```

[Federal Register Volume 77, Number 74 (Tuesday, April 17, 2012)]
[Proposed Rules]
[Pages 22950-23005]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-8718]

[[Page 22949]]

Vol. 77

Tuesday,

No. 74

April 17, 2012

Part III

Department of Health and Human Services

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45 CFR Part 162

Administrative Simplification: Adoption of a Standard for a Unique 
Health Plan Identifier; Addition to the National Provider Identifier 
Requirements; and a Change to the Compliance Date for ICD-10-CM and 
ICD-10-PCS Medical Data Code Sets; Proposed Rule

Federal Register / Vol. 77 , No. 74 / Tuesday, April 17, 2012 / 
Proposed Rules

[[Page 22950]]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

[CMS-0040-P]
RIN 0938-AQ13

Administrative Simplification: Adoption of a Standard for a 
Unique Health Plan Identifier; Addition to the National Provider 
Identifier Requirements; and a Change to the Compliance Date for ICD-
10-CM and ICD-10-PCS Medical Data Code Sets

AGENCY: Office of the Secretary, HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would implement section 1104 of the Patient 
Protection and Affordable Care Act (hereinafter referred to as the 
Affordable Care Act) by establishing new requirements for 
administrative transactions that would improve the utility of the 
existing Health Insurance Portability and Accountability Act of 1996 
(HIPAA) transactions and reduce administrative burden and costs. It 
proposes the adoption of the standard for a national unique health plan 
identifier (HPID) and requirements or provisions for the implementation 
of the HPID. This rule also proposes the adoption of a data element 
that will serve as an other entity identifier (OEID), an identifier for 
entities that are not health plans, health care providers, or 
``individuals,'' that need to be identified in standard transactions. 
This proposed rule would also specify the circumstances under which an 
organization covered health care provider must require certain 
noncovered individual health care providers who are prescribers to 
obtain and disclose an NPI. Finally, this rule proposes to change the 
compliance date for the International Classification of Diseases, 10th 
Revision, Clinical Modification (ICD-10-CM) for diagnosis coding, 
including the Official ICD-10-CM Guidelines for Coding and Reporting, 
and the International Classification of Diseases, 10th Revision, 
Procedure Coding System (ICD-10-PCS) for inpatient hospital procedure 
coding, including the Official ICD-10-PCS Guidelines for Coding and 
Reporting, from October 1, 2013 to October 1, 2014.

DATES: Comment Date: To be assured consideration, comments must be 
received at one of the addresses provided, no later than 5 p.m. on May 
17, 2012.

ADDRESSES: In commenting, please refer to file code CMS-0040-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``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-0040-P, 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-0040-P, Mail Stop C4-26-05, 7500 
Security Boulevard, Baltimore, MD 21244-1850.

    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    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, 
call telephone number (410) 786-1066 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously 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: Kari Gaare (410) 786-8612, Matthew 
Albright (410) 786-2546, and 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://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, call 
1-800-743-3951.

I. Executive Summary and Background

A. Executive Summary

1. Purpose of the Regulatory Action
a. Need for the Regulatory Action
    This rule proposes the adoption of a standard unique health plan 
identifier (HPID) and the adoption of a data element that will serve as 
an other entity identifier (OEID). This rule also proposes an addition 
to the National Provider Identifier (NPI) requirements. Finally, this 
rule proposes to change the compliance date for the ICD-10-CM and ICD-
10-PCS medical data code sets (hereinafter ``code sets'') from October 
1, 2013 to October 1, 2014.
(1) HPID
    Currently, health plans and other entities that perform health plan 
functions, such as third party administrators and clearinghouses, are 
identified in Health Insurance Portability and Affordability Act of 
1996 (HIPAA) standard transactions with multiple identifiers that 
differ in length and format. Covered health care providers are 
frustrated by various problems associated with the lack of a

[[Page 22951]]

standard identifier, such as: improper routing of transactions; 
rejected transactions due to insurance identification errors; 
difficulty in determining patient eligibility; and challenges resulting 
from errors in identifying the correct health plan during claims 
processing.
    The adoption of the HPID and the OEID will increase standardization 
within HIPAA standard transactions and provide a platform for other 
regulatory and industry initiatives. Their adoption will allow for a 
higher level of automation for health care provider offices, 
particularly for provider processing of billing and insurance related 
tasks, eligibility responses from the health plans, and remittance 
advice that describes health care claim payments.
(2) NPI
    In January 2004, the U.S. Department of Health and Human Services 
(HHS) published a final rule establishing the standard for a unique 
health identifier for health care providers for use in the health care 
system and adopting the National Provider Identifier (NPI) as that 
standard. The rule also established the implementation specifications 
for obtaining and using the standard unique health identifier for 
health care providers. Since that time, pharmacies have encountered 
situations where they need to include the NPI of a prescribing health 
care provider in a pharmacy claim, but where the prescribing health 
care provider has been a noncovered health care provider who did not 
have an NPI because he or she was not required to obtain one. This 
situation has become particularly problematic in the Medicare Part D 
program. The proposed addition to the NPI requirements seeks to address 
this issue.
(3) ICD-10-CM and ICD-10-PCS Code Sets.
    On January 16, 2009, HHS published a final rule (74 FR 3328) in 
which the Secretary of HHS (the Secretary) adopted the ICD-10-CM and 
ICD-10-PCS (ICD-10) code sets as the HIPAA standards to replace the 
previously adopted International Classification of Diseases, 9th 
Revision, Clinical Modification, Volumes 1 and 2, including the 
Official ICD-9-CM Guidelines for Coding and Reporting (ICD-9-CM Volumes 
1 and 2) and the International Classification of Diseases, 9th 
Revision, Clinical Modification, Volume 3, including the Official ICD-
9-CM Guidelines for Coding and Reporting (ICD-9-CM Volume 3) for 
diagnosis and procedure codes, respectively. The compliance date set by 
the final rule was October 1, 2013.
    Since that time, some provider groups have expressed strong concern 
about their ability to meet the October 1, 2013 compliance date and the 
serious claims payment issues that might then ensue. Some providers' 
concerns about being able to meet the ICD-10 compliance date are based, 
in part, on difficulties they have had meeting HHS' compliance deadline 
for the adopted Associated Standard Committee's (ASC) X12 Version 5010 
standards (Version 5010) for electronic health care transactions. 
Compliance with Version 5010 and ICD-10 by all covered entities is 
essential to a smooth transition to the updated medical data code sets, 
as the failure of any one industry segment to achieve compliance would 
negatively impact all other industry segments and result in returned 
claims and provider payment delays. We believe the change in the 
compliance date for ICD-10, as proposed in this rule, would give 
providers and other covered entities more time to prepare and fully 
test their systems to ensure a smooth and coordinated transition by all 
industry segments.
b. Legal Authority for the Regulatory Action
(1) HPID
    This proposed rule implements section 1104(c) of the Affordable 
Care Act and section 1173(b)(1) of the Social Security Act (the Act) 
which require the adoption of a standard unique health plan identifier 
(HPID).
(2) NPI
    This proposed rule would impose an additional requirement on 
covered organization health care providers under the authority of 
sections 1173(b)(1) and 1175(b) of the Act. It would also accommodate 
the needs of certain types of health care providers in the use of the 
covered transactions, as required by section 1173(a)(3) of the Act.
(3) ICD-10-CM and ICD-10-PCS
    This proposed rule would set a new compliance date for the ICD-10 
code sets, in accordance with section 1175(b)(2) of the Act, under 
which the Secretary determines the date by which covered entities must 
comply with modified standards and implementation specifications.
2. Summary of the Major Provisions
a. HPID
    This rule proposes the adoption of the HPID as the standard for the 
unique identifier for health plans and definitions for ``Controlling 
Health Plan'' and ``Subhealth Plan.'' The proposed definitions of these 
two terms seek to differentiate between health plan entities that would 
be required to obtain an HPID, and those that would be eligible, but 
not required, to obtain an HPID. This rule also proposes to require all 
covered entities to use an HPID whenever a covered entity identifies a 
health plan in a covered transaction. Because health plans today have 
many different business structures and arrangements that affect how 
health plans are identified in standard transactions, these two 
proposed definitions also seek to enable health plans to obtain HPIDs 
to reflect differing business arrangements so they can be identified 
appropriately in standard transactions.
    This rule also proposes the adoption of a data element that would 
serve as an other entity identifier (OEID). The OEID would serve as an 
identifier for entities that are not health plans, health care 
providers, or ``individuals'' (as defined in 45 CFR 160.103), but that 
need to be identified in standard transactions (including, for example, 
third party administrators, transaction vendors, clearinghouses, and 
other payers). Under this proposed rule, these other entities would not 
be required to obtain an OEID, but they could obtain and use one if 
they needed to be identified in covered transactions. Because other 
entities are identified in standard transactions in a similar manner as 
health plans, we believe that establishing a data element to serve as 
an identifier for these entities will increase efficiency by 
encouraging the use of a uniform identifier.
    The most significant benefit of the HPID and the OEID is that they 
will increase standardization within HIPAA standard transactions by 
establishing uniform identifiers.
b. NPI
    This rule proposes that an organization covered health care 
provider require certain noncovered individual health care providers 
who are prescribers to: (1) Obtain NPIs and; (2) to the extent the 
prescribers write prescriptions while acting within the scope of the 
prescribers' relationship with the organization, disclose them to any 
entity that needs the NPIs to identify the prescribers in standard 
transactions. This addition to the NPI requirements would address the 
issue that pharmacies are encountering when the NPI of a prescribing 
health care provider needs to be included on a pharmacy claim, but the 
prescribing

[[Page 22952]]

health care provider does not have, or has not disclosed an NPI.
c. ICD-10-CM and ICD-10-PCS
    This rule proposes that the compliance date for ICD-10-CM and ICD-
10-PCS be changed from October 1, 2013 to October 1, 2014. We believe 
this change will give covered entities the additional time needed to 
synchronize system and business process preparation and changeover to 
the updated medical data code sets.
3. Costs and Benefits
a. HPID
    The HPID is expected to yield the most benefit for providers, while 
health plans will bear most of the costs. Costs to all commercial and 
government health plans together (Medicare, Medicaid programs, IHS, 
VHA) are estimated to be $650 million to $1.3 billion. However, 
commercial and government health plans are expected to make up those 
costs in savings. Further, it is our understanding that the industry 
will not find that the HPID is overly burdensome. Many entities have 
indicated that they have delayed regular system updates and 
maintenance, as well as the issuance or adoption of new health plan 
identification cards, to accommodate the adoption of the HPID.
    Health care providers can expect savings from two indirect 
consequences of HPID implementation: (1) The cost avoidance of 
decreased administrative time spent by providers interacting with 
health plans; and (2) a material cost savings through automation of 
processes for every transaction that moves from manual to electronic 
implementation. HPID's anticipated 10-year return on investment for the 
entire health care industry is expected to be between $1 to $4.6 
billion. (This estimate includes savings resulting from the 
foundational effect of the HPID rather than a precise budgetary 
prediction.)
b. NPI
    The addition to the requirements for the NPI would have little 
impact on health care providers and on the health industry at large 
because few health care providers do not already have an NPI. In 
addition, covered organization health care providers may comply by 
various means. For example, a covered organization could use a simple 
verbal directive to prescribers whom they employ or contract with to 
meet the requirements. Alternately, a covered organization could update 
employment or contracting agreements with the prescribers. For these 
reasons, we believe the additional NPI requirements do not impose 
spending costs on State government or the private sector in any 1-year 
of $136 million or more.
c. Change of Compliance Date of ICD-10
    According to a recent survey conducted by CMS, up to one quarter of 
health care providers believe they will not be ready for the October 1, 
2013 compliance date.\1\ While the survey found no significant 
differences among practice settings regarding the likelihood of 
achieving compliance before the deadline, based on recent industry 
feedback we believe that larger health care health plans and providers 
generally are more prepared than smaller entities. The uncertainty 
about provider readiness is confirmed in another recent readiness 
survey in which nearly 50 percent of the 2,140 provider respondents did 
not know when they would complete their impact assessment of the ICD-10 
transition.\2\
---------------------------------------------------------------------------

    \1\ ``Version 5010 and ICD-10 Readiness Assessment: Conducted 
among health Care providers, payers and Vendors for the Centers for 
Medicare & Medicaid Services (CMS), December 2011 (OMB Approval No: 
09938-1149). The assessment surveyed 404 providers, 101 payers, and 
90 vendors, which represents 0.1% of all physician practices, 3% of 
hospitals, and 5% of health plans.
    \2\ An impact assessment for ICD-10 is performed by a covered 
entity to determine business areas, policies, processes and systems, 
and trading partners that will be affected by the transition to ICD-
10. An impact assessment is a tool to aid in planning for 
implementation. ``Survey: ICD-10 Brief Progress,'' February 2012, 
conducted by the Workgroup for Electronic Data Interchange (WEDI).
---------------------------------------------------------------------------

    By delaying the compliance date of ICD-10 from October 1, 2013 to 
October 1, 2014, we would be allowing more time for covered entities to 
prepare for the transition to ICD-10 and to conduct thorough testing. 
By allowing more time to prepare, covered entities may be able to avoid 
costly obstacles that would otherwise emerge while in production.
    Savings would come from the avoidance of costs that would occur as 
a consequence of significant numbers of providers being unprepared for 
the transition to ICD-10. In the Regulatory Impact Analysis (RIA) of 
this proposed rule, we estimate that there would be a cost avoidance of 
approximately $3.6 to nearly $8 billion in this regard. This range of 
estimates reflects the avoidance of two costly consequences that may 
occur should the compliance date remain October 1, 2013: (1) Both 
health care providers and health plans may have to process health care 
claims manually in order for claims to be paid; and (2) small health 
care providers may have to take out loans or apply for lines of credit 
in order to continue to provide health care in the face of delayed 
payments.
    In terms of costs, commercial health plans, medium and large 
hospitals, and large physician practices are far along in their ICD-10 
implementation planning, and therefore have devoted funds, resources, 
and staff to the effort. According to our estimates, a 1-year delay of 
the ICD-10 compliance date would add 10 to 30 percent to the total cost 
that these entities have already spent or budgeted for the transition--
an additional cost to commercial entities of approximately $1 to $6.4 
billion. Medicare and State Medicaid Agencies have also reported 
estimates of costs of a change in the compliance date in recent 
informal polls. Accordingly, the calculations in the RIA in this 
proposed rule demonstrate that a 1-year delay in the compliance date of 
ICD-10 would cost the entire health care industry approximately $1 
billion to $6.5 billion.
    We assume that the costs and cost avoidance calculated in the RIA 
will be incurred roughly over a 6- to 12-month period, from October 1, 
2013 to October 1, 2014. For simplicity sake, however, both the costs 
and the cost avoidance that result from a change in the compliance date 
of ICD-10 are calculated over the calendar year, 2014.
    We solicit comments on our assumptions and conclusions as described 
in the RIA.

B. Introduction

    The following discussion presents a partial statutory and 
regulatory history related only to the statutory provisions and 
regulations that are relevant for purposes of this proposed rule. For 
additional statutory background and 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); ``HIPAA Administrative Simplification: 
Modification to Medical Data Code Set Standards To Adopt ICD-10-CM and 
ICD-10-PCS: Proposed Rule,'' published in the Federal Register on 
August 22, 2008 (73 FR 49796) (hereinafter referred to as the ICD-10 
proposed rule); and ``HIPAA Administrative Simplification: Modification 
to Medical Data Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS,'' 
published in the Federal Register on January 16, 2009 (74 FR 3328) 
(hereinafter referred to as the ICD-10 final rule).
    The Congress addressed the need for a consistent framework for 
electronic health care transactions and other administrative 
simplification issues through the Health Insurance Portability

[[Page 22953]]

and Accountability Act of 1996 (HIPAA), (Pub. L. 104-191), enacted on 
August 21, 1996. HIPAA amended the Act by adding Part C-Administrative 
Simplification--to Title XI of the Act requiring the Secretary to adopt 
standards for certain electronic transactions to enable health 
information to be exchanged more efficiently and to achieve greater 
uniformity in the transmission of health information exchange.
    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 final rule). That rule implemented some of the HIPAA 
Administrative Simplification requirements by adopting standards 
developed by standard development organizations (SDOs) for certain 
electronic health care transactions and medical code sets to be used in 
those transactions. We adopted the Accredited Standards Committee (ASC) 
X12 standards Version 4010/4010A1 and the National Council for 
Prescription Drug Programs (NCPDP) Telecommunication standard Version 
5.1, which is specified at 45 CFR part 162, subparts K through R. All 
health plans, health care clearinghouses, and health care providers 
that transmit health information in electronic form in connection with 
a covered transaction (referred to as covered entities) are required to 
comply with these adopted standards.
    In the January 16, 2009 Federal Register (74 FR 3296), we published 
a final rule entitled, ``Health Insurance Reform; Modifications to the 
Health Insurance Portability and Accountability Act (HIPAA) Electronic 
Transaction Standards'' (the Modifications final rule), that, among 
other things, adopted updated versions of the standards for the 
electronic health care transactions for which the Department originally 
adopted standards in the Transactions and Code Sets final rule. These 
updated standards for electronic health care transactions included ASC 
X12 Version 5010 and NCPDP Telecommunication Standard Implementation 
Guide, Version D. Release 0 (Version D.0), and equivalent Batch 
Standard Implementation Guide, Version 1, Release 2 (Version 1.2). In 
the Modifications final rule, the Department also adopted the Medicaid 
pharmacy subrogation transaction, a new standard--the Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3, Release 0). 
Covered entities are required to conduct as standard transactions all 
electronic transactions for which the Secretary has adopted a standard. 
From March 17, 2009 through December 31, 2011, covered entities were 
required to comply either with the ASC X12 Version 4010/4010A1 and 
NCPDP Telecommunications standard Version 5.1 standards or the updated 
Version 5010 and NCPDP D.0 standards. Effective January 1, 2012, 
covered entities were required to comply with Version 5010 and NCPDP 
D.0, and (except for small health plans) the Version 3.0 standard for 
Medicaid pharmacy subrogation transactions. Small health plans must 
comply with Version 3.0 on or after January 1, 2013.
    Also on January 16, 2009, we published a final rule entitled 
``HIPAA Administrative Simplification: Modification to Medical Data 
Code Set Standards to Adopt ICD-10-CM and ICD-10-PCS'' (74 FR 3328). In 
the ICD-10 final rule, we adopted the International Classification of 
Diseases, 10th Revision, Clinical Modification (ICD-10-CM), including 
the Official ICD-10-CM Guidelines for Coding and Reporting, as 
maintained and distributed by HHS, for the following conditions: (1) 
diseases; (2) injuries; (3) impairments; (4) other health problems and 
their manifestations; and (5) causes of injury, disease, impairment, or 
other health problems. We also adopted the International Classification 
of Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS), 
including the Official ICD-10-PCS Guidelines for Coding and Reporting, 
as maintained and distributed by HHS, for the following procedures or 
other actions taken for diseases, injuries, and impairments of hospital 
inpatients reported by hospitals: (1) prevention; (2) diagnosis; (3) 
treatment; and (4) management.
    Table 1 summarizes the full set of transaction standards adopted in 
the Transactions and Code Sets final rule and as modified in the 
Modifications final rule. The table uses abbreviations of the standards 
and the names by which the transactions are commonly referred, while 
the official nomenclature and titles of the standards and transactions 
related to the provisions of this proposed rule are provided later in 
this preamble.

           TABLE 1--Transactions Standards Adopted Under HIPAA
------------------------------------------------------------------------
                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 and Version 1.2..............  Health care claims--Retail
                                          pharmacy drug.
ASC X12 837 P and NCPDP D.0 and Version  Health care claims--Retail
 1.2.                                     pharmacy supplies and
                                          professional services.
NCPDP D.0 and Version 1.2..............  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 and Version 1.2..............  Referral certification and
                                          authorization (request and
                                          response)--Retail pharmacy
                                          drugs.
NCPDP D.0 and Version 1.2..............  Retail pharmacy drug claims
                                          (telecommunication and batch
                                          standards).
NCPDP 3.0..............................  Medicaid pharmacy subrogation
                                          (batch standard).
------------------------------------------------------------------------

    In the July 8, 2011 Federal Register (76 FR 40458), we published an 
interim final rule with comment period, ``Administrative 
Simplification: Adoption of Operating Rules for Eligibility for a 
Health Plan and Health Care Claim Status Transactions'' (Eligibility 
and Claim Status Operating Rules IFC). That rule adopted operating 
rules for two HIPAA covered transactions: (1) Eligibility for a health 
plan; and (2) health care claim status. The Eligibility and Claim 
Status Operating Rules IFC also defined the term, ``operating rules,'' 
revised the definition for ``standard transaction,'' revised specific 
related regulatory provisions, and described the relationship between 
operating rules and standards.

[[Page 22954]]

    In general, the transaction standards adopted under HIPAA enable 
electronic data interchange (EDI) using a common interchange structure, 
thus minimizing the industry's need to rely on multiple formats. The 
standards significantly decrease administrative burden on covered 
entities by creating greater uniformity in data exchange, and reducing 
the amount of paper forms needed for transmitting data, which remains 
an obstacle to achieving greater health care industry administrative 
simplification.
    Section 1172(a) of the Act states that ``[a]ny standard adopted 
under [Part C--Administrative Simplification--of Title XI of the Social 
Security Act, as amended by section 262 of HIPAA] shall apply, in whole 
or in part, to the following persons: (1) A health plan; (2) A health 
care clearinghouse; and (3) A health care provider who transmits any 
health information in electronic form in connection with a [HIPAA 
transaction].''
    Section 1173(b) of the Act directs the Secretary to adopt standards 
providing for a standard unique health identifier for each individual, 
employer, health plan, and health care provider for use in the health 
care system. In the May 31, 2002 Federal Register (67 FR 38009), we 
published a final rule entitled, ``Health Insurance Reform: Standard 
Unique Employer Identifier,'' which adopted the standard for a unique 
employer identifier in HIPAA electronic health care transactions. In 
the January 23, 2004 Federal Register (69 FR 3434), we published a 
final rule entitled, ``HIPAA Administrative Simplification: Standard 
Unique Health Identifier for Health Care Providers'' (the 2004 NPI 
final rule), in which the Secretary adopted the National Provider 
Identifier (NPI) as the standard unique health care provider identifier 
and the requirements for obtaining and using the NPI. Health care 
providers that transmit any health information in electronic form in 
connection with a transaction for which the Secretary has adopted a 
standard (known as ``covered health care providers''), are required to 
obtain NPIs and use them according to the NPI regulations at 45 CFR 
part 162, subpart D. Specifically, under the requirements for health 
care providers at 45 CFR 162.410, a covered health care provider must 
obtain an NPI for itself and some of its subparts, use the NPI in 
standard transactions it conducts, and disclose its NPI to any entities 
that need it for standard transactions. The Secretary has not adopted a 
standard patient identifier.
