEAN5010/MasterCompGuidTemp-Version 5010.pdf.
    We are requiring that covered entities that use or plan to use 
companion guides comply with the CORE 152 and CORE 250 rules 
requirement to use the CORE v5010 Master Companion Guide Template for 
the eligibility for a health plan and health care claim status 
transactions.
d. Updates to Standards and Operating Rules
    Section 1173(i) of the Act provides for the establishment of a 
review committee for the purposes of reviewing and amending the adopted 
standards and operating rules. It calls for a hearing of this review 
committee no later than April 2014 and not less than biennially 
thereafter as well as a report outlining recommendations for updating 
and improving the standards and operating rules. Per the statute, this 
review committee can include the NCVHS, or any appropriate committee as 
determined by the Secretary.
    Additionally, section 1173(a)(5) of the Act provides for the 
solicitation of input from the NCVHS and the Health Information 
Technology Standards Committee, as well as the standards setting 
organizations and stakeholders as determined appropriate by the 
Secretary for the purposes of describing ``(i) whether there could be 
greater uniformity in financial and administrative activities and 
items, as determined appropriate by the Secretary; and (ii) whether 
such activities should be considered financial and administrative 
transactions * * * for which the adoption of standards and operating 
rules would improve the operation of the health care system and reduce 
administrative costs.''
    Finally, we note that this interim final rule with comment period 
does not specify the timing or the process for updating operating 
rules. The timing and process for updating these, as well as future 
operating rules will be forthcoming.
e. Additional Information
    The current definition of standard at 45 CFR 160.103 is written so 
broadly that it could include operating rules as we are defining that 
term at Sec.  162.103. However, as we have determined that operating 
rules are separate and distinct from standards, and that standards do 
not encompass operating rules, we believe it is necessary to revise the 
definition of standard to specifically

[[Page 40469]]

exclude operating rules. Therefore, we have amended the definition of 
standard at Sec.  160.103 to exclude operating rules.
    Currently, 45 CFR 162.103 provides that a standard transaction 
means ``a transaction that complies with an applicable standard adopted 
under this part.'' In this interim final rule with comment period we 
are adopting operating rules and requiring covered entities to comply 
with those operating rules when conducting a transaction for which we 
have adopted a standard. We believe it is necessary to revise the 
definition of a standard transaction in order to be clear that a 
standard transaction is one that uses the adopted standard as well as 
the adopted operating rule for that transaction. Therefore, we are 
amending the definition of a standard transaction at 45 CFR 162.103 to 
mean ``a transaction that complies with an applicable standard and 
associated operating rules adopted under this part.''
    Section 1173(a)(4)(A)(iv) of the Act provides that the standards 
and associated operating rules must ``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).'' We interpret this provision to mean that covered entities may 
not require additional data conditions of their trading partners, 
including providers, outside of those already included in the adopted 
standards and associated operating rules, except where it is necessary 
to implement State or Federal law, or to protect against fraud and 
abuse. Our regulations at 45 CFR 162.915 already place restrictions on 
covered entities with regard to what they may require of their trading 
partners including providers, concerning standards. Currently, under 
Sec.  162.915(a), covered entities may not enter into a trading partner 
agreement that would change the definition, data condition, or use of a 
data element or segment in a standard. We do not need to do anything to 
incorporate the statutory requirement of section 1173(a)(4)(iv) of the 
Act into our regulations with regard to standards; however we believe 
it is appropriate to revise Sec.  162.915(a) to expand the restriction 
to include operating rules. Therefore, we are amending Sec.  162.915(a) 
to include operating rules. The law permits limited circumstances under 
which covered entities may require additional data conditions where 
necessary to implement State or Federal law, or to protect against 
fraud and abuse. Therefore, we are also amending Sec.  162.915(a) to 
reflect that narrow exception.
f. Conclusion
    Based on our analysis of the CAQH CORE operating rules and the 
recommendations of the NCVHS, and for the reasons provided in the 
previous discussions, we are adopting the CAQH CORE operating rules 
(updated for Version 5010), including the companion guide template, for 
the non-retail pharmacy eligibility for a health plan and health care 
claim status transactions, as reflected at 45 CFR 162.920, 162.1203, 
and 162.1403. We are not requiring compliance with any of the 
requirements of the operating rules that pertain to the use of 
acknowledgements and CAQH CORE certification.
2. NCPDP Telecommunication Standard Implementation Guide Version D.0 
Operating Rules for Retail Pharmacy Transactions
    In its testimony before the NCVHS, the NCPDP stated that the NCPDP 
Version D.0 standard represents retail pharmacy industry consensus on 
clarification of transactions, data elements, data values, and 
situations of usage. Additionally, the NCPDP testified at the July 2010 
NCVHS hearing that it also publishes a free NCPDP Version D.0 Editorial 
document, which is updated quarterly, and contains frequently asked 
questions, examples, and further clarifications, as well as addresses 
Medicare Part D prescription drug program needs that the industry 
brings forward. As business requirements change, as clarifications are 
needed, and as questions are asked, the NCPDP has indicated that, where 
possible, the information in the NCPDP Version D.0 Editorial will be 
incorporated into future versions of the NCPDP Version D.0 standard to 
further support ongoing retail pharmacy business needs.
    The NCPDP formally requested that the NCVHS recommend to the 
Secretary that the NCPDP Version D.0 standard be adopted as the 
operating rule for use with the retail pharmacy eligibility for a 
health plan transaction, and the NCVHS included this recommendation in 
its September 30, 2010 letter to the Secretary.
    The pharmacy industry has long been utilizing NCPDP standards to 
conduct electronic transactions. These standards provide for real-time 
claims adjudication, eligibility and benefit verification, real-time 
ordering by the physician, and sharing of medication history. We 
believe that the NCPDP Version D.0 standard itself provides enough 
detail and clarity to operationalize the standards to the point where 
no gaps exist that operating rules would need to fill, so that no 
further infrastructure or data content rules need to be adopted at this 
time. Additionally, we believe that the NCPDP Version D.0 standard 
already fulfills the purposes and principles of sections 1173(a)(4)(A) 
and (B) of the Act so that the adoption of operating rules to 
supplement or enhance the standard is not appropriate at this time.

III. Effective and Compliance Dates

    Section 1173(g)(4)(B)(i) of the Act states that ``[t]he set of 
operating rules for eligibility for a health plan and health claim 
status transactions shall be adopted not later than July 1, 2011, in a 
manner ensuring that such operating rules are effective not later than 
January 1, 2013.'' In each of our previous HIPAA rules, the date on 
which the rule was effective was the date on which the rule was 
considered to be established or adopted, or, in other words, the date 
on which adoption took effect and the CFR was accordingly amended. 
Typically, the effective date of a rule is 30 or 60 days after 
publication in the Federal Register. Under certain circumstances the 
delay in the effective date can be waived, in which case the effective 
date of the rule may be the date of filing for public inspection or the 
date of publication in the Federal Register.
    The effective date of standards, implementation specifications, 
modifications, or operating rules that are adopted in a rule, however, 
is different than the effective date of the rule. The effective date of 
standards, implementation specifications, modifications, or operating 
rules is the date on which covered entities must be in compliance with 
the standards, implementation specifications, modifications, or 
operating rules. Here, the Act requires that the operating rules be 
effective not later than January 1, 2013. This means that covered 
entities must be in compliance with the operating rules by January 1, 
2013. If we receive comments that compel us to change any of the 
policies we are finalizing in this interim final rule with comment 
period, we will seek to finalize any such changes by January 1, 2012, 
to allow sufficient time for industry preparation for compliance.

IV. Waiver of Proposed Rulemaking

    Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), we 
are required to publish a notice of proposed rulemaking in the Federal

[[Page 40470]]

Register. In addition, the APA mandates a 30-day delay in the effective 
date. Sections 553(b) and (d) of the APA provide for an exception from 
these APA requirements. Section 553(b)(B) of the APA authorizes an 
agency to dispense with normal rulemaking requirements for good cause 
if the agency makes a finding that notice and comment procedures are 
impracticable, unnecessary, or contrary to the public interest. Section 
553(d)(3) of the APA allows the agency to avoid the 30-day delay in 
effective date where the agency finds good cause to do so and includes 
a statement of support.
    Subsection (C) of section 1173(g)(4) of the Act is titled 
``Expedited Rulemaking'' and provides that ``[t]he Secretary shall 
promulgate an interim final rule applying any standard or operating 
rule recommended by the [NCVHS] pursuant to paragraph (3). The 
Secretary shall accept and consider public comments on any interim 
final rule published under this subparagraph for 60 days after the date 
of such publication.'' It is clear to us the statute intends that the 
ordinary notice and comment rulemaking procedures of the APA do not 
apply here. We are statutorily required to proceed with an interim 
final rule with comment period, which means we are compelled by the 
statute to dispense with normal APA notice and comment procedures. In 
light of the statutory requirement for us to publish an IFC for the 
adoption of these operating rules, we conclude that it is unnecessary 
for us to undertake ordinary notice and comment procedures and 
therefore, for good cause, we waive them. In accordance with the 
requirements of section 1173(g)(4)(C) of the Act, we are providing a 
60-day public comment period.
    We also find good cause for waiving the 30-day delay in the 
effective date of this interim final rule with comment period. The 30-
day delay is intended to give affected parties time to adjust their 
behavior and make preparations before a final rule takes effect. 
Sometimes a waiver of the 30-day delay in the effective date of a rule 
directly impacts the entities required to comply with the rule by 
minimizing or even eliminating the time during which they can prepare 
to comply with the rule. That is not the case here. In this case, 
covered entities are not required to comply with the adopted operating 
rules until January 1, 2013, nearly one-and-one-half years after the 
publication of this interim final rule with comment period; a waiver of 
the 30-day delay in the effective date of the rule does not change that 
fact. A waiver is in fact inconsequential here to covered entities--
their statutorily-prescribed date of compliance remains January 1, 
2013. Because we believe the 30-day delay is unnecessary, we find good 
cause to waive it.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information is submitted to the Office 
of Management and Budget (OMB) for review and approval. In order to 
fairly evaluate whether an information collection should be approved by 
OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995 
requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following section of this document that contains information collection 
requirements (ICRs): Specifications: Companion Guides Template.
    In current practice, companion guides are developed by individual 
health plans and require providers to adhere to different transaction 
implementation rules for each health plan. Health plans have created 
these companion guides to describe the specifics of how they implement 
the HIPAA transactions and how they will work with their trading 
partners. Health plans' companion guides vary not only in format and 
structure, but also in size, being anywhere from a few to 60 pages or 
more. Such variances can be confusing to trading partners and providers 
who must implement them along with the standard implementation guides, 
and who must refer to different companion guides for different health 
plans. As previously stated, there are currently more than 1,200 such 
companion guides in use today.
    Use of the CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule and the CORE 250: Claim Status Rule, two of the operating 
rules adopted in this interim final rule with comment period provide a 
standard template/common structure that health plans must use that is 
more efficient for providers to reference, given the multiple industry 
companion guides they must consult today.
    The increasing use of health care EDI standards and transactions 
has raised the issue of the applicability of the PRA. The OMB has 
determined that this regulatory requirement (which mandates that the 
private sector disclose information and do so in a particular format) 
constitutes an agency-sponsored third-party disclosure as defined under 
the PRA.
    The burden associated with the requirements of this interim final 
rule with comment period, which is subject to the PRA, is the initial 
onetime burden on health plans to use a standardized template for 
companion guides. The burden associated with the routine or ongoing 
maintenance of the information reported in the standard template format 
for companion guides is exempt from the PRA as defined in 5 CFR 
1320.3(b)(2).
    Based on the assumption that the burden associated with systems 
modifications that need to be made to implement the standard template 
for companion guides may overlap with the systems modifications needed 
to implement other HIPAA standards, and the fact that the standard 
template for companion guides will replace the use of multiple 
companion guides, resulting in an overall reduction of burden for 
providers, commenters should take into consideration when drafting 
comments that: (1) One or more of these current companion guides may 
not be used; (2) companion guide modifications may be performed in an 
aggregate manner during the course of routine business; and/or (3) 
systems modifications may be made by contractors such as practice 
management vendors, in a single effort for a multitude of affected 
entities.
    Health plans that issue companion guides do so, in part, to direct 
providers on how to implement the ASC X12 and, in the case of the NCPDP 
standards, they issue payer sheets specific to their requirements and 
often times provide other plan-specific information, such as contact 
information, address, etc. It is expected that even with the advent of 
operating rules, companion guides will never be completely eliminated, 
but the companion guides themselves may be greatly reduced in size and 
complexity as a result of the use of operating rules. The companion 
guide templates serve the purpose of providing a uniform structure for 
health plans to use when preparing companion guides. The use of these 
templates by health plans currently issuing companion guides is 
considered to be a one-time action and is considered a permanent 
standard

[[Page 40471]]

template for a health plan companion guide.
    The information collection burden associated with this interim 
final rule with comment period is for the costs for adapting a health 
plan companion guide(s) to the CORE v5010 Master Companion Guide 
Template, 005010, 1.2, March 2011 as required by the CAQH CORE 
operating rules for the eligibility for a health plan and health care 
claim status standard transactions. This is a one-time burden on health 
plans that will commence no later than January 1, 2013, the date by 
which HIPAA covered entities must be using the adopted operating rules 
for eligibility for a health plan and health care claim status 
transactions.
    Common practice in the industry is for companion guides to be 
published as electronic documents and updated periodically in the 
routine course of business. Companion guides are posted to and made 
available on health plan Web sites trading partners, including 
providers, to access; therefore, printing and shipping costs are not 
considered. As the transition to the template is a one-time 
requirement, we do not estimate any ongoing labor costs associated with 
the use of this template beyond the initial first year conversion. We 
have estimated the one-time conversion to the template will cost 
industry $3,028,000. Our calculations were determined as follows:
    The current length of health plan companion guides related to the 
eligibility for a health plan and health care claim status 
transactions, is anecdotally estimated at anywhere from just a few, to 
60 or more pages. We estimate it will take a health plan staff person, 
most likely a technical writer, from 1 to 4 hours per page to reformat 
companion guides into the standard template for companion guides. This 
burden would involve re-entering of information, reconfiguration of the 
sequence in which information appears, addition of information, and 
other word processing and related tasks. It also would require specific 
technical knowledge, such as expertise in the Version 5010 standard 
transactions. We estimate that a technical writer, at an estimated 
hourly salary rate of $31.55, would make these revisions. Using the 
high estimate obtained in testimony to the NCHVS by the American 
Medical Association of 1,200 companion guides currently in use, we 
calculate an estimated average of 40 pages, (48,000 responses) at an 
average rate of 2 hours per page (1,200 guides x 40 pages x 2 hours per 
page x hourly rate of $31.55), for a one-time burden of $3,028,800 
across the industry for health plans that issue companion guides to 
adopt the standard template for health plan companion guides. As 
existing word processing capabilities would be used for this task, we 
do not anticipate any software, hardware or other specialized equipment 
to be purchased and/or maintained for this specific purpose.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this interim final rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-0032-IFC; Fax: (202) 395-6974; or E-mail: OIRA_submission@omb.eop.gov.

VI. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, 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, if we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

VII. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this interim final rule with 
comment as required by Executive Order 12866 on Regulatory Planning and 
Review (September 30, 1993), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354) (as amended by the Small Business 
Regulatory Enforcement Fairness Act of 1996, Pub. L. 104-121), section 
1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)).
    We have prepared a Regulatory Impact Analysis that, to the best of 
our ability, presents the costs and benefits of this interim final rule 
with comment period. Executive Orders 12866 and 13563 direct 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). 
Executive Order 13563 emphasizes the importance of quantifying both 
costs and benefits, of reducing costs, of harmonizing rules, and of 
promoting flexibility. Executive Order 13563 also directs agencies to 
not only engage public comment on all regulations, but also calls for 
greater communication across all agencies to eliminate redundancy, 
inconsistency and overlapping, as well as outlines processes for 
improving regulation and regulatory review.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million in 1995 dollars or 
more in any 1 year). This rule has been designated an ``economically'' 
significant regulatory action, under section 3(f)(1) of Executive Order 
12866 as it will have an impact of over $100 million on the economy in 
any 1 year. Accordingly, the rule has been reviewed by the Office of 
Management and Budget. We anticipate that the adoption of these 
operating rules would result in benefits that outweigh the costs to 
providers and health plans.
    Our Regulatory Impact Analysis also meets the various requirements 
of the Unfunded Mandates Reform Act of 1995 (URMA). Section 202 of the 
URMA requires that agencies assess the anticipated costs and benefits 
before issuing any rule whose mandate requires spending in any 1 year 
of $100 million in 1995 dollars, updated annually for inflation in any 
1 year by State, local, or Tribal governments, in the aggregate, or by 
the private sector. That threshold level is currently approximately 
$136 million. Based on our analysis, we anticipate that the private 
sector would incur costs exceeding $136 million per year in the first 2 
years following publication of the rule.
    In addition, under section 205 of the UMRA (2 U.S.C. 1535), having 
considered at least three alternatives that are referenced in the RIA 
section of this rule, HHS has concluded that the provisions in this 
rule are the most cost-effective alternative for implementing HHS' 
statutory obligation of administrative simplification.