    Under section 1172(c)(2)(B) of the Act, if no standard setting 
organization has developed, adopted, or modified any standard relating 
to a standard that the Secretary is authorized or required to adopt 
under the Administrative Simplification provisions of HIPAA, then the 
Secretary may adopt a standard, relying upon recommendations of the 
NCVHS. In such a case, the Secretary shall publish in the Federal 
Register any recommendation of the NCVHS regarding the adoption of a 
standard under the HIPAA Administrative Simplification provisions. 
Further, the Secretary must consult with the National Uniform Billing 
Committee (NUBC), the National Uniform Claim Committee (NUCC), the 
Workgroup for Electronic Data Interchange (WEDI), and the American 
Dental Association (ADA), other appropriate private organizations, and 
appropriate Federal and State agencies regarding such standard 
adoption.
    In this proposed rule, we address the adoption of a unique health 
plan identifier, the adoption of a data element that would serve as an 
identifier for other entities, an addition to the NPI requirements, and 
a change to the compliance date for the ICD-10-CM and ICD-10-PCS code 
sets.

C. The Unique Health Plan Identifier (HPID) and the Affordable Care Act

    Section 1104(c)(1) of the Affordable Care Act, enacted on March 23, 
2010, directs the Secretary to promulgate a final rule establishing a 
unique health plan identifier that is based on the input of a Federal 
advisory committee, the National Committee on Vital and Health 
Statistics (NCVHS). Section 1104 of the Affordable Care Act authorizes 
the Secretary to promulgate the rule on an interim final basis and 
indicates that such rule shall be effective not later than October 1, 
2012.
    Health plans are currently identified for different purposes using 
different identifiers that have different sources, formats, and 
meaning. A health plan may have multiple identifiers, each assigned by 
a different organization for a different purpose. The following 
discussion focuses on the types of identifiers that currently may be 
used to identify health plans in standard transactions. State 
regulators, for instance, use the National Association of Insurance 
Commissioners' (NAIC) Company code to identify health plans when a 
health plan is licensed to sell or offer health insurance in a 
particular State. The U.S. Department of Labor (DOL) and the Internal 
Revenue Service (IRS) use the 9-digit Employer Identification Number 
(EIN) and a 1-digit alphabetic or a 3-digit plan number to identify 
health plans. Employers, sole proprietorships, corporations, 
partnerships, non-profit associations, trusts, estates of decedents, 
government agencies, certain individuals, and other business entities, 
use EINs to identify health plans for a host of purposes and 
transactions. The IRS uses the EIN to identify taxpayers that are 
required to file various business tax returns. Health care 
clearinghouses assign proprietary identifiers to health plans for use 
in standard transactions. Multiple clearinghouses may identify the same 
health plan using different proprietary identifiers in different 
covered transactions. Health plans may use other existing identifiers, 
such as a tax identification number (TIN) or an EIN, to identify 
themselves in the standard transactions, to more easily integrate into 
existing proprietary systems, or for use on health insurance cards that 
they issue to health plan enrollees.
    Not only are health plans identified using a variety of 
identifiers, but these identifiers have different formats. For 
instance, some identifiers are alphanumeric while other identifiers are 
only numeric. Identifiers also differ in length; for example, NAIC 
codes are typically five digits while an EIN is nine digits.
    The current versions of the adopted standards (ASC X12N and NCPDP) 
allow health plans to use these and other identifiers in standard 
transactions. Therefore, for the covered transactions there is no 
requirement for consistency in the use of identifiers for health plans. 
Health care providers, health plans, and healthcare clearinghouses may 
use EINs, TINs, NAIC numbers, healthcare clearinghouse, or health plan 
assigned proprietary numbers to identify health plans in standard 
transactions. Industry stakeholders, especially health care providers, 
have indicated that the lack of a standard unique health plan 
identifier has resulted in increased costs and inefficiencies in the 
health care system. Health care providers are frustrated by problems 
with: the routing of transactions; rejected transactions due to 
insurance identification errors; difficulty determining patient 
eligibility; and challenges resolving errors identifying the health 
plan during claims processing.
    The Affordable Care Act specifically calls for the establishment of 
a unique identifier for health plans. There are however, other entities 
that are not health plans but that perform certain health plan 
functions and are currently identified in the standard transactions in 
the same fields using the same types of identifiers as health plans. 
For

[[Page 22955]]

example, health care clearinghouses, third party administrators (TPAs), 
and repricers often contract with insurance companies, self-funded 
employer health care plans, and provider- or hospital-run health plans 
to perform claims administration, premium collection, enrollment, and 
other administrative functions. In some cases, TPAs or other entities 
are identified in the same fields as health plans in the transactions, 
depending on the contractual relationships. As explained later in this 
proposed rule, we propose to adopt a data element--an other entity 
identifier--to serve as an identifier for these other entities.

D. The National Committee on Vital and Health Statistics (NCVHS)

    In section 1104 of the Affordable Care Act, the Secretary is 
directed to conduct its rulemaking to establish a unique health plan 
identifier based on input of the NCVHS. Congress created the NCVHS to 
serve as an advisory body to the Secretary on health data, statistics, 
and national health information policy. The NCVHS has been assigned a 
significant role in the Secretary's adoption of all standards, code 
sets, and operating rules under HIPAA, including the unique health plan 
identifier. In section 1104(c)(1) of the Affordable Care Act, Congress 
reiterated that the NCVHS would retain its role in providing input on 
the establishment of the health plan identifier.
    The NCVHS Subcommittee on Standards fulfilled these duties by 
conducting public hearings on the health plan identifier on July 19 
through 21, 2010. Industry stakeholders, including representatives from 
health plans, health care provider organizations, health care 
clearinghouses, pharmacy industry representatives, standards 
developers, professional associations, representatives of Federal and 
State public programs, the Workgroup on Electronic Data Interchange 
(WEDI), the National Uniform Billing Committee (NUBC), the National 
Uniform Claim Committee (NUCC), and individuals with health plan 
identifier proposals provided in-person and written testimony. 
Stakeholder testimony at the hearings focused on the use and need for 
an HPID to: facilitate the appropriate routing of transactions; reduce 
the cost of managing financial and administrative information; improve 
the accuracy and timeliness of claims payment; and reduce 
dissatisfaction among health care providers and patients/members by 
improving communications with health plans and their intermediaries. 
Stakeholders provided suggestions on the types of entities that need to 
be identified in standard transactions, those that should be eligible 
to obtain an HPID, and the level of enumeration for each plan (for 
example the legal entity, product, benefit package etc). We discuss the 
specifics of key issues in more detail later in this proposed rule.
1. Eligibility for an HPID
    There was substantial testimony on the types of entities that 
should obtain an identifier and a request that HHS clearly indicate the 
organizations that would be required to obtain and use an identifier in 
standard transactions. Testifiers also offered extensive input on the 
need to provide an identifier for entities that do not meet the 
definition of health plan under HIPAA, but have a need to be identified 
in standard transactions. The majority of those testifying recommended 
that these entities, such as TPAs and health care clearinghouses, be 
eligible to obtain an identifier for use in the standard transactions.
2. HPID Enumeration Level
    Stakeholders offered extensive input on the appropriate level of 
health plan enumeration. Testifier suggestions ranged from requiring 
health plans to enumerate at the highest level (that is the parent 
company), to enumerating every health plan benefit package (for example 
``HMO Gold''). Some testifiers proposed that there be two types of 
health plan identifiers, and they used the term ``plan'' to mean both 
the health plan products and health plan organizations--Type 1 and Type 
2 identifiers, respectively. As reflected in written testimony 
submitted to the NCVHS, they proposed that the Type 1 identifier 
identify patient-specific health plan products, for instance, a 
particular health insurance product, or an employee health benefit plan 
or other product defining the patient's coverage. The Type 2 identifier 
would identify organizations that perform health plan functions, such 
as entities issuing long-term care policies, plan organizations paying 
for the cost of medical care for specified populations, or entities 
responsible for funding high risk pools offering coverage to eligible 
individuals. Some testifiers also suggested that the Type 2 identifier 
also identify entities other than health plans that perform certain 
administrative or contracting functions on behalf of health plans, such 
as TPAs or health care clearinghouses. In addition, some of these 
testifiers recommended the creation of a fee schedule identifier so 
health care providers could download the appropriate fee schedule, just 
as the entity that is administering the claims transaction must do to 
price the claim.
    Other testifiers opined that enumeration should occur at a health 
plan organization level and should support the ability to obtain and 
utilize a more granular enumeration scheme if there is a business need 
for further differentiation to appropriately route transactions. This 
proposal was based on the premise that the purpose of the HPID is to 
identify entities that meet the regulatory definition of health plan 
and are conducting the covered transactions. The HPID will be used to 
identify a health plan that sends or receives the covered transactions. 
These testifiers cautioned that requiring fee schedule, reimbursement 
information, or product level information in the HPID would create a 
level of complexity that would greatly increase the number of 
identifiers needed, resulting in significant health plan maintenance 
requirements, increased cost, and inefficiencies. These testifiers 
recommended that associating product information with particular 
identifiers should not be a goal of the HPID, although it could be 
addressed in future versions of the standards, implementation guides, 
or operating rules.
3. Timing
    Stakeholders at the NCVHS hearings also stressed the importance of 
a smooth transition from current plan identifiers to the HPID during 
the enumeration process, given its potential impact on the industry. 
For example, they noted that health plan and health care provider 
information systems will need to be reprogrammed to accommodate the 
HPID, including the possible expansion of data fields and the creation 
of crosswalks between existing proprietary identifiers and the HPID. 
Health care clearinghouses and health IT vendors will need to update 
their systems to accommodate the new identifiers, and may also need to 
create identifier crosswalks to match current health plan identifiers 
to the HPID and vice versa. Health plans will need to conduct an 
analysis of their organizations and structure to determine, if they 
have subsidiaries, which of their entities qualify as health plans and 
need to be enumerated. The HPID may also impact information systems 
that involve Health Level 7 (HL7) standard protocols. Testimony from 
the HL7 SDO noted that it is likely that the HPID may require changes 
to existing scheduling, registration, pre-admission, admission, and 
other information systems and their screens,

[[Page 22956]]

work flows, and data elements collected, stored, displayed, and 
processed by those applications. In addition, testifiers pointed out 
other regulatory requirements with similar, converging compliance 
dates, such as: January 1, 2012 for complying with Version 5010, 
Version D.0 and Version 3.0; October 1, 2013 for complying with the 
ICD-10-CM and ICD-10-PCS medical code sets requirements; January 1, 
2013 for implementing the first set of operating rules for two of the 
standard transactions; and other changes under the Affordable Care Act 
all require limited industry resources.
    Finally, there was testimony related to the use of health plan 
identifiers in the retail pharmacy transactions, and we address this 
topic later in this proposed rule. (For transcripts and testimony of 
the July 19 and 20, 2010 NCVHS Subcommittee on Standards hearings, go 
to http://www.ncvhs.hhs.gov.)

E. The NCVHS Recommendation to the Secretary on HPID

    On September 30, 2010, following the July 2010 NCVHS Subcommittee 
on Standards hearing, the NCVHS sent a letter to the Secretary with its 
recommendations for the adoption of a standard for a health plan 
identifier. The nine NCVHS observations addressed the following topics: 
(1) The definitions and types of entities eligible for enumeration with 
an HPID; (2) the level of entity enumeration; (3) the format and 
content of the HPID; (4) the directory database to support the HPID 
enumeration system and process; (5) the implementation of the HPID in 
retail pharmacy; (6) the implementation process and timing; (7) 
applicable testing of the HPID enumeration process; (8) the use of the 
HPID on health plan identification cards, and (9) the improvement in 
the use of standards and operating rules. The specific recommendations 
are as follows:
    ``HHS should:
     1.1 clarify the definition of health plan as specified in 
the HIPAA regulations (45 CFR 160.103) for purposes of HPID eligibility 
and enumeration, including that property and casualty insurers and 
workers' compensation plans could be eligible for such enumeration even 
though they are not covered entities.
     1.2 work with stakeholders to reach consensus on names and 
definitions for intermediary entities. Consider making these 
intermediary entities eligible to obtain an HPID where there is a clear 
use case for them to be enumerated.
     1.3 request stakeholder input through groups such as 
Workgroup on Electronic Data Interchange (WEDI), America's Health 
Insurance Plans (AHIP), National Association of Insurance Commissioners 
(NAIC), and the Designated Standards Maintenance Organizations (DSMO) 
Committee for definitions of products to be used in plan enumeration by 
October 31, 2010 (or other date as deemed feasible by CMS).
     1.4 collaborate across Federal agencies and departments to 
develop or identify consensus definitions affecting the identification 
of health plans, including Indian Health Service (IHS), Department of 
Veterans Affairs (VA), Department of Defense (DoD), and the Federal 
Employee Health Benefit Program (FEHBP).
     1.5 coordinate, to the maximum extent feasible, the 
development and implementation of the HPID with other plan related 
requirements in the Affordable Care Act, including, for example, the 
consumer health insurance web portal, the health insurance exchanges 
and the regulatory requirements for health plans.
     2.1 initially enumerate all health plan legal entities as 
defined in the HIPAA legislation and further clarified in regulations 
at 45 CFR 160.103.
     2.2 determine at what level, including product (benefit 
package) level or other categorization, a health plan should also be 
enumerated, using input from stakeholders, and identify these in 
regulation.
     3.1 adopt an HPID that follows the ISO Standard 7812, with 
Luhn check-digit as the tenth digit.
     3.2 adopt an HPID that contains no embedded intelligence.
     4.1 establish an HPID enumeration system and process 
supported by a robust online directory database.
     4.2 direct CMS to work with stakeholders including other 
Federal agencies to identify the minimum necessary data elements for 
the directory database. Consideration should be given to including the 
Employer Identification Number (EIN), Taxpayer Identification Number 
(TIN), National Association of Insurance Commissioners (NAIC) 
identifier, Source of Payment Typology, and other identifiers that may 
assist in supporting the need to appropriately identify health plans in 
administrative transactions and in the updating, development and/or 
effective use of standards and operating rules. The database should be 
sufficiently flexible to enable additional information to be added 
initially at the discretion of the entity, and potentially in the 
future, as a requirement by HHS.
     4.3 require the entity enumerated to maintain all 
information according to a published schedule of updates or more often 
as appropriate, to maintain accuracy. If there are no changes at the 
time of a scheduled update, the date information was validated should 
signify that the entity has reviewed and is confirming the data as 
being current.
     4.4 make available appropriate information from the HPID 
directory database to support the efficient and accurate exchange of 
information.
     4.5 consider, for the future, requiring that the HPID 
system enable electronic transactions with the directory database for 
users or their systems to obtain information and route transactions 
more efficiently and effectively.
     5.1 not require the HPID to be used in place of the 
existing RxBIN/PCN identifier in retail pharmacy business and 
transactions.
     5.2 require the use of HPID on the HIPAA-named standard 
transactions for retail pharmacy, where appropriately defined by 
industry through the ASC X12 and NCPDP processes.
     6.1 consider that the effective date of October 1, 2012 be 
interpreted as the date to begin registering for an HPID. As such, 
subsequent phases should include time for enumeration and testing 
before a final implementation date when the HPID must be used in 
compliant transactions. This will ensure sufficient time for 
publication of the regulation and development of the enumeration system 
and process. Phases should include:
     October 1, 2012--March 31, 2013: Enumeration
     April 1, 2013--September 30, 2013: Testing
     October 1, 2013: Implementation
     6.2 describe in regulation the potential purposes and uses 
of the HPID, including its uses in standard transactions, potential 
uses for health information exchange, and others. While purposes should 
not be restricted, the initial focus should be on enumerating entities 
for use in the financial and administrative transactions required under 
HIPAA.
     6.3 accommodate bulk enumeration of HPID as applicable.
     7.1 provide sufficient time and guidance for testing the 
HPID in transactions prior to use.
     7.2 allow for a period during which dual use of legacy 
health plan identifiers and the new HPID is permitted in the 
transactions as appropriate.
     8.1 encourage the use of the HPID in health plan 
identification cards.
     9.1 strongly encourage the industry to collaborate to 
enhance operating rules for the financial and

[[Page 22957]]

administrative transactions to support the use of the HPID.''
    For the complete text of the NCVHS' observations and 
recommendations, go to http://www.ncvhs.hhs.gov/100930lt1.pdf.
    We agree in principle with the spirit and intent of the NCVHS' 
recommendation to the Secretary for a health plan identifier standard 
as relayed in the September 30, 2010 letter. In this proposed rule, we 
propose to adopt a health plan identifier based in large part upon the 
NCVHS' recommendations, with some minor departures. In section II. of 
this proposed rule, we itemize our proposals and, where necessary, 
explain the differences between the HHS proposal and the NCVHS' 
recommendations.

F. Definition of Health Plan

    The regulatory definition of health plan at 45 CFR 160.103 was 
initially adopted in the Transactions and Code Sets final rule. The 
basis for the additions to, and clarifications of, the statutory 
definition of health plan is further discussed in the preamble to the 
December 28, 2000 final rule (65 FR 82478 and 82576) entitled 
``Standards for Privacy of Individually Identifiable Health 
Information'' (hereinafter referred to as the Privacy Rule). The term 
``health plan'' is defined at 45 CFR 160.103.
    This definition of ``health plan'' references group health plans, 
health insurance issuers, and health maintenance organizations that are 
also defined in 45 CFR 160.103. These definitions are included here:
    Group health plan (also see definition of health plan in this 
section) means an employee welfare benefit plan (as defined in section 
3(1) of the Employee Retirement Income and Security Act of 1974 
(ERISA), 29 U.S.C. 1002(1)), including insured and self-insured plans, 
to the extent that the plan provides medical care (as defined in 
section 2791(a)(2) of the Public Health Service Act (PHS Act), 42 
U.S.C. 300gg-91(a)(2)), including items and services paid for as 
medical care, to employees or their dependents directly or through 
insurance, reimbursement, or otherwise, that:
    (1) Has 50 or more participants (as defined in section 3(7) of 
ERISA, 29 U.S.C. 1002(7)); or
    (2) Is administered by an entity other than the employer that 
established and maintains the plan.
    Health insurance issuer (as defined in section 2791(b)(2) of the 
PHS Act, 42 U.S.C. 300gg-91(b)(2) and used in the definition of health 
plan in this section) means an insurance company, insurance service, or 
insurance organization (including an HMO) that is licensed to engage in 
the business of insurance in a State and is subject to State law that 
regulates insurance. Such term does not include a group health plan.
    Health maintenance organization (HMO) (as defined in section 
2791(b)(3) of the PHS Act, 42 U.S.C. 300gg-91(b)(3) and used in the 
definition of health plan in this section) means a Federally qualified 
HMO, an organization recognized as an HMO under State law, or a similar 
organization regulated for solvency under State law in the same manner 
and to the same extent as such an HMO.

II. Provisions of the Proposed Rule To Adopt a Standard for a Unique 
Health Plan Identifier (HPID)

    This rule proposes an HPID as the standard for the unique 
identifier for health plans. We are also proposing instructions and 
guidance concerning how health plans may obtain an HPID. We further 
propose requirements that covered entities will have to meet to use the 
unique health plan identifier in standard transactions. This proposed 
rule would add provisions specific to the HPID in a new subpart 
(subpart E) to 45 CFR part 162.

A. The Health Plan Identifier

1. Definition of ``Controlling Health Plan'' and ``Subhealth Plan''
    Health plans today have many different business structures and 
arrangements that affect how health plans are identified in standard 
transactions. There is often a ``parent'' corporation that meets the 
definition of health plan, which may be controlled by entities, such as 
holding companies, that do not meet the definition of health plan. This 
``parent'' health plan may own and operate several other entities and 
organizations, which may also meet the definition of a health plan. 
While these individual health plans that are owned by the same 
``parent'' corporation may have their own EIN or NAIC number, they may 
all use a single identifier in covered transactions because of data 
processing arrangements. In these situations, some health plans may not 
need to be identified separately in covered transactions, and may not 
need their own health plan identifier. To differentiate between health 
plan entities that would be required to obtain an HPID, and those that 
would be eligible, but not required, to obtain an HPID, we are 
proposing definitions for controlling health plan (CHP) and subhealth 
plan (SHP) in proposed 45 CFR 162.103 as follows.
a. Controlling Health Plan (CHP)
    We would define a CHP as a health plan (as defined at 45 CFR 
160.103) that--(1) controls its own business activities, actions, or 
policies; or is controlled by an entity that is not a health plan (2) 
and if it has a subhealth plan(s) (SHPs) (see definition of SHP in 
subpart b), exercises sufficient control over the subhealth plan(s) to 
direct its/their business activities, actions, or policies.
    The following factors would need to be considered when determining 
if an entity is a CHP:
     Does the entity itself meet the definition of health plan 
at 45 CFR 160.103?
     Does either the entity itself or a non health plan 
organization control the business activities, actions, or policies of 
the entity?
    If the answer to both questions is ``yes,'' then the entity meets 
the definition of CHP. We propose that an entity that meets the 
definition of CHP would be required to obtain a health plan identifier.
b. Subhealth Plan (SHP)
    A SHP would mean a health plan (as defined in 45 CFR 160.103) whose 
business activities, actions, or policies are directed by a CHP. The 
following considerations may be helpful in determining whether an 
entity is a SHP:
     Does the entity meet the definition of health plan at 
Sec.  160.103?
     Does a CHP direct the activities, actions, or policies of 
the health plan entity?
    If the answer to both questions is ``yes,'' then the entity meets 
the definition of SHP. We propose that a SHP would not be required to 
obtain an HPID, but may choose to obtain an HPID, or its CHP may obtain 
an HPID on its behalf.
2. Proposed Use of the HPID
    In proposed 45 CFR 162.510, we propose HPID usage requirements for 
all covered entities. We propose to require all covered entities to use 
an HPID wherever a covered entity identifies a health plan in a covered 
transaction. Covered entities would obtain the HPIDs of health plans 
from the health plans themselves or from the Enumeration System, which 
we describe later in this proposed rule. If a covered entity uses a 
business associate to conduct standard transactions on its behalf, the 
covered entity must require that its business associate use an HPID in 
each field where the business

[[Page 22958]]

associate identifies a health plan in all covered transactions.
    The HPID may also be used for any other lawful purpose that 
requires the identification of health plans.
    Some examples of permitted uses include the following:
     Health plans may use HPIDs in their internal files to 
facilitate processing of health care transactions.
     A health plan may use an HPID on a health insurance card.
     The HPID may be used as a cross-reference in health care 
fraud and abuse files and other program integrity files.
     Health care clearinghouses may use HPIDs in their internal 
files to create and process standard and non-standard transactions, and 
in communications with health plans and health care providers.
     HPIDs may be used in patient medical records to help 
specify patients' health care benefit package(s).
     HPIDs may be used to identify health plans in electronic 
health records (EHRs).
     HPIDs may be used to identify health plans in Health 
Information Exchanges (HIEs).
     HPIDs may be used to identify health plans in Federal and 
State health insurance exchanges.
     HPIDs may be used to identify health plans for public 
health data reporting purposes.
3. Proposed Health Plan Identifier Requirements for Health Plans
    In 45 CFR 162.512, we propose HPID implementation specifications 
for health plans. We propose to require all CHPs, as defined in 45 CFR 
162.103, to obtain HPIDs from the Enumeration System in accordance with 
the enumeration process, which is described later in this proposed 
rule. In addition, CHPs could obtain HPIDs from the Enumeration System 
on behalf of their SHPs, as defined in 45 CFR 162.103, or direct their 
SHPs to obtain HPIDs directly from the Enumeration System. Any SHP 
would be eligible to obtain an HPID regardless of whether or not its 
CHP directs it to obtain an HPID. A CHP could only obtain one HPID for 
itself.
    We propose to require each health plan to disclose its HPID to any 
entity, upon request, that needs the HPID to identify that health plan 
in a standard transaction. We propose to require each health plan to 
ensure that its own data in the Enumeration System is correct and that 
each health plan submits changes (updates, corrections, etc.) to its 
own data to the Enumeration System within 30 days of the date the 
change took place. A SHP would ultimately be responsible for submitting 
updates for its own data in the Enumeration System regardless of 
whether it obtained its HPID independently or the CHP obtained the HPID 
on its behalf. We are requesting comments on whether a SHP should be 
responsible for submitting updates to its own data if a CHP obtained 
the HPID on its behalf.
    This proposed rule provides a discussion on how CHPs and SHPs will 
obtain an HPID from the Enumeration System. Health plans would be able 
to begin to apply for an HPID on or after the effective date of the 
final rule, which we expect to be October 1, 2012, and must use it in 
standard transactions by the compliance date of the final rule.
a. Requirements and Options for Obtaining and Using a Health Plan 
Identifier
    While a CHP would be required to obtain a health plan identifier, 
there would be different options available for the enumeration of SHPs 
based on a CHP's organizational structure and business needs. The CHP 
may analyze its organizational structure to determine if and which of 
its SHPs need a HPID based on whether the SHP needs to be identified in 
covered transactions. The CHP may obtain HPIDs on behalf of its SHP, or 
it may direct the SHPs to obtain the HPIDs. While a CHP could only 
obtain 1 HPID for itself, a CHP could use the HPID of its SHPs for any 
lawful purpose, including in the transactions.
    Self-insured group health plans are included in the definition of 
health plan in Sec.  160.103. Because of this, self-insured group 
health plans will need to obtain a health plan identifier if they meet 
the definition of a CHP. We specifically mention self-insured group 
health plans as there was industry discussion about whether these 
health plans should be required to obtain HPIDs because they do not 
always need to be identified in the standard transactions. As 
discussed, the primary purpose of the HPID is for use in the standard 
transactions. Many self-insured group health plans contract with third 
party administrators or other entities to perform health plan functions 
on their behalf and those entities, not the self-insured group health 
plans, may be identified in the standard transactions. Some in the 
industry thus suggested not requiring self-insured group health plans 
to obtain HPIDs as they may not need to be identified in the standard 
transactions, while others recommended requiring these plans to obtain 
HPIDs as they may be the financially responsible party. Given that 
self-insured group health plans are included in the definition of 
health plan and there is a potential need to be identified in the 
standard transactions, we propose that they be required to obtain a 
HPID if they meet the definition of a CHP. We are soliciting comment on 
this issue.
    A SHP would be able to obtain an HPID even if its CHP does not 
obtain one on its behalf or does not direct the SHP to obtain an HPID. 
We encourage CHPs and SHPs to coordinate their HPID applications to 
prevent duplicative and unnecessary numbers. See Table 2 for a 
comparison of requirements for obtaining an HPID.

Table 2--Proposed Enumeration Requirements and Options for CHPs and SHPs
------------------------------------------------------------------------
                                   Enumeration
           Entity                 requirements       Enumeration options
------------------------------------------------------------------------
CHPs........................  Must obtain an HPID   May obtain an
                               for itself.           HPID(s) for its
                                                     SHP(s).
                                                    May direct its
                                                     SHP(s) to obtain an
                                                     HPID(s).
SHPs........................  Not required to       May obtain an HPID
                               obtain an HPID.       at the direction of
                                                     its CHP.
                                                    May obtain an HPID
                                                     on its own
                                                     initiative.
------------------------------------------------------------------------

    Using Illustration A and B, we provide examples of enumeration 
options to demonstrate the ways a CHP could choose to enumerate itself 
and its SHPs, if applicable. For these options, we are assuming that 
CHP ``Z'' and the SHPs Z-1, Z-2, Z-3, and Z-4 each meets the definition 
of health plan at 45 CFR 160.103.

[[Page 22959]]

[GRAPHIC] [TIFF OMITTED] TP17AP12.020

(1) Illustration A. Enumeration Option 1: CHP and Each SHP Obtain HPIDs
    CHP ``Z'' meets the definition of a health plan and controls its 
own business activities, actions, and policies. Therefore CHP ``Z'' 
would be required to obtain an HPID. CHP ``Z'' would then analyze its 
organizational structure and business needs to determine if and which 
of its SHPs need an HPID for use in standard transactions. CHP ``Z'' 
may determine that SHPs Z-1, Z-2, Z-3, and Z-4 each need their own HPID 
for use in the standard transactions as CHP ``Z'' and each of its SHPs 
may have separate data processing centers or arrangements. Thus, CHP 
``Z'' would obtain an HPID, and each of the SHPs, from Z-1 to Z-4 would 
obtain their own HPIDs. SHPs could obtain HPIDs in one of two ways as 
described in the following scenarios:
     Scenario 1--CHP ``Z'' obtains all the HPIDs. It obtains 
one HPID for itself and it obtains an HPID on behalf of each SHP. In 
total there are five HPIDs.
     Scenario 2--CHP ``Z'' directs its SHPs to obtain HPIDs: 
CHP ``Z'' obtains its own HPID and each of the SHPs would obtain their 
own HPIDs individually. Ultimately, the result would be the same as 
scenario 1: The CHP and each of the four SHPs would have their own 
HPIDs and there would be a total of five HPIDs.
    Other possible scenarios would involve CHP ``Z'' obtaining fewer 
than all five HPIDs, or directing fewer than all four SHPs to obtain an 
HPID. Each of the SHPs may also decide on its own to obtain an HPID 
without direction from the CHP to do so.
(2) Illustration A. Enumeration Option 2: CHP Obtains HPID. SHPs Do Not 
Obtain HPIDs
    As in the first example, CHP ``Z'' would be required to obtain an 
HPID, as it meets the definition of health plan and controls its own 
business activities, actions, and policies.
    CHP ``Z'' may determine that none of its SHPs needs to be 
identified in standard transactions, and therefore none of the SHPs 
needs its own HPID. Instead, CHP ``Z'' may direct SHPs Z-1, Z-2, Z-3, 
and Z-4 to use the CHPs' HPID in the standard transactions.
(3) Illustration A. Enumeration Option 3: CHP obtains HPID. Some, But 
Not All SHPs Obtain HPIDs
    Again, CHP ``Z'' would be required to obtain an HPID, as it meets 
the definition of health plan and controls its own business activities, 
actions, and policies.
    CHP ``Z'' may then examine its organizational structure to 
determine which of its SHPs need an HPID for use in a standard 
transaction. CHP ``Z'' may determine that SHPs Z-3 and Z-4 must be 
uniquely identified in the covered transaction because, for example, 
they do not share the same data processing centers as CHP ``Z'' and 
would each want to use their own HPID. SHPs Z-3 and Z-4 would use their 
own HPIDs in standard transactions. SHPs Z-3 and Z-4 could obtain their 
HPIDs in one of the following ways:
     CHP ``Z'' could direct SHPs Z-3 and Z-4 to obtain their 
own HPIDs.
     CHP ``Z'' could obtain HPIDs on behalf of SHPs Z-3 and Z-
4. CHP ``Z'' may determine that based on its organizational structure 
SHPs Z-1 and Z-2 do not need separate HPIDs for use in standard 
transactions as they may share data processing systems with CHP Z, SHP 
Z-3, or SHP Z-4. CHP ``Z'' may direct SHP Z-1 and Z-2 to use CHP 
``Z'''s HPID, SHP Z-3's HPID, or SHP Z-4's HPID in the transactions. 
CHP ``Z'' may make this determination based on the relevant data 
processing systems.

[[Page 22960]]

[GRAPHIC] [TIFF OMITTED] TP17AP12.021

(4) Illustration B. Enumeration Option 1: CHP and Each SHP Obtain HPIDs
    Illustration B provides an example of a health plan being 
controlled by Company A, which is a holding company. Holding companies 
are examples of entities that control the business, activities, 
actions, or policies of other legal entities such as health plans, but 
typically do not meet the definition of a health plan as defined in 45 
CFR 160.103. Assuming Company A does not meet the definition of a 
``health plan'' under the relevant definition in 45 CFR 160.103, it 
would not be eligible to obtain an HPID.
    CHP ``Z'' meets the definition of health plan as found in 45 CFR 
160.103, is controlled by an entity that is not a health plan, and 
exercises sufficient control over the subhealth plans to direct their 
business activities, actions, or policies. Therefore, it meets the 
definition of ``controlling health plan'' as proposed in 45 CFR 
162.103, and would be required to obtain an HPID for itself.
    A similar analysis as discussed in Illustration A would need to be 
done to determine how subhealth plans Z-1, Z-2, Z-3, and Z-4 would be 
enumerated. CHP ``Z'' must examine its organizational structure to 
determine which of its SHPs need an HPID for use in standard 
transactions, and the same enumeration options for subhealth plans that 
existed for Illustration A would exist in this example.
b. Examples of Use of HPID in Standard Transactions
    Within each transaction, a health plan may need to be identified in 
fields that do not specifically require the use of a health plan 
identifier. A health plan could need to be identified, for instance, in 
data fields that indicate the payer of the claim or the intended 
recipient of the transaction, or the information source for a 
particular request. To illustrate how the HPID could be used in 
standard transactions, we will look at a specific segment from one 
transaction standard. This example illustrates how covered entities 
would be required to identify a health plan in a standard transaction. 
This example is not meant to state who or what must be identified in 
the fields in the transaction, change what entities can be identified 
in specific loops or segments in the transaction standards, or affect 
the use of identifiers for non-health plans. It is important to note 
that the implementation of the HPID would not prohibit or affect the 
identification of other entities in these loops or segments if entities 
other than health plans need to be identified in those loops or 
segments.
    For this example, we will look at a specific segment from one 
transaction standard--the ASC X12 Version 5010 health care eligibility 
benefit inquiry and response (also known as the 271). In this example, 
the segment is the NM1-Information Source Name in the 2100A loop--
Information Source. The standard provides the following definition of 
information source: ``The information source is the entity that has the 
answer to the questions being asked in a 270 Eligibility or Benefit 
request transaction. The information source is typically the insurer or 
payer. In a managed care environment, the information source could 
possibly be a primary care physician or gateway health care provider. 
Regardless of the information source's actual role in the healthcare 
system, they are the entity who maintains the information regarding the 
patient's coverage.'' The information source is identified in loop 
2100A. The NM1 segment, information source name, provides specific 
details about the information source through data elements. The NM1 
segment is comprised of nine reference descriptors. These reference 
descriptors provide information about a specific data element. For 
instance, NM101--Entity ID Code--is the code identifying the 
organizational entity, a physical location, property or an individual. 
For NM101, there are specific codes that can be used to describe the 
information source. Table 3 represents the NM1 segment. The chart is 
meant to demonstrate how the identification of a health plan in the NM1 
segment will change after use of the HPID is mandated. For this 
example, the information source is the health plan.
    In Table 3, Column I, the reference descriptor provides the data 
element being described in the NM1 segment. Table 3, Column II provides 
the name of the reference descriptor in Table 3, Column I and describes 
what is being conveyed in that data element. Table 3, Column III lists 
the codes that the standard permits to be used to describe

[[Page 22961]]

the information source. Table 3, Column IV provides the definition of 
the corresponding code in Table 3, Column III. Table 3, Column V shows 
what could have been used to identify a health plan prior to the HPID 
implementation. Table 3, Column VI shows what will be used to identify 
a health plan after implementation of the HPID.

 Table 3--Example 1, Eligibility Response Transction, Loop 2100A, Segment NM1--Information Source Name (Version
                                                      5010)
----------------------------------------------------------------------------------------------------------------
               I                        II           III           IV                 V                VI
----------------------------------------------------------------------------------------------------------------
                                                                               Content of the
                                                                                field before     Content of the
    Reference  description             Name          Code      Definition      HPID compliance  field after HPID
                                                                                    date         compliance date
----------------------------------------------------------------------------------------------------------------
NM101.........................  Entity identifier       2B  Third-Party       If a health plan  If a health plan
                                 Code.                       Administrator.    is to be          is to be
                                                                               identified as     identified as
                                                                               the information   the information
                                                                               source, then      source, then
                                                                               Entity Code       Entity Code
                                                                               Qualifier         Qualifier
                                                                               ``PR'' will be    ``PR'' will be
                                                                               used.             used.
                                                        36  Employer........
                                                        GP  Gateway Provider
                                                        P5  Plan Sponsor....
                                                        PR  Payer...........
NM108.........................  Identification          24  Employer's        If a health plan  If a health plan
                                 Code Qualifier.             Identification    is to be          is to be
                                                             Number (EIN).     identified as     identified as
                                                                               the information   the information
                                                                               source,           source, only
                                                                               Identification    Identification
                                                                               Code Qualifier    Code Qualifier
                                                                               24, 46, FI, NI,   XV can be used.
                                                                               or PI can be
                                                                               used.
                                                        46  Electronic
                                                             Transmitter
                                                             Identification
                                                             Number (ETIN).
                                                        FI  Federal
                                                             Taxpayer's
                                                             Identification
                                                             Number.
                                                        NI  National
                                                             Association of
                                                             Insurance
                                                             Commissioner's
                                                             (NAIC)
                                                             Identification.
                                                        PI  Payer
                                                             Identification.
                                                        XV  Centers for
                                                             Medicare &
                                                             Medicaid
                                                             Services Plan
                                                             ID.
                                                        XX  Centers for
                                                             Medicare &
                                                             Medicaid
                                                             Services
                                                             Provider
                                                             Identifier.
NM109.........................  Identification                                Depending on the  HPID only (if a
                                 Code.                                         Identification    health plan is
                                                                               Code Qualifier,   to be
                                                                               this could be     identified as
                                                                               the EIN, ETIN,    the information
                                                                               Tax Id, the       source).
                                                                               NAIC, or any
                                                                               Proprietary Id.
----------------------------------------------------------------------------------------------------------------

    Currently, if the health plan is the information source and needs 
to be identified in the transactions, it may be identified using a 
number of different identifiers as shown in Table 3, Column V. If this 
proposal is finalized and the HPID is adopted, and if a health plan is 
identified as the information source, it must be identified using an 
HPID as shown in Table 3, Column VI.
    As discussed earlier in this proposed rule, stakeholders at the 
NCVHS hearings expressed different viewpoints on the appropriate level 
of health plan enumeration. Some industry stakeholders encouraged 
health plan enumeration at a very high level (for example, at the level 
of the health plan's legal entity), while other stakeholders supported 
enumeration at the benefit package level. We analyzed and considered 
these viewpoints when we developed the HPID policy proposed herein.
    We began by exploring the purpose of the HPID. While we considered 
multiple uses for the HPID, we determined that the primary purpose of 
the HPID is for use in standard transactions in order to identify 
health plans in the appropriate loops and segments and to provide a 
consistent standard identifier so a health plan no longer uses multiple 
identifiers in the HIPAA covered transactions. Therefore, we analyzed 
the transaction standards to determine the existing segments and loops 
where a health plan may need to be identified, what identifiers are 
currently used in those loops and segments to identify health plans, 
and what information that loop or segment is providing when a health 
plan is being identified. We also carefully considered the information 
that industry stakeholders reported was missing in covered transactions 
and suggested could be provided using a health plan identifier. We 
determined that much of the information testifiers wanted to obtain 
through the health plan identifier might already be available in other 
parts of the transaction standards and associated operating rules.
    The CAQH CORE 154 eligibility content and operating rule, to be 
used with the ASC X12 Version 5010 Standard for Electronic Data 
Interchange Technical Report Type 3--Health Care Eligibility Benefit 
Inquiry and Response

[[Page 22962]]

(270/271) (hereinafter referred to as the Version 5010 270/271 
eligibility inquiry/response standard), was adopted through an interim 
final rule with comment period published in the July 8, 2011 Federal 
Register (76 FR 40458), with a compliance date of January 1, 2013. 
These operating rules require that more information be provided in the 
Version 5010 270/271 eligibility inquiry/response standard, including 
information about a patient's health plan name, coinsurance, copayment, 
and deductibles including in-network and out-of-network, as well as 
remaining deductible amounts. The loops, segments, and codes within the 
transaction standards are already available vehicles for providing this 
information today. Future versions of standards, as well as the 
adoption of operating rules to supplement the standards, can address 
many of the other issues raised by stakeholders and can continue to 
address issues or problems in the transactions as they arise. 
Therefore, we do not believe that the HPID needs to provide the level 
of detail that some testifiers suggested.
    In addition, requiring health plans to enumerate to a more granular 
level may prove burdensome to the industry as benefit package 
information and offerings change frequently and would require constant 
updates by health plans. Health care providers may also need to update 
their software and systems frequently to ensure the accuracy of 
information. This could result in increased time spent by health plan 
and health care provider staff to ensure appropriate information is 
being used for eligibility determination and claim payments.
    We developed the proposed HPID policy after considering stakeholder 
testimony, analyzing transaction standards' loops and segments where 
the health plan identifier will be used, and taking into account newer 
versions of the standards and the adoption of operating rules to 
complement the standards.
4. HPID Standard Format
a. Introduction
    Per the NCVHS recommendations, which were based on stakeholder 
testimony from a wide range of potential HPID users, we propose to 
adopt an HPID that is a 10-digit, all-numeric identifier with a Luhn 
check-digit as the tenth digit. (See Sec.  162.510). The Luhn check-
digit is an algorithm used most often on credit cards as a check sum to 
validate that the card number issued is correct. See http://www.merriampark.com/anatomycc.htm for more information. We seek public 
and stakeholder comments on the feasibility and utility of this format 
for the HPID.
b. The International Organization for Standardization (ISO) Standard
    The International Organization for Standardization (ISO) is the 
world's largest developer and publisher of international standards. 
National standards institutes from 160 nations comprise the ISO. The 
ISO has published more than 16,500 standards for numerous industries 
such as agriculture, electrical engineering, and other information 
technology industries. For more information on the ISO, refer to the 
Web site at http://www.iso.org. Based on stakeholder testimony, the 
NCVHS recommendations, and our review, we propose that the ISO 7812 
standard format, ISO/IEC 7812-1:2006 and ISO/IEC 7812-2:2007, which 
consists of a 10-digit, all-numeric identifier with a Luhn check-digit 
as the tenth digit, be adopted as the standard for the HPID. This 
standard incorporates the same format that is used for the enumeration 
of health care providers via the National Provider Identifier (NPI), 
adopted in the NPI final rule, published in the January 23, 2004 
Federal Register (69 FR 3434). Like the proposed standard for the HPID, 
the standard for the NPI is a 10-position all numeric identifier with a 
numeric check digit to assist in identifying erroneous or invalid NPIs. 
The HPID format would essentially be an intelligence-free identifier as 
the start digit of the number would provide the only piece of 
intelligence, signaling that the identifier had been provided to a 
health plan and not to an ``other entity'' or a health care provider. 
The OEID will have a different start digit than the HPID. The number of 
digits of the HPID would not exceed the number permitted for 
identifiers in the relevant data fields of the standard transactions. 
If additional capacity for HPIDs were needed in the future, the 
relevant data fields would permit additional numeric digits to be added 
at that time. Also, an all-numeric identifier: is more quickly and 
accurately keyed in data-entry applications; is more easily used in 
telephone keypad applications; does not require translation before 
application of the check digit algorithm and thus uses the full ability 
of the check digit algorithm to detect keying errors; will require less 
change for systems that currently use a numeric identifier; and is 
compatible with ISO identification card standards for a card issuer 
identifier, while Alphanumeric identifiers do not possess these 
important characteristics.

B. Adoption of the Other Entity Identifier (OEID)

    In addition to proposing the adoption of an identifier for health 
plans, we are also proposing to adopt a data element in the form of an 
optional identifier for other entities for use in standard 
transactions, consistent with the recommendations of the NCVHS. Section 
1104(c) of the Affordable Care Act provides in relevant part that the 
Secretary ``shall promulgate a final rule to establish a unique health 
plan identifier (as described in section 1173(b) of the Act (42 U.S.C. 
1320d-2(b))) based on the input of the National Committee on Vital and 
Health Statistics.'' Section 1173(a)(1)(A) of the Act states in 
relevant part that ``[t]he Secretary shall adopt standards for 
transactions, and data elements for such transactions, to enable health 
information to be exchanged electronically, that are appropriate for--
(A) the financial and administrative transactions described in 
paragraph (2)* * *, '' which contains a list of the transactions for 
which the Secretary has to adopt a standard.
    The OEID would serve as an identifier for entities that are not 
health plans, health care providers, or ``individuals'',\3\ yet they 
need to be identified in standard transactions. Under this proposed 
rule, these other entities would not be required to obtain an OEID, but 
they could obtain and use one if they needed to be identified in 
covered transactions. If they obtained an OEID, these entities would be 
expected to use it and disclose it upon request to entities that need 
to identify such entities for covered transactions.
---------------------------------------------------------------------------

    \3\ Individual is defined at 45 CFR 160.103 as ``the person who 
is the subject of protected health information.''
---------------------------------------------------------------------------

    We are proposing to make obtaining and using the OEID voluntary. 