B. Current State, Need for Mandated Operating Rules and General Impact 
of Implementation

    Based on the current environment, there is a need for operating 
rules. When a patient calls to set up an appointment with a provider, 
or comes into the office or hospital for an appointment, a staff member 
will often verify the patient's eligibility, coverage, and cost-sharing 
requirements. However, not all

[[Page 40472]]

providers will verify the eligibility of their patients, and even for 
providers' offices that do, often just a subset of patients are 
verified. Some providers, however, do not conduct eligibility 
verification at all, and a claim is submitted to the health plan 
without an eligibility inquiry.
    Eligibility verification is done in a variety of ways including the 
following:
     Accessing patient ``eligibility'' information via a health 
plan's secure Web site.
     Telephone.
     The ASC X12 270 eligibility for a health plan inquiry. 
This is an electronic data interchange (EDI).
    After an actual claim has been submitted to a health plan, the need 
sometimes arises for a provider to follow-up on the claim regarding 
where it is in the payment process. This is called a claim status 
inquiry and, again, this inquiry is conducted via Web site, telephone, 
or through EDI.
    Currently, many providers do not use EDI at all as a means to 
conduct these two transactions and, of those that do, do not 
necessarily conduct them through EDI for every patient. Rather, most 
providers that use EDI transactions to verify a patient's eligibility 
or claim status also use telephone or other means.
    In a larger context, most providers use EDI, but only for some 
transactions. For instance, according to the Healthcare Efficiency 
Index and the Oregon Study, over 75 percent of health care claims are 
now submitted by providers through EDI.
    Because of the infinite number of variations of a specific 
provider's use of EDI, it is very difficult to determine the following: 
(1) the number of providers who use the eligibility for a health plan 
or the claim status transactions (or any other specific transaction) 
via EDI; and (2) the percent of eligibility for a health plan or claim 
status transactions that the average provider makes through EDI. 
However, studies have estimated the total number of electronic 
transactions conducted by all providers, even at the level of a 
specific transaction, and we will use such estimates to arrive at our 
saving assumptions.
    We assume that most providers have the technological capacity to 
perform EDI (or have hired a trading partner with that capacity). We 
base this assumption on-- (1) the high percentage of claim submissions 
that are conducted through EDI; (2) responses to the Oregon study from 
providers indicating that 96 percent of hospitals and 93 percent of 
ambulatory clinics (that is, physicians offices) are ready or would be 
ready for EDI transactions within 2 years; and (3) the impact analysis 
in the Modifications proposed rule (73 FR 49757 through 49790) that, 
through industry interviews, stated ``we do not believe that the number 
of providers who have no electronic capability is very high.''
    There are a number of studies that have illustrated the benefits 
and savings in conducting EDI in contrast to manual or paper-based 
transactions. We have noted a number of them in the Impact Analysis 
Resources section in this interim final rule with comment period. The 
basic idea is that systems can conduct these transactions faster, less 
expensive, and more accurate than human intervention. Specific to our 
purpose, it is faster, less expensive, and more accurate than human 
intervention for a provider's system to communicate with a health 
plan's system to verify the eligibility of a patient or check the 
status of a claim.
    So, why do not the majority of providers who have EDI capacity: (1) 
Use EDI to conduct the eligibility for a health plan or the claim 
status transaction; or (2) verify all their patients' eligibility 
through EDI instead of just a few? In the Oregon Survey, the most 
robust study with regard to a provider environment, 87 percent of 
hospitals and 60 percent of physician clinics said that the barrier to 
using the electronic eligibility for a health plan transaction is that 
health plans ``do not provide enough information in response to this 
type of inquiry.'' This was the most frequently selected response among 
the providers surveyed. In addition, 16 percent of hospitals and 20 
percent of physician clinics stated that the barrier was that health 
plans ``do not provide fast enough responses.''
    The June 22, 2009 AMA document entitled ``Standardization of the 
Claims Process: Administrative Simplification White Paper'' 
(hereinafter referred to as the 2009 AMA White Paper) describes the 
importance of a robust response in the eligibility for a health plan 
transaction: ``Receiving an explicit answer can quickly assist in 
patient scheduling, billing the appropriate payer with financial 
responsibility for the service, communicating the patient's financial 
responsibility and reducing the number of denied claims which the 
physician practice must manually handle.'' (http://www.ama-assn.org/ama1/pub/upload/mm/368/admin-simp-wp.pdf)
    The picture that emerges is that providers conduct the electronic 
eligibility for a health plan transaction only with health plans that 
return robust eligibility information and return the response quickly. 
If a provider's staff will get more and faster eligibility information 
out of a specific health plan by picking up the phone or looking up the 
patient online, then the manual transaction will be used instead of the 
electronic transaction.
    In terms of the claim status inquiry, we know that the average 
providers' office telephones the health plan in order to check on claim 
status. The ``Health Care Administration Expense Analysis'', produced 
by the State of Washington Office of the Insurance Commissioner, found 
that 37 percent of the telephone calls from providers to the State's 
largest insurer were claim status inquiries (costing the plan $4 
million a year on staffing costs to answer only claim status calls) 
(Health Care Administration Expense Analysis: Blue Ribbon Commission 
Recommendation 6, Final Report, 11-16-2007, http://www.insurance.wa.gov/consumers/documents/BRC_Efficiencies_Report.pdf.) Other studies indicate that less than 40 percent of all 
claim status inquires are conducted electronically. Although we do not 
have direct data that informs the reasons why providers use the 
telephone instead of EDI for claim status inquiries, we can assume that 
the same dynamic as the eligibility verification is at play: If the 
electronic transaction is slower and produces less information, than a 
manual process will be used instead.
    Operating rules address this need for more and faster information. 
As noted in the provision section, this interim final rule with comment 
period is adopting specific operating rules with requirements regarding 
response times and robust responses about a patient's eligibility from 
health plans.
    A number of extensive surveys, both private and governmental, have 
reinforced the causal link between requiring health plans to return 
fast, robust responses to the eligibility for a health plan electronic 
request and an increased use in the transaction itself. In its Blue 
Ribbon report, the state of Washington reported that less than 9 
percent of eligibility verification requests are conducted 
electronically in the state, while the state of Utah reported closer to 
50 percent usage. The report credited Utah's adoption rate with the 
State having an ``enhanced transaction'' in place for the eligibility 
verification in which providers are told exactly the benefits a 
particular patient has. The report concluded that ``improving the 
enhanced message [of the eligibility for a health plan response]* * * 
will greatly improve this area of administration.''
    The Oregon Survey explicitly expressed the causal link between

[[Page 40473]]

``standardizing the standard'' and greater use of EDI by concluding 
from its research that ``the healthcare industry is unlikely to take 
major strides toward automated processes until there is greater 
standardization of the methods for conducting the transactions 
electronically.''
    The 2009 AMA White Paper also speaks to providers' need for robust 
health plan responses to the eligibility for a health plan transactions 
and how such a response would affect providers: ``Such information 
would also be extraordinarily valuable to physicians to ensure accurate 
and timely payment, and this value would encourage wide-spread 
utilization of the standard transactions by physicians and increased 
physician automation. The AMA strongly supports the efforts of the 
Council on Affordable Quality Healthcare Committee on Operating Rules 
for Information Exchange [CAQH CORE] to not only expand the value of 
the eligibility standard transaction but also continue its efforts of 
adding value to electronic remittance advice and other standard 
transactions * * *''
    The IBM study demonstrates that electronic eligibility for health 
plan transactions would increase with use of operating rules. The study 
illustrates that providers' use of the eligibility for a health plan 
transaction increases on two levels after operating rules are adopted. 
First, more patients as a whole are having their eligibility verified, 
either electronically or otherwise. Second, there is an increased use 
of the electronic transaction. The participating health care entities 
in the study reported increases in use of the eligibility for a health 
plan electronic transaction at the average rate of 33 percent in the 
first year after adopting CORE Phase I rules--a rate that participants 
of the study credited to operating rules. Additionally, the IBM study 
showed that providers saw on average 20 percent increase of patients 
verified prior to a visit, significantly reducing practice 
administrative and financial burden at the point of care.
    On a more general level, in both the Transactions and Code Sets 
final rule and the update to the standards in the Modifications final 
rule, the savings analysis has been based on the increased use of 
electronic transactions due to the implementation of standards (in the 
Transactions and Code Sets final rule) and increased use of electronic 
transactions due to improved standards (in the Modifications final 
rule). The cost benefit of both these rules rested on the causal 
relationship between improved standards and the predicted increased use 
of EDI (and the cost savings that use of EDI brought with it). The 
impact analysis for this interim final rule with comment period rests 
on the same causality, except that we are more specific in how 
operating rules cause increased use of electronic transactions.
    As an example, the need for more robust and faster response to the 
eligibility for a health plan transaction has been realized by states 
seeking to reduce the administrative costs of health care in general. 
In the ``Health Care Administration Expense Analysis,'' required by 
Colorado state law and developed under the state's Commissioner of 
Insurance, recommendations included requiring all health plans and 
providers to use CAQH CORE Phase I and II data content and 
infrastructure rules for the eligibility for a health plan and the 
claim status transactions ``as a means of streamlining and 
standardizing administrative interoperability between plans and 
providers.'' (Senate Bill 08-135 Work Group to Develop Standardized 
Electronic Identification System for Health Insurance: Final Report and 
Recommendations. September 3, 2009; http://caqh.org/Host/CORE/SB135_COreport.pdf)
    As well, Minnesota has a set of companion guides for the HIPAA 
standard transactions. These companion guides are analogous to the 
operating rules developed by the CAQH CORE in that they are intended to 
standardize ``administrative processes when implementation of the 
processes will reduce administrative costs.'' We have already mentioned 
initiatives and reports by Oregon and Washington that seek to achieve 
similar savings. (http://www.health.state.mn.us/auc/mn270271guide.pdf).
    It is evident that both state governments and private industry 
recognize the cost advantage to operating rules and similar ``enhanced 
transaction'' business rules to accompany the HIPAA standard 
transactions, in this case with regard to the eligibility for a health 
plan transaction. However, both state governments and private industry 
recognized the need for the adoption of operating rules on the Federal 
level because of the clear advantages to a faster adoption by all 
covered entities that a Federal mandate would engender. As illustrated 
by the numerous State and private initiatives, there is the danger 
that, without Federally mandated operating rules, different sets of 
``operating rules'' will emerge, on a State by State or health plan by 
health plan basis. In such a case, both plans and providers would have 
to continue to customize their EDI transactions depending on the 
operating rules required under a particular state or contract.
    As well, some health care entities may be slow to adopt and 
implement any ``operating rules'' voluntarily for fear that the Federal 
government, or a particular State government, will adopt ``operating 
rules'' that require a new set of implementation requirements with 
associated costs.
    Finally, most providers now have to conduct transactions such as 
the eligibility for a health plan and the claim status transaction 
through two different processes, electronic and manual and paper-based, 
depending on the health plan that covers the patient or processes the 
claim. As long as some health plans continue to conduct standard 
transactions that are not fast or robust enough for providers' needs, 
providers may continue to conclude that manually processing all such 
transactions is easier and more economical.

C. Regulatory Flexibility Analysis: Impact on Small Entities

    The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, 
requires agencies to describe and analyze the impact of the 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 
$7 million to $34.5 million in annual revenues or is a nonprofit 
organization. For details, see the SBA's Web site at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf (refer to 
Sector 62--Health Care and Social Assistance). (Accessed 2-1-11).
    For the purposes of this analysis (pursuant to the RFA), nonprofit 
organizations are considered small entities; however, individuals and 
States are not included in the definition of a small entity. We 
attempted to estimate the number of small entities and provided a 
general discussion of the effects of this interim final rule with 
comment period, and where we had difficulty, or were unable to find 
information, we solicited industry comment. We discuss the impact of 
the rule on small entities in section VII.K. of this interim final rule 
with comment period.
    As well, section 1102(b) of the RFA requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the

[[Page 40474]]

RFA. For purposes of section 1102(b) of the RFA, we define a small 
rural hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. (See the discussion at 
section VII.K. of this interim final rule with comment period for our 
discussion of the expected impact on small rural hospitals.)

D. Alternatives Considered

    In deciding to adopt operating rules for the eligibility for a 
health plan and the health care claim status transactions, we 
considered a number of alternatives, on which we solicit public and 
industry comments.
1. Do Not Adopt Operating Rules for Non-Retail Pharmacy Industry
    We considered this option, but determined that this would only be 
appropriate if operating rules for use in the health care industry were 
not available, or available and already in use on a voluntary basis. 
Per the aforementioned NVCHS hearings, public testimony and analysis, 
the NCVHS deemed that two authoring entities who came forward and 
applied to be candidates as authoring entities were qualified under the 
stipulations for the adoption of operating rules in the Affordable Care 
Act to act as authoring entities, namely the Council for Affordable 
Quality Healthcare's (CAQH) Committee on Operating Rules for 
Information Exchange (CORE) and the National Council for Prescription 
Drug Programs (NCPDP). The CAQH CORE offered operating rules that, with 
some exceptions, have been determined to be feasible for use with the 
eligibility for a health plan transaction, and the health care claim 
status transaction under HIPAA, as specified in the Affordable Care 
Act. The NCPDP also offered operating rules, which are already in use 
in all retail pharmacies by virtue of the pharmacies' use of the NCPDP 
Telecommunications standard Version 5.1, and which will be updated on 
January 1, 2012, when the update to this standard, NCPDP 
Telecommunications standard Version D.0, goes into effect. 
Additionally, not adopting any operating rules for the eligibility for 
a health plan transaction and health care claim status transaction, as 
required by the Affordable Care Act, would violate the Act's statutory 
requirements under section 1104(c) ``Promulgation of Rules'', which 
requires the Secretary to adopt operating rules for the two 
aforementioned electronic health care transactions by no later than 
July 1, 2011 with a compliance date of January 1, 2013.
2. Adopt Another Authoring Entity's Operating Rules
    As previously discussed in section II.B. of this interim final rule 
with comment period, section 1104(b)(3) of the Affordable Care Act 
amends section 1173(g)(3)(a) of the Act by charging the NCVHS with 
advising the Secretary as to whether a nonprofit entity meets the 
statutory requirements for developing the operating rules to be adopted 
by the Secretary, and outlines the entity's specific qualification 
requirements. Of those organizations testifying at the NCVHS hearing, 
two organizations formally requested to be considered authoring 
entities for operating rules, namely the CAQH CORE and the NCPDP.
    In its testimony before the NCVHS, the ASC X12, the standards 
development organization responsible for the development of the Version 
5010 standards for electronic health care transactions, expressed its 
support for the NCPDP being named as an operating rule authoring entity 
not only for the pharmacy industry, but for the entire health care 
industry (transcript of the July 20, 2010 NCVHS Subcommittee on 
Standards hearing at http://www.ncvhs.hhs.gov). The ASC X12's support 
was based upon their belief that--
     The NCPDP's ANSI-approved organization status supports 
consensus building and open participation;
     The infrastructure for the NCPDP is able to handle the 
development of operating rules in the associated workgroup task group 
without any modifications to procedures or processes;
     The NCPDP members are frequent users of the ASC X12 
standards and thus the NCPDP is familiar with them; and
     The pharmacy industry's growing experience with real-time 
eligibility, real-time claim status, and real-time submission of claims 
beyond pharmacy.
    Based on the ASC X12 testimony, the NCPDP stated that it would 
consider playing a larger role if the NCVHS deemed that there should 
only be one authoring entity, and would take on the role of more than 
just the NCPDP standards, as appropriate.
    However, with respect to the requirements for the operating rules 
themselves, neither the NCPDP nor the CAQH CORE met all of the 
requirements for operating rules for both health care segments. As 
noted earlier, the July 2010 NCVHS hearings were followed by a request 
from the NCVHS to each candidate to respond to a detailed questionnaire 
about the statutory requirements. The questionnaire solicited specific 
documentation to validate the testimony. Based on review of the CAQH 
CORE and the NCPDP submissions to this questionnaire the NCVHS 
determined, and we have concurred, that neither organization can 
unilaterally provide operating rules to support both retail pharmacy 
and non-retail pharmacy health care segments. The NCPDP naturally 
focuses on the NCPDP retail pharmacy standards, while the CAQH CORE has 
focused on the ASC X12 administrative health care transactions. While 
both entities have similar policies related to securing a consensus 
view of health care stakeholders and ensuring that rules are consistent 
with (and do not conflict with) other existing standards, neither 
organization has rules in place for both health care segments. While 
addressing the retail pharmacy industry's needs relative to operating 
rules, the NCPDP did not present to the NCVHS for their consideration 
any existing NCPDP operating rules to accommodate the ASC X12 
standards. The CAQH CORE has phases of operating rules that accommodate 
the ASC X12 standard for electronic health care transactions, but are 
not specific to retail pharmacy transactions.
3. Wait for Resolution of All Outstanding Technical and Administrative 
Issues Before Adopting the Operating Rules Developed by the Authoring 
Entities
    Both the CAQH CORE and the NCPDP demonstrated to the NCVHS that 
their operating rules were based upon broad public and stakeholder 
input. However, as previously discussed in section II. of this interim 
final rule with comment period, there are certain exceptions that exist 
with regard to our adoption of the CAQH CORE operating rules in their 
entirety. Upon analysis, we declined to adopt the CAQH CORE operating 
rules for the ASC X12 999 acknowledgement transaction, and the 
references to being ``CORE certified'' contained in the CAQH CORE 
Operating Rules as we have already described in section II.F. of this 
interim final rule with comment period. If we had opted to wait until 
the resolution of the administrative issues affecting the adoption of 
the entire CAQH CORE operating rules, it would seriously delay the 
health care industry's ability to begin to achieve the benefits of 
administrative simplification.
    Additionally, as described in section III of this interim final 
rule with comment period, we have declined to adopt the NCPDP business 
rules and guidelines as embedded in its NCPDP

[[Page 40475]]

Telecommunication Standard Version D.0, as they do not qualify as 
operating rules as defined in section II.A. of this interim final rule 
with comment period. The NCPDP business rules and guidelines are 
embedded within the NCPDP Telecommunications Standard Version D.0, and 
while technically not operating rules as defined by this interim final 
rule with comment period, they function as such nonetheless in that 
they provide robust business rules and guidelines for use in retail 
pharmacy transactions. The pharmacy industry is already preparing to 
use the NCPDP Version D.0 standard in their day-to-day pharmacy 
transactions as required by the January 16, 2009 final rule (74 FR 
3296) adopting the NCPDP Telecommunication Standard Version D.0 for use 
in retail pharmacy transactions, effective January 1, 2012. The NCPDP 
Telecommunications Standard Version D.0 already provides a full and 
robust array of tools for the retail pharmacy industry to realize the 
potential benefits of administrative simplification.

E. Impact Analysis Resources

    We have considered a number of different cost benefit studies that 
have been conducted by industry and independent entities in recent 
years. The background and conclusions on these studies and surveys will 
illuminate how we calculated our assumptions and how we applied them to 
this impact analysis. In this section, we briefly describe these 
studies, as well as an explanation of all of the following:
     The depth and completeness of the analysis and supporting 
evidence for the conclusions.
     Data sources and a presentation of the data limitations.
     The perceived objectivity of the analysis as demonstrated 
by the discussion of data sources and the rigor of the analysis.
     Our ability to explain and justify the findings and 
conclusions presented in the study.
    We then present assumptions and an impact analysis for each of the 
covered entity types, referencing the data and conclusions of the 
various studies. The following is a description of the studies and 
reports referenced for this impact analysis.
1. The Milliman Study
    Electronic Transaction Savings Opportunities for Physician 
Practices, hereinafter referred to as the Milliman study, was published 
by Milliman in January 2006 (http://transact.emdeon.com/documents/milliman_study.pdf). Milliman is an international consulting and 
actuarial firm serving health care payers, service providers and 
consumer organizations. The Milliman study was commissioned by the 
Emdeon Corporation, a nationwide clearinghouse that provides a wide 
variety of information exchange services that connects payers, 
providers and patients in the U.S. health care system. The study's main 
objective focused on how much providers could save by implementing 
electronic transactions. The Milliman study's calculations are based on 
examining labor time and costs required to perform both manual and 
electronic transactions. These labor costs include employee benefits, 
payroll taxes, and general and administrative overhead. Notably, the 
study compensated for related fees for transactions and set-up costs 
for electronic transactions.
    The Milliman study's methodology was basically mathematical, using 
factors established through payrolls and average administrative costs, 
as opposed to research based on surveys or interviews with providers. 
Milliman's calculations were based on a model of a provider's 
administrative processes developed with assumptions about the operating 
environment of the typical solo physician practice. Ultimately, 
Milliman tested its results ``by observing administrative procedures in 
actual physician practices and medical groups.''
    The study reflected other industry research that found that, while 
manual processes are very similar among physicians, ``there is much 
greater variance among practices * * * in the use of technology and the 
associated costs for electronic transactions.'' In some cases, 
providers are fully automated. In the majority, however, there is a mix 
of electronic and manual processes, as well as processes that require a 
wide range of levels of human intervention.
    Milliman found that a single-physician practice could save as much 
as $42,000 a year by moving processes from manual to electronic. This 
estimate is based on a physician office that moves from all manual 
transactions to fully electronic for six standard transactions. For our 
impact analysis, this savings could not be used as a factor to project 
savings for all physicians ($42,000 x the number of physicians), as 
other studies have demonstrated that most providers are already using 
some of the electronic transactions.
    Milliman's approach was to look at provider costs and benefits, and 
we opine that it appears to be objective in its assumptions. The 
Milliman study will be useful in our impact analysis as it provides 
labor and administrative overhead costs.
    The Milliman study was published in 2006. In its calculations, it 
accounted for inflation and other factors that may have changed since 
its source data were gathered and the study was finally published. 
However, its final conclusions are somewhat dated, and we will consider 
this in our assumptions.
2. The AHIP Survey (2006)
    America's Health Insurance Plans' (AHIP) Center for Policy and 
Research conducted a survey of its members to examine the issue of 
claims processing and turnaround times for claim payments. The survey 
is summarized in the document entitled ``An Updated Survey of Health 
Care Claims Receipt and Processing Times, May 2006'' at http://www.ahipresearch.org/pdfs/PromptPayFinalDraft.pdf.
    AHIP is a national association representing nearly 1,300 companies 
providing health insurance coverage to more than 200 million Americans. 
The study is a follow-up to a survey done in 2002. We took data from 
the AHIP study to develop assumptions about savings calculations for 
health plans.
3. The McKinsey Analysis
    Overhauling the U.S. Healthcare Payment System conducted by 
McKinsey & Company, hereinafter referred to as the McKinsey analysis, 
was published in The McKinsey Quarterly on June 2007 (http://www.mckinseyquarterly.com/Overhauling_the_US_health_care_payment_system_2012). McKinsey & Company is an international management 
consulting firm advising companies on strategic, organizational, 
technology, and operational issues. The McKinsey analysis relies on a 
number of different resources in order to calculate the cost of non-
electronic transactions compared with the cost of electronic 
transactions. As in the Milliman study, the McKinsey analysis makes the 
case for the move from paper to electronic transactions. Their analysis 
used sources including Faulkner & Gray Health Data Directory; Health 
Data Management; HIPAA Survey--Claims and Payment Practices; Milliman; 
National Health Expenditures, Centers for Medicare & Medicaid Services 
(CMS); U.S. Department of Health and Human Services (HHS); and 
McKinsey's own analysis. For its analysis' cost per transaction, it 
appears McKinsey relied mostly on the Milliman study.

[[Page 40476]]

    As noted, the McKinsey analysis brings together secondary sources 
to make its assumptions, so it is not based on any primary research or 
surveys. However, the McKinsey analysis does summarize these secondary 
sources into quantitative ranges that are useful to our impact 
analysis. For instance, based on secondary sources, the McKinsey 
analysis gives a range of 1.4 to 3.5 billion total eligibility 
verifications annually, both electronic and non-electronic, across the 
health care industry. While this is a broad range, it is useful in 
estimating the low and high estimates for our calculations.
    The McKinsey analysis suggests that making the flow of dollars in 
the health care industry more efficient through electronic means will 
trim the administrative costs that are spent on the payment system, 
which its analysis calculates as 15 percent of every healthcare dollar.
    The McKinsey analysis was objective in its approach, especially 
with regard to its data on eligibility for a health plan transactions 
because it was focused on claim-centered transactions. Its emphasis was 
mostly on the deficiencies and possibilities regarding payment flow 
between payers and providers, with commentary on the involvement of 
financial institutions. Its recommendations did not include mention of 
operating rules or the eligibility for a health plan transaction, so we 
find its data neutral with regard to the purpose of this impact 
analysis. The McKinsey analysis, presented in June 2007, is used by 
other related industry studies, and, because we could not identify 
studies or analyses that argued against its conclusions, we presume 
that it reflects industry assumptions.
4. The Healthcare Efficiency Report
    The National Progress Report on Healthcare Efficiency, hereinafter 
referred to as the Healthcare Efficiency Report, is the first annual 
report from the U.S. Healthcare Efficiency Index (USHEI), (http://www.ushealthcareindex.com). an industry forum for monitoring business 
efficiency in healthcare USHEI's advisory council consists of 
representatives from hospitals, clearinghouses, health care 
consultants, health plans and other entities (http://www.ushealthcareindex.com/advisorycouncil.php). The USHEI was launched 
in 2008 to raise awareness of the cost savings associated with the 
adoption of electronic transactions in health care. The USHEI National 
Progress Report takes the Milliman, McKinsey, and other studies and 
applies them to a tool that measures current status of electronic 
transaction usage (in percentages of transactions) and projects 
possible cost savings if those percentages are increased.
    The Healthcare Efficiency Report analyzed the eligibility for a 
health plan transaction as a part of its Phase 1, which relied on the 
Milliman study and the McKinsey report for most of its data. 
Nevertheless, the Healthcare Efficiency Report consolidates the 
secondary sources in an original and illustrative manner, and appears 
to be an accepted yardstick for administrative simplification in the 
health care industry.
    The Healthcare Efficiency Report repeats an important point 
presented by Milliman and which we considered in our analysis: Even 
among providers that use electronic means to conduct some of their 
transactions, there is a broad range of how much they utilize standard 
transactions, which standard electronic transactions they use, and 
which transactions are still conducted manually.
5. The Oregon Provider and Payer Survey
    Like the Milliman, McKinsey, and the Healthcare Efficiency Report, 
the Oregon Provider and Payer Survey, hereinafter referred to as the 
Oregon Survey, (http://www.oregon.gov/OHPPR/HEALTHREFORM/AdminSimplification/Docs/FinalReport_AdminSimp_6.3.10.pdf) sought to 
estimate the possible cost savings that would be realized if there was 
a continual shift from nonelectronic to electronic transactions among 
healthcare entities in Oregon. The survey was conducted by the Oregon 
Health Authority, Office for Oregon Health Policy and Research, which 
conducts impartial, non-partisan policy analysis, research, and 
evaluation, and provides technical assistance to support health reform 
planning and implementation in Oregon. The Office serves in an advisory 
capacity to Oregon Health Policy Board, the Oregon Health Authority, 
the Governor, and the Legislature. The survey asked payers, providers, 
and clearinghouses a number of qualitative questions in terms of how 
administrative simplification can best be realized.
    The study was comprehensive, and used both secondary sources and a 
survey in which responses were gathered from 55 percent of the State's 
hospitals and 225 of the State's ``ambulatory clinics.'' Of those 225 
ambulatory clinics, 69 percent were clinics with less than 9 
clinicians, and 23 percent were clinics with only 1 clinician. In our 
impact analysis on providers, the category of ``physicians'' 
corresponds to the Oregon Survey's category of ``ambulatory clinics.''
    Of all the studies cited in this impact analysis, the Oregon Survey 
had the most recent and statistically valid data with regard to 
provider use of electronic transactions and gave the clearest picture 
of how providers verify eligibility. The study received quantitative 
and qualitative data from a large number and range of providers. Oregon 
itself is a mix or rural and urban communities. However, we recognize 
that there are regional differences in the health care industry and the 
fact that only Oregon health care entities were surveyed.
6. The IBM Study
    In 2009, the CAQH CORE contracted with IBM's Global Business 
Services, the world's largest business and technology services provider 
with the aim towards helping companies manage their IT operations and 
resources, to conduct a study (hereinafter referred to as the IBM 
study) (http://www.caqh.org/COREIBMstudy.php) to assess the costs and 
benefits to health plans, provider groups, and vendors of adopting the 
CAQH CORE Phase I rules, which include the operating rules for the 
electronic eligibility for a health plan transaction, as adopted under 
this interim final rule with comment period. According to the IBM 
study, industry-wide adoption of the CAQH CORE Phase I rules could 
potentially yield $3 billion in savings in 3 years.
    The IBM study consisted of interviews during which participants 
answered a set of questions geared towards assessing the costs and 
savings of adopting the CAQH CORE operating rules. Participants in the 
study included six national and regional health plans, five 
clearinghouses and vendors, and six providers. The health plans 
together represented 33 million commercial members, 1.2 million 
providers, 22 million eligibility verifications per month, and 30 
million claims per month. The providers included hospitals, physician 
groups, and a surgery center.
    The IBM study did not track the costs and benefits of adopting the 
operating rules for the health care claim status transactions. It did 
attempt to track the costs and benefits of the infrastructure elements 
of the operating rules (connectivity, response time, system 
availability, acknowledgements, and companion guides) but health plan 
study participants were not able to fully account for the costs related 
to implementation, citing that they may

[[Page 40477]]

have allocated some costs to IT overhead.,
    Highlights of the IBM study closely parallel the three key 
objectives outlined above that necessitate the adoption of operating 
rules:
     Providers rapidly took advantage of the new capabilities 
that the operating rules provided; for example, real-time transactions 
(page 20 of IBM study report).
     The average return on investment (ROI) for health plans 
surveyed in the study was less than a year. Average initial and on-
going cost of implementing the operating rules for an individual health 
plan was $592,000. The average savings, due mostly to moving away from 
telephone to electronic transaction over the same time period, was 
nearly $2.7 million for an individual health plan (page 23 of the IBM 
study report). The ratio of verifications to claims was up from .63 to 
.73 after the operating rules were adopted (page 20 of IBM study 
report).
7. The 2009 Health Affairs Survey
    In 2009, Health Affairs published survey results in an article 
entitled ``What Does It Cost Physician Practices to Interact With 
Health Insurance Plans,'' authored by Lawrence P. Casalino, Sean 
Nicholson, David N. Gans, Terry Hammons, Dante Morra, Theodore 
Karrison, and Wendy Levinson (Health Affairs, 28, no. 4(2009):w533-
w543, published online May 14, 2009; 10:1377hlthaff.28.4.2533). The 
survey collected data from physicians from those identified as working 
in solo or two-physician practices, and physicians from those working 
in practices of three or more. Selection was stratified by specialty 
type--primary care (including family physicians, general internists, 
and general pediatricians), medical specialists, and surgical 
specialists, for a total of 895 physician practices. The survey asked 
about the physicians' offices' interactions with health plans by the 
physicians themselves and by staff at the administrative level, 
including the nursing staff, clerical staff, senior administrators, and 
lawyers and accountants.
    The survey was able to calculate the mean time and cost that a 
physician's office spent interacting with health plans according to the 
size of the practice and according to the level at which the 
interaction took place, that is, whether the interaction was with the 
physicians themselves, the nursing staff, the administrative staff, or 
with the accountants, etc.
    Among other conclusions, the study demonstrated that a single 
physician spent a mean average of 3 hours a week interacting with 
plans, while nursing and clerical staff spent much larger amounts of 
time.
    We find the conclusions of the survey to be valid based on the 
large sampling of physicians' offices that were used. We will be 
applying some of the results of the survey to our calculation of 
savings for providers.
8. The Project SwipeIt (MGMA) Study
    In 2009, the Medical Group Management Association (MGMA) launched 
an industry wide effort calling on health insurers, vendors, and 
healthcare providers to adopt standardized, machine-readable patient ID 
cards by Jan. 1, 2010. In support of the effort, the MGMA developed 
costs estimates of implementing a machine-readable patient ID card. 
Ultimately, the project's aim is for administrative simplification. The 
Project SwipeIt study demonstrated the quantifiable benefits to 
administrative simplification. Therefore, some of Project SwipeIt 
study's estimates, especially the base assumptions used in the savings 
calculations can be applied to our impact analysis of the 
implementation of operating rules.
    Through their study, the MGMA estimated that it costs $25 to 
resubmit a denied claim. Additionally they found that 50 percent of the 
time claims are being denied because of incorrect patient information. 
We believe this could also be alleviated through the implementation of 
operating rules since eligibility information, including patient 
information, will be returned prior to or at the point of care.
    The MGMA cites many resources that were used to gather their data 
for their analysis. We find that the data used in the MGMA study are 
relevant to our analysis and therefore we will use some of this data in 
our calculations of provider savings.
    We invite public and industry stakeholder comments on our 
assumptions.