Stakeholders expressed a strong interest in being able to obtain an 
identifier, and the NCVHS agreed and recommended that such an 
identifier would be beneficial to the industry. We believe that 
voluntary obtaining and using is appropriate at this time, although we 
recognize that the OEID may be more beneficial if obtaining and using 
an OEID were required. We could do this, for example, by requiring 
health plans that have business relationships with other entities that 
perform certain functions on their behalf to direct in a contract or 
other arrangement these other entities to obtain and use an OEID. 
Alternatively, covered entities could on

[[Page 22963]]

their own initiative require their trading partners or business 
associates obtain OEIDs as part of their own agreed upon business 
arrangements. This rule does not propose to preclude such a business 
practice. We are interested in industry opinions about our proposal to 
make obtaining and using the OEID voluntary, and we also welcome 
comments about whether and how it should be made mandatory.
1. The Other Entity Identifier (OEID)
    As discussed in section I. of this proposed rule, health plans 
often use the services of other entities to conduct certain financial 
and administrative transactions on their behalf. Rental networks, 
benefit managers, third party administrators, health care 
clearinghouses, repricers, and other third parties often perform 
functions similar to, or on behalf of, health plans. In many cases, 
these other entities are currently being identified in standard 
transactions in the same fields and using the same type of identifiers 
used by health plans. For example, when a covered health care provider 
conducts a transaction to determine eligibility for a health plan 
(referred to as an ``eligibility for a health plan transaction''), the 
health care provider may send an electronic request to obtain 
information about a patient's eligibility for health care services to 
an entity referred to as an ``information source.'' This ``information 
source'' provides information back to the health care provider about a 
specific patient's health care coverage that a particular health plan 
provides. The ``information source'' for the patient's eligibility 
information may be a health plan or one of these other entities that 
perform financial and administrative services on behalf of that health 
plan. Currently, in the transaction standard for the eligibility for a 
health plan transaction, health plans, and the other covered entities 
may use the same type of identifiers, such as a Payer Identifier 
(PAYERID) or an EIN, to identify themselves as the ``information 
source.''
    In its September 30, 2010 letter to the Secretary, the NCVHS 
explained the integral role other entities play in health care 
administrative and financial electronic transactions. The NCVHS 
acknowledged that while these other entities may not meet the 
definition of ``health plan'' under HIPAA, they nevertheless need to be 
identified in the transactions to ensure successful, efficient 
communication. The reality is that these entities often need to be 
identified in the same fields in which a health plan would need to be 
identified because they perform very similar functions. These other 
entities are using many of the same identifiers health plans currently 
use in covered transactions. In addition, the NCVHS recommended that 
HHS consider allowing these entities to obtain HPIDs as they may be the 
actual recipients of eligibility queries or claims on behalf of the 
health insurance issuer or the entity ultimately responsible for 
payment. The NCVHS stressed the importance of enabling these entities 
to be enumerated, and recommended that HHS consider making these 
entities eligible to obtain an HPID where there is a clear use case for 
them to be enumerated. Based on the testimony NCVHS heard, information 
we have received, and for the reasons stated previously, we believe 
that a clear use case does exist for these other entities to be 
enumerated. Moreover, we anticipate that with the recent advances in 
health information exchange and the development of health information 
networks, the need to identify these other entities in financial and 
administrative electronic transactions will only increase.
    Offering the OEID as an adopted data element to identify other 
entities that need to be identified in covered transactions should 
reduce costs and improve efficiency for covered entities. Because other 
entities are identified in the transaction standards in a similar 
manner as health plans, we believe that establishing a data element to 
serve as an identifier for these entities will increase efficiency by 
encouraging the use of a uniform identifier and promote compliant use 
of the HPID for health plans. Like the standard for HPID we are 
proposing to adopt, the OEID that we are proposing would follow ISO 
standard 7812, and be a 10-digit, all-numeric identifier with a Luhn 
check-digit as the tenth digit. Consequently, entities that have 
implemented the HPID and are seeking to implement the OEID would not 
need to significantly modify their information technology systems to 
accommodate the use of the OEID.
    Therefore, we are proposing to establish the OEID for use in 
standard transactions to identify entities that are not eligible to 
obtain an HPID or NPI and are not individuals (as defined at 45 CFR 
160.103). The OEID would be used to identify these other entities where 
these other entities need to be identified in the standard 
transactions, and for any other lawful purpose. These entities would be 
eligible, but not required, to obtain an OEID for themselves. An OEID 
would be obtained by the other entity from the Enumeration System 
identified in 45 CFR 162.508 as discussed in this proposed rule. 
Changes to its required data elements would need to be communicated to 
the Enumeration System within 30-days of the change. We solicit 
industry and stakeholder comments on our proposed enumeration of other 
entities and adoption of the OEID for use in the standard transactions.

C. Assignment of the HPID and OEID

1. The Enumeration System
    We propose that in 45 CFR 162.508, the Enumeration System would 
assign unique HPIDs and OEIDs to eligible health plans and eligible 
other entities, respectively. The Enumeration System would be a 
comprehensive system for uniquely identifying and enumerating all 
eligible health plans and other entities. It would collect and maintain 
certain identifying and administrative information about CHPs, SHPs, 
and other entities. The Enumeration System would also disseminate 
information through a publicly available searchable database or through 
downloadable files. Entities may also obtain a CHP's or SHP's HPID or 
an entity's OEID by requesting the HPID from the health plan or the 
OEID from the other entity.
    HPIDs and OEIDs would only be assigned by the Enumeration System 
through an online application process. A health plan or other entity, 
when applying online for an HPID or OEID, would be required to provide 
certain identifying and administrative information. We anticipate this 
information will be used to verify the identity and eligibility of 
health plans and other entities during the application process. We 
anticipate further that a help desk will be available to assist health 
plans and other entities with the online application process as 
necessary and to notify health plans or other entities about problems 
associated with their online applications.
    The Enumeration System would also be able to deactivate or 
reactivate an HPID or OEID based on receipt of sufficient information. 
Examples of situations justifying deactivation of an HPID may include 
the fraudulent use of the HPID by the health plan itself or an other 
entity, the change of ownership of a health plan, or the restructuring 
of a health plan's data processing systems such that the SHP determines 
that its HPID would no longer be needed. Deactivation of an OEID may 
also occur in similar situations, for example the fraudulent use of an 
OEID by itself or an other entity, the change of ownership of the other 
entity, or if the other entity no longer exists.

[[Page 22964]]

    Reactivation of an HPID or OEID could occur, for instance, if there 
were a change of ownership of a health plan or other entity, or for 
health plans if there were a restructuring of a health plan's data 
processing systems and the SHP determines that it again needs its HPID.
    We solicit stakeholder comments on our proposals regarding the 
enumeration system and process.

D. Other Considerations

1. Pharmacy Transactions
    During the July 2010 NCVHS hearings on the health plan identifier, 
industry stakeholders also expressed views on the use of the HPID in 
retail pharmacy transactions. Currently, the pharmacy industry utilizes 
two unique identifiers in retail pharmacy transactions, the Bank 
Identification Number/Issue Identification Number (BIN/IIN) and the 
Processor Control Number (PCN). These identifiers are programmed into 
the pharmacy's software and identify the route for processing the 
transaction from the pharmacy to the entity responsible for 
administering the claim, which could be the health plan or the pharmacy 
benefit manager. A pharmacy benefit manager is a third party 
administrator for prescription drug programs and is responsible for 
processing and paying claims on behalf of the health plan or drug plan 
sponsor.
    The BIN/IIN is a 6-digit number, requested by the pharmacies from 
either the American National Standards Institute (ANSI) or the National 
Council for Prescription Drug Programs (NCPDP), for use by retail 
pharmacies to route prescription drug claims to the entity responsible 
for processing the transaction, usually the pharmacy benefit manager. 
The PCN is an identifier of up to 10 characters that is assigned by 
pharmacy benefit claim processors if there is a need to further define 
benefits and routing. For instance, the Medicare Part D prescription 
drug benefit plan Coordination of Benefits (COB) contractor has unique 
requirements for processing Medicare Part D claims. To accommodate 
those requirements, many administrators or processors have created PCNs 
to further differentiate the Medicare Part D prescription drug plan 
benefit COB business from their other (commercial or Medicaid) COB 
business. Both the BIN/IIN and PCN are embedded into pharmacies' 
software programs, and identify the entity for processing claims. The 
identifiers are tied to the entity that will be processing the 
transaction, or where the transaction is to be sent. These identifiers 
are included in information from pharmacy benefit managers and/or 
health plans that are distributed to pharmacies to provide details on 
who will be processing the transaction, where to route the transaction 
and what rules are expected to be applied during transaction 
processing. The use of the BIN/IIN and PCN allow pharmacy claims to be 
adjudicated and responded to by the pharmacy benefit manager or health 
plan within seconds. According to the NCPDP, the use of these two 
identifiers has been very effective in ensuring efficient, timely 
prescription claim processing. Both pharmacy and non-pharmacy 
stakeholders testified at the July 2010 NCVHS Subcommittee on Standards 
hearings that the HPID, BIN/IIN and PCN identifiers convey different 
information and serve different purposes. The BIN/IIN and PCN 
identifiers cannot provide the information needed about the health 
plan, nor can the information in the HPID provide the information 
inherent in the BIN/IIN and PCN identifiers.
    A representative of the retail pharmacy industry testified that if 
the health plan identifier were required to replace the BIN/IIN and/or 
PCN, such a change would be extremely costly to the retail pharmacy 
industry. For example, combination medical and/or prescription drug 
plan identification cards would need to be re-issued with the HPID, 
with no direct patient or pharmacy benefit. The NCPDP also noted that 
an HPID-only requirement would require a substantive change to the 
NCPDP D.0. In Version D.0, the Plan ID field is either not used or its 
use is optional, meaning its use was not intentionally defined in the 
standard. However, the use of the BIN and PCN fields is mandatory.
    In its September 30, 2010 recommendation letter to the Secretary, 
the NCVHS observed that based on the testimony presented at the July 
2010 hearings, retail pharmacy transactions utilize the BIN/IIN and/or 
PCN identifier to facilitate their transaction processing and that 
changing to an other identifier would significantly affect existing 
data flows in the retail pharmacy industry that currently work 
effectively. As such, the pharmacy industry requested an exemption from 
the requirement to use only HPID in retail pharmacy transactions 
because of the current success with the BIN/IIN and PCN identifiers for 
routing purposes. The NCVHS recommended that use of the HPID in place 
of the existing BIN/IIN and PCN identifier in retail pharmacy business 
transactions not be required, but that the HPID be required on the 
HIPAA-named standard transactions for retail pharmacy. We are not 
proposing any changes to the NCPDP Version D.0 standard, and we do not 
believe that the HPID should be required in place of the existing BIN/
IIN and PCN identifier in retail pharmacy transactions.
2. Definition of Covered Health Care Provider
    We are proposing to move the definition of ``covered health care 
provider'' from 45 CFR 162.402 to 45 CFR 162.103 because the term 
``covered health care provider'' has a broader application beyond just 
Subpart D.

E. Effective and Compliance Dates for the HPID

    In section 1104(c)(1) of the Affordable Care Act, Congress 
specified that ``the Secretary shall establish a standard for a unique 
health plan identifier based on the input of the National Committee on 
Vital and Health Statistics.'' Congress further provided that the rule 
shall be ``effective'' not later than October 1, 2012. Therefore, we 
are planning for the effective date of this rule to be October 1, 2012. 
The effective date would mark the beginning of the implementation 
period for the HPID, which we expect would be the first day health 
plans may apply to obtain an HPID and the first day an entity may apply 
to obtain an OEID from the Enumeration System. We propose that the 
compliance date for all covered entities, except small health plans, to 
use the HPID in standard transactions be 2 years after the effective 
date of the final rule which, if the effective date is October 1, 2012 
as we are planning, would be October 1, 2014. The compliance date for 
small health plans would be October 1, 2015. Small health plans would 
not be prohibited from complying earlier and using the HPID in their 
transactions at any time before October 1, 2015.
    The Congress uses the terms ``effective'' and ``adoption'' in the 
Affordable Care Act as applied to both the rules that the Secretary 
must promulgate to adopt the various standards as well as to the 
standards themselves. In these provisions of the Affordable Care Act, 
Congress consistently uses the term ``effective date'' to mean the time 
when the relevant provision--either the rule or an adopted standard--
must go into effect.
    In line with our previous interpretations, we have interpreted the 
``effective date'' of this rule to mean the date the Secretary adopts 
the HPID as the Unique Health Plan Identifier. In the NPI final rule, 
for instance, the effective date of the rule was the date the Secretary 
adopted a standard unique

[[Page 22965]]

health identifier for health care providers, and the compliance date 
marked the time by which an entity had to obtain and use an NPI in the 
standard transactions. We consequently interpret this section of the 
Act as specifying October 1, 2012 as the effective date of the final 
rule, when the policies take effect and the implementation period for 
the HPID begins.
    Understanding that Congress intended the effective date for the 
HPID final rule to be October 1, 2012, we note that this date marks the 
first day that a health plan will be able to apply to obtain an HPID. 
The 2-year implementation period for this new standard sets the date by 
which health plans (excluding small health plans) must obtain and 
covered entities (excluding small health plans) must use an HPID in the 
standard transactions as October 1, 2014. The compliance date for small 
health plans would be October 1, 2015.
    We are soliciting comment on the effective and compliance dates for 
the HPID.

III. Proposed Addition to the National Provider Identifier Requirements

A. Background

    As discussed in section I of this proposed rule, the final rule 
adopting the NPI as the standard unique health identifier for health 
care providers was published on January 23, 2004 (69 FR 3434) (``2004 
NPI final rule''). While the 2004 NPI final rule requires covered 
health care providers to obtain NPIs for themselves and certain 
subparts and use them in standard transactions, it does not require a 
health care provider who is not a covered entity to obtain an NPI. Even 
if a noncovered health care provider chooses to obtain an NPI, the 
provider is not required to comply with certain NPI requirements, which 
means the provider does not have to disclose its NPI to entities who 
may need it for standard transactions. When a noncovered health care 
provider does not obtain an NPI or does not disclose it, certain 
problems arise for entities that need to identify that noncovered 
health care provider in standard transactions. We are proposing an 
addition to the requirements for the NPI regulations to address such 
problems.
    The 2004 NPI final rule (69 FR 3445) recognized that, 
``[s]ituations exist in which a standard transaction must identify a 
health care provider that is not a covered entity. * * * A noncovered 
health care provider may or may not have applied for and received an 
NPI. In the latter case, * * * an NPI would not be available for use in 
the standard transaction. We encourage every health care provider to 
apply for an NPI, and encourage all health care providers to disclose 
their NPIs to any entity that needs that health care provider's NPI for 
use in a standard transaction. Obtaining NPIs and disclosing them to 
entities so they can be used by those entities in standard transactions 
will greatly enhance the efficiency of health care transactions 
throughout the health care industry. * * * The absence of NPIs when 
required in * * * claims by the implementation specifications may delay 
preparation or processing of those claims, or both. Therefore, we 
strongly encourage health care providers that need to be identified in 
standard transactions to obtain NPIs and make them available to 
entities that need to use them in those transactions.''
    The 2004 NPI final rule (69 FR 3445) provided the following example 
of a situation where a health care provider is not a covered entity but 
its NPI is needed for a standard transaction: ``A pharmacy claim that 
is a standard transaction must include the identifier (which, as of the 
compliance date, would be the NPI) of the prescriber. Therefore, the 
pharmacy needs to know the NPI of the prescriber in order to submit the 
pharmacy claim. The prescriber may be a physician or other practitioner 
who does not conduct standard transactions. The prescriber is 
encouraged to obtain an NPI so it can be furnished to the pharmacy for 
the pharmacy to use on the standard pharmacy claim.''
    Within just a few months after implementation of the 2004 NPI final 
rule, this issue had been raised so frequently to HHS that, on 
September 23, 2008, it published a Frequently Asked Question to address 
questions about pharmacy claims rejected by payers for lack of an 
individual prescriber NPI (Answer ID 9419) (https://
questions.cms.hhs.gov/app/answers/detail/a--id/9419/~/does-the-
national-provider-identifier-(npi)-final-rule-require-individual).
    Due to recurring issues, we believe this scenario described in the 
2004 NPI final rule needs to be addressed. Pharmacies are encountering 
situations where the NPI of a prescribing health care provider needs to 
be included in the pharmacy claim, but the prescribing health care 
provider does not have an NPI or has not disclosed it. This situation 
has become particularly problematic in the Medicare Part D program, as 
we explain more fully later in this proposed rule.
    By way of background, every prescriber has at least one identifier 
that may be submitted on a pharmacy claim. These identifiers include 
the NPI, Drug Enforcement Administration (DEA) number, uniform provider 
identification number (UPIN), or State license number. The Medicare 
Part D program is an optional prescription drug benefit for all 
Medicare beneficiaries. Medicare Part D contracts with private 
companies, called plan sponsors, to administer the benefit through Part 
D drug plans. In the Medicare Part D program, plan sponsors must submit 
a prescription drug event (PDE) record to Medicare Part D every time a 
beneficiary's prescription is filled under the program. Plan sponsors 
use information from the claim generated by the pharmacy to complete 
the PDE record, which contains summary information. These PDE records, 
which currently must contain a prescriber identifier are necessary to 
support accurate payments to plan sponsors by Medicare Part D.
    The use of multiple and invalid prescriber identifiers in the 
Medicare Part D program has been identified as a concern. In a June 
2010 report titled, ``Invalid Prescriber Identifiers on Medicare Part D 
Drug Claims'' (``June 2010 report''), the HHS Office of the Inspector 
General (OIG) reported the findings of its review of prescriber 
identifiers on 2007 Part D PDE records. The OIG reported finding 18.4 
million PDE records that contained 527,749 invalid identifiers, 
including invalid NPIs, DEA registration numbers, and UPINs. Payments 
by Part D drug plans and enrollees for prescriptions associated with 
these PDE records totaled $1.2 billion. Prescriber identifiers are 
valuable Part D program safeguards. These identifiers are the only data 
on Part D drug claims to represent that licensed practitioners have 
written prescriptions for Medicare enrollees. Although invalid 
prescriber identifiers are not an automatic indication of erroneous or 
fraudulent prescriptions or pharmacy claims, the lack of valid 
prescriber identifiers on Part D drug claims hampers Medicare's program 
integrity efforts.
    To address these concerns raised by the June 2010 report, in the 
``Medicare Program; Changes to the Medicare Advantage and the Medicare 
Prescription Drug Benefit Programs for Contract Year 2013 and Other 
Changes'' final rule (which was filed for public inspection onApril 2, 
2012 (hereinafter referred to as April 2012 final rule). CMS requires 
Part D sponsors to include an active and valid prescriber National 
Provider Identifier (NPI) on prescription drug event records (PDEs) 
that they submit to CMS, which will assist the Federal government in 
fighting possible fraudulent activity in the Part D

[[Page 22966]]

program, because prescribers will be consistently and uniformly 
identified. This policy will not interfere with beneficiary access to 
needed medications because Part D sponsors must validate the NPI at 
point of sale, and if this is not possible, permit the prescription to 
be dispensed and obtain the valid NPI afterwards.''
    Pharmacies that contract with Part D sponsors may be involved in 
obtaining a prescriber's NPI depending on the agreement between the 
pharmacies and Part D sponsors. Because Part D sponsors and pharmacies 
generally have no regulatory leverage or other recourse over 
prescribers who fail or refuse to disclose NPIs, they must resort to 
using provider information databases to determine if a prescriber has 
an NPI or contact the prescriber, if known. If a Part D sponsor or 
network pharmacy is unable to obtain a prescriber NPI for use on the 
claim and PDE, the reimbursement from Medicare Part D to the sponsor 
(or alternatively, from the sponsor to the pharmacy depending on the 
agreement between the parties), could be negatively affected. We seek 
to address both current and future problems described previously that 
are presented by prescribers who do not have NPIs or do not disclose 
them, by proposing an additional requirement for the NPI regulations.

B. Provisions for a Proposed Requirement To Obtain and Use NPIs

    We are proposing an additional requirement for organization covered 
health care providers that have as a member, employ, or contract with, 
an individual health care provider who is not a covered entity and is a 
prescriber. Organization health care providers are health care 
providers that are not individuals. Our proposal would require an 
organization to require such a prescriber to: (1) obtain an NPI; and 
(2) to the extent the prescriber writes a prescription while acting 
within the scope of the prescriber's relationship with the 
organization, disclose the NPI upon request to any entity that needs it 
to identify the prescriber in a standard transaction.
    Organization covered health care providers would be required to 
implement the requirement within 180 days after the effective date of 
the final rule, which would be reflected in 45 CFR 162.404(a)(2) with 
regulation text stating that an organization covered health care 
provider must comply with the implementation specifications in 45 CFR 
162.410(b). We expect the final rule to be effective on October 1, 
2012, in which case covered organization health care providers would 
have to meet the requirement by April 7, 2013.
    The requirement would be reflected in the regulation text in 45 CFR 
162.410(b) by adding the following new language. ``An organization 
covered health care provider that has as a member, employs, or 
contracts with an individual health care provider who is not a covered 
entity and is a prescriber, must require such health care provider to: 
(1) obtain an NPI from the National Plan and Provider Enumeration 
System (NPPES) and (2) to the extent the prescriber writes a 
prescription while acting within the scope of the prescriber's 
relationship with the organization, disclose the NPI upon request to 
any entity that needs it to identify the prescriber in a standard 
transaction.''
    This proposed requirement represents a narrow exception to the 
position we took in the 2004 NPI final rule. The 2004 NPI final rule 
(69 FR 3440), we stated ``[w]e do not consider individuals who are 
health care providers * * * and who are members or employees of an 
organization health care provider to be ``subparts'' of those 
organization health care providers, as described earlier in this 
section. Individuals who are health care providers are legal entities 
in their own right. The eligibility for an ``Entity type code 1'' NPI 
of an individual who is a health care provider and a member or an 
employee of an organization health care provider is not dependent on a 
decision by the organization health care provider as to whether or not 
an NPI should be obtained for, or by, that individual. The eligibility 
for an ``Entity type code 1'' NPI of a health care provider who is an 
individual is separate and apart from that individual's membership or 
employment by an organization health care provider.''
    By virtue of this proposed rule, we are still not considering 
noncovered health care providers that are prescribers to be subparts of 
organization health care providers, nor are we proposing that they are 
not legal entities in their own right. Rather, our proposal would close 
a gap in the NPI rule by virtue of the relationships that covered 
organization health care providers have with noncovered individual 
health care providers.