F. Impacted Entities

    All HIPAA covered entities would be affected by this interim final 
rule with comment period, as well as software vendors and any other 
business associates providing transaction related services, such as 
billing support and third party administrators (TPAs). Covered entities 
include all health plans, 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 operating rules only for HIPAA transactions that they conduct 
electronically. However, one of the objectives of operating rules is to 
not only decrease manual transactions by entities that currently 
conduct some health care transactions electronically, but to make 
electronic transactions, specifically the eligibility for a health plan 
and health care claim status transactions attractive to those entities 
that do not currently use the HIPAA standards in EDI transactions to 
verify eligibility or claim status. (See the Transactions and Code Sets 
rule (65 FR 50361) for a more detailed discussion of affected entities 
under the HIPAA.)
    As mentioned previously in this interim final rule with comment 
period, the barrier to adoption of the HIPAA standards is due to their 
flexibility and ``situationality'' that allows health plans to 
implement them in very different ways. It allows plans to send back 
information that is inconsistent from plan to plan. By making these 
optional or situational elements mandatory, more entities, especially 
providers, will have more consistent data across health plans, making 
it easier to determine what information they will be receiving in a 
transaction, thus increasing the use of electronic transactions.
    We recognize that a few health plans have already embraced the use 
of the CAQH CORE operating rules and have, in a published report on the 
utility of operating rules in the health care industry, noted 
substantive return on investment (ROI) derived from reduced costs 
associated with avoidance of manual (both paper and staff time) 
response to provider inquiries. This raises the question of why all 
health plans would not voluntarily adopt the use of operating rules (or 
standards, for that matter) given the benefits. We opine that there are 
a number of barriers, including a tendency by providers to simply 
accept the status quo, for example, whatever information currently is 
provided to them by a health plan; a health plan's lack of experience 
with, and knowledge of, the role that operating rules play in making a 
standard work more efficiently, given that the use of operating rules 
is not yet widespread throughout the health care industry; and the 
expense to a health plan of systems and other business transitions 
without a regulatory mandate for adoption. Despite projected savings, 
health plan system managers would be hard pressed to obtain from their 
managements the upfront funds, staff and/or contractors, and corporate 
commitment needed for such a

[[Page 40478]]

transition without a regulatory requirement. Absent specifications as 
codified in regulation, health plans could be confused as to which 
operating rule version to use, and/or any exceptions to the use of 
operating rules that may or may not be effective, which would adversely 
affect enforcement of the HIPAA transaction and code sets. In our 
impact analysis, we analyze the impact of moving from non-electronic to 
electronic transactions among all entities, whether they currently use 
some electronic transactions or not. We assume that most providers and 
health plans use some electronic transactions and very few if any use 
none. Through the use of operating rules, we assume that all entities 
will increase their use of electronic transactions. The total savings 
and return on investment for each category of covered entity will not 
include the costs associated with setting up the basic infrastructure 
to send and receive standard health care transactions. Those costs are 
accounted for in the May 7, 1998 (63 FR 25300) proposed rule entitled, 
``Health Care Reform: Standards for Electronic Transactions''. The 
costs included in this impact analysis include only those that are 
necessary to implement the operating rules as adopted for the two HIPAA 
transactions stipulated in this interim final rule with comment period.
    Based on industry surveys and research referenced herein, we do not 
believe there are many entities that are not capable of conducting 
electronic transactions. As stated previously, according to the Oregon 
Survey, 96 percent of hospitals and 93 percent of ambulatory clinics 
(physicians) in that state indicated that they were ready, or could be 
ready within 2 years, to implement a system for electronic information 
exchange. Although the study only reflects Oregon providers, we believe 
the study's findings demonstrate that there will be very few covered 
entities that will not have the ability to conduct electronic health 
care transactions by the time the operating rules are required to be 
implemented.
    The segments of the health care industry that will be affected by 
the implementation of operating rules include the following:
     Providers: Physicians and Hospitals
     Health Plans
     Clearinghouses and Vendors
    Please note that we have not included an impact to pharmacies 
because this interim final rule with comment period adopts only 
operating rules for the eligibility for a health plan (270/271) and the 
health care claim status (276/277) transactions which are not used by 
the retail pharmacy industry for drugs and medications. Therefore, we 
assume no impact to pharmacies of this interim final rule with comment 
period.
    Table 5 outlines the number of entities in the health care industry 
that we use in our analysis along with the sources of those numbers. We 
have not apportioned the data to reflect any particular sub-segment of 
the industry, other than ``physicians'' and ``hospitals'' in general 
terms. In this impact analysis, the number of providers impacted is not 
a factor in our calculation of the benefits of the adoption of these 
operating rules. (The number if providers are a factor in our 
calculation of providers costs.) Rather, benefits for providers are 
based on the total number of all health care claims throughout the 
health care system, including non-hospital institutions. We invite 
public comment on our assumptions and estimates, particularly as they 
related to non-hospital institutions.

              Table 5--Type and Number of Affected Entities
------------------------------------------------------------------------
              Type                   Number               Source
------------------------------------------------------------------------
Providers--Offices of Physician         234,222  Health Insurance
 Offices (includes offices of                     Reform; Modifications
 mental health specialists).                      to the Health
                                                  Insurance Portability
                                                  and Accountability Act
                                                  (HIPAA) Electronic
                                                  Transaction Standards;
                                                  Proposed Rule, http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf,
                                                  (based on the AMA
                                                  statistics).
Providers--Hospitals...........           5,764  Health Insurance
                                                  Reform; Modifications
                                                  to the Health
                                                  Insurance Portability
                                                  and Accountability Act
                                                  (HIPAA) Electronic
                                                  Transaction Standards;
                                                  Proposed Rule, http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf.
Providers--All.................         239,986  Physicians Offices +
                                                  Hospitals.
Health Plans--Commercial.......           4,523  The  of health
                                                  plans was obtained
                                                  from the 2007 Economic
                                                  Census Data--Finance
                                                  and Insurance (sector
                                                  52)--NAICS code
                                                  5241114 (Direct health
                                                  and medical insurance
                                                  carriers). (n=4,523)
                                                  http://factfinder.census.gov/servlet/IBQTable?_bm=y&-ds_name=EC0752A1&-geo_id=01000US&-dataitem=* dataitem=*.
Health Plans--Government.......              54  Represents the 51 state
                                                  Medicaid programs,
                                                  Medicare, the
                                                  Veteran's
                                                  Administration (VA),
                                                  and Indian Health
                                                  Service (IHS).
Health Plans--All..............            4577  Census Data for
                                                  commercial plans
                                                  (n=4,523) + Medicaid
                                                  agencies (N=51) +
                                                  Medicare, VA and IHS =
                                                  4,577 total health
                                                  plans.
Clearinghouses.................              51  EC EDI Vantage Point
                                                  Healthcare Directory--
                                                  6th Edition (n=51)
                                                  http://www.ec-edi.biz/content/en/dir-guest-login.asp.
Vendors........................              51  EC EDI Vantage Point
                                                  Healthcare Directory--
                                                  6th Edition (n=51)
                                                  http://www.ec-edi.biz/content/en/dir-guest-login.asphttp://www.ec-edi.biz/content/en/dir-guest-login.asp.
------------------------------------------------------------------------

    Also, although we acknowledge the impact to ERISA (Employee 
Retirement Income Security Act) plans, we did not include them in our 
analysis due to the complexity involved with describing downstream 
costs to these plans, as well as members/beneficiaries of health plans, 
tax payers, etc. While it is understood that the approximately 2.5 
million ERISA plans (and, ultimately, their members) may be charged by 
their third party administrators (TPAs) and health insurance companies 
to comply with any Federal regulation, ultimately we assume that the 
4,577 plans that do business as health plans, or their business 
associates, are the entities conducting the transactions and that is 
where the costs will be incurred. We assume that few, if any, of the 
ERISA plans do their own transactions. Additionally, because not all 
ERISA plans are required to report, it is difficult to determine the 
exact number of ERISA plans.

G. Impact Analysis Approach

    This impact analysis is framed by the two key objectives that 
operating rules will achieve by augmenting the eligibility for a health 
plan and health care claim status transactions:
     Decrease covered entities' use of more costly manual 
activities, including telephone and paper-based transactions,

[[Page 40479]]

by addressing ambiguous requirements of the standards and clarifying 
when to use or not use certain elements or code values. We assume that 
the cost and benefits of these operating rules will be directed toward 
covered entities that currently perform some or no eligibility for a 
health plan and claim status transactions. For those who currently 
perform these two standard transactions, we assume that their volumes 
of electronic transactions will increase due to operating rules.
     Decrease the clerical burdens that are associated with the 
inconsistent use of these two standard transactions; for example, the 
instances of denied claims and pended claims that burdens patients, 
providers, and health plans in terms of time and money.
    Our overall calculation for this analysis is as follows:
(X * Y) + C-Z = Annual Return on investment of operating rules 
implementation

Where--

X = annual increase in number of electronic eligibility for a health 
plan and health care claim status transactions due to operating 
rules implementation
Y = savings per transaction conducted electronically
C = savings through decrease in claim denials for providers and 
pended claims for health plans
Z = cost of operating rules implementation

    In order to make this calculation, we need to describe baseline 
assumptions, transaction increase assumptions, and cost assumptions 
that correspond to the X, Y, C, and Z factors in the calculation before 
arriving at costs and benefits.
    In section VII.H. of this interim final rule with comment period, 
we describe the baseline assumptions for each of the two transactions. 
The baseline assumptions include, first, an estimate on the number of 
electronic and non-electronic eligibility for a health plan 
transactions and health care claim status transactions, respectively, 
that physicians, providers, and health plans will be conducting in 
2012, the year before the operating rules take effect. Second, from 
those estimates, we will estimate the number of eligibility for a 
health plan transactions and health care claim status transactions that 
are conducted electronically starting in 2012. For the baseline 
assumption on the number of electronic transactions in 2012, we have 
developed a range of high and low estimates derived from data gathered 
from a number of studies. This range of high and low reflects different 
estimates that are presented by industry studies that have attempted to 
arrive at a similar baseline. The final baseline assumption is an 
estimate on the rate of increased use of each of the two transactions 
due to operating rules adopted herein for 10 years after implementation 
of the operating rules (X factor in the calculation).
    The transaction increase estimate (X factor in the calculation) 
assumes an annual percentage increase in the use of the eligibility for 
a health plan and health care claims status electronic transactions due 
to the implementation of operating rules. In this specific baseline 
assumption, we will be giving a range of high and low estimates. 
Although these estimates on the increase in usage due to operating 
rules are informed by industry studies, specifically the IBM study, 
they also illustrate the uncertainty inherent in such a predictive 
estimate. As we have described, there is a causal link between 
operating rules and increased use of EDI. However, the rate of 
increased use of the two transactions is dependent on many factors 
above and beyond operating rules. For instance, visits to physicians' 
offices and hospital emergency and outpatient departments are 
experiencing a steady rise, translating into an accompanying rise in 
health care transactions in general. (The CDC reports that health care 
visits increased 25 percent from 1997 to 2007: http://www.cdc.gov/nchs/data/series/sr_13/sr13_169.pdf accessed on June 21). The range of 
estimates on the increased use of the two electronic transactions 
included in our baseline assumptions should be viewed as a reflection 
of the uncertainties involved.
    For our cost assumptions, Z in the calculation is the total cost of 
implementing the operating rules for both the eligibility for a health 
plan transaction and the health care claim status transaction. The 
costs will be analyzed according to each impacted category of health 
care entity. Many of our estimates in terms of cost are derived from 
the cost estimates in the Modifications final rule because industry 
studies we surveyed focused on savings rather than costs. These costs 
will be presented in a range of high and low estimates to reflect the 
broad range in readiness for operating rule implementation among 
covered entities in terms of infrastructure, software, and business 
process. In section VII.I. of this interim final rule with comment 
period, we describe our cost assumptions.
    For our savings assumptions, Y and C in the calculation, Y is the 
dollar savings per eligibility of a health plan and health care claim 
status transaction that is saved when the transactions are conducted 
electronically as opposed to non-electronically, and C is the dollar 
saved, or cost avoided, of a decrease in claim denials for providers 
and a decrease in pended claims for health plans. For the C estimate, 
we will again provide a high and low range of estimates. Industry 
studies indicate that more robust eligibility for a health plan 
transactions will result in a decrease in pended and denied claims 
(which, in turn, will result in savings). However, we are less certain 
of the percent of decrease that operating rules will effect, so we have 
reflected this uncertainty with a range. In section VII.J. of this 
interim final rule with comment period, we describe our savings 
assumptions.
    Our analysis begins with a description of the baseline and 
transaction increase assumptions; that is, how we arrived at the 
numbers of eligibility for a health plan transactions and health care 
claim status conducted electronically as of 2012, and our assumptions 
on what percentage of annual increase in the transactions are due to 
the implementation of operating rules. We will subsequently describe 
our cost assumptions, savings assumptions, and finally summarize the 
costs and savings. The costs and savings will also be presented in a 
range of high and low estimates.
    In general, the high and low range approach used in this impact 
analysis illustrates both the range of probable outcomes, based on 
state and industry studies, as well as the uncertainty germane to a 
mandated application of business rules on an industry with highly 
complex business needs and processes. Within those ranges, however, the 
summary demonstrates that there is considerable return on investment 
resulting from the implementation of operating rules. We solicit 
comments on these assumptions as well as the direct costs of 
implementing these operating rules adopted under this interim final 
rule with comment period.

H. Baseline Assumptions

1. Baseline Assumption A
    Total number of electronic and nonelectronic eligibility for a 
health plan and health care claim status transactions conducted by 
providers.
    We estimate that the total number of claims submitted, both 
electronically and manually, for the year 2012 is 5.6 billion. This 
estimate is the average of the high and low estimates given in the 
January 2009 Modifications final rule, http://edocket.access.gpo.gov/2009/pdf/E9-740.pdf.
    In order to arrive at the number of eligibility verifications 
conducted in 2012, both electronic and non-electronic, we applied the 
per claim

[[Page 40480]]

ratio as concluded by the Oregon Survey. The Oregon Survey concluded 
that, for every claim submitted, the low estimate was 0.68 eligibility 
verifications per claim; the high estimate was 1.12 eligibility 
verifications per claim submitted. We use the average of these two 
estimates, 0.9 eligibility verifications per claim submitted. We then 
assume that of the 5.6 billion claims submitted, 0.9 of those were 
preceded by an eligibility inquiry to come up with approximately 5 
billion eligibility verifications.
    In order to arrive at the number of claim status inquiries 
conducted in 2012, both electronic and non-electronic, we again applied 
the per claim submitted ratio as concluded by the Oregon Survey. The 
Oregon Survey concluded that, for every claim submitted, they estimated 
that 0.14 claim status inquiries were submitted. We looked at other 
studies that included various numbers for claim status transactions, 
but we believe the Oregon Survey to be the most valid picture of 
providers' use of these transactions based on the interviews conducted. 
Based on our previous assumptions, we estimate that there will be 784 
million claim status inquiries conducted in 2012.
    To find the total number of eligibility for a health plan 
transactions and health care claim status transactions that physicians 
and hospitals conducted individually, we divided the total number of 
eligibility for a health plan transactions and health care claim status 
transactions between physicians and hospitals by a factor of 9 to 1; 
that is, approximately 90 percent of all eligibility for a health plan 
and health care claim status inquiries, electronic and non-electronic, 
are conducted by physicians, while 10 percent are conducted by 
hospitals. We have taken this physician to hospital ratio from the 
Oregon Survey due to its reliance on direct provider input. The survey 
indicated that physicians are responsible for 91 percent of all 
eligibility for a health plan transactions and 89 to 90 percent of 
health care claim status transactions.

  Table 6--Estimates on Total Number of Eligibility and Health Care Claim Status Inquiries, Electronic and Non-
                                          Electronic Conducted Annually
----------------------------------------------------------------------------------------------------------------
                                                        Total number of
                                                         transactions,
                                                      electronic and non-  Number conducted    Number conducted
                                                          electronic,        by physicians       by hospitals
                                                      conducted per year         (90%)               (10%)
                                                         (in millions)
----------------------------------------------------------------------------------------------------------------
Claim submissions...................................               5,600                 N/A                 N/A
Eligibility inquiries...............................               5,040               4,536                 504
Claim status inquiries..............................                 784               705.6                78.4
----------------------------------------------------------------------------------------------------------------

    For the health plan eligibility transaction, we determined that the 
total number of eligibility for a health plan inquiries conducted 
electronically by physicians to be between 453.6 million, and 201.6 
million for hospitals. The Oregon Survey found that approximately 10 
percent of all eligibility for a health plan transactions conducted by 
physicians are electronic. Other studies appear to contradict Oregon's 
findings by a considerable margin. For instance, the Healthcare 
Efficiency Index reports that 40 percent of all eligibility for a 
health plan transactions are conducted electronically and the McKinsey 
report estimates 40 to 50 percent. We weighed the Oregon Survey more 
heavily, and estimated that 10 percent, or 453.6 million, of all 
eligibility for a health plan transactions conducted by physicians are 
electronic. (Table 7). For the percentage of hospitals' use of the 
electronic eligibility for a health plan transaction, we relied on the 
Oregon Survey's finding that 40 percent, or 201.6 million, of all 
eligibility for a health plan inquiries conducted by hospitals are 
electronic. This Oregon estimate appears to be more in line with other 
industry studies on the use of these transactions. (Table 7).
    For the health care claim status electronic transaction, the Oregon 
Survey found that none of the physicians or hospitals it surveyed uses 
the health care claim status electronic transaction. Instead, 
physicians and hospitals use the telephone and, to a lesser extent, a 
secure Internet Web site provided by the health plan or contractor to 
check the status of health care claims.
    Although, as we have stated before, the Oregon Survey appears to 
have the most valid methodology, the McKinsey study's conclusion 
implies that many providers do conduct the health care claim status 
transaction electronically (30 to 50 percent). The two studies are 
basically incompatible with respect to conclusions about usage of the 
electronic health care claim status transaction. As noted, a percentage 
of the health care claim status checks are conducted through the 
Internet. It is possible that the numbers of the McKinsey analysis are 
affected by considering Web-based health care claim status transactions 
as ``electronic.'' Only the Oregon Survey is clear in its methodology 
to make a distinction between electronic data interchange of HIPAA 
transactions and electronic Web-based transactions. Still, the McKinsey 
analysis has been used by others, for example, the Healthcare 
Efficiency Report, to demonstrate the frequency of use of HIPAA 
standard transactions.
    We assume that there are some physicians who use the electronic 
health care claim status and response transaction, but believe that the 
McKinsey study's high estimate of 30 to 50 percent of health care claim 
status transactions being electronic is too high given the Oregon 
Survey finding. We estimate that 10 percent of all health care claim 
status inquiries, 70.56 million for physicians and 7.84 million for 
hospitals, will be made electronically in 2012. Again, we weigh the 
Oregon Survey more heavily. (See Table 7).
    In order to determine the number of eligibility for a health plan 
and health care claim status transactions that health plans respond to 
electronically, we use the number of eligibility for a health plan 
inquiries for physicians and hospitals added to the number of health 
claim status inquiries for physicians and hospitals, based on our 
assumption that for all inquiries submitted by physicians and 
hospitals, health plans will submit the same number of responses. We 
assume that health plans will conduct 655.2 million electronic 
eligibility responses and 78.4 million claim status responses.

[[Page 40481]]

      Table 7--Estimates on Number of Electronic Eligibility for a Health Plan and Health Care Claim Status
                              Transactions Conducted by Providers and Health Plans
----------------------------------------------------------------------------------------------------------------
                                                       Number of total
                                                      eligibility for a                        Total number of
                                                       health plan and                            electronic
                                                      health care claim     Percentage of     eligibility for a
                      For 2012                        status inquiries   inquiries that are    health plan and
                                                       (non-electronic       electronic       health care claim
                                                       and electronic)                        status as of 2012
                                                       conducted  (in                           (in millions)
                                                          millions)
----------------------------------------------------------------------------------------------------------------
Physicians:
    Eligibility for a Health Plan..................               4,536                  10               453.6
    Health Care Claim Status.......................               705.6                  10                70.56
Hospitals:
    Eligibility for a Health Plan..................                 504                  40               201.6
    Health Care Claim Status.......................                78.4                  10                 7.84
Health Plans:
    Eligibility for a Health Plan..................                 N/A                 N/A               655.2
    Health Care Claim Status.......................                 N/A                 N/A                78.4
----------------------------------------------------------------------------------------------------------------

2. Baseline Assumption B
    Transaction Increase Assumptions: Annual increase in use of 
electronic eligibility for a health plan and health care claims status 
transactions due to implementation of operating rules.
a. Providers
    As stated, there is a direct causal link between the implementation 
of operating rules and an increase in the use of eligibility for a 
health plan and health care claim status transactions industry-wide.
    In its conclusions, the IBM study estimated the baseline growth of 
total health care eligibility for a health plan transaction 
transactions (electronic and non-electronic) to be 10 percent without 
operating rules over a period of 3 years. It then estimated a 25 
percent increase in the use of electronic eligibility for a health plan 
transaction across the entire industry if operating rules are 
implemented. For our analysis, we have assumed a more conservative 
growth rate in the use of the electronic eligibility for a health plan 
transactions than that of the IBM study both in general (that is, not 
attributed to any particular factor) and as a result of the 
implementation of operating rules.
    We have estimated a 15 percent annual growth rate in general from 
2013 through 2017, and then an 8 percent annual growth for 5 years 
thereafter. This general growth rate is reflected in Table 8. In 
general, eligibility for a health plan inquiries, electronic and non-
electronic, for both physicians and hospitals, are expected to increase 
annually due to a number of market forces. For one, it is anticipated 
that population trends will increase the total overall number of 
patient visits and claims in the United States, especially in regards 
to baby-boomers who will require more care in the coming years. (http://www.cdc.gov/nchs/data/databriefs/db41.htm). It is probable that this 
increase alone will account for our 15 percent estimated annual growth 
rate of the use of the eligibility for a health plan transaction. As 
well, it is probable that providers will adopt EDI out of necessity 
from the sheer number of health care visits and claims that will 
experienced. In summary, we have chosen this estimate as our general 
predicted increase because it is a probable increase, even without the 
mandated implementation of operating rules.
    With the implementation of operating rules, the estimate on the 
increased use of transactions by providers moves from probable to 
practical. The estimate on the percentage increase due to operating 
rules is the primary savings driver in our per transaction benefit 
analysis. Again, we assume a more conservative growth rate due to 
operating rules than the IBM study. In this regard, our analysis of the 
IBM study follows: Although the IBM study did not control for other 
factors that may have contributed to an increased use of the 
eligibility for a health plan transaction, the study was based on 
interviews which directed respondents to isolate the costs and benefits 
of operating rules in particular. While it is probable that other 
factors contributed to the extreme increase in the use of the 
transaction among the study's participants, the participants themselves 
believed that both the costs and benefits were a consequence of the 
operating rules and CAQH CORE certification.
    However, because the IBM study analyzed a comparably small number 
of entities that have adopted operating rules, we are hesitant to 
accept the study's conclusions as the normative result of implementing 
operating rules for the eligibility for a health plan transaction. 
There may be entities that have implemented (or will implement) the 
operating rules that did not experience the same success as those that 
were surveyed in the study.
    With this in mind, we have given a high and low range of probable 
increase usage rates due to operating rules. Our low and high estimate 
of 10 to 12 percent annual for the first 5 years falls far below the 
IBM study's average rate (25 percent annual increase). We believe these 
estimates are conservative, but do not believe that we are justified in 
estimating a more aggressive growth.
    We also assume that 5 years after implementation of the operating 
rules the 10 to 12 percent annual growth due to operating rules will 
decrease to 5 percent a year. We assume this will be due to the fact 
that by this time the health care industry will have implemented the 
operating rules thus making the use of the electronic transactions more 
widespread, resulting in market stabilization and less of an increase 
in the number of electronic transactions.
    We then estimate the annual increase in the number of electronic 
eligibility for a health plan inquiries from physicians and hospitals 
respectively due to operating rules. It is calculated by multiplying 
the range of total number of electronic eligibility for a health plan 
inquiries by the range of total percent increase in electronic 
transactions due to operating rules per year.

[[Page 40482]]

   Table 8--Annual Increase in Number of Electronic Eligibility for a Health Plan Transactions for Physicians Due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      I                              II                III               IV                 V                VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Number of
                                                 electronic      Number increase  Total percentage  Total percentage   Number increase   Number increase
                                               eligibility for    in electronic      increase in       increase in      in electronic     in electronic
                                                 health plan     eligibility for     electronic        electronic      eligibility for   eligibility for
                                              transactions (in     health plan     eligibility for   eligibility for     health plan       health plan
                    Year                         millions).       transactions       health plan       health plan      transactions      transactions
                                                 Assumes 15%      from previous     transactions      transactions      from previous     from previous
                                               increases first      year (in        from previous     from previous      year due to       year due to
                                                  5 yrs/8%       millions) (high     year due to       year due to     operating rules   operating rules
                                               increase second       = low)        operating rules   operating rules    (in millions)     (in millions)
                                                    5 yrs                         (low)  (percent)       (high)             (low)            (high)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................             453.6               0.0                 0                 0               0.0               0.0
2013........................................             521.6              68.0                10                12              45.4              54.4
2014........................................             599.9              78.2                10                12              52.2              62.6
2015........................................             689.9              90.0                10                12              60.0              72.0
2016........................................             793.3             103.5                10                12              69.0              82.8
2017........................................             912.4             119.0                10                12              79.3              95.2
2018........................................             985.3              73.0                 5                 5              45.6              45.6
2019........................................            1064.2              78.8                 5                 5              49.3              49.3
2020........................................            1149.3              85.1                 5                 5              53.2              53.2
2021........................................            1241.2              91.9                 5                 5              57.5              57.5
2022........................................            1340.5              99.3                 5                 5              62.1              62.1
                                             -----------------------------------------------------------------------------------------------------------
    Totals..................................  ................  ................  ................  ................             573.5             634.6
--------------------------------------------------------------------------------------------------------------------------------------------------------

   Table 9--Annual Increase in Number of Electronic Eligibility for a Health Plan Transactions for Hospitals Due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      I                              II                III               IV                 V                VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                  Number of
                                                 electronic      Number increase  Total percentage  Total percentage   Number increase   Number increase
                                               eligibility for    in electronic      increase in       increase in      in electronic     in electronic
                                                 health plan     eligibility for     electronic        electronic      eligibility for   eligibility for
                                              transactions (in     health plan     eligibility for   eligibility for     health plan       health plan
                    Year                         millions).       transactions       health plan       health plan      transactions      transactions
                                                 Assumes 15%      from previous     transactions      transactions      from previous     from previous
                                               increases first      year (in        from previous     from previous      year due to       year due to
                                                  5 yrs/8%      millions) (low =     year due to       year due to     operating rules   operating rules
                                               increase second        high)        operating rules   operating rules    (in millions)     (in millions)
                                                    5 yrs                               (low)            (high)             (low)            (high)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................             201.6               0.0                 0  ................  ................               0.0
2013........................................             231.8              30.2                10                12              20.2              24.2
2014........................................             266.6              34.8                10                12              23.2              27.8
2015........................................             306.6              40.0                10                12              26.7              32.0
2016........................................             352.6              46.0                10                12              30.7              36.8
2017........................................             405.5              52.9                10                12              35.3              42.3
2018........................................             437.9              32.4                 5                 5              20.3              20.3
2019........................................             473.0              35.0                 5                 5              21.9              21.9
2020........................................             510.8              37.8                 5                 5              23.6              23.6
2021........................................             551.7              40.9                 5                 5              25.5              25.5
2022........................................             595.8              44.1                 5                 5              27.6              27.6
                                             -----------------------------------------------------------------------------------------------------------
    Totals..................................  ................  ................  ................  ................             254.9             282.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

    We assume that health care claim status inquiries will increase 
annually for all providers in general at a rate of 20 percent a year 
for the first 5 years, for many of the same reasons as our estimates on 
the usage rate of the eligibility for a health plan transaction. We 
also assume that this rate of increase will slow after 5 years to about 
10 percent a year. This general growth rate is reflected in Tables 10 
and 11. We expect health care claim status transactions to be adopted 
at a higher rate than the eligibility for a health plan transaction 
because there is significantly less use of the transaction now (and so 
there is more room for growth).
    We again have given a range of high and low estimates for the rate 
of increase that can be attributed to the implementation of operating 
rules. We have estimated a 12 to 15 percent annual growth in usage 
attributable to operating rules from 2013 through 2017, and then a 7 
percent annual growth in usage for 5 years thereafter.

[[Page 40483]]

          Table 10--Annual Increase in Number of Health Care Claim Status Transactions for Physicians Due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      I                              II                III               IV                 V                VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Minimum number
                                                of electronic    Number increase  Total percentage  Total percentage   Number increase   Number increase
                                                 health care      in electronic      increase in       increase in      in electronic     in electronic
                                                claim status       health care       electronic        electronic        health care       health care
                                              transactions (in    claim status       health care       health care      claim status      claim status
                    Year                         millions).       transactions      claim status      claim status      transactions      transactions
                                                 Assumes 20%      from previous     transactions      transactions      from previous     from previous
                                               increases first      year  (in       from previous     from previous      year due to       year due to
                                                  5 yrs/10%     millions)  (high     year due to       year due to     operating rules   operating rules
                                               increase second       = low)        operating rules   operating rules    (in millions)     (in millions)
                                                    5 yrs                               (low)            (high)             (low)            (high)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................              70.6               0.0                 0                 0               0.0               0.0
2013........................................              84.7              14.1                12                15               8.5              10.6
2014........................................             101.6              16.9                12                15              10.2              12.7
2015........................................             121.9              20.3                12                15              12.2              15.2
2016........................................             146.3              24.4                12                15              14.6              18.3
2017........................................             175.6              29.3                12                15              17.6              21.9
2018........................................             193.1              17.6                 7                 7              12.3              12.3
2019........................................             212.4              19.3                 7                 7              13.5              13.5
2020........................................             233.7              21.2                 7                 7              14.9              14.9
2021........................................             257.1              23.4                 7                 7              16.4              16.4
2022........................................             282.8              25.7                 7                 7              18.0              18.0
                                             -----------------------------------------------------------------------------------------------------------
    Totals..................................  ................  ................  ................  ................             138.0             153.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

           Table 11--Annual Increase in Number of Health Care Claim Status Transactions for Hospitals Due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      I                              II                III               IV                 V                VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                               Minimum number
                                                of electronic    Number increase  Total percentage  Total percentage   Number increase   Number increase
                                                 health care      in electronic      increase in       increase in      in electronic     in electronic
                                                claim status       health care       electronic        electronic        health care       health care
                                              transactions (in    claim status       health care       health care      claim status      claim status
                    Year                         millions).       transactions      claim status      claim status      transactions      transactions
                                                 Assumes 20%      from previous     transactions      transactions      from previous     from previous
                                               increases first      year  (in       from previous     from previous      year due to       year due to
                                                  5 yrs/10%     millions)  (high     year due to       year due to     operating rules   operating rules
                                               increase second       = low)        operating rules   operating rules    (in millions)     (in millions)
                                                    5 yrs                               (low)            (high)             (low)            (high)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................               7.8               0.0                 0                 0               0.0               0.0
2013........................................               9.4               1.6                12                15               0.9               1.2
2014........................................              11.3               1.9                12                15               1.1               1.4
2015........................................              13.5               2.3                12                15               1.4               1.7
2016........................................              16.3               2.7                12                15               1.6               2.0
2017........................................              19.5               3.3                12                15               2.0               2.4
2018........................................              21.5               2.0                 7                 7               1.4               1.4
2019........................................              23.6               2.1                 7                 7               1.5               1.5
2020........................................              26.0               2.4                 7                 7               1.7               1.7
2021........................................              28.6               2.6                 7                 7               1.8               1.8
2022........................................              31.4               2.9                 7                 7               2.0               2.0
                                             -----------------------------------------------------------------------------------------------------------
     Totals.................................  ................  ................  ................  ................              15.3              17.1
--------------------------------------------------------------------------------------------------------------------------------------------------------

b. Health Plans
    To find the increase in electronic eligibility for a health plan 
and health care claims status transactions annually for health plans, 
we add the total annual increase usage of the two transactions by 
providers. The sum again gives us a low to high range of increased 
usage of the two transactions due to operating rules.
    We solicit comments on these baseline assumptions.

[[Page 40484]]

               Table 12--Annual Increase in Number of Eligibility for a Health Plan Transactions due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                      I                              II                III               IV                 V                VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                    Year                         Physician number increase in
                                                 electronic eligibility for a
                                                 health plan transactions from
                                                previous year due to operating
                                                       rules in millions
                                                  Hospital number increase in
                                                 electronic eligibility for a
                                                 health plan transactions from
                                                previous year due to operating
                                                       rules in millions
                                              Plan number increase in electronic
                                                 eligibility for a health plan
                                                transactions from previous year
                                              due to operating rules in millions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                     Low              High               Low              High               Low              High
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012........................................               0.0               0.0               0.0               0.0               0.0               0.0
2013........................................              45.4              54.4              20.2              24.2              65.5              78.6
2014........................................              52.2              62.6              23.2              27.8              75.3              90.4
2015........................................              60.0              72.0              26.7              32.0              86.7             104.0
2016........................................              69.0              82.8              30.7              36.8              99.6             119.6
2017........................................              79.3              95.2              35.3              42.3             114.6             137.5
2018........................................              45.6              45.6              20.3              20.3              65.9              65.9
2019........................................              49.3              49.3              21.9              21.9              71.2              71.2
2020........................................              53.2              53.2              23.6              23.6              76.9              76.9
2021........................................              57.5              57.5              25.5              25.5              83.0              83.0
2022........................................              62.1              62.1              27.6              27.6              89.6              89.6
                                             -----------------------------------------------------------------------------------------------------------
    Totals..................................             573.5             634.6             254.9             282.1             828.3             916.7
--------------------------------------------------------------------------------------------------------------------------------------------------------

         Table 13--Annual Increase in Number of Health Care Claim Status Transactions for Health Plans Due to Implementation of Operating Rules
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   I                            II                III                 IV                 V                  VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Year                       Physician number increase in
                                         electronic health care claim status
                                         transactions from previous year due
                                           to operating rules in millions
                                             Hospital number increase in
                                         electronic health care claim status
                                         transactions from previous year due
                                           to operating rules in millions
                                         Plan number increase in health care
                                           claim status transactions from
                                        previous year due to operating rules
                                                     in millions
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                      Low               High                Low               High                Low               High
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012..................................                0.0                0.0                0.0                0.0                0.0                0.0
2013..................................                8.5               10.6                0.9                1.2                9.4               11.8
2014..................................               10.2               12.7                1.1                1.4               11.3               14.1
2015..................................               12.2               15.2                1.4                1.7               13.5               16.9
2016..................................               14.6               18.3                1.6                2.0               16.3               20.3
2017..................................               17.6               21.9                2.0                2.4               19.5               24.4
2018..................................               12.3               12.3                1.4                1.4               13.7               13.7
2019..................................               13.5               13.5                1.5                1.5               15.0               15.0
2020..................................               14.9               14.9                1.7                1.7               16.5               16.5
2021..................................               16.4               16.4                1.8                1.8               18.2               18.2
2022..................................               18.0               18.0                2.0                2.0               20.0               20.0
                                       -----------------------------------------------------------------------------------------------------------------
    Totals............................              138.0              153.8               15.3               17.1              153.4              170.9
--------------------------------------------------------------------------------------------------------------------------------------------------------

I. Cost Assumptions

1. Providers
    We assume that physicians and hospitals will incur some start-up 
costs for implementing operating rules. These include training of staff 
and changes to internal business processes. Unlike the costs to health 
plans, we assume that the costs are less likely to be expensive 
infrastructure updates, because we assume most providers will already 
have the necessary infrastructure in place to accommodate the operating 
rules adopted under this interim final rule with comment period. We 
base this assumption on industry studies that demonstrates that EDI is 
utilized in over 75 percent of claim submissions. This means that the 
majority of providers or their business partners are capable of 
transmitting EDI.
    While we assume that there may remain some providers who do not 
conduct any EDI, the operating rules adopted herein do not apply to 
providers who prefer paper-based or manual transactions. If such a 
provider were to move to EDI after learning of the advantages of 
operating rules, the provider's costs for initial EDI infrastructure 
can be found in the Transaction and Code Sets final rule, and impacts 
of the operating rules per se can be found in this interim final rule 
with comment period. In summary, costs regarding initial EDI 
infrastructure to transmit HIPAA transactions are not a factor in our 
estimates. We solicit comments on these assumptions.
    We assume the costs of implementing operating rules will mostly be 
borne by health plans. However, we expect that some costs will be borne 
by providers in the form of increased fees from vendors and 
clearinghouses, such as upgraded software costs and an increase in per-
claim transaction fees based on the increase in volume of transactions. 
These fees are variable depending on existing infrastructure, number of 
providers in a practice, geographic areas, etc. To account for possible 
costs to providers, we have assumed that the costs attributed to 
implementing the Modifications final rule are applicable here. We 
estimate the cost for providers

[[Page 40485]]

to implement operating rules will be 25 percent of the total unadjusted 
costs estimated by the Modifications rule. We use this estimate based 
on the fact that most of the costs of implementing operating rules will 
be realized by health plans due to the more robust information they 
will be required to send in these transactions. As well, any software 
updates that providers will need may only apply to the eligibility for 
a health plan and health care claim status transactions, unlike the 
Modifications rule, which required software updates that applied to up 
to seven transactions. (See Table 14.)
    We base our estimates on provider costs solely on the Modifications 
final rule because the types of costs included in that impact analysis 
are similar to those that would be borne by implementing operating 
rules: software upgrades; training; and testing of transaction 
improvements.
    We believe that these costs are high considering the fact that the 
Modifications rule applies to seven different transactions, while the 
operating rules adopted in this interim final rule with comment period 
only applies to two. However, we have no evidence or justification for 
supporting a lower cost.