    The providers we seek to reach are prescribers who are not required 
to obtain and disclose an individual NPI under the current NPI 
regulations. To the best of our understanding, these prescribers are 
largely hospital-based providers who staff clinics and emergency 
departments, or otherwise provide on-site medical services, such as 
medical residents and interns, as well as prescribers in group 
practices, whose services are billed under a group or ``Entity type 
code 2'' NPI regardless of whether they have obtained an individual, or 
``Entity type code 1,'' NPI. These prescribers are using the ``Entity 
type code 2'' to identify themselves on prescriptions, or an other or 
no identifier, which does not identify them as individuals. We believe 
this proposal describes the various relationships that organization 
health care providers have with such prescribers, and that the 
relationship is one in which organizations can exercise control over 
these prescribers and require them to do something.
    For instance, a physician or dentist who prescribes may be a member 
of a group practice. As noted in the 2004 NPI final rule (69 FR 3439 
and 3440), ``group health care providers are entities composed of one 
or more individuals (members), generally created to provide coverage of 
patients' needs in terms of office hours, professional backup and 
support, or range of services resulting in specific billing or payment 
arrangements.'' For purposes of this rule, we consider group health 
care providers to be organization health care providers.'' By virtue of 
the contractual or other relationship between a group and a member, a 
group can require the member to do certain things, such as work certain 
on-call hours. Likewise, a resident or nurse practitioner who performs 
medical services at a hospital can be required to do certain things, 
such as to abide by medical staff by-laws and hospital policies and 
procedures, as a hospital employee or contractor. This proposed rule 
does not specify how organization covered health care providers should 
impose the requirement to obtain an NPI and disclose it on prescribers. 
Organization covered health care providers may have a number of 
alternatives by which they may accomplish this, for example, through a 
written agreement, an employment contract, or a directive to abide by 
the organization health care provider's policies and procedures.
    The requirement for a prescriber to disclose his or her NPI would 
apply for prescriptions written pursuant to the prescriber's 
relationship with the covered health care organization provider. For 
example, if a physician works for two group practices, A and B, group 
practice A would be required to require the physician to disclose his 
or her NPI for pharmacy claims that are for prescriptions written by 
the prescriber for a patient of group practice A, and group practice B 
would be required to do the same for pharmacy claims for

[[Page 22967]]

prescriptions written by the prescriber for a patient of that group 
practice.
    We considered expanding our proposal to organization covered health 
care providers that grant clinical privileges to individual health care 
providers who are not covered entities and are prescribers, so that we 
would be certain to encompass hospital residents and interns under our 
proposal (to the extent they are not otherwise required to obtain Type 
1 NPIs). However, it is our belief such prescribers will be encompassed 
under our proposal as drafted, as we further believe our proposal would 
encompass virtually all prescribers who are not currently required to 
obtain and disclose an individual NPI. Exceptions may include, by way 
of example, a self-employed physician who does not bill insurance plans 
and does not have a member, employee or contractual relationship with 
an organization covered health care provider (or has one with a 
noncovered organization health care provider), such as a psychiatrist 
or plastic surgeon who only accepts cash from patients. Even with 
respect to these prescribers, we hope this rule highlights the 
importance of voluntarily obtaining NPIs to facilitate their patients' 
access to prescribed items. We seek comment regarding the extent to 
which residents, interns, and any other prescribers would not be 
reached under our proposal and any alternative approach that would 
encompass them.
    We believe this proposal furthers several goals and purposes 
identified in the Act. First, the statutory purpose of the 
Administrative Simplification provisions of HIPAA (see section 261 of 
the Act (42 U.S.C. 1320d note)) is,

    To improve the Medicare program under title XVIII of the Social 
Security Act, the Medicaid program under title XIX of such Act, and 
the efficiency and effectiveness of the health care system, by 
encouraging the development of a health information system through 
the establishment of uniform standards and requirements for the 
electronic transmission of certain health information and to reduce 
the clerical burden on patients, health care providers, and health 
plans.

    In accord with this statutory purpose, our proposal would improve 
the Medicare program by virtually ensuring the availability of an NPI 
as a prescriber identifier on pharmacy claims in the Part D program 
because virtually all prescribers would have to obtain an NPI and 
disclose it to entities that need it for use in standard transactions. 
That in turn would support program integrity efforts described in the 
April 2012 final rule noted previously which requires Part D sponsors 
to submit PDEs that contain only individual NPIs as prescriber 
identifiers, effective January 1, 2013. As noted in the April 2012 
final rule, ``[w]hen multiple prescriber identifiers, not to mention 
dummy or invalid identifiers, are used, authorities must take an 
additional step in their data analysis before even achieving a refined 
data set to use for further analysis to identify possible fraud. For 
example, having to cross-reference multiple databases that update on 
different schedules to be certain of the precise prescribers involved 
when multiple identifiers were used, would necessitate several 
additional steps of data pre-analysis and also would introduce 
potential errors in correctly matching prescribers among databases.''
    Invalid identifiers are generally those that do not appear as 
current in any prescriber identifier registry. Dummy or default 
identifiers have never appeared in any prescriber identifier registry 
but have been used successfully on pharmacy claims in place of valid 
prescriber identifiers (for instance, when the prescriber's NPI was not 
available), because they met the length and format requirements of a 
prescriber identifier. Default identifiers present additional 
challenges to authorities, since the actual prescription must be 
researched to identify the prescriber. Valid prescriber identifiers are 
essential to conducting claims analyses to identify aberrant claims 
prescribing patterns that may indicate fraudulent activity, such as 
drug diversion schemes or billing for prescription drugs not provided, 
which includes circumstances with active prescriber participation and 
those involving forged prescriptions. Improving the accuracy and 
dependability of the prescriber identifier on Part D claims and PDEs, 
improves the ability to identify fraud and, in turn, protects and 
improves the Medicare program.
    This proposal would further improve the Medicare program by nearly 
eliminating the instances in which Part D sponsors' reimbursement (or 
possibly their network pharmacies' reimbursement, depending on the 
contractual relationship between the sponsors and the pharmacies) would 
be negatively impacted due to the actions of prescribers with whom they 
may have no business relationship. Part D sponsors would be expected to 
price any measurable expectation of financial risk, if any, due to 
nonreimbursement by CMS into their Part D bids, thus possibly 
increasing premiums and subsidies paid under the program. This proposal 
would make such action by Part D sponsors unnecessary by virtually 
ensuring the availability of prescriber NPIs.
    This proposal also accords with the purpose of HIPAA as amended by 
the Affordable Care Act. Section 1104(a)(2) of the Affordable Care Act 
revised the statutory purpose of HIPAA Administrative Simplification by 
adding, at the end, that its purpose is to ``reduce the clerical burden 
on patients, health care providers, and health plans.'' To the extent 
pharmacies only have to accept one identifier--the NPI--rather than 
four possible identifiers from prescribers for the majority of their 
claims, the administrative burden on all parties involved in the 
processing and payment of these claims would be lessened. Pharmacies 
and payers would no longer have to cross-check provider identifier 
databases to determine if the prescriber had an NPI when an alternate 
identifier was used, or contact the prescriber. Moreover, pharmacies 
and prescribers would no longer have to respond to inquiries from 
payers regarding the existence of an NPI when an alternate prescriber 
identifier was used.
    The proposal is also supported by section 1173(a)(3) of the Act, 
which requires the transaction standards adopted by the Secretary to 
accommodate the needs of different types of health care providers. Our 
proposal would accommodate the needs of pharmacies, a type of health 
care provider, by ensuring that a prescriber NPI is available to them 
when needed for their claims and reducing the instances in which they 
must cross-reference provider information databases or research a 
prescription. Similarly, section 1173(b)(1) of the Act states that,

    [t]he Secretary shall adopt standards providing for a standard 
unique health identifier for each individual, employer, health plan, 
and health care provider for use in the health care system. In 
carrying out [this requirement] for each health plan and health care 
provider, the Secretary shall take into account multiple uses for 
identifiers and multiple locations and specialty classifications for 
health care providers.

    Our proposal takes into account the particular needs of pharmacies 
by addressing a problem they have under HIPAA.
    While some prescribers will have to apply to obtain an NPI under 
this proposed requirement, the NPI is free of charge and requires only 
the completion of a three-page application form that seeks primarily 
identifying and location information. Thus, we believe the reduction in 
administrative burden that will be achieved by our proposal outweighs 
the minimal burden placed on prescribers who will have to obtain NPIs.

[[Page 22968]]

    The 2004 NPI final rule, as noted previously, foretold the issues 
that could arise if noncovered health care providers did not obtain 
NPIs, and therefore encouraged them to do so. The preamble of the 2004 
NPI final rule stated that disclosing NPIs to entities for use in 
standard transactions will greatly enhance the efficiency of health 
care transactions throughout the health care industry, and that the 
absence of NPIs when required in those claims by the implementation 
specifications may delay preparation or processing of those claims, or 
both. Health care providers responded by obtaining NPIs in large 
numbers even when not required to, and we believe the vast majority of 
prescribers already have NPIs. CMS data shows that approximately 90 
percent of Medicare Part D claims as reported in PDEs currently 
submitted contain valid prescriber NPIs even though alternate 
prescriber IDs are permitted at this time. But, while the vast majority 
of Medicare Part D claims contain individual NPIs, 10 percent do not. 
This proposal would help ensure this last 10 percent is addressed. 
After discussions with representatives of the provider data industry, 
we estimate there are approximately 1.4 million active prescribers in 
the United States, of which approximately 160,000 do not have an NPI. 
It is these prescribers who would have to obtain an NPI if this rule is 
finalized as proposed.

C. Effective and Compliance Dates

    We propose that the date by which an organization covered health 
care provider must comply is 180 days after the effective date of the 
final rule. In other words, if the final rule is effective on October 
1, 2012, then by April 7, 2013, organization covered health care 
providers that have a prescriber as a member, employ, or contract with 
a prescriber who is not a covered entity, must require him or her to 
(1) obtain an NPI and; (2) to the extent the prescriber writes a 
prescription while acting within the scope of the prescriber's 
relationship with the organization, to disclose the NPI upon request to 
any entity that needs it to identify the prescriber in a standard 
transaction.

IV. Proposed Change to the Compliance Date for ICD-10-CM and ICD-10-PCS

A. Background

    As discussed in section I. of this proposed rule, the final rule 
adopting ICD-10-CM and ICD-10-PCS (collectively, ``ICD-10'') as HIPAA 
standard medical data code sets was published in the Federal Register 
on January 16, 2009 (74 FR 3328) (the ``ICD-10 final rule''). The ICD-
10 final rule requires covered entities to use ICD-10 beginning October 
1, 2013.
    In late 2011 and early 2012, three issues emerged that led the 
Secretary to reconsider the compliance date for ICD-10: (1) The 
industry transition to Version 5010 did not proceed as effectively as 
expected; (2) providers expressed concern that other statutory 
initiatives are stretching their resources; and (3) surveys and polls 
indicated a lack of readiness for the ICD-10 transition.
1. The Transition to Version 5010 and Its Effect on ICD-10 Readiness
    Concurrent with the publication of the ICD-10 final rule, HHS 
published in the Federal Register the Modifications final rule which 
set January 1, 2012 as the compliance date for Version 5010 (74 FR 
3296). As the industry approached the January 1, 2012 Version 5010 
compliance date, a number of implementation problems emerged, some of 
which were unexpected. These included--
     Trading partners were not ready to test the Version 5010 
standards due to vendor delays in delivering and installing Version 
5010-compliant software to their provider clients;
     Version 5010 errata were issued to correct typographical 
mistakes and other maintenance issues that were discovered as the 
industry began its internal testing of the standards, which delayed 
vendor delivery of compliant products and external testing;
     Differences between address requirements in the ``provider 
billing address'' and ``pay to'' address fields adversely affected 
crossover claims processing;
     Inconsistent payer interpretation of standard requirements 
at the front ends of systems resulted in rejection of claims, as well 
as other technical and standard misinterpretation issues;
     Edits made in test mode that were later changed when 
claims went into production without adequate notice of the change to 
claim submitters; and
     Insufficient end to end testing with the full scope of 
edits and business rules in place to ensure a smooth transition to full 
production.
    Given concerns that industry would not be compliant with the 
Version 5010 standards by the January 1, 2012 compliance date, we 
announced on November 17, 2011 that we would not initiate any 
enforcement action against any covered entity that was not in 
compliance with Version 5010 until March 31, 2012, to enable industry 
adequate time to complete its testing and software installation 
activities. On March 15, 2012, this date was extended an additional 3 
months, until June 30, 2012.
    The ICD-10 final rule set October 1, 2013 as the compliance date, 
citing industry testimony presented to NCVHS and many of the over 3,000 
industry comments received on the ICD-10 proposed rule. The analysis in 
the ICD-10 final rule with regard to setting a compliance date 
emphasized the interdependency between implementation of ICD-10 and 
Version 5010, and the need to balance the benefits of ICD-10 with the 
need to ensure adequate time for preparation and testing before 
implementation. As noted in the ICD-10 final rule, ``[w]e cannot 
consider a compliance date for ICD-10 without considering the 
dependencies between implementing Version 5010 and ICD-10. We recognize 
that any delay in attaining compliance with Version 5010 would 
negatively impact ICD-10 implementation and compliance.'' (74 FR 3334) 
Based on NCVHS recommendations and industry feedback received on the 
proposed rule, we determined that ``24 months (2 years) is the minimum 
amount of time that the industry needs to achieve compliance with ICD-
10 once Version 5010 has moved into external (Level 2) testing.'' (74 
FR 3334) In the ICD-10 final rule, we concluded that the October 2013 
date provided the industry adequate time to change and test systems 
given the 5010 compliance date of January 1, 2012.
    As implementation of ICD-10 is predicated on the successful 
transition of industry to Version 5010, we are concerned that the 
delays encountered in Version 5010 have affected ICD-10 planning and 
transition timelines.
2. Providers have Expressed Concern That Other Statutory Initiatives 
Are Stretching Their Resources
    Since publication of the ICD-10 and Modifications final rules, a 
number of other statutory initiatives were enacted, requiring health 
care provider compliance and reporting. Providers are concerned about 
their ability to expend limited resources to implement and participate 
in the following initiatives that all have similar compliance 
timeframes.
    The EHR Incentive Program was established under the Health 
Information Technology for Economic and Clinical Health (HITECH) Act, a 
part of the American Recovery and Reinvestment Act of 2009 (Pub. L. 
111-5). Medicare and Medicaid incentive payments are available to 
eligible professionals and hospitals for adopting electronic health 
record (EHR)

[[Page 22969]]

technology and demonstrating meaningful use of such technology. 
Eligible professionals and hospitals that fail to meaningfully use EHR 
technology could be subject to Medicare payment adjustments beginning 
in FY 2015. The Physician Quality Reporting System is a voluntary 
reporting program that provides incentives payments to eligible 
professionals and group practices that satisfactorily report data on 
quality measures for covered Physician Fee Schedule services furnished 
to Medicare Part B Fee-for-Service beneficiaries. The eRx Incentive 
Program is a reporting program that uses a combination of incentive 
payments and payment adjustments to encourage electronic prescribing by 
eligible professionals. Beginning in 2012 through 2014, eligible 
professionals who are not successful electronic prescribers are subject 
to a payment adjustment. Finally, section 1104 of the Affordable Care 
Act imposes additional HIPAA Administrative Simplification requirements 
on covered entities, shown in Chart 1.

                          Chart 1: HIPAA Compliance Dates From the Affordable Care Act
----------------------------------------------------------------------------------------------------------------
     Covered entity compliance date                  HIPAA requirements from the Affordable Care Act
----------------------------------------------------------------------------------------------------------------
January 1, 2013........................   Operating rules for eligibility for a health plan and health
                                          care claim status transactions.
December 31, 2013......................   Health plan compliance certification requirements for health
                                          care electronic funds transfers (EFT) and remittance advice,
                                          eligibility for a health plan, and health care claim status
                                          transactions.
January 1, 2014........................   Standards and operating rules for health care electronic funds
                                          transfers (EFT) and remittance advice transactions.
December 31, 2015......................   Health plan compliance certification requirements for health
                                          care claims or equivalent encounter information, enrollment and
                                          disenrollment in a health plan, health plan premium payments, health
                                          care claims attachments, and referral certification and authorization
                                          transactions.
January 1, 2016........................   Standard for health care claims attachments.
                                          Operating rules for health care claims or equivalent encounter
                                          information, enrollment and disenrollment in a health plan, health
                                          plan premium payments, referral certification and authorization
                                          transactions
Proposed October 1, 2014...............   Unique health plan identifier.
----------------------------------------------------------------------------------------------------------------

3. Current State of Industry Readiness for ICD-10
    It is crucial that all segments of the health care industry 
transition to ICD-10 at the same time because the failure of any one 
industry segment to successfully implement ICD-10 has the potential to 
affect all other industry segments. Ultimately, such failure could 
result in returned claims and provider payment delays that disrupt 
provider operations and negatively impact patient access to care.
    In early 2012, it became evident that sectors of the health care 
industry would not be prepared for the October 1, 2013 ICD-10 
compliance date. Providers in particular voiced concerns about their 
ability to meet the ICD-10 compliance date as a result of a number of 
factors, including obstacles they experienced in transitioning to 
Version 5010 and the other initiatives that stretch their resources. A 
CMS survey conducted in November and December 2011 (hereinafter 
referred to as the CMS readiness survey) found that 26 percent of 
providers surveyed indicated that they are at risk for not meeting the 
October 1, 2013 compliance date.\4\
---------------------------------------------------------------------------

    \4\ ``Version 5010 and ICD-10 Readiness Assessment: Conducted 
among Health Care Providers, payers, and Vendors for the Centers for 
Medicare & Medicaid Services (CMS),'' December, 2011, Prepared by 
CMS. Survey responses received from 404 health care providers, 101 
payers, and 90 vendors.
---------------------------------------------------------------------------

    In February 2012, the Workgroup for Electronic Data Interchange 
(WEDI) conducted a survey on ICD-10 readiness, hereinafter referred to 
as the WEDI readiness survey.\5\ WEDI received responses from more than 
2,600 providers, health plans, and vendors showing that the industry is 
uncertain about its ability to meet ICD-10 compliance milestones. Data 
from the WEDI survey indicated that nearly 50 percent of the provider 
respondents did not know when they would complete their impact 
assessment.\6\ In addition, the survey found that approximately 33 
percent of providers did not expect to begin external testing in 2013, 
while approximately 50 percent of providers did not know when testing 
would occur.\7\
---------------------------------------------------------------------------

    \5\ ``Survey: ICD-10 Brief Progress,'' February 2012, conducted 
by the Workgroup for Electronic Data Interchange (WEDI).
    \6\ An impact assessment for ICD-10 is performed by a covered 
entity to determine business areas, policies, processes and systems, 
and trading partners that will be affected by the transition to ICD-
10. An impact assessment is a tool to aid in planning for 
implementation.
    \7\ For providers, the CMS ICD-10 Implementation Guide 
recommends that they complete their impact assessments by Winter 
2012 and begin external testing in the Fall of 2012. CMS provides 
implementation guides for providers, payers, and vendors to assist 
with the transition from ICD-9 to ICD-10 codes. It is a resource for 
covered entities providing detailed information for planning and 
executing the ICD-10 transition process. CMS recommends industry use 
the guide as a reference.
---------------------------------------------------------------------------

    Other segments of the industry, such as health plans and software 
vendors, also reported that they would benefit from additional time for 
implementation. While the CMS ICD-10 Implementation Guide recommends 
that payers begin external testing in the fall of 2012, the WEDI 
readiness survey found that most health plans do not expect to begin 
external testing until 2013. In addition, about 50 percent of vendors 
are not yet halfway through development of ICD-10 products. Vendor 
delays in product development can result in provider and payer delays 
in implementing ICD-10.
    Given the evidence that segments of the health care industry will 
likely not meet the October 1, 2013 compliance date, the reasons for 
that likelihood, and the likelihood that a compliance date delay would 
significantly improve the successful and concurrent implementation of 
ICD-10 across the health care industry, we are proposing to extend the 
compliance date for ICD-10.

B. One-Year Delay

    We are proposing to extend the compliance date for ICD-10 for 1 
year, from October 1, 2013 to October 1, 2014. This change would be 
reflected in the regulations at 45 CFR 162.1002. While we considered a 
number of alternatives for the delay, as discussed in the Impact 
Analysis of this proposed rule, we believe a 1-year delay would provide 
sufficient time for small providers and small hospitals to become ICD-
10 compliant and would be the least financially burdensome to those who 
had planned to be compliant on October 1, 2013.
    To determine the new compliance date for ICD-10, we balanced the 
need for additional time for small providers and small hospitals to 
become compliant with the financial burden of

[[Page 22970]]

a delay on entities that have developed budgets and planned process and 
system changes around the October 1, 2013 compliance date. Entities 
that have started planning and working toward an October 1, 2013 
implementation would incur costs by having to reassess and adjust 
implementation plans and maintain contracts to manage the transition 
beyond October 1, 2013. We concluded that a 1-year delay would strike a 
reasonable balance by providing sufficient time for small providers and 
small hospitals to become compliant and would minimize the financial 
burden on those entities that have been actively planning and working 
toward being compliant on October 1, 2013.
    Data from two surveys helped us in our determination to propose 1 
additional year for compliance. First, the CMS readiness survey 
revealed that 26 percent of providers reported that they are at risk 
for non-compliance on October 1, 2013, citing insufficient time as one 
risk factor.\8\ Second, an informal survey conducted by Edifecs, a 
health care IT company, of 50 senior health care officials representing 
a wide range of organizations found that thirty-seven percent of 
respondents stated that a 1-year delay would be beneficial to them.\9\
---------------------------------------------------------------------------

    \8\ ``Version 5010 and ICD-10 Readiness Assessment: Conducted 
among Health Care Providers, payers, and Vendors for the Centers for 
Medicare & Medicaid Services (CMS),'' December, 2011, Prepared by 
CMS.
    \9\ ``Survey: Industry Reaction to Potential Delay of ICD-10--A 
Delay will be Costly, but Manageable * * * Unless it's more than a 
Year,'' February 27, 2012, conducted by Edifecs. The survey's 
participants included commercial payers (25%), Blue Cross Blue 
Shield plans (25%), healthcare providers (18%), government entities 
such as State Medicaids (9%), medical claim clearinghouses (6%), and 
other healthcare industry organizations (17%).