                                                                Table 14--Provider Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                  Physicians' cost                     Hospitals' cost
                                                                                    to implement                        to implement
                                                                                   operating rules                     operating rules
                                                                                   for eligibility                     for eligibility
                                                                Unadjusted total    for a health    Unadjusted total    for a health
                                                                physicians' cost   plan and health   hospital's cost   plan and health
                                                                      from           care claim           from           care claim       Total cost to
                                                                  modifications        status         modifications        status           providers
                                                                   final rule       transactions       final rule       transactions
                                                                                       (25% of                             (25% of
                                                                                    modifications                       modifications
                                                                                     final rule                          final rule
                                                                                     estimates)                          estimates)
--------------------------------------------------------------------------------------------------------------------------------------------------------
5010 Implementation Costs--Low................................              $370               $93              $792              $198              $291
5010 Implementation Costs--High...............................               740               185             1,584               396               581
5010 Transition Costs--Low....................................               174                44               373                93               137
5010 Transition Costs--High...................................               348                87               746               187               274
Total Costs--Low..............................................               544               136             1,165               291               427
Total Costs--High.............................................             1,088               272             2,330               583               855
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Health Plans
    As stated earlier, we assume that health plans will bear the 
majority of costs of adopting operating rules. All of the studies that 
were considered for this impact analysis provided qualitative 
descriptions of the possible costs of adoption; however, the IBM study 
was the only one to attribute specific costs of operating rule adoption 
for health plans. The IBM study gave a range of costs: $8,000 to $1.7 
million total cost of adoption including IT staff services such as 
programming, software, and hardware across a number of systems; and 
annual ongoing costs of $0 to $79,000 for IT staff services such as 
programming, and minor hardware and software upgrades to annually 
update operating rules.
    In contrast, total implementation costs to implement the updated 
Version 5010 of the HIPAA standards ranged from an average of $1.14 to 
$2.28 million per health plan, excluding government health plans. We 
assume that implementing Version 5010 may be comparable to implementing 
the operating rules adopted herein. However the Modifications rule 
broadly amends or alters seven HIPAA standard transactions. This 
interim final rule with comment period adopts operating rules for only 
two transactions.
    To calculate the range of costs for health plans we start with the 
low and high costs to health plans estimated in the Modifications rule. 
We increased these costs by 14 percent to account for the 14 percent 
increase in the number of health plans from the Modifications rule. We 
estimate the cost for health plans to implement operating rules will be 
50 percent of the total costs estimated by the Modifications rule. We 
estimated a low cost of $2.6 billion and a high $5.1 billion for health 
plans. We reduced the estimate of health plans costs based upon the 
Modifications final rule because, unlike the Modifications final rule, 
operating rules adopted herein only apply to the eligibility for a 
health plan and health care claim status transactions.
    We will assume that the ongoing cost to maintaining operating rules 
for eligibility for a health plan and health care claim status will 
continue 2 years after implementation. However, since we do not know 
what updates will be needed at this time, we cannot determine costs for 
those updates. Afterwards, we will assume that ongoing costs will 
decrease to zero. We base this assumption on the IBM study finding that 
the majority of the ongoing cost was due to IT staff services for 
programming, and after 2 years we assume that this programming will no 
longer be necessary.
    Note that by using 4,577 as the total number of health plans, we 
have not adjusted for the number of health plans that have already 
updated their infrastructure and communications, and have already 
implemented the operating rules. This includes not only those health 
plans that have been certified by the CAQH CORE as having implemented 
portions of Phase I and, perhaps, Phase II, but also health plans that 
have done so without going through the CAQH CORE certification process. 
As we have noted, a number of states have statutes that are similar, to 
the CAQH CORE operating rules with which all health care entities 
operating in the same state must comply. Therefore, we believe our 
costs may be overstated. We invite public and interested stakeholder 
comments on our cost assumptions.

[[Page 40486]]

      Table 15--Cost to Health Plans of Operating Rule Adoption for
 Eligibility for a Health Plan and Health Care Claim Status Transactions
------------------------------------------------------------------------
                                                      Health plans' cost
                                                         to implement
                                     Total health       operating rules
                                   plans' cost from     for eligibility
                                     modifications     for a health plan
                                   final rule (+14%    and claim status
                                    to account for     transactions (50%
                                  increase in number      of adjusted
                                       of plans)         modifications
                                                          final rule
                                                          estimates)
------------------------------------------------------------------------
5010 Implementation Costs--Low..              $3,483              $1,742
5010 Implementation Costs--High.               6,968               3,484
5010 Transition Costs--Low......               1,640                 820
5010 Transition Costs--High.....               3,279               1,639
Total Costs--Low................               5,123               2,562
Total Costs--High...............              10,246               5,123
------------------------------------------------------------------------

3. Vendors and Clearinghouses
    None of the studies considered for this impact analysis were able 
to quantify the costs and savings, or the return on investment of 
adopting operating rules for vendors or clearinghouses. As previously 
mentioned, we expect that some costs will be borne by providers in the 
form of increased fees from vendors and clearinghouses, such as 
upgraded software costs and an increase in per-claim transaction fees 
based on the increase in volume of transactions.
    Because of this we believe that costs to vendors will be the same 
as the costs expected by providers since vendors pass along their costs 
to their provider clients in the form of increased fees, which are 
included as the costs to providers of implementing these operating 
rules. Additionally, we believe that costs to clearinghouses for 
routing of additional electronic transactions, which we assume will be 
due to implementation of the operating rules, are included in the costs 
expected by health plans. We invite interested stakeholder comments 
regarding these costs and assumptions for vendors and clearinghouses.

J. Savings Assumptions

1. Providers
    We have analyzed two areas in which providers will find savings or 
avoid costs upon implementation of the operating rules for eligibility 
for a health plan and health care claim status transactions. The first 
area that provides considerable cost savings is the avoidance of claim 
denials that implementation of the eligibility for a health plan 
operating rules is estimated to provide. The second area of savings for 
providers will be the per transaction savings of moving eligibility for 
a health plan and health care claim status transactions from non-
electronic to EDI.
    It is difficult, if not impossible, to estimate the number of 
eligibility for a health plan and claim status transactions conducted 
per provider, even as an average. Given the added difficulty of the 
range of technological capabilities of providers, it would be 
difficult, if not impossible, to make any assumptions on the cost or 
benefit on a per provider basis, or to project an estimate of increased 
EDI use for any one provider.
    This impact analysis will not base its cost or benefit to providers 
on the number of providers or on a per-provider or average provider 
basis. It would be specious to presume that such numbers reflect any 
real situation in a provider's office. Rather, we will look at the 
total number of eligibility for a health plan and claim status 
transactions that we estimate all providers conduct through a given 
year, and estimate an increase based on the implementation of operating 
rules. In the same vein, we will calculate a savings based on an 
estimate of the total number of denied claims, instead of attempting to 
calculate an average of denied claims per provider.
    In the area of claims denials, we assume that there will be a low 
to high range of $$560 million to $700 million annual cost savings in 
the reduction of denied claims once the eligibility for a health plan 
transaction operating rules are implemented. We base this assumption on 
a number of studies. We use the total annual number of claims submitted 
from the Modifications final rule as mentioned above, 5.6 billion, and 
divide it between physicians and hospitals according to the Oregon 
Survey's 9 to 1 ratio of physician to hospital transactions. We then 
take the 5 billion annual claims for physicians and 560 million for 
hospitals and apply the 5 percent of denied claims as outlined in the 
MGMA Project Swipe IT study. With this number, we consider the IBM 
study data that found that the implementation of eligibility for a 
health plan operating rules resulted in a 10 percent to 12 percent 
decrease in denied claims. We have consistently created low to high 
ranges in this impact analysis that uses the results of the IBM study 
as the ``best case'' or high estimates, and we will do so here as well. 
We have provided a range of 8 to 10 percent decrease in denied claims 
due to operating rules.
    This results in a total of 22.4 million to 28 million denied claims 
for providers that could be avoided through eligibility for a health 
plan operating rules. We then take these numbers and apply them to the 
cost to providers of processing denied claims, which is $25 per denied 
claim according to a December 2000 study sponsored by the Medical Group 
Management Association, http://www.acpinternist.org/archives/2000/12/claimsdenied.htm). This results in $560 million to $700 million in 
annual savings for providers due to implementation of operating rules 
for the eligibility for a health plan transaction.

X * Y * Z * A = Total annual savings to providers by avoiding denied 
claims

Where:

X = Total number of claims (Column II)
Y = Percent of claims that are denied (Column III)
Z = Percent of denied claims that will be avoided by implementing 
eligibility for a health plan operating rules (Column V)
A = Cost for providers to resubmit a single denied claim (Column 
VII)

[[Page 40487]]

                           Table 16--Annual Savings to Providers for Avoiding Claims Denials After Implementation of Operating Rules for Eligibility for a Health Plan
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                               I                                     II          III           IV           V            VI          VII          VIII          IX           X            XI
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Total      Percent of   Number of
                                                                 number of      claims       claims
                                                                 claims (in     denied     denied in
                                                                 millions)   (MGMA 2007)   millions =
                                                                              (percent)    (Col II) x
                                                                                           (Col III)   Percent of denied claims
                                                                                                         that will be avoided
                                                                                                        through eligibility for
                                                                                                        a health plan operating
                                                                                                         rules (IBM: 10%-12%)
                                                                                                               (percent)
                                                                 Number of denied claims    Cost to
                                                                  that will be avoided     resubmit a
                                                                 through eligibility for     denied
                                                                 a health plan operating     claim
                                                                rules in millions = (Col     (Larch
                                                                    IV) x (Col V/VI)       2000, ACP-
                                                                                              ASIM
                                                                                           Observer)    Total annual savings of
                                                                                                       eligibility for a health
                                                                                                         plan operating rules
                                                                                                         through reduction in
                                                                                                           claims denial in
                                                                                                        millions (Col VII/VIII)
                                                                                                              x (Col IX)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                ...........  ...........  ...........      LOW          HIGH         LOW          HIGH     ...........      LOW          HIGH
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Physician.....................................................        5,040            5          252            8           10        20.16         25.2          $25          504          630
Hospital......................................................          560            5           28            8           10         2.24          2.8           25           56           70
                                                               ---------------------------------------------------------------------------------------------------------------------------------
    Totals....................................................  ...........  ...........  ...........  ...........  ...........         22.4           28  ...........          560          700
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    In the area of per transaction savings, we assume that the move 
from non-electronic to electronic transmission of the eligibility for a 
health plan transaction will save providers, physicians and hospitals, 
$2.10 per transaction. This number reflects the difference in labor 
time and costs required to conduct the electronic transaction compared 
to the manual transaction. It includes the difference in the cost of 
labor--employee salary, benefits, and payroll taxes--as well as the 
difference in general overhead.
    We arrived at $2.10 savings per transaction after analyzing a 
number of the studies already mentioned, including the Health 
Efficiency Report, the Milliman study, and the IBM study. We decided 
that the IBM study's estimate of a savings of $2.10 per eligibility for 
a health plan transaction that moves from non-electronic to electronic 
was the best starting estimate because, unlike the other studies, the 
IBM study surveyed entities that actually realized costs savings as a 
result of the use of operating rules for the electronic eligibility for 
a health plan transactions. As well, the IBM study gives us the most 
conservative estimate, as can be seen by comparing it with other 
studies' conclusions.
    We assume that the move from non-electronic to EDI transmission of 
the health care claim status transaction will save physicians and 
hospitals $3.33 per transaction. The benefits to physicians in 
streamlining the health care claim status transaction through operating 
rules are potentially significant if, as we assume, it leads to less 
dependence on more time consuming and costly manual means, and 
increased use of the EDI transaction.
    Unlike the eligibility for a health plan transaction analysis, we 
did not base our savings per health care claim status transaction for 
providers on the IBM study, as the IBM study did not measure the impact 
of the operating rules for the health care claim status transaction. 
Instead, we took our assumptive savings of $3.33 per transaction from 
the number that is used in all studies we analyzed and which was first 
illustrated in the Milliman study. We will use this assumption as this 
is the number on which industry studies appear to agree. However, we 
note that, as the health care claim status transaction is very seldom 
used, there is very little data on which to base actual savings.
    Note that the low to high estimates on the estimated increase in 
the transactions based on operating rules are carried through this 
calculation. We arrived at this range in our calculations described in 
the baseline assumptions.

  Table 17--Savings for Providers per Eligibility for a Health Plan and
 Health Care Claims Status Transaction That Moves From Nonelectronic to
                        Electronic for Providers
------------------------------------------------------------------------
                                   Savings for every
                                   eligibility for a   Savings for every
                                      health plan      health care claim
             Source                transaction that   status transaction
                                    moves from non-     that moves from
                                     electronic to     non-electronic to
                                      electronic          electronic
------------------------------------------------------------------------
Health Efficiency Report........               $2.95               $3.33
Oregon Survey (low estimate)....                2.46                3.33
Milliman study..................                2.44                3.33
IBM study.......................                2.10                  NA
Our assumption..................                2.10                3.33
------------------------------------------------------------------------

[[Page 40488]]

                                          Table 18--Provider (Physician and Hospitals) Savings for Eligibility
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              I                                       II                III                IV                 V                VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Low number        High number
                                                                  increase in       increase in
                                                                eligibility for   eligibility for
                                                                 a health plan     a health plan
                                                                 transactions      transactions       Savings per        Low annual        High annual
                             Year                                from previous     from previous      transaction        savings in        savings in
                                                                  year due to       year due to                           millions          millions
                                                                operating rules   operating rules
                                                                  in millions       in millions
                                                                (from table 12)   (from table 12)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.........................................................               0.0               0.0              $0.0               $0.0              $0.0
2013.........................................................              65.5              78.6               2.10             137.6             165.1
2014.........................................................              75.3              90.4               2.10             158.2             189.9
2015.........................................................              86.7             104.0               2.10             182.0             218.4
2016.........................................................              99.6             119.6               2.10             209.3             251.1
2017.........................................................             114.6             137.5               2.10             240.6             288.8
2018.........................................................              65.9              65.9               2.10             138.4             138.4
2019.........................................................              71.2              71.2               2.10             149.4             149.4
2020.........................................................              76.9              76.9               2.10             161.4             161.4
2021.........................................................              83.0              83.0               2.10             174.3             174.3
2022.........................................................              89.6              89.6               2.10             188.3             188.3
                                                              ------------------------------------------------------------------------------------------
    Total....................................................  ................  ................  .................           1,739.5           1,925.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                          Table 19--Provider (Physician and Hospitals) Savings for Claim Status
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              I                                       II                III                IV                 V                VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Low number        High number
                                                                  increase in       increase in
                                                                  health care       health care
                                                                 claim status      claim status
                                                                 transactions      transactions       Savings per        Low annual        High annual
                             Year                                from previous     from previous      transaction        savings in        savings in
                                                                  year due to       year due to                           millions          millions
                                                                operating rules   operating rules
                                                                  in millions       in millions
                                                                (from table 13)   (from table 13)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.........................................................               0.0               0.0              $0.0               $0.0              $0.0
2013.........................................................               9.4              11.8               3.33              31.3              39.2
2014.........................................................              11.3              14.1               3.33              37.6              47.0
2015.........................................................              13.5              16.9               3.33              45.1              56.4
2016.........................................................              16.3              20.3               3.33              54.1              67.7
2017.........................................................              19.5              24.4               3.33              65.0              81.2
2018.........................................................              13.7              13.7               3.33              45.5              45.5
2019.........................................................              15.0              15.0               3.33              50.0              50.0
2020.........................................................              16.5              16.5               3.33              55.0              55.0
2021.........................................................              18.2              18.2               3.33              60.5              60.5
2022.........................................................              20.0              20.0               3.33              66.6              66.6
                                                              ------------------------------------------------------------------------------------------
    Total....................................................  ................  ................  .................             510.8             569.0
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                          Table 20--Provider Savings Summarized
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Low savings                                          High savings
                                             -----------------------------------------------------------------------------------------------------------
                                               Annual provider                                       Annual provider
                    Year                       savings due to    Annual provider    Total annual     savings due to    Annual provider    Total annual
                                              increased use of   savings due to      savings to     increased use of   savings due to      savings to
                                                 electronic        decrease in      providers (in      electronic        decrease in      providers (in
                                                transactions      claim denials       millions)       transactions      claim denials       millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................           $168.92              $560              $729           $204.27              $700              $904
2014........................................            195.83               560               756            236.87               700               937
2015........................................            227.08               560               787            274.75               700               975
2016........................................            263.40               560               823            318.78               700             1,019
2017........................................            305.61               560               866            369.98               700             1,070
2018........................................            183.85               560               744            183.85               700               884
2019........................................            199.46               560               759            199.46               700               899
2020........................................            216.42               560               776            216.42               700               916
2021........................................            234.84               560               795            234.84               700               935
2022........................................            254.83               560               815            254.83               700               955
                                             -----------------------------------------------------------------------------------------------------------

[[Page 40489]]

 
    Cumulative Totals.......................  ................  ................             7,850  ................  ................             9,494
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Health Plans
    We have analyzed two areas in which health plans will find savings 
or avoid costs upon implementation of the operating rules for 
eligibility for a health plan and health care claim status 
transactions. The first area that provides considerable cost savings is 
a decrease in the number of pended claims that implementation of the 
eligibility for a health plan operating rules is estimated to provide. 
Pended claims are claims that necessitate a manual review by the health 
plan. The second area of savings for health plans will be the per 
transaction savings of moving eligibility for a health plan and health 
care claim status transactions from non-electronic to EDI transmittal.
    In the area of pended claims, we base this assumption on a study by 
the America's Health Insurance Plans in 2006 (AHIP Center for Policy 
and Research, An Updated Survey of Health Care Claims Receipt and 
Processing Times (May 2006) at http://www.ahipresearch.org/pdfs/PromptPayFinalDraft.pdf).
    We start our calculation with the total annual number of claims 
submitted based on the Modifications final rule as mentioned 
previously, 5.6 billion. AHIP reported that 14 percent of all claims 
were pended by health plans, which calculates to 784 million pended 
claims. The AHIP study broke down the reasons why claims were pended. 
Four of those categories, including lack of necessary information, no 
coverage based on date of service, non-covered/non-network benefit or 
service, and coverage determination, we believe can be avoided by 
implementing operating rules for the eligibility for a health plan 
transaction and the increased use of the eligibility for a health plan 
transactions. These categories comprise 31 percent of all pended 
claims. We also assume that many pended claims can be avoided with 
increased use of the claim status transaction and its operating rules. 
However, we were unable to establish a correlation between use of claim 
status operating rules and a decrease in pended claims, and have not 
included any savings attributable to the claim status operating rules.
    To reflect the uncertainty of this effect of operating rules on a 
``downstream'' process, we estimate that 20 to 25 percent of pended 
claims could be avoided through use of operating rules. (See Table 21.)
    AHIP estimated that $0.85 was the cost to reply electronically to a 
``clean'' claim submission, while $2.05 was the cost to claims that 
``necessitate manual or other review cost,'' according to the study. 
The difference is $1.20, which is the per pended claim factor we use 
for our cost savings analysis. (See Table 21.)
    This results in $188 million to $235 million for health plans in 
annual savings of eligibility for a health plan operating rules through 
reduction in pended claims.

X * Y * Z * A = Total annual savings to providers by avoiding denied 
claims

Where:

X = Total number of claims (Column I)
Y = Percent of claims that are pended (Column II)
Z = Percent of pended claims that will be avoided by implementing 
eligibility for a health plan operating rules (Column IV)
A = Cost for health plans to manually review a pended claim (Column 
VI)

         Table 21--Annual Savings to Plans for Avoiding Pended Claims After Implementation of Operating Rules for Eligibility for a Health Plan
--------------------------------------------------------------------------------------------------------------------------------------------------------
       I              II              III             IV              V              VI            VII            VIII            IX             X
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                 Number of      Number of                    Total annual   Total annual
                                                                  Percent of   pended claims  pended claims                   savings of     savings of
                                                  Percent of    pended claims   that will be   that will be                  eligibility    eligibility
                                                 pended claims   that will be     avoided        avoided                     for a health   for a health
                                   Number of     that will be      avoided        through        through                         plan           plan
 Total number     Percent of     claims pended      avoided        through      eligibility    eligibility      Cost to       operating      operating
 of claims in    claims pended     claims in        through      eligibility    for a health   for a health     review a    rules through  rules through
   millions       (AHIP 2006)     millions =      eligibility    for a health       plan           plan       pended claim   reduction in   reduction in
                                  (Col I)  x     for a health        plan        operating      operating     (AHIP, 2006)  pended claims  pended claims
                                   (Col II)     plan operating    operating       rules in       rules in                    in millions    in millions
                                                 rules  (AHIP    rules  (AHIP    millions =     millions =                   (Col VI)  x    (Col VII)  x
                                                  2006)  Low     2006)  High     (Col III x    (Col III)  x                   (Col VIII)     (Col VIII)
                                                                               (Col IV)  Low  (Col V)  High                      Low            High
--------------------------------------------------------------------------------------------------------------------------------------------------------
       5,600             14%             784             20%            25%          156.8            196          $1.20           $188           $235
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The second area of savings for health plans is the per transaction 
savings of moving eligibility for a health plan and health care claim 
status transactions from non-electronic to electronic transmittal. We 
assume that the average savings for health plans in adopting operating 
rules for eligibility for a health plan is approximately $3.13 per 
transaction that moves from non-electronic to electronic, and $3.75 for 
health care claim status transactions that move from non-electronic to 
electronic.
    To determine these savings, we assumed that the IBM study and the 
Oregon Survey were the most recent and the most valid with regard to 
eligibility for a health plan savings, as they are based on detailed 
surveys with health plans. To arrive at our savings

[[Page 40490]]

assumption, therefore, we averaged the two studies. (See Table 22)
    For health care claim status transactions, we relied solely on the 
Oregon Survey, again based on the validity of its results. (See Table 
22)

   Table 22--Savings per Eligibility for a Health Plan and Health Care
  Claim Status Transaction That Moves From Non-Electronic to Electronic
                            for Health Plans
------------------------------------------------------------------------
                                   Savings for every
                                   eligibility for a   Savings for every
                                      health plan     health care claims
             Source                transaction that   status transaction
                                    moves from non-     that moves from
                                     electronic to     non-electronic to
                                      electronic          electronic
------------------------------------------------------------------------
Oregon Survey...................               $3.75               $3.75
IBM study.......................               $2.50                  NA
Our assumption..................               $3.13               $3.75
------------------------------------------------------------------------

    Note that the low to high estimates on the estimated increase in 
the transactions based on operating rules are carried through this 
calculation (in Tables 23 and 24). We arrived at this range in our 
calculations described in the baseline assumptions.

                                  Table 23--Savings for Eligibility for a Health Plan Operating Rules for Health Plans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              I                                       II                III                IV                 V                VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Number increase   Number increase
                                                                 in electronic     in electronic
                                                                eligibility for   eligibility for
                                                                 a health plan     a health plan
                                                                 transactions      transactions       Savings per      Annual savings    Annual savings
                             Year                                from previous     from previous      transaction       (in millions)     (in millions)
                                                                  year due to       year due to                              low              high
                                                                operating rules   operating rules
                                                                 (in millions)     (in millions)
                                                                      low              high
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.........................................................               0.0               0.0              $0.0               $0.0              $0.0
2013.........................................................              65.5              78.6               3.13             205.1             246.1
2014.........................................................              75.3              90.4               3.13             235.8             283.0
2015.........................................................              86.7             104.0               3.13             271.2             325.5
2016.........................................................              99.6             119.6               3.13             311.9             374.3
2017.........................................................             114.6             137.5               3.13             358.7             430.4
2018.........................................................              65.9              65.9               3.13             206.2             206.2
2019.........................................................              71.2              71.2               3.13             222.7             222.7
2020.........................................................              76.9              76.9               3.13             240.6             240.6
2021.........................................................              83.0              83.0               3.13             259.8             259.8
2022.........................................................              89.6              89.6               3.13             280.6             280.6
                                                              ------------------------------------------------------------------------------------------
    Total....................................................  ................  ................  .................           2,592.7           2,869.2
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                     Table 24--Savings for Health Care Claim Status Operating Rules for Health Plans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                              I                                       II                III                IV                 V                VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Number increase   Number increase
                                                                in health care    in claim status
                                                                 claim status       health care
                                                                 transactions      transactions                        Annual savings    Annual savings
                             Year                                from previous     from previous      Savings per       (in millions)     (in millions)
                                                                  year due to       year due to       transaction            low              high
                                                                operating rules   operating rules
                                                                 (in millions)     (in millions)
                                                                      low              high
--------------------------------------------------------------------------------------------------------------------------------------------------------
2012.........................................................               0.0               0.0              $0.0               $0.0              $0.0
2013.........................................................               9.4              11.8               3.75              35.3              44.1
2014.........................................................              11.3              14.1               3.75              42.3              52.9
2015.........................................................              13.5              16.9               3.75              50.8              63.5
2016.........................................................              16.3              20.3               3.75              61.0              76.2
2017.........................................................              19.5              24.4               3.75              73.2              91.4
2018.........................................................              13.7              13.7               3.75              51.2              51.2
2019.........................................................              15.0              15.0               3.75              56.3              56.3
2020.........................................................              16.5              16.5               3.75              62.0              62.0
2021.........................................................              18.2              18.2               3.75              68.2              68.2
2022.........................................................              20.0              20.0               3.75              75.0              75.0
                                                              ------------------------------------------------------------------------------------------

[[Page 40491]]

 
    Total....................................................  ................  ................  .................             575.2             640.8
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                        Table 25--Health Plan Savings Summarized
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Low savings                                          High savings
                                             -----------------------------------------------------------------------------------------------------------
                                                Annual health                                         Annual health
                                              plan savings due    Annual health     Total annual    plan savings due    Annual health     Total annual
                                              to increased use  plan savings due     savings to     to increased use  plan savings due     savings to
                                                of electronic    to decrease in     health plans      of electronic    to decrease in     health plans
                                                transactions      claim denials     (in millions)     transactions      claim denials     (in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013........................................            $240.4              $188              $429           $290.19              $235              $525
2014........................................             278.2               188               466            335.93               235               571
2015........................................             322.0               188               510            388.96               235               624
2016........................................             372.9               188               561            450.48               235               686
2017........................................             431.8               188               620            521.86               235               757
2018........................................             257.5               188               446            257.45               235               493
2019........................................             279.1               188               467            279.07               235               514
2020........................................             302.5               188               491            302.52               235               538
2021........................................             328.0               188               516            327.97               235               563
2022........................................             355.6               188               544            355.57               235               591
                                             -----------------------------------------------------------------------------------------------------------
    Totals..................................  ................  ................             5,049  ................  ................             5,862
--------------------------------------------------------------------------------------------------------------------------------------------------------

3. Vendors and Clearinghouses
    None of the studies considered for this analysis were able to 
quantify the costs and savings, or the return on investment of adopting 
operating rules for the eligibility for a health plan and health care 
claim status inquiry and response transactions for vendors and 
clearinghouses. As noted previously, we expect that some costs will be 
borne by providers in the form of increased fees from vendors and 
clearinghouses such as upgraded software costs.
    We would anticipate that the savings, as well as the costs, to 
vendors of upgrading provider software will be passed along to their 
provider clients. Therefore, we assume that the costs and benefits for 
vendors in implementing the operating rules will be the same as those 
for providers.
    Additionally, since clearinghouses work on behalf of health plans 
and act as intermediaries between providers and health plan in regards 
to electronic transactions, we believe that the savings, as well as the 
costs, to clearinghouses for routing of additional electronic 
transactions will be the same savings and costs as those expected by 
health plans. We invite public and interested stakeholder comments on 
our assumptions.

K. Summary

1. Providers
    As previously noted, providers will assume the least cost and see 
the greatest benefit from the implementation of operating rules as 
required by this interim final rule with comment period. Within 10 
years of implementation of the operating rules for eligibility for a 
health plan and health care claim status transactions, we estimate that 
there will be $7.9 billion to $9.5 billion in savings for providers at 
a cost of up to $855 million.

      Table 26--Summary of Provider Savings and Costs Over 10 Years
                              [In millions]
------------------------------------------------------------------------
                                                         Low      High
------------------------------------------------------------------------
Provider Savings....................................    $7,850    $9,494
Total Provider Costs................................       427       855
------------------------------------------------------------------------

2. Health Plans
    We estimate that health plans will see a savings of $5 billion to 
$5.8 billion within 10 years of the implementation of operating rules 
(both for eligibility for a health plan and health care claim status 
transactions). We believe that this is a conservative estimate. The IBM 
study found an average return on investment of over $2 million per 
health plan within 1 year of implementation. If multiplied by the 
number of health plans, this results in over $9 billion savings after 
the first year. We estimate that costs to health plans will range from 
$2.6 billion to $5.1 billion over 10 years.
    In March 2010, the Congressional Budget Office (CBO) (http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf) estimated that 
the administrative simplification requirements in the Affordable Care 
Act would produce savings to the Federal budget. In contrast to the CBO 
analysis, government health plans are not considered separately in our 
impact analysis and summary estimate, and were instead included along 
with private health plans. When considering the impact on the Federal 
government of this interim final rule with comment period, note that 
the operating rules adopted herein are only one part of the broader 
administrative simplification mandates outlined in section 1104 of the 
Affordable Care Act, from which a

[[Page 40492]]

greater return on investment (ROI) in total is anticipated. Also, 
because we are addressing requirements that will impact the entire 
health care industry, we again reiterate that we choose to make 
conservative estimates based on the variation within the studies on 
which to base such estimates.

    Table 27--Summary of Health Plan Savings and Costs Over 10 Years
                              [In millions]
------------------------------------------------------------------------
                                                         Low      High
------------------------------------------------------------------------
Health Plan Savings.................................    $5,049    $5,862
Health Plan Costs...................................     2,562     5,123
------------------------------------------------------------------------

 Table 28--Summary of Provider and Health Plan Savings and Costs Over 10
                                  Years
                              [In millions]
------------------------------------------------------------------------
                                                         Low      High
------------------------------------------------------------------------
Provider and Health Plan Savings....................   $12,899   $15,356
Total Provider and Health Plan Costs................     2,989     5,978
------------------------------------------------------------------------

L. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, 
requires agencies to describe and analyze the impact of the interim 
final rule with comment 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 healthcare sector, the 
Small Business Administration (SBA) size standards define a small 
entity as one with between revenues of $7 million to $34.5 million in 
any 1 year. For details, see the SBA's Web site at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf (refer to Sector 62--
Health Care and Social Assistance). (Accessed 2-1-11).
    For the purposes of this analysis (pursuant to the RFA), nonprofit 
organizations are considered small entities; however, individuals and 
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 this interim final rule with 
comment period, and where we had difficulty, or were unable to find 
information, we solicit industry comment. Because most medical 
providers are either nonprofit or meet the SBA's size standard for 
small business, we treat all medical providers as small entities.
1. Number of Small Entities
    The following sections discuss which entities across the health 
care industry, that are impacted by this interim final rule with 
comment period, are considered small entities as part of this 
Regulatory Flexibility Analysis.
     Providers--All health care providers are assumed to be 
small entities. The number of providers utilized in this analysis is 
taken from the August 21, 2008 HIPAA Electronic Transaction Standards 
proposed rule, as well as the U.S. Census Bureau, Detailed Statistics, 
2007 Economic Census, August 31, 2010. The determination to include all 
health care providers as small entities is modeled after many previous 
HHS rules which utilized the same assumption.
     Clearinghouses--All clearinghouses were assumed to not be 
small entities. Three national association Web sites were consulted 
(EHNAC, HIMSS and the Cooperative Exchange). Additionally, the Health 
Data Dictionary by Faulkner and Gray which was last published in 2000 
determined that the number of clearinghouses that would be considered 
small entities was negligible. The top 51 clearinghouse 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. It was determined that even based on this data, few of the 
entities would fall into the small entity category, and as such, we did 
not count them in this RFA analysis.
     Health Plans--All health plans are assumed to not be small 
entities. Based on the available public data, the number of plans that 
meet the SBA size standard of $7 million in annual receipts was unable 
to be determined; therefore we did not include an analysis of the 
impact on health plans.
     Software Vendors--Vendors are not considered covered 
entities under HIPAA; however we assume that all vendors are small 
entities based on their relation to providers. Based on our analysis in 
the regulatory impact analysis, we assume that the costs and benefits 
for software vendors would be the same as those for providers.
    We solicit industry comment on our above assumptions.
    In total, we estimate that there are approximately 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 $7 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 4,526 (plus Medicare, 
VA, and IHS) firms considered as health plans and/or payers responsible 
for conducting transactions with health care providers (not including 
State Medicaid Agencies). 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. State 
Medicaid agencies were also excluded from the analysis as well because 
States are not considered small entities in any Regulatory Flexibility 
Analysis. We solicit industry comment on this assumption.
    We identified the top 51 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.
    The following table outlines the estimated number of small entities 
utilized in the preparation of the initial regulatory flexibility 
analysis.