---------------------------------------------------------------------------

    While we considered a 2-year delay, we determined that the 
financial burden could be too significant for those entities that would 
otherwise be ready on October 1, 2013. As discussed further in the 
Impact Analysis of this proposed rule, we estimate it will cost health 
plans up to an additional 30 percent of their current ICD-10 
implementation budgets for a 1-year delay and therefore, we assume that 
a 2-year delay would be at least double the cost of a 1-year delay; 
that is, a 2-year delay would cost at least $13 billion for all 
commercial and government health plans. In addition to financial 
concerns, industry has suggested that a 2-year delay may stop the 
implementation of ICD-10 completely. The Edifecs poll found that nearly 
70 percent of respondents believe that a 2-year delay would be either 
``potentially catastrophic or cause an unrecoverable failure,'' and 
that ``a delay of longer than a year will likely freeze budgets, slow 
down schedules, or stop work altogether.'' \10\ Only 2 percent of 
Edifecs respondents said there would be a benefit to a 2-year delay.
---------------------------------------------------------------------------

    \10\ Edifecs poll, 2012.
---------------------------------------------------------------------------

    Finally, in its March 2, 2012 letter to the Secretary on a possible 
delay of the ICD-10 compliance date, the NCVHS urged that any delay 
should be announced as soon as possible and should not be for more than 
1 year. The NCVH made this recommendation in consideration of its 
belief that a delay would cause a significant financial burden ``that 
accrues with each month of delay.'' \11\
---------------------------------------------------------------------------

    \11\ Letter to Kathleen G. Sebelius, Secretary, U.S. Department 
of Health and Human Services, from the National Committee of Vital 
and Health Statistics (NCVHS), ``Possible Delay of Deadline for 
Implementation of ICD-10 Code Sets,'' March 2, 2012.
---------------------------------------------------------------------------

    We believe that a 1-year delay would benefit all covered entities, 
even those who had are actively planning and striving for a 2013 
implementation. A 1-year delay would enable the industry as a whole to 
test more robustly and implement simultaneously, which would foster a 
smoother and more coordinated transition to ensure the continued and 
uninterrupted flow of health care claims and payment. Therefore, we are 
proposing that covered entities must comply with ICD-10 on October 1, 
2014.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), agencies are 
required to provide a 60-day notice in the Federal Register and solicit 
public comment on a collection of information requirement submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the PRA requires that we 
solicit comment on the following issues:
     Whether the information collection is necessary and useful 
to carry out the proper functions of the agency.
     The accuracy of the agency's 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.

A. Information Collection Requirements (ICRs) Regarding HPID/OEID on 
Health Plan and Other Entities (Sec.  162.512 and Sec.  162.514)

    In order to apply for an HPID or OEID, there is an initial one-time 
requirement for information from health plans that seek to obtain an 
HPID and other entities that elect to obtain an OEID. In addition, 
health plans and other entities may need to provide updates to 
information.
    With respect to the collection of information requirements for the 
HPID, it is important to bear in mind that: (1) Systems modifications 
necessary to implement the HPID/OEID may overlap with the other systems 
modifications needed to implement other Affordable Care Act standards; 
(2) some modifications may be made by contractors such as practice 
management vendors, in a single effort for a multitude of affected 
entities; and (3) identifier fields are already in place and HPID/OEID 
will, in many instances, simply replace the multiple identifiers 
currently in use.
    Under this proposed rule, a CHP, as defined in 45 CFR 162.103, will 
have to obtain an HPID from a centralized electronic Enumeration 
System. A SHP, as defined in 45 CFR 162.103, would be eligible but not 
required to obtain an HPID. If a SHP obtains an HPID, it would apply 
either directly to the Enumeration System or its CHP would apply to the 
Enumeration System on its behalf. Other entities may apply to obtain an 
OEID from the Enumeration System. Health plans that obtain an HPID and 
other entities that obtain an OEID would have to communicate any 
changes to their information to the Enumeration System within 30 days 
of the change. A covered entity must use an HPID to identify a health 
plan in a standard transaction.
    We estimate that there will be up to 15,000 entities that will be 
required to, or will elect to, obtain an HPID or OEID. We based this 
number on the following data in Chart 2.

  Chart 2: Number and Type of Entities That May Obtain an HPID or OEID
------------------------------------------------------------------------
                                                              Number of
                       Type of entity                          entities
------------------------------------------------------------------------
Self insured group health plans............................      12,000*
Health insurance issuers, individuals and group health           1,827**
 markets, HMOs, including companies offering Medicaid
 managed care..............................................

[[Page 22971]]

 
Medicare, Veterans Health Administration (VHA), Indian                60
 Health Service (IHS), TRICARE, and State Medicaid programs
Clearinghouses and Transaction Vendors.....................       162***
Third Party Administrators.................................     750 ****
                                                            ------------
    Total..................................................      ~15,000
------------------------------------------------------------------------
*``Report to Congress: Annual Report on Self -Insured Group Health
  Plans,'' by Hilda L. Solis, Secretary of Labor, March 2011.
** ``Patient Protection and Affordable Care Act; Standards Related to
  Reinsurance, Risk Corridors, and Risk Adjustment, 2011 Federal
  Register (Vol. 76), July, 2011,'' referencing data from
  www.healthcare.gov.
*** 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, based on a study by Gartner.
**** Summary of Benefits and Coverage and the Uniform Glossary; Notice
  of Proposed
Rulemaking http://www.gpo.gov/fdsys/pkg/FR-2011-08-22/pdf/2011-21193.pdf.

    Note that the number of health plans that will be required, or have 
the option, to obtain an HPID is considerably larger than the number of 
health plans for which we used in the calculations in section V. of 
this proposed rule. This is because self-insured health plans are 
required to obtain HPIDs if they meet the requirements of a Controlling 
health plan under this proposed rule. However, we assume that very few 
self-insured group health plans conduct standard transactions 
themselves; rather, they typically contract with TPAs or insurance 
issuers to administer the plans. Therefore, there will be significantly 
fewer health plans that use HPIDs in standard transactions than health 
plans that are required to obtain HPIDs, and only health plans that use 
the HPIDs in standard transactions will have direct costs and benefits.
    To comply with these requirements, health plans and other entities 
will complete the appropriate application/update form online through 
the Enumeration System. This online form serves two purposes: applying 
for an identifier and updating information in the Enumeration System.
    Most health plans and other entities will not have to furnish 
updates in a given year. However, lacking any available data on rate of 
change, we elected to base our assumptions on information in the 
Medicare program that approximately 12.6 percent of health care 
providers provide updates in a calendar year. We anticipate this figure 
would be on the high end for health plans and other entities. Applying 
this assumption, we can expect that 1,764 health plans will need to 
complete and submit the HPID application update form in a given year.
    Applying for HPID or OEID is a one-time burden. In future years, 
this burden would apply only to new health plans and as an option for 
other entities as described in the section V of this proposed rule. 
From 2013 to 2018, industry trends indicate that the number of health 
plans will remain constant, or even decrease.\12\ We assume that the 
number of new health plans will be small, and that the costs will be 
negligible. Therefore, our calculations reflect that there will be no 
statistically significant growth in the number of health plans or other 
entities and we calculate zero growth in new applications.
---------------------------------------------------------------------------

    \12\ See Robinson, James C., ``Consolidation and the 
Transformation of Competition in Health Insurance,'' Health Affairs, 
23, no.6 (2004):11-24; ``Private Health insurance: Research on 
Competition in the Insurance Industry,'' U.S. Government 
Accountability Office (GAO), July 31, 2009 (GAO-09-864R); American 
Medical Association, ``Competition in Health Insurance: A 
Comprehensive Study of US Markets,'' 2008 and 2009.
---------------------------------------------------------------------------

    We estimate it will take 30 minutes to complete the application 
form and use an hourly labor rate of approximately $23/hour, the 
average wage reported for professional and business and services 
sector, based on data from the Department of Labor, Bureau of Labor 
Statistics, June 2011, ``Average hourly and weekly earnings of 
production and nonsupervisory employees (1) on private nonfarm 
payrolls.'' (ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb11.txt). This 
represents a unit cost of $11.50 per application for both HPID and 
OEID.
    Because our initial estimate for the number of applications for 
OEID is small (162 Clearinghouses and Transaction Vendors + 750 TPAs = 
912) and the costs negligible, we do not include separate calculations. 
We have elected instead to offer the unit cost figure as a baseline if 
commenters demonstrate that the universe of applications for OEID is 
likely to expand significantly.
    To further reduce burden and plan for compliance with the 
Government Paperwork Elimination Act, we propose accepting electronic 
applications and updates over the internet. We explicitly solicit 
comment on how we might conduct this activity in the most efficient and 
effective manner, while ensuring the integrity, authenticity, privacy, 
and security of health plan and other entity information.

B. ICRs Regarding Implementation Specifications: Health Care Providers 
(Sec.  162.410)

    We are proposing to put an additional requirement on covered 
organization health care providers that employ, have as members, or 
have contracts with individual health care providers who are not 
covered entities but who are prescribers. By 180 days after the 
effective date of the final rule, such organizations must require such 
health care providers: (1) To obtain, by application if necessary, an 
NPI from the National Plan and Provider Enumeration System (NPPES); (2) 
to the extent the prescriber writes a prescription while acting within 
the scope of the prescriber's relationship with the organization, 
disclose his or her NPI, upon request to any entity that needs the NPI 
to identify the prescriber in a standard transaction.
    The burden associated with the addition to the requirements of 
Sec.  162.410 as discussed in this proposed rule is the one-time 
application burden, and later update burden as necessary, on 
prescribers who do not already have an NPI, who have a relationship 
with a covered health care provider, and who must be identified in a 
standard transaction. We estimate that there are approximately 1.4 
million prescribers in the United States, of which approximately 
160,000 do not have an NPI. It is these prescribers who would have to 
obtain an NPI if this rule is finalized as proposed. Based on the 
estimations in the NPI final rule, we estimate that it will take 20 
minutes to complete an application for an NPI and use an hourly labor 
rate of approximately $23/hour, the average wage reported for 
professional and business and services sector, based on data from the 
Department of Labor, Bureau of Labor Statistics, June 2011, ``Average 
hourly and weekly earnings of production and nonsupervisory employees 
(1) on private nonfarm payrolls.'' (ftp://ftp.bls.gov/pub/suppl/empsit.ceseeb11.txt). Additionally, we have calculated an increase of 3 
percent for labor costs for each of the years 2013 through 2016 for an 
hour rate of approximately $24/hour for year 2013.
    Table 4 shows the estimated annualized burden for the HPID and NPI 
PRA in hours.

[[Page 22972]]

                                                     Table 4--Annual Information Collection Burden*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                      Hourly
                                                                          Burden per     Total      labor cost               Total capital/
      Regulation section       OMB control    Respondents    Responses     response      annual         of      Total labor    maintenance    Total cost
                                   No.                                     (hours)       burden     reporting       cost        costs ($)        ($)
                                                                                                       ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   162.410...............     0938-New         160,000      160,000         0.33       52,800           24    1,267,200               0    1,267,200
Sec.   160.512...............     0938-New          15,000       15,000         0.50        7,500           24      180,000               0      180,000
                                           -------------------------------------------------------------------------------------------------------------
    Total....................  ...........         175,000      175,000  ...........       60,300  ...........  ...........  ..............    1,447,200
--------------------------------------------------------------------------------------------------------------------------------------------------------
*2013 dollars.

    To obtain copies of the supporting statement and any related forms 
for the proposed paperwork collections referenced previously, access 
our Web Site address at http://www.cms.hhs.gov/PaperworkReductionActof1995, or Email your request, including your 
address, phone number, OMB number, and CMS document identifier, to 
Paperwork@cms.hhs.gov, or call the Reports Clearance Office on (410) 
786-1326. 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 proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
CMS-0040-P Fax: (202) 395-6974; or Email: OIRA_submission@omb.eop.gov

VI. Regulatory Impact Analysis

A. Need for Regulatory Action

1. NPI for Non-Covered Health Care Providers
    The compliance date for use of the NPI by health care providers was 
May 23, 2007. At this point, we believe there are 160,000 health care 
providers who do not already have an NPI. For these health care 
providers, obtaining an NPI is not a burdensome endeavor, as it is free 
of charge and takes approximately 20 minutes to file an application to 
obtain one. However, the availability of these additional prescriber 
NPIs will greatly assist entities who need them for use in standard 
transactions, including for the Medicare Part D program, as described 
previously. See section V.B. of this proposed specifically for a 
summary of the time costs associated with obtaining an NPI. We have 
included the costs associated with obtaining an NPI detailed in section 
V.B in the summary Tables 32 and 33 of the RIA. Because there are few 
health care providers who do not already have an NPI, we estimate that 
the addition to the NPI requirements will have little impact on health 
care providers and on the health industry at large. We solicit comment 
on this.

2. HPID

    As noted in section I of this proposed rule, health plans and other 
payers are identified in a number of different ways in covered 
transactions by the health care industry. Health plan identifiers are 
currently used to facilitate routing of covered transactions or, in 
other words, ``to determine either where the standard electronic 
transactions are to be sent if the receiver is [a] health plan or from 
where they came from if the sender is a health plan.''\13\ The primary 
function of the HPID proposed in this rule is to create a standard data 
element for covered entities to identify health plans in HIPAA covered 
transactions.
---------------------------------------------------------------------------

    \13\ J. Daley, ``Testimony before the NCVHS Subcommittee on 
Standards on the National Health Plan Identifier on behalf of 
America's Health Insurance Plans and the Blue Cross and Blue Shield 
Association,'' July 19, 2010, http://www.ncvhs.hhs.gov.
---------------------------------------------------------------------------

    Different segments in each HIPAA standard transaction require an 
identifier to identify the payer or sender/recipient of a particular 
transaction. (See Table 1 for a list of HIPAA standard transactions, 
and Table 3 for an example of a segment that requires a payer 
identifier.) Currently, when a covered entity, for business reasons, 
inputs an identifier that identifies a health plan into a transaction 
segment, the identifier is proprietary or based on the NAIC code, EIN, 
or TIN of the health plan or other entity. Some health plans use 
multiple identifiers to identify themselves in transactions.
    Standardization of the health plan identifier is expected to 
ameliorate some routing issues. It is expected to clarify, to some 
extent, the sender or recipient of standard transactions, when the 
sender or recipient is a health plan. For instance, a health plan that 
uses different identifiers to identify itself in covered transactions 
creates inefficiencies and potential confusion among its trading 
partners. Participating health care providers that are its trading 
partners, for instance, could be required to use different identifiers 
for different transactions, even to identify the same health plan. If 
the HPID is adopted, such a health plan would likely use one 
identifier, thereby making it easier for the covered health care 
provider to identify the health plan as the sender or recipient of the 
standard transaction.
    By ameliorating routing issues, the HPID and OEID will add 
consistency to identifiers, which will provide for a higher level of 
automation, particularly for provider processing of the X12 271 
(eligibility response) and X12 835 (remittance advice). In the case of 
the X12 835, the HPID and OEID will allow reconciliation of claims with 
the claim payments to be automated at a higher level.
    However, according to testimony and industry studies, the most 
significant value of the HPID and what is being proposed as the OEID is 
that they will serve as foundations for other regulatory and industry 
initiatives. The implementation of HPID, in and of itself, may not 
provide significant monetary savings for covered entities, with the 
exception of providing time savings by immediately solving certain 
routing issues. Instead, financial benefits are expected to be realized 
mostly downstream, when the HPID is used in coordination with other 
regulatory and industrial administrative simplification initiatives. 
Testimony from the July 19, 2010 NCVHS hearing reinforced this idea.
    As an analogy, the standardization of the width of railroad tracks 
does not, in and of itself, result in monetary savings. However, such 
standardization has ensured connectivity between diverse railroad 
systems that has resulted in time and cost savings in the movement of 
freight across the country. In a like manner, standardization of a 
single data element in health care transactions does not, in and of 
itself, produce substantial time or cost savings. However, the diverse 
identifiers currently used by multiple health plans are akin to the 
different track widths used by various railroad systems. Like the 
standardization of railroad track widths, the HPID serves as a 
foundation for more efficient and cost effective transmission of health 
care information.

[[Page 22973]]

    In an industry white paper, one health care provider association 
echoed the foundational importance of the HPID and stated that a 
standard identifier for health plans is ``viewed by many as a crucial 
step toward one-stop, automated billing.'' In the same paper, that 
association stated that, in order to begin the movement toward 
automated billing, standard identifiers were needed for more entities 
with ``payer'' function than just ``health plans,'' including entities 
with primary financial responsibility for paying a particular claim, 
entities responsible for administering a claim, entities that have the 
direct contract with the health care provider, and secondary or 
tertiary payers for the claim.\14\ The association went on to contend 
that fee schedules and plan and product types would need to be 
identified with this health plan identifier.
---------------------------------------------------------------------------

    \14\ ``National Health Plan Identifier White Paper,'' prepared 
by the American Medical Association (AMA) Practice Management Center 
(PMC), September 22, 2009.
---------------------------------------------------------------------------

    In this rule, we are not proposing that the HPID or the OEID 
contain intelligence that would include fee schedules or benefit plans 
or product types. However, we are proposing that entities other than 
health plans may get an OEID. We view the adoption of the HPID and the 
suggested option of an OEID as foundations for the ``one-stop, 
automated billing'' that this professional association advocated.
    This impact analysis will take these foundational benefits of HPID 
and, for the sake of illustration, attribute some of the monetary 
savings from the downstream results to implementation and use of the 
HPID. It is important to view these estimates as an attempt to 
illustrate the foundational effect of the HPID rather than as a precise 
budgetary prediction.
3. Need for a Delay in Implementation of ICD-10, and General Impact of 
Implementation
    The ICD-10 final rule requires covered entities to comply with ICD-
10 on October 1, 2013. The provisions of this proposed rule would 
change the compliance date to October 1, 2014.
    The process of transitioning from ICD-9 to ICD-10, if not carefully 
coordinated, poses significant risk to provider reimbursement. Should 
health care entities' infrastructure not be ready or thoroughly tested, 
providers may experience returned claims and delayed payment for the 
health care services they render to patients. There has been mounting 
evidence over the past several months that a significant percentage of 
providers believe they do not have sufficient resources or time to be 
ready to meet the October 1, 2013 ICD-10 compliance deadline.
    Two distinct types of issues are implicated by a transition of this 
magnitude, and the costs associated with both might be avoided if the 
ICD-10 compliance date is delayed as proposed in this rule. First, 
there may be entities that have not readied their systems, personnel, 
or processes to achieve compliance by October 1, 2013. For example, 
vendor practice management and/or other software must be updated to 
process claims with ICD-10 codes, then installed and tested internally. 
Likewise, staff needs to be trained and systems and forms prepared for 
the new code set. In a CMS survey conducted in November and December 
2011 (hereinafter referred to as the CMS readiness survey), 25% of 
providers surveyed indicated that they are at risk for not meeting the 
October 1, 2013 compliance date.\15\ In February 2012, the Workgroup 
for Electronic Data Interchange (WEDI) conducted a survey on ICD-10 
readiness (WEDI readiness survey) that indicated that nearly 50 percent 
of the 2,140 provider respondents did not know when they would complete 
their impact assessment.\16\ An illustration of what could occur if 
elements of industry are not prepared for the transition to ICD-10 can 
be seen by the January 1, 2012 transition to Version 5010, where we 
have heard from several provider organizations reporting numerous 
practices have not been paid for long periods due to the Version 5010 
transition.
---------------------------------------------------------------------------

    \15\ ``Version 5010 and ID-10 Readiness Assessment: Conducted 
among Health Care Providers, payers, and Vendors for the Centers for 
Medicare & Medicaid Services (CMS),'' December, 2011, Prepared by 
CMS.
    \16\ ``Survey: ICD-10 Brief Progress,'' February 2012, conducted 
by the Workgroup for Electronic Data Interchange (WEDI).
---------------------------------------------------------------------------

    Second, beyond ``readiness'' and ``compliance,'' there are issues 
that will arise if trading partners have not thoroughly tested ICD-10. 
``Readiness'' is only a self-reported indicator of the potential 
success of an ICD-10 transition and can be unreliable; we know this 
from similar industry surveys done for Version 5010 that indicated high 
levels of readiness only to find multiple issues once claims were 
submitted in production mode. The other indicator of success is the 
quality and robustness of testing. Clearinghouses cannot assist in the 
ICD-10 transition as they are unable to correct coding issues without 
viewing the underlying documentation, which is not a typical 
clearinghouse role. In general, only a provider can change/modify a 
code, so it is incumbent upon providers to ensure a successful ICD-10 
conversion. In many cases, providers' success will be predicated upon 
timely vendor delivery of ICD-10-compliant software, and coordination 
must be developed with payer systems and new fee schedules. Providers' 
practice management systems (PMS) must be programmed to process ICD-10 
codes, and, with many providers transitioning to EHRs, there needs to 
be a well-tested interface between electronic health records and the 
PMS.
    In an informal poll conducted by Edifecs (hereinafter referred to 
as the Edifecs poll), a health care IT company, with responses from 50 
senior health care officials representing a wide range of 
organizations, 37 percent of respondents stated that a 1-year delay 
would be beneficial for them.\17\ According to the Edifecs analysis, 
``For those organizations that have the determination to keep moving 
forward as if the delay had never been announced, it may end up being a 
true gift on the testing front.''\18\
---------------------------------------------------------------------------

    \17\ ``Survey: Industry Reaction to Potential Delay of ICD-10--A 
Delay will be Costly, but Manageable * * * Unless it's more than a 
Year,'' February 27, 2012, conducted by Edifecs. The survey's 
participants included commercial payers (25%), Blue Cross Blue 
Shield plans (25%), healthcare providers (18%), government entities 
such as State Medicaids (9%), medical claim clearinghouses (6%), and 
other healthcare industry organizations (17%).
    \18\ Ibid.
---------------------------------------------------------------------------

    In the CMS readiness survey, 75 percent of providers surveyed cited 
the lack of time and/or staff as a barrier to implementing ICD-10 on 
time. The survey also indicated that given just 3 additional months, an 
additional 14 percent of providers would be able to achieve compliance 
by December 31, 2013. This indicates that a delay would be helpful in 
overcoming one of the major obstacles to compliance--lack of time--and 
that a delay of a year would enable providers to achieve not only 
``readiness'' in terms of system interoperability, but also give the 
time for more thorough testing of ICD-10.

B. Introduction

    We have examined the impacts of this notice of proposed rulemaking 
as required by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993, as further amended), Executive Order 13563 on 
Improving Regulation and Regulatory Review (January 18, 2011), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354) 
(as amended by the Small Business

[[Page 22974]]

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)).
    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 not only to 
engage the public and provide an opportunity to 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 must be prepared for major rules with 
economically significant effects ($100 million in 1995 dollars or more 
in any 1-year). Because of the impact on the health care industry of 
the proposed adoption, implementation, and use of the HPID and the 
proposed delay in the compliance date for ICD-10, 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.