               Table 29--Number of Impacted Small Entities
                           [In Whole Numbers]
------------------------------------------------------------------------
              Type                   Number               Source
------------------------------------------------------------------------
Hospitals (NAICS 622)..........           6,505  U.S. Census Bureau,
                                                  Detailed Statistics,
                                                  2007 Economic Census,
                                                  August 31, 2010.

[[Page 40493]]

 
Ambulatory health care services         547,561  U.S. Census Bureau,
 (NAICS code 6211).                               Detailed Statistics,
                                                  2007 Economic Census,
                                                  August 31, 2010.
Clearinghouses.................               0  Survey of EHNAC, HIMSS,
                                                  the Cooperative
                                                  Exchange, and the
                                                  Maryland Commission
                                                  for Healthcare)
                                                  Assume, all
                                                  clearinghouse are not
                                                  small entities.
Health Plans (including                       0  Assume all health plans
 Government Health Plans such                     are not small
 as Medicare, VA and IHS).                        entities.
Vendors (NAICS code 5415--                   51  EC EDI Vantage Point
 Computer design and related                      Healthcare Directory--
 services).                                       6th Edition (n=51)
                                                  http://www.ec-edi.biz/content/en/dir-guest-login.asp.
Health Plans--Medicaid.........               0  State Medicaid agencies
                                                  were excluded from the
                                                  analysis because
                                                  States are not
                                                  considered small
                                                  entities in any
                                                  Regulatory Flexibility
                                                  Analysis.
------------------------------------------------------------------------

2. Cost for Small Entities
    To determine the impact on health care providers we used Business 
Census data on the number of 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 operating 
rules for eligibility for a health plan and health care claim status 
transactions 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.
    In the following tables, we take the information from the impact 
analysis and break out the costs for both physicians and hospitals. As 
stated earlier in the impact analysis, we assume that vendor costs will 
be the same as those for providers because of our assumption that 
vendors will pass along their costs in the form of increased fees to 
their provider clients.
    As we are treating all health care providers as small entities for 
the purpose of the regulatory flexibility analysis, we allocated 100 
percent of the implementation costs reported in the impact analysis for 
physicians and hospitals. Accordingly we treat all software vendors as 
small entities based on their relationship to providers and allocate 
the same costs. Table 30 shows the impact of the implementation costs 
of operating rules as a percent of the provider revenues. Data on the 
number of entities for these tables were gathered from the 2007 census 
(http://factfinder.census.gov/servlet/IBQTable?_bm=y&-geo_id=&-fds_name=EC0700A1&-_skip=0&-ds_name=EC0762SSSZ1&-_lang=en). We used the 
NAICS code 5415 computer system design and related services for 
software vendors.

                             Table 30--Analysis of the Burden of Implementation of Operating Rules on Small Covered Entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Small entity                    Implementation
                                                         Total number      Number of      Revenues or     receipts of   Op rules costs    cost revenue
        NAICS No.                    Entities             of entities   small entities  receipts ($ in  total receipts   annual ($ in       receipts
                                                                                           millions)       (percent)       millions)        (percent)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6211.....................  Ambulatory health care              547,561         547,561         668,453             100         136-272      0.0002-0.004
                            services.
622......................  Hospitals..................           6,505           6,505         702,960             100         291-583     0.0004-0.0008
5415.....................  Computer system design and          105,710         105,710         297,200             100         136-272     0.0005-0.0009
                            related services.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In Column I we display the NAICS code for class of entity. Column 
II shows the number of entities that are reported in the Business 
Census for 2002 and Column III shows the number of small entities that 
were computed based on the Business Census and Survey of Annual 
Service. As mentioned previously, we assume that all health care 
providers are small. Column IV shows revenues that were reported for 
2008 in the Survey of Annual Services (http://www.census.gov/services/sas_data.html). Column V shows the percent of small entity revenues. 
Column VI shows the costs to providers for implementation of 
eligibility for a health plan and health care claim status operating 
rules. Column VII shows the costs allocated to the small entities based 
on the percent of small entity revenues to total revenues.
    Column VIII presents the percent of the small entity share of 
implementation costs as a percent of the small entity revenues. We have 
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 previously 
listed, which is below the threshold we consider as a significant 
economic impact. As expressed in the 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 small health care providers may encounter some burdens in the 
course of implementing the eligibility for a health plan and health 
care claim status operating rules. However, we are of the opinion that, 
for most small providers, the costs will not be significant, and for 
providers who are not HIPAA covered entities and do not conduct 
electronic health care transactions, there is no cost.

[[Page 40494]]

    We did 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 $7 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 (http://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 
51 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. 
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.
    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 operating 
rules adopted in this interim final rule with comment period.
    We solicit industry comment on our above assumptions.
3. Alternatives Considered
    As stated in section VII.D. of this interim final rule with comment 
period, we considered various policy alternatives to adopting operating 
rules, including not adopting operating rules, adopting another 
authoring entity's operating rules, or waiting for resolution of all 
outstanding technical and administrative issues before adopting the 
operating rules developed by the authoring entities. For reasons cited 
in section VII.D. of this interim final rule with comment period we 
have determined that none of these options were viable. Please see 
section VII.D. of this interim final rule with comment period for a 
discussion of these options and why we determined they were not viable.
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 small 
entities. None of the entities exceeded or came close to this 
threshold. Based on the foregoing analysis, we could certify that this 
interim final rule with comment 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 small entities affected by this interim final rule with 
comment period. 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. Based on the 
analysis above, including that the overall costs to small hospitals is 
under the $136 million threshold, we do not believe this rule would 
have a significant impact on small rural hospitals, for the reasons 
stated above in reference to small entities. Therefore, the Secretary 
has determined that this interim final rule with comment period would 
not have a significant impact on the operations of a substantial number 
of small rural hospitals.

M. Accounting Statement

        Table 31--Accounting Statement: Classification of Estimated Expenditures, From FY 2011 to FY 2023
                                                  [in millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                Source citation
           Category                Primary estimate      Minimum estimate    Maximum estimate   (RIA, preamble,
                                      (millions)            (millions)          (millions)            etc.
----------------------------------------------------------------------------------------------------------------
                                                    BENEFITS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized benefits
    7% Discount...............  Not estimated.........  $1,124............  $1,347...........  RIA.
    3% Discount...............  Not estimated.........  1,153.............  1,376............  RIA.
Qualitative (un-quantified)     Wider adoption of       ..................  .................  .................
 benefits.                       standards due to
                                 consistent use of
                                 standards and
                                 responses robust in
                                 data; increased
                                 productivity due to
                                 decrease in manual
                                 intervention
                                 requirements;
                                 avoidance of pended
                                 claims, claim
                                 denials, and other
                                 obstacles to
                                 expedited billing.
----------------------------------------------------------------------------------------------------------------
Benefits generated from plans to providers, and providers to plans.
----------------------------------------------------------------------------------------------------------------
                                                      COSTS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized costs
    7% Discount...............  Not estimated.........  $373..............  $745.............  RIA.
    3% Discount...............  Not estimated.........  314...............  627..............  RIA.
Qualitative (un-quantified)     None..................  None..............  None.............  .................
 costs.
----------------------------------------------------------------------------------------------------------------

[[Page 40495]]

 
Providers will pay costs to vendors and clearinghouses. Health plans will pay costs to software vendors,
 programming and IT staff/contractors, and clearinghouses. Clearinghouses will pay costs to programming and IT
 staff/contractors and software developers. Government will pay costs to vendors and staff.
----------------------------------------------------------------------------------------------------------------
                                                    TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized monetized            N/A...................  N/A...............  N/A..............  .................
 transfers: ``on budget''.
From whom to whom?............  N/A...................  N/A...............  N/A..............  .................
Annualized monetized            N/A...................  N/A...............  N/A..............  .................
 transfers: ``off-budget''.
----------------------------------------------------------------------------------------------------------------

List of Subjects

45 CFR Part 160

    Administrative practice and procedure, Computer technology, Health 
care, Health facilities, Health insurance, Health records, Hospitals, 
Medicaid, Medicare, Penalties, Reporting and recordkeeping 
requirements.

45 CFR Part 162

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

    For the reasons set forth in this preamble, the Department of 
Health and Human Services amends 45 CFR parts 160 and 162 to read as 
follows:

PART 160--ADMINISTRATIVE DATA STANDARDS AND RELATED REQUIREMENTS

0
1. The authority citation for part 160 is revised to read as follows:

    Authority:  42 U.S.C. 1302(a), 42 U.S.C. 1320d-1320d-8, sec. 264 
of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)), 
5 U.S.C. 552; secs. 13400 and 13402, Pub. L. 111-5, 123 Stat. 258-
263, and sec. 1104 of Pub. L. 111-148, 124 Stat. 146-154.

Subpart A--General Provisions

Sec.  160.101  [Amended]

0
2. Amend Sec.  160.101 by removing the phrase ``and section 13410(d) of 
Public Law 111-5.'' and adding in its place the phrase ``section 
13410(d) of Public Law 111-5, and section 1104 of Public Law 111-148.''

0
3. Amend Sec.  160.103 by adding a paragraph (3) to the definition of 
``standard'' to read as follows:

Sec.  160.103  Definitions.

* * * * *
    Standard * * *
    (3) With the exception of operating rules as defined at Sec.  
162.103.
* * * * *

PART 162--ADMINISTRATIVE REQUIREMENTS

0
4. The authority citation for part 162 is revised to read as follows:

    Authority:  Secs. 1171 through 1180 of the Social Security Act 
(42 U.S.C. 1320d-1320d-9), as added by sec. 262 of Pub. L. 104-191, 
110 Stat. 2021-2031, sec. 105 of Pub. L. 110-233, 122 Stat. 881-922, 
and sec. 264 of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 
1320d-2(note), and secs. 1104 and 10109 of Pub. L. 111-148, 124 
Stat. 146-154 and 915-917.

Subpart A--General Provisions

0
5. Amend Sec.  162.103 as follows:
0
A. Adding the definition of ``operating rules''.
0
B. Revising the definition of ``standard transaction''.
    The revision and addition read as follows:

Sec.  162.103  Definitions.

* * * * *
    Operating rules means the necessary business rules and guidelines 
for the electronic exchange of information that are not defined by a 
standard or its implementation specifications as adopted for purposes 
of this part.
* * * * *
    Standard transaction means a transaction that complies with an 
applicable standard and associated operating rules adopted under this 
part.

Subpart I--General Provisions for Transactions

0
6. Amend Sec.  162.915 by revising paragraph (a) to read as follows:

Sec.  162.915  Trading partner agreements.

* * * * *
    (a) Change the definition, data condition, or use of a data element 
or segment in a standard or operating rule, except where necessary to 
implement State or Federal law, or to protect against fraud and abuse.
* * * * *

0
7. Amend Sec.  162.920 as follows:
0
A. Revising the section heading and introductory text.
0
C. Adding paragraph (c).
    The revisions and addition read as follows:

Sec.  162.920  Availability of implementation specifications and 
operating rules.

    Certain material is incorporated by reference into this subpart 
with the approval of the Director of the Federal Register under 5 
U.S.C. 552(a) and 1 CFR part 51. To enforce any edition other than that 
specified in this section, the Department of Health and Human Services 
must publish notice of change in the Federal Register and the material 
must be available to the public. All approved material is available for 
inspection 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/ibr_locations.html. The materials are 
also available for inspection by the public at the Centers for Medicare 
& Medicaid Services (CMS), 7500 Security Boulevard, Baltimore, Maryland 
21244.

[[Page 40496]]

For more information on the availability on the materials at CMS, call 
(410) 786-6597. The materials are also available from the sources 
listed below.
* * * * *
    (c) Council for Affordable Quality Healthcare's (CAQH) Committee on 
Operating Rules for Information Exchange (CORE), 601 Pennsylvania 
Avenue, NW. South Building, Suite 500 Washington, DC 20004; Telephone 
(202) 861-1492; Fax (202) 861- 1454; E-mail info@CAQH.org; and Internet 
at http://www.caqh.org/benefits.php.
    (1) CAQH, Committee on Operating Rules for Information Exchange, 
CORE Phase I Policies and Operating Rules, Approved April 2006, v5010 
Update March 2011.
    (i) Phase I CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule, version 1.1.0, March 2011, as referenced in Sec.  162.1203.
    (ii) Phase I CORE 153: Eligibility and Benefits Connectivity Rule, 
version 1.1.0, March 2011, as referenced in Sec.  162.1203.
    (iii) Phase I CORE 154: Eligibility and Benefits 270/271 Data 
Content Rule, version 1.1.0, March 2011, as referenced in Sec.  
162.1203.
    (iv) Phase I CORE 155: Eligibility and Benefits Batch Response Time 
Rule, version 1.1.0, March 2011, as referenced in Sec.  162.1203.
    (v) Phase I CORE 156: Eligibility and Benefits Real Time Response 
Time Rule, version 1.1.0, March 2011, as referenced in Sec.  162.1203.
    (vi) Phase I CORE 157: Eligibility and Benefits System Availability 
Rule, version 1.1.0, March 2011, as referenced in Sec.  162.1203.
    (2) ACME Health Plan, HIPAA Transaction Standard Companion Guide, 
Refers to the Implementation Guides Based on ASC X12 version 005010, 
CORE v5010 Master Companion Guide Template, 005010, 1.2, (CORE v 5010 
Master Companion Guide Template, 005010, 1.2), March 2011, as 
referenced in Sec. Sec.  162.1203 and 162.1403.
    (3) CAQH, Committee on Operating Rules for Information Exchange, 
CORE Phase II Policies and Operating Rules, Approved July 2008, v5010 
Update March 2011.
    (i) Phase II CORE 250: Claim Status Rule, version 2.1.0, March 
2011, as referenced in Sec.  162.1403.
    (ii) Phase II CORE 258: Eligibility and Benefits 270/271 
Normalizing Patient Last Name Rule, version 2.1.0, March 2011, as 
referenced in Sec.  162.1203.
    (iii) Phase II CORE 259: Eligibility and Benefits 270/271 AAA Error 
Code Reporting Rule, version 2.1.0, March 2011, as referenced in Sec.  
162.1203.
    (iv) Phase II CORE 260: Eligibility & Benefits Data Content (270/
271) Rule, version 2.1.0, March 2011, as referenced in Sec.  162.1203.
    (v) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 
2011, as referenced in Sec.  162.1203 and Sec.  162.1403.

Subpart L--Eligibility for a Health Plan

0
8. Adding a new Sec.  162.1203 to read as follows:

Sec.  162.1203  Operating rules for eligibility for a health plan 
transaction.

    On and after January 1, 2013, the Secretary adopts the following:
    (a) Except as specified in paragraph (b) of this section, the 
following CAQH CORE Phase I and Phase II operating rules (updated for 
Version 5010) for the eligibility for a health plan transaction:
    (1) Phase I CORE 152: Eligibility and Benefit Real Time Companion 
Guide Rule, version 1.1.0, March 2011, and CORE v5010 Master Companion 
Guide Template. (Incorporated by reference in Sec.  162.920).
    (2) Phase I CORE 153: Eligibility and Benefits Connectivity Rule, 
version 1.1.0, March 2011. (Incorporated by reference in Sec.  
162.920).
    (3) Phase I CORE 154: Eligibility and Benefits 270/271 Data Content 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec.  
162.920).
    (4) Phase I CORE 155: Eligibility and Benefits Batch Response Time 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec.  
162.920).
    (5) Phase I CORE 156: Eligibility and Benefits Real Time Response 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec.  
162.920).
    (6) Phase I CORE 157: Eligibility and Benefits System Availability 
Rule, version 1.1.0, March 2011. (Incorporated by reference in Sec.  
162.920).
    (7) Phase II CORE 258: Eligibility and Benefits 270/271 Normalizing 
Patient Last Name Rule, version 2.1.0, March 2011. (Incorporated by 
reference in Sec.  162.920).
    (8) Phase II CORE 259: Eligibility and Benefits 270/271 AAA Error 
Code Reporting Rule, version 2.1.0. (Incorporated by reference in Sec.  
162.920).
    (9) Phase II CORE 260: Eligibility & Benefits Data Content (270/
271) Rule, version 2.1.0, March 2011. (Incorporated by reference in 
Sec.  162.920).
    (10) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 
2011. (Incorporated by reference in Sec.  162.920).
    (b) Excluding where the CAQH CORE rules reference and pertain to 
acknowledgements and CORE certification.

Subpart N--Health Care Claim Status

0
9. Add Sec.  162.1403 to read as follows:

Sec.  162.1403  Operating rules for health care claim status 
transaction.

    On and after January 1, 2013, the Secretary adopts the following:
    (a) Except as specified in paragraph (b) of this section, the 
following CAQH CORE Phase II operating rules (updated for Version 5010) 
for the health care claim status transaction:
    (1) Phase II CORE 250: Claim Status Rule, version 2.1.0, March 
2011, and CORE v5010 Master Companion Guide, 00510, 1.2, March 2011. 
(Incorporated by reference in Sec.  162.920).
    (2) Phase II CORE 270: Connectivity Rule, version 2.2.0, March 
2011. (Incorporated by reference in Sec.  162.920).
    (b) Excluding where the CAQH CORE rules reference and pertain to 
acknowledgements and CORE certification.

    Dated: May 26, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: June 29, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2011-16834 Filed 6-30-11; 2:00 pm]
BILLING CODE 4120-01-P
```