    The impacts of implementing HPID and delaying the compliance date 
for transition to ICD-10 are quite different, and, because of their 
respective impacts, both provisions of the proposed rule would be 
considered economically significant. Accordingly, we have prepared two 
independent RIAs: One analysis of the impact of the proposed adoption 
and use of the HPID and one for the proposed delay of compliance date 
for transition to the ICD-10. These RIAs, to the best of our ability, 
present the costs and benefits of this notice of proposed rulemaking, 
and this proposed rule has been reviewed by the Office of Management 
and Budget. The RIA on the proposed delay of ICD-10 follows the RIA on 
the proposed implementation and use of the HPID.
    We anticipate that the adoption of the HPID and the OEID and the 
additional requirement for organization covered health care providers 
to require certain non-covered individuals who are prescribers to 
obtain and use an NPI would result in benefits that outweigh the costs 
to providers and health plans. We anticipate that the delay of ICD-10 
will have costs to health plans and clearinghouses, though it will be 
beneficial to a group of providers.
    In addition, under section 205 of the UMRA (2 U.S.C. 1535), having 
considered at least three alternatives for the HPID that are referenced 
in the section VI.D. of this proposed rule, HHS has concluded that the 
provisions in this rule are the most cost effective alternative for 
implementing HHS' statutory requirements concerning administrative 
simplification. We did not consider alternatives to the addition to the 
NPI requirements that is proposed in this rule, as the NPI is the 
standard identifier for health care providers under HIPAA and based on 
ongoing industry feedback, prescriber NPIs are not always available. 
Therefore, we believe a regulatory requirement closing the prescriber 
loophole in the NPI rule is necessary to ensure that the remaining 
prescribers without an NPI obtain one. We estimate that the proposed 
addition will have little financial impact on industry and is therefore 
cost effective in its own right.
    Similarly, we have considered four alternatives for delaying ICD-10 
compliance.
    The Regulatory Flexibility Act (RFA), as amended, requires agencies 
to analyze options for regulatory relief of small businesses if a rule 
has a significant impact on a substantial number of small entities. For 
purposes of the RFA, small entities include small businesses, nonprofit 
organizations, and small government jurisdictions. Small businesses are 
those with sizes below thresholds established by the Small Business 
Administration (SBA). Individuals and States are not included in the 
definition of a small entity.
    For purposes of the RFA, most physician practices, hospitals and 
other health care providers are small entities, either by nonprofit 
status or by having revenues less than $10 million for physician 
practices and less than $34.5 million for hospitals in any 1 year. We 
have determined that the proposed adoption of the HPID in this proposed 
rule will have an impact on a substantial number of small entities and 
that an initial regulatory flexibility analysis, an analysis on the 
impact of this proposed rule on small entities, is required. The 
regulatory flexibility analysis on the impact of the proposed adoption 
of HPID will come after the RIA. However, the initial regulatory 
flexibility analysis for HPID concludes that, although a significant 
number of small entities may be affected by this proposed rule, the 
economic impact on small entities will not be significant.
    We have also determined that the proposed delay of the compliance 
date for ICD-10 will have an impact on a substantial number of small 
entities and this regulatory flexibility analysis will follow the RIA 
for the proposed delay of ICD-10. The initial regulatory flexibility 
analysis for the proposed delay of ICD-10 concludes that small entities 
will be positively impacted economically by the proposed compliance 
date delay and that there will be no significant burden.
    In addition, section 1102(b) of the Act requires a regulatory 
impact analysis for ``any rule or regulation proposed under title 
XVIII, title XIX, or part B of [the Act] that may have a significant 
impact on the operations of a substantial number of small rural 
hospitals.'' This proposed rule, however, is being proposed under title 
XI, part C, ``Administrative Simplification,'' of the Act, and, 
therefore, does not apply. As to the addition to the NPI requirements, 
the method for compliance by covered organization health care 
providers, including small rural hospitals, is discretionary, and could 
vary. It could take the form of a verbal directive to prescribers whom 
they employ or contract with, to revising hospital policies and 
procedures as part of routine updating, or some other option. We 
believe there will not be a significant impact to the operations of a 
substantial number of small rural hospitals. We seek industry feedback 
on this assumption.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1-year of $100 
million in 1995 dollars, updated annually for inflation. In 2012, that 
threshold is approximately $139 million. This proposed rule contains 
mandates that would likely impose spending costs on State governments 
and the private sector, of more than $139 million. We will illustrate 
the costs of adoption of the HPID to the State governments, 
specifically the impact to State Medicaid programs, and to the private 
sector in our consideration of costs to health plans in the RIA. As to 
the addition to the NPI requirements, again, since the method for 
compliance by covered organization health care providers is 
discretionary and could vary, for example, from a verbal directive to 
prescribers whom they employ or contract with, to updating employment 
or contracting

[[Page 22975]]

agreements, we believe there is no mandate which imposes spending costs 
on State government or the private sector in any 1 year of $139 million 
or more.
    We will illustrate the costs of the proposed delay of ICD-10 to 
State Medicaid programs and to the private sector in our consideration 
of costs to health plans in the RIA that addresses costs and benefits 
of the delay of compliance of ICD-10.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State laws, or otherwise has Federalism 
implications. The proposed adoption of the HPID in this proposed rule 
will not have a substantial direct effect on State or local 
governments, does not preempt States, or otherwise have Federalism 
implications. The proposed delay of compliance with ICD-10 in this 
proposed rule will not have a substantial direct effect on State or 
local governments, does not preempt States, or otherwise have 
Federalism implications.

C. HPID: Assumptions Regarding the Use of Transaction Standards

1. Current and Projected Use of Three Transactions
    A major assumption in our impact analysis of the HPID is that the 
health care industry will experience increased use of three electronic 
health care standard transactions over the next 10 to 15 years. The 
three transactions are the eligibility for a health plan transaction, 
the health care claim status transaction, and the health care 
electronic funds transfer (EFT) and remittance advice transaction. The 
reason we chose these three transactions in particular is because we 
assume these three transactions will see the greatest increase in use 
from 2013 to 2023. We base the assumption that these three transactions 
will increase in use on the following three premises:
    First, the number of total health care claims is expected to 
increase considerably in the United States. Claims are expected to 
increase due to an aging population that will require an increasing 
number of health care services. For instance, aging baby boomers will 
double Medicare's enrollment between 2011 and 2031.\19\ Also, the 
Affordable Care Act is expected to increase the number of insured 
adults by 30 to 33 million from 2016 on.\20\ Moreover, the average 
American has increased the number of visits to a physician's practice: 
According to data from HHS, ``From 1997 through 2007, the annual number 
of ambulatory care visits increased by 25 percent, driven both by the 
aging of the population, as older persons have higher visit rates than 
younger persons in general, and by an increase in utilization by older 
persons.'' \21\ All these indicators point to a substantial increase in 
patients and patient visits to providers. The expected increase in 
patients and patient visits will drive providers to seek more automated 
processes in order to check patients' eligibility through the 
eligibility for a health plan transaction, check claim status with the 
health care claim status transaction, and receive payments and 
remittance advice through the health care EFT and remittance advice 
transaction.
---------------------------------------------------------------------------

    \19\ ``The 2011 Medicare Trustees Report: The Baby Boomer 
Tsunami,'' presentation by the American Enterprise Institute for 
Public Policy Research, May 2011: http://www.aei.org/event/100407
    \20\ http://www.whitehouse.gov/healthreform/relief-for-americans-and-businesses
    \21\ S.M. Schappert and E.A. Rechsteiner, ``Ambulatory Medical 
Care Utilization Estimates for 2007,'' Vital and Health Statistics, 
Series 13, Number 169, 2011.
---------------------------------------------------------------------------

    Second, it is anticipated that the use of electronic business 
transactions and electronic transmissions in general is expected to 
become more widespread for U.S. businesses and society at large. For 
example, in 2007, the typical organization made 26 percent of its 
payments to other business (B2B) electronically; by 2010, that 
percentage rose to 43 percent.\22\ Overall, the number of noncash 
payments among consumers and businesses alike increased about 4.5 
percent per year from 2003 to 2009.\23\
---------------------------------------------------------------------------

    \22\ ``2010 AFP Electronic Payments: Report of Survey Results,'' 
November 2010, Association for Financial Professionals, underwritten 
by J.P. Morgan.
    \23\ ``The 2010 Federal Reserve Payments Study; Noncash Payment 
Trends in the United States 2006-2009,'' sponsored by the Federal 
Reserve System, April 5, 2011.
---------------------------------------------------------------------------

    Third, statutory and regulatory initiatives at the State and 
Federal level will drive or attract health care entities to increased 
usage of health care electronic transactions. On the Federal level, 
initiatives include the adoption and implementation of standards for 
health care EFT and the implementation of a unique health plan 
identifier as proposed by this rule. Likewise, the increase will be due 
to the adoption of operating rules for the eligibility for a health 
plan transaction and for the health care EFTs, and remittance advice 
transaction. The operating rules for the eligibility for a health plan 
transaction will go into effect in 2013 and the operating rules for the 
health care EFTs transaction, will take effect in 2014.
    While our impact analysis is based on the expected increase in 
usage of three HIPAA transactions, other HIPAA transactions may 
increase in use as well. However, we have not attempted to draw 
conclusions about other HIPAA transactions because (1) there are no 
regulatory attempts to streamline other transactions in the near term 
(with, for example, the adoption of operating rules); and (2) we have 
less of an understanding of the impact that implementation of the HPID 
will have on covered transactions other than these three.
    Table 5 lists our assumptions on the increased use of these three 
HIPAA transactions between 2013 and 2023. We have calculated the 2013 
estimates--for example, our baseline--based on a number of sources and 
calculations:
     We estimated the number of eligibility requests 
(electronic and non-electronic) by taking 90 percent \24\ of the total 
the projected number of claims.\25\ The percentage estimate of 
electronic eligibility requests as a proportion of total eligibility 
requests in 2013 is derived from an analysis of a number of different 
industry studies on electronic data interchange (EDI) usage.\26\
---------------------------------------------------------------------------

    \24\ The Oregon Survey found that, for every claim, .9 requests 
for eligibility were conducted. ``Oregon Provider and Payer 
Survey,'' 2010 (http://www.oregon.gov/OHPPR/HEALTHREFORM/AdminSimplification/Docs/FinalReport_AdminSimp_6.3.10.pdf).
    \25\ An average of high and low projected estimates of claims 
from 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.
    \26\ ``Oregon Provider and Payer Survey,'' 2010 ``Overhauling 
the US Healthcare Payment System,'' conducted by McKinsey & Company, 
published in The McKinsey Quarterly, June 2007. (http://www.mckinseyquarterly.com/Overhauling_the_US_health_care_payment_system_2012).
    The National Progress Report on Healthcare Efficiency, 2010, 
Produced by the U.S. Healthcare Efficiency Index.
---------------------------------------------------------------------------

     Similarly, we estimated the number of claim status 
requests by taking 0.14 percent of the total projected number of 
claims.\27\ The percentage estimate of electronic claim status requests 
as a proportion of total claim status request in 2013 is derived from 
an analysis of a number of different industry studies on EDI usage.\28\
---------------------------------------------------------------------------

    \27\ The Oregon Survey found that, for every claim, .14 were 
followed up by a claim status request. ``Oregon Provider and Payer 
Survey,'' 2010.
    \28\ ``Oregon Provider and Payer Survey,'' 2010 ``Overhauling 
the US Healthcare Payment System,'' conducted by McKinsey & Company, 
published in The McKinsey Quarterly, June 2007. (http://www.mckinseyquarterly.com/Overhauling_the_US_health_care_payment_system_2012).

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

[[Page 22976]]

     For remittance advice, we started with the projection for 
national health expenditures \29\ and used Medicare data to arrive at 
the average dollar amount of a single payment.\30\ Using that 
calculation, we were able to estimate the projected number of health 
care claim payments for 2013 considering the ratio of remittance advice 
per payment according to Medicare data.\31\ The percentage estimate of 
electronic remittance advice as a proportion of total remittance advice 
was calculated using a weighted average of Medicare data (electronic 
remittance advice as a percentage of total remittance advice), VHA 
data,\32\ and industry studies.\33\
---------------------------------------------------------------------------

    \29\ National Health Expenditure Projections 2009-2019 (CMS), 
http://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp).
    \30\ CMS Electronic Data Interchange (EDI) Performance 
Statistics (http://www.cms.gov/EDIPerformanceStatistics/) and CMS 
CROWD data.
    \31\ There are 6 percent more remittance advice sent than 
payments (some remittance advice adjusts to no payment). CMS 
Electronic Data Interchange (EDI) Performance Statistics (http://www.cms.gov/EDIPerformanceStatistics/) and CMS CROWD data.
    \32\ Financial Management Service, U.S. Department of Treasury, 
Payment Volume Charts Treasury-Disbursed Agencies 
(www.fms.treas.gov/eft/reports.html).
    ``Comments from VHA Health Care as Health Care Provider,'' 
testimony by Barbara Mayerick for NCVHS December 3, 2010 hearing.
    ``FY10 Geographic Distribution of VA Expenditures (GDX),'' 
Veterans Health Administration Chief Business Office.
    \33\ The National Progress Report on Healthcare Efficiency, 
2010, Produced by the U.S. Healthcare Efficiency Index.
---------------------------------------------------------------------------

    We have projected the percentage use of EDI out to 2023 using a 
number of calculations:
     In the Eligibility and Claim Status Operating Rules IFC 
published in the July 8, 2011 Federal Register (76 FR 40458), we 
projected that electronic eligibility requests will increase by 15 
percent year over year from 2013 through 2017 and by 8 percent year 
over year from 2018 through 2022 due to a number of factors. See the 
Eligibility and Claim Status Operating Rules IFC (76 FR 40481) for the 
assumptions behind that projection. Note that, despite the 15 percent 
increase, the number of claims (patient visits) will increase 
substantially over that same period, so the percentage of electronic 
eligibility requests as a proportion of all eligibility requests will 
increase at a much slower rate.
     In the Eligibility and Claim Status Operating Rules IFC, 
we projected that electronic claim status inquiries will increase by 20 
percent year over year from 2013 through 2017 and by 10 percent year 
over year from 2018 through 2022 due to a number of factors. See the 
Eligibility and Claim Status Operating Rules IFC (76 FR 40481) for the 
assumptions behind that projection. Again, despite the year over year 
increases, the number of claims (patient visits) will increase 
substantially over that same period, so the percentage of electronic 
claim status requests as a proportion of all claim status requests will 
increase at a much slower rate.
     We have noted previously the reasons why we predict that 
electronic transactions, overall, will increase, including a 
substantial increase in the number of claims, more widespread use of 
electronic transactions by U.S. businesses and society at large, and 
State and Federal mandates requiring or promoting electronic 
transactions of health information. Due to these reasons, we estimate 
20 percent increase of electronic remittance advice transactions year 
over year from 2013 through 2018, and a 12 percent increase year over 
year from 2019 through 2023. Again, despite the year over year 
increases, the number of total remittance advice transactions will 
increase substantially over that same period, so the percentage of 
electronic remittance advice as a proportion of all remittance advice 
will increase at a much slower rate.
    We believe these estimates to be conservative: The increase in 
patients and patient visits in the next decade alone may drive a 
greater number of health care entities to adopt EDI. However, we 
recognize the uncertainties inherent in this projection, and we are 
specifically soliciting comments on these assumptions.

                                   Table 5--Predicted Percentage in EDI Usage
----------------------------------------------------------------------------------------------------------------
                                                                                         Health care payment and
                                                                                            remittance advice
                                          Eligibility for a        Health care claim      (electronic remittance
                                             health plan          status transaction:      advice) transaction:
                                       transaction: percentage       percentage of            percentage of
                 Year                       of electronic       electronic transactions  electronic transactions
                                          transactions as a        as a proportion of       as a proportion of
                                         proportion of total       total claim status    total remittance advice
                                        eligibility inquiries         transactions        transactions (does not
                                            and responses                                 include percentage of
                                                                                           electronic payments)
----------------------------------------------------------------------------------------------------------------
2013.................................  14.....................  12.....................  26
2023.................................  25.....................  26.....................  70
----------------------------------------------------------------------------------------------------------------

2. Projected Increased Use of Three Transactions Attributable to 
Implementation of HPID
    When attempting to quantify anticipated savings, we recognize that 
some of increased use of three HIPAA transactions from 2013 to 2023 
will be attributable to the implementation of administrative 
simplification initiatives, including the adoption of the EFT standard, 
operating rules for four transactions, and Version 5010 of the HIPAA 
transactions as implemented by the Modifications final rule. Therefore, 
we attribute some of the savings that are derived from an increased use 
in these transactions to these other initiatives.
    For purposes of this impact analysis, we will assume a percentage 
of the increase in use of electronic transactions by health care 
providers and health plans as attributable to implementation of an HPID 
in order to illustrate that the HPID is foundational for overall 
administrative simplification (Table 6).
    Our basic argument is echoed in the Transactions and Code Sets 
proposed rule, NPI proposed rule, and the Modifications to the Health 
Insurance Portability and Accountability Act (HIPAA) Electronic 
Transaction Standards proposed rule (73 FR 49742), published in the 
Federal Register on August 22, 2008, (hereinafter referred to as the 
Modifications proposed rule): Administrative simplification initiatives 
drive covered entities to increase their usage of electronic 
transactions, and electronic transactions have substantial cost savings 
over manual transactions. The implementation of administrative 
simplification initiatives mandated by the Affordable Care Act is 
expected to streamline HIPAA electronic

[[Page 22977]]

transactions, make them more consistent, and decrease the dependence on 
manual intervention in the transmission of health care and payment 
information. This, in turn, will drive more health care providers and 
health plans to utilize electronic transactions in their operations.
    The anticipated cost savings of all administrative simplification 
regulations and initiatives, therefore, can be divided into two 
categories: Materials and time. First, the material cost savings that 
results from each transaction that moves from a non-electronic, manual 
transmission of information to an electronic transaction. These cost 
savings result from covered entities using less paper, postage, and 
equipment which are required for paper-based transactions. Second, the 
use of electronic transactions to conduct billing and insurance related 
tasks takes considerable less time than when the same transactions are 
done through phone, email or postal mail, or manually. Therefore, each 
move from non-electronic transaction to an electronic transaction 
results in staff-time savings and cost reductions.
    The estimated cost and benefits of implementation and use of HPID 
need to be understood in the context of the HPID being foundational to 
other administrative simplification initiatives, both those initiated 
by industry and those regulated by State or Federal governments. If 
other initiatives do not follow, then the HPID will likely have little 
substantive impact. The ranges given of possible cost and benefit 
impacts are reflective of the uncertainty inherent in multifactorial 
environments such as the health care industry.
    To illustrate the foundational aspects of the HPID, we estimated a 
range of overall increase of 1 to 2 percent per year, starting in 2015, 
in the use of both the eligibility for a health plan transaction and 
the claim status transaction ``attributable'' to implementation of the 
HPID over the next decade. In addition, we estimate a 1 to 3 percent 
increase in the use of electronic health care payment and remittance 
advice transaction attributable to implementation of the HPID because 
the routing of that transaction is especially important for the payment 
process. Given the overall increase in both EDI and health care 
transactions in general expected over the next decade, this annual 
increase attributable to HPID accounts for a small percentage of 
electronic transactions as a proportion of total transactions over 
those 10 years. For example, after an annual increase in remittance 
advice due to implementation of the HPID of 1 to 3 percent from 2013 
through 2023, ultimately, only 1 to 2 percent of all electronic 
remittance advice transactions from 2013 through 2023 will be 
attributable to implementation of the HPID. We welcome comments about 
this approach from industry and other stakeholders.

       Table 6--Predicted Percentage of EDI Usage from 2013 to 2023 Attributable to Implementation of HPID
----------------------------------------------------------------------------------------------------------------
                                                                                         Health care payment and
                                                                                            remittance advice
                                          Eligibility for a                               (electronic remittance
                                             health plan           Health care claim       advice) transaction:
                                       transaction: percentage    status transaction:         percentage of
                                            of electronic            percentage of       electronic transactions
                                             transactions       electronic transactions      attributable to
                 Year                      attributable to          attributable to       implementation of HPID
                                        implementation of HPID  implementation of HPID/     as a proportion of
                                          as a proportion of    OEID as a proportion of  total remittance advice
                                        eligibility inquiries      total claim status     transactions (does not
                                            and responses             transactions        include percentage of
                                                                                            health care claim
                                                                                              payments EFT)
----------------------------------------------------------------------------------------------------------------
2023.................................  1% to 2%...............  1% to 2%...............  1% to 2%
----------------------------------------------------------------------------------------------------------------

D. Alternatives Considered Regarding the HPID and NPI

    In deciding to adopt the HPID as the format for the national unique 
health plan identifier, we considered a number of alternatives, on 
which we solicit public and stakeholder comments. As noted, we did not 
consider alternatives to the addition to the NPI requirements.
    For the most part, the HPID alternatives were not chosen because 
they were inconsistent with the testimony given at the July 2010 NCVHS 
hearing on HPID and because they were not included in NCHVS' 
recommendations. As noted previously, section 1172(f) of the Act 
provides that ``the Secretary shall rely on the recommendations of the 
National Committee on Vital and Health Statistics established under 
section 306(k) of the Public Health Service Act (42 U.S.C. 242k(k)). * 
* *'' Section 1104(c) (1) of the Affordable Care Act directs the 
Secretary to promulgate a final rule to establish a unique health plan 
identifier ``based on input of the National Committee on Vital and 
Health Statistics.'' The NCVHS recommendations recommended what it 
thought was the most cost effective and efficient approach to 
standardizing the HPID, and, consequently, the Secretary has relied 
heavily on its recommendations for these proposals.
1. The NAIC Company Code
    The NAIC Company Code is a 5-digit alphanumeric identifier that 
resides in a proprietary database maintained by the NAIC. The company 
code is assigned to insurers, including managed care organizations, to 
identify insurance companies on financial reports filed with the 
States. We decided against using the NAIC company code because it has 
embedded intelligence, multiple company codes have been assigned to the 
same insurer for the same line of business, and fewer than half of the 
entities with NAIC company codes are entities listed in the statute as 
health plans. In addition, a 5-digit number would only allow 100,000 
entities to be enumerated. We also considered the NAIC Company Code to 
be a comparably expensive alternative.
2. The Federal Tax Identification Number
    The EIN, also referred to as a Federal Tax Identification Number, 
was designed and is used to identify business entities for tax 
purposes. While the EIN is an appropriate and cost-effective standard 
for the unique employer identifier, we do not believe it would be 
appropriate for the standard for the unique health plan identifier for 
the following reasons. Using the EIN to identify employers and health 
plans under HIPAA could cause confusion among users of the numbers. 
Also, the current EIN scheme does not cover all health plans, for 
instance, an employer group health plan would not have its own EIN, so 
the EIN would need to be expanded to accommodate all health plans.
3. IRS Identifier
    We also considered the IRS and DOL Identifier. An Employee Benefit 
Plan subject to ERISA may be required to file

[[Page 22978]]

an Annual Report/Report of Employee Benefit Program Plan (Form 5500 
Series Reports). This includes Pension Benefit Plans, and Direct Filing 
Entities. The IRS and DOL have combined their filing requirements on 
Form 5500 Series Report to minimize the efforts of plan administrators 
and employers. The Form 5500 Series Reports are used by both the IRS 
and the DOL for audit purposes to ensure that the employee benefit 
plans are operated and managed in accordance with certain prescribed 
standards and to protect the rights and benefits of participants. These 
benefit plans use their 9-digit EIN with a 3-digit suffix that is 
assigned according to the type of plan they offer. The IRS provides 
very specific guidelines on the selection of the 3-digit suffix. The 3-
digit suffix has required guidelines that would be too specific for the 
purposes of the HPID. In addition, this format would not be capable of 
incorporating a check digit without modification. Therefore, we did not 
consider the IRS identifier as a viable alternative for identifying 
health plans in a manner consistent with our statutory mandates and our 
program objectives.

E. Impacted Entities--HPID and NPI

    All HIPAA covered entities may be affected by the standard proposed 
in this proposed rule although, as we estimate, only a segment of 
covered entities will have substantive cost or benefits associated with 
the adoption of the HPID. HIPAA 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.
    Table 7 outlines the number of entities that may be affected by the 
HPID and OEID, along with the sources of those data.

             Table 7--Types and Numbers of Affected Entities
------------------------------------------------------------------------
               Type                   Number             Source
------------------------------------------------------------------------
Health Care Providers--Offices of     234,222  Health Insurance Reform;
 Physicians (includes offices of                Modifications to the
 mental health specialists and                  Health Insurance
 substance use treatment                        Portability and
 practitioners).                                Accountability Act
                                                (HIPAA) Electronic
                                                Transaction Standards;
                                                Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf
                                                (based on AMA
                                                statistics).
Health Care 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.
Health Care Providers--Nursing and     66,464  2007 Economic Census
 residential Care Facilities not                Data--Health Care and
 associated with a hospital.                    Social Assistance
                                                (sector 62) using the
                                                number of
                                                establishments.
                                               ~NAICS code 623: Nursing
                                                Homes & Residential Care
                                                Facilities n = 76,395 x
                                                87 percent (percent of
                                                nursing and residential
                                                care facilities not
                                                associated with a
                                                hospital) = 66,464.
Other Health Care Providers--         384,192  2007 Economic Census
 Offices of dentists,                           Data--Health Care and
 chiropractors, optometrists,                   Social Assistance
 mental health practitioners,                   (sector 62) using the
 substance use treatment                        number of
 practitioners, speech and                      establishments:
 physical therapists, podiatrists,             ~NAICS code 621: All
 outpatient care centers, medical               ambulatory health care
 and diagnostic laboratories, home              services (excluding
 health care services, and other                offices of physicians) =
 ambulatory health care services,               313,339 (547,561 total -
 resale of health care and social               234,222 offices of
 assistance merchandise (durable                physicians).
 medical equipment).                           ~NAICS code 62[dash]39600
                                                (product code): Durable
                                                medical equipment =
                                                70,853.
Health Plans--Commercial: Impacted      1,827  This number represents
 commercial health plans                        the most recent number
 considered in this RIA are health              as referenced in
 insurance issuers; that is,                    ``Patient Protection and
 insurance companies, services, or              Affordable Care Act;
 organizations, including HMOs,                 Standards Related to
 that are required to be licensed               Reinsurance, Risk
 to engage in the business of                   Corridors, and Risk
 insurance in a State.                          Adjustment,'' Proposed
                                                Rule, 2011 Federal
                                                Register (76 FR 41930),
                                                July 15, 2011,'' from
                                                http://federalregister.gov/a/2011-17609.
Health Plans--Government..........         60  Represents the 56 State
                                                Medicaid programs,
                                                Medicare, the Veteran's
                                                Administration (VHA),
                                                and Indian Health
                                                Service (IHS), TRICARE.
Health Plans--All.................      1,887  Insurance issuers (n =
                                                1,827) + Medicaid
                                                agencies + Medicare,
                                                VHA, TRICARE, and IHS (n
                                                = 60) = 1,887 total
                                                health plans.
Third Party Administrators........        750  Summary of Benefits and
                                                Coverage and the Uniform
                                                Glossary; Notice of
                                                Proposed Rulemaking
                                                http://www.gpo.gov/fdsys/pkg/FR-2011-08-22/pdf/2011-21193.pdf.
Transaction Vendors and                   162  Health Insurance Reform;
 Clearinghouses.                                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,
                                                based on a study by
                                                Gartner.
------------------------------------------------------------------------

F. Scope and Methodology of the Impact Analysis for the HPID and NPI

    This impact analysis estimates the costs and benefits that will be 
realized through the implementation and use of the HPID. We do not 
analyze the costs and benefits of the addition to the NPI requirements, 
apart from the costs associated with applying for an NPI that are 
already addressed in section V.B. of this proposed rule concerning the 
collection of information requirements. Aside from the time necessary 
to apply, we do not anticipate any financial impact as a result of the 
addition to the NPI requirements. We ask for comments on this approach.
    In this RIA, we do not analyze the impact of implementation and use 
of the OEID. The OEID, as proposed herein, would be a data element that 
could be voluntarily used by entities other than health plans. These 
other entities may include, for example, health care clearinghouses, 
transaction vendors, and third party administrators that provide 
administration or management for self-insured health plans. The range 
of total entities that may apply for and use an OEID is zero to 
approximately 900 entities (750 Third party administrators + 169 
transaction

[[Page 22979]]

vendors). Therefore, using the methodology we use in this RIA, the cost 
for implementation of the OEID for other entities ranges from no cost 
to approximately $500 million, depending on choices made by those 
entities. Because of the uncertainty inherent in this range of cost, 
based on the number of entities that may apply for the OEID we will not 
attempt to quantify the impact of applying for or using an OEID beyond 
this limited analysis. Nor will we include this range of costs in our 
summary of this RIA. However, we can assume that implementing and using 
OEID would be accompanied by a proportional range of costs and benefits 
akin to the cost and benefits estimated for health plans in this RIA. 
We welcome comments on the number and kind of entities that may apply 
for and use an OEID. We estimate the cost of the Enumeration System to 
be $1.5 million. The Federal Government will bear the costs associated 
with the Enumeration System that will enumerate health plans and other 
entities and maintain their information. These include the costs of 
enumerating health plans and other entities, the cost of maintaining 
health plan and other entity information in the Enumeration System, and 
the costs of disseminating HPID and OEID data to the health care 
industry and others, as appropriate. HHS will develop the Enumeration 
System, and conduct the updating and data dissemination activities. We 
will apply this cost to our summary of costs and the accounting 
statement, but will not provide any further analysis of this cost 
within the narrative of the RIA.
    The costs to health plans of applying for an HPID and updating and 
maintaining the information in the Enumeration System are detailed in 
section III of this proposed rule. We will reflect these costs in the 
summary of the costs to health plans in this RIA.
    While we assume that adoption of the health plan identifier 
standards will affect a broad range of health care providers, as 
illustrated in Table 7, we will only be examining the costs and 
benefits of implementation and use of the HPID on two types of health 
care providers: Hospitals and physician practices. We will not analyze 
the impact to nursing and residential care facilities, dentists, or 
suppliers of durable medical equipment.
    There are two reasons for narrowing the scope of this analysis to 
only two categories of health care providers: we have very little data 
on the usage of EDI among dentists, suppliers of durable medical 
equipment, nursing homes, and residential care facilities. The lack of 
data for these types of health care providers has been noted in other 
studies on administrative simplification.\34\ We assume that the 
greatest benefits will be gained by hospitals and physician practices 
as they conduct the majority of standard transactions. We welcome 
comment from industry and the public as to our assumptions.
---------------------------------------------------------------------------

    \34\ ``Excess Billing and Insurance-Related Administrative 
Costs,'' by James Kahn, in The Healthcare Imperative; Lowering Costs 
and Improving Outcomes: Workshop Series Summary, edited by Pierre L. 
Yong, Robert S. Saunders, and Leigh Anne Olsen, Institute of 
Medicine of the National Academies, the National Academies Press, 
Washington, DC: 2010.
---------------------------------------------------------------------------

    We have not included an analysis of the impact on pharmacies 
because the HPID will not be used extensively in electronic 
transactions by the pharmacy industry. This industry will instead be 
using the BIN/IIN and PCN as described previously in this proposed 
rule. Therefore, we assume no impact on pharmacies.
    With respect to health care providers, only health care providers 
that transmit health information in electronic form in connection with 
a transaction for which the Secretary has adopted a HIPAA transaction 
standard are considered covered entities.
    We assume that the HPID may be used to identify health plans in 
non-electronic transactions as well, but, as this standard is only 
required for use in HIPAA standard transactions, we have not tried to 
measure the impact on non-electronic transactions. The costs and 
benefits included in this analysis do not include infrastructure or 
software costs for health care providers who are equipping their 
practices for the transmittal of electronic transactions for the first 
time. The costs in this impact analysis include only those that are 
necessary to implement the standard for the national unique health plan 
identifier.
    We include health care clearinghouses and transaction vendors as 
affected entities in Table 7. Transaction vendors are entities that 
process claims or payments for other entities, which may include health 
plans. Transaction vendors may not meet the HIPAA definition of health 
care clearinghouse, but as used in this context, health care 
clearinghouses would constitute a subset of transaction vendors. 
Payment vendors would be a type of transaction vendor--a transaction 
vendor that ``associates'' or ``reassociates'' health care claim 
payments with the payments' remittance advice for either a health plan 
or provider. For our purposes here, transaction vendors do not include 
developers or retailers of computer software, or entities that are 
involved in installing, programming or maintaining computer software. 
Health care clearinghouses and transaction vendors may be impacted 
because their systems would have to accommodate the adoption of the new 
standards such as the HPID to identify health plans in standard 
transactions. However, we did not calculate costs and benefits to 
health care clearinghouses and transaction vendors in this cost 
analysis because we assume that any associated costs and benefits will 
be passed on to the health plans or providers, and will be included in 
the costs and benefits we apply to health plans or providers.
    We use the total number of health insurance issuers as the number 
of commercial health plans that will be affected by this proposed rule, 
and will use this number in our impact analysis. A health insurance 
issuer is an insurance company, insurance service, or insurance 
organization, including an HMO, that is required to be licensed to 
engage in the business of insurance in a State, and that is subject to 
State law that regulates insurance. Although this number is specific to 
the individual and small group markets, we assume that many health 
insurance issuers in the large group market are included in this number 
because they are likely to market to individuals and small groups as 
well. While the category or ``health insurance issuers'' represents a 
larger number of health plans than those included in the NAICs codes 
for ``Direct Health and Medical Insurance Carriers'' (897 firms), we 
believe the category of health insurance issuers is a more accurate 
representation of companies conducting HIPAA transactions. Companies 
that provide Medicaid managed care plans are included in the category 
of commercial health plans.
    Although self-insured group health plans meet the HIPAA definition 
of ``health plan,'' we did not include them in this impact analysis. 
While self-insured group health plans will be required to obtain the 
HPID, we assume that, with a few exceptions, such plans do not send or 
receive HIPAA electronic transactions because most are not involved in 
the day-to-day activities of a health plan and outsource those services 
to third party administrators or transaction vendors. Because they do 
not meet the definition of ``health plans,'' TPAs and transactions 
vendors are not required to obtain or use an HPID, though they may 
elect to obtain and use an OEID. The costs and benefits associated with 
the HPID are applicable only to entities that are directly involved in 
sending or receiving

[[Page 22980]]

standard transactions, though we recognize that some of the cost and 
benefits will trickle down to employers and their employees.
    We have no data concerning how many health plans are actually 
identified in standard transactions, as opposed to ``other entities'' 
that are identified in their stead. Therefore, we have no assurance of 
how many health plans may be affected by this proposed rule. We base 
our cost estimates on the highest number of entities that would likely 
be affected. The number of health plans is used as a factor in our 
calculation of costs, but not in our calculation for savings. We are 
therefore taking a conservative approach to the costs to health plans 
which we believe is warranted given the uncertainties in our estimates. 
We solicit industry and stakeholder comments on our assumptions.

G. Costs Associated with HPID and NPI

    Due to a lack of baseline data, we use the cost estimate 
calculations provided in the impact analysis for the Modifications 
proposed rule and the clarifications of that impact analysis contained 
in the Modifications final rule.
    We chose the costs in the Modifications proposed and final rules as 
our baseline for costs for a number of reasons:
     The cost categories in the Modifications rules are similar 
to the cost categories anticipated by implementation of the HPID: one-
time or short-term costs such as software conversion, and cost of 
automation, training, implementation, and implementation guides.
     There are no analogous national standard identifiers from 
which to derive costs and benefits.
    In our discussion of the HPID, we considered the NPI as a potential 
analogous identifier; however, the cost/benefit analysis for the NPI, 
included in the ``National Standard Health Care Provider Identifier,'' 
proposed rule,'' published in the May 7, 1998 Federal Register (63 FR 
25320) does not analyze the cost/benefits of implementation of the NPI 
itself. Instead, the analysis reiterates the cost/benefits of the 
Transactions and Code Sets final rule (65 FR 50312). The Transactions 
and Code Sets final rule analyzes the costs/benefits of sending and 
receiving all HIPAA transactions. The Modifications final rule is 
another reiteration of the original cost/benefit analysis of the 
Transactions and Code Sets final rule, but the data has been adjusted 
to 2009, and so we will use it because it is more recent but adjust the 
costs to 2012 dollars. In the impact analysis for the Modifications 
final rule, the estimated costs to implement the update to the 
standards were 25 percent less (minimum) to 50 percent (maximum) of the 
costs estimated in the Transactions and Code Sets final rule.
    To determine the anticipated costs for health care providers and 
health plans, we used 25 percent of the cost estimates for the 
Modifications final rule. We used this percentage because we determined 
that implementation of HPID will not be as significant as the impact of 
Version 5010 adopted in the Modifications final rule for the following 
reasons: First, the implementation of the Modifications final rule is 
much broader and more complex than the implementation of a unique 
health plan identifier. The Modifications rule broadly amends or alters 
every HIPAA transaction standard. This rule proposes a standard that 
will need to be included in every HIPAA transaction; however, it is 
only one data field, compared to a multitude of data fields that were 
affected by the adoption of the transaction standards outlined in the 
Modifications final rule.
    Second, we believe covered entities are more prepared for the 
implementation of the HPID than they may have been for the 
Modifications final rule. Because the standards for transactions and 
codes sets, security and privacy, employer identifier, and health care 
provider identifier have already been adopted, we assume that covered 
entities have already made significant system investments. In addition, 
a data field already exists for the health plan identifier in the HIPAA 
standard transactions.
    To support our estimate that the HPID will cost 25 percent of the 
costs of the Modifications final rule, we make a number of assumptions. 
We assume many of the implementation costs covered entities will 
experience will be short term or one-time costs for system 
implementation and transition costs. System implementation costs 
include software and software development, testing, training, and other 
conversion costs. Conversion will require training for staff and will 
require changes to documentation, procedures, records, and software. 
Some covered health care entities may choose to use the services of 
software system vendors, billing companies, transaction vendors, and/or 
health care clearinghouses to facilitate the transition to the HPID.
    ``Transition'' costs, which we assume will occur in the second and 
third years of implementation, are defined as the post-implementation 
costs for monitoring, maintaining, and adjusting the upgraded systems 
and related processes with trading partners until all parties reach a 
``steady state'' with regard to utilizing the HPID. While there will be 
initial costs to implement the HPID, we believe a standard HPID will 
simplify standard transactions and improve their efficiency and 
effectiveness. In addition, the lack of embedded intelligence within 
the HPID will result in lower implementation and maintenance costs for 
covered entities.
1. Costs of HPID to Health Plans
    Health plans will bear most of the cost of implementing the HPID. 
We estimate the cost to health plans to implement and use an HPID will 
be 25 percent of the costs that the impact analysis in the 
Modifications final rule calculated in order for industry to implement 
Version 5010 of the standard transactions. As noted previously, 
implementation of the HPID will be analogous to--yet significantly less 
than--implementation of Version 5010 because the same systems will be 
affected, and, in both cases, there are both implementation and 
transition costs. Beyond these general similarities, we assume that 
implementation of HPID will be much less expensive for the reasons 
stated previously.
    The estimate that HPID implementation and transition will be 25 
percent of the cost of Version 5010 is a conservative estimate, we 
believe, and it is probable that the costs will be much less. However, 
by estimating HPID implementation at 25 percent of the cost of Version 
5010, we are able to reflect the uncertainty in our calculations 
because our calculations maintain the range of minimum and maximum 
costs from the Modifications final rule.
    In addition, the cost estimates from the Modifications final rule 
have been adjusted down because we estimate there will be fewer health 
plans impacted by this rule than are impacted by the Modifications 
final rule. For costs associated with applying for and obtaining an 
HPID, see section V.A. of this proposed rule. We welcome comments and 
data from the industry and other stakeholders on this assumption.
    To comply with this proposed rule, a health plan that is not a 
small health plan must start using the HPID in the standard 
transactions on or after October 1, 2014 (small health plans must start 
using the HPID in the standard transactions on or after October 1, 
2015). As we note in the RFA, section V.J.1.d of this proposed rule, 
there are, perhaps, 100 health plans that can be defined as small 
health plans. While we expect these

[[Page 22981]]

costs will accrue between the time the final rule is published and the 
date the HPID is fully implemented, for purposes of simplification we 
have placed all system implementation costs--including those for small 
health plans--in 2014. Transition costs will occur in 2015 and 2016.

                                             Table 8-- HPID Cost for Commercial and Government Health Plans*
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                              Minimum         Maximum
                                                                           Minimum cost    Maximum cost                   estimated cost  estimated cost
                                                                           estimate per    estimate per       Applied           of              of
                                                    Cost category          modifications   modifications    percentage     implementing    implementing
                                                                             rule (in        rule (in                        HPID (in        HPID (in
                                                                             millions)       millions)                       millions)       millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Commercial Health Plans **................  System Implementation.......         $1935.0         $3870.5              25         $483.76         $967.63
                                            Transition (Year 2 and 3)...           341.5           683.0              25           85.37          170.76
Government Health Plans (Medicare,          System Implementation.......           281.0           537.8              25           70.25          134.45
 Medicaid, VHS, TRICARE, IHS).
                                            Transition (Year 2 and 3)...            49.6            94.9              25           12.40           23.73
All Health Plans..........................  Enrollment and Updates***...  ..............  ..............  ..............            0.18            0.18
                                            System Implementation.......  ..............  ..............  ..............          554.19         1102.26
                                            Transition (Year 2 and 3)...  ..............  ..............  ..............           97.77          194.48
                                            Total.......................  ..............  ..............  ..............          651.95         1296.74
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.
** Minimum and maximum cost estimates per Modifications Rule for commercial health plans is adjusted to account for a lesser number of health plans
  considered than is estimated in the Modifications Rule.
*** See section V.A of this proposed rule; Collection of Information Requirements, for calculations on enrollment to HPID enumeration system.

2. Costs of HPID for Physician Practices and Hospitals
    Covered physician practices and hospitals will be required to use 
the HPID in standard transactions. Health care providers that do not 
conduct covered transactions (for example, by submitting a paper claim 
that the health plan subsequently transmits electronically to a 
secondary payer) could also use the HPID, but would not be required to 
do so. Implementation costs for covered physician practices and 
hospitals depend on whether they generate claims directly or use a 
health care clearinghouse or transaction vendor.
    If covered physician practices and hospitals submit claims 
directly, they would incur implementation costs in converting their 
systems to accommodate the HPID. Some covered health care providers may 
choose to use the services of software system vendors, billing 
companies, transaction vendors, and/or health care clearinghouses to 
facilitate the transition to the HPID. These health care providers 
would incur costs in the form of potential fee increases from billing 
agents or health care clearinghouses. For example, if a health care 
provider pays a fee to a billing agent or health care clearinghouse to 
process its health care transactions, the billing agent or health care 
clearinghouse might increase the cost to perform this service for the 
health care provider.
    Table 9 illustrates the costs to covered hospitals and physician 
practices. Again, the costs are 25 percent of the costs estimated in 
the Modifications proposed and final rules. We invite comments on our 
assumptions and method for estimating the implementation costs.

                                           Table 9--HPID Costs to Covered Hospitals and Physician Practices *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                II                      III             IV            V            VI            VII
                                               ---------------------------------------------------------------------------------------------------------
                                                                                                                                 Minimum       Maximum
                                                                                    Minimum cost   Maximum cost                 estimated     estimated
                       I                                                            estimate per   estimate per    Applied       cost of       cost of
                                                          Cost category            modifications  modifications   percentage  implementing  implementing
                                                                                     rule  (in      rule  (in                   HPID  (in     HPID  (in
                                                                                     millions)      millions)                   millions)     millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Hospitals.....................................  System Implementation............        1042.5        $2085.9           25%       $260.63       $521.48
                                                Transition (Year 2 and 3)........         184.0          368.1           25%         45.99         92.03
Physician Practices...........................  System Implementation............         486.8          973.6           25%        121.70        243.40
                                                Transition (Year 2 and 3)........          85.9          171.8           25%         21.48         42.95
All Providers (Total).........................  System Implementation............        1529.3         3059.5           25%        382.33        764.88
                                                Transition (Year 2 and 3)........         269.9          539.9           25%         67.47        134.98
                                               ---------------------------------------------------------------------------------------------------------
                                                Total............................  .............  .............  ...........        449.80        899.86
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.

H. Savings Associated With HPID and NPI

1. Savings to Health Plans
    We have identified two areas in which health plans will experience 
savings due to the adoption of HPID: A reduction in the number of 
pended claims and an increased use of electronic health care 
transactions.
2. Pended Claims
    Pended claims are claims that necessitate a manual review by the 
health plan. Pended claims are more expensive than ``clean'' claims, 
which do not require a manual review or

[[Page 22982]]

additional information in order to be processed. We are projecting a 5 
to 10 percent annual reduction of pended claims as attributable to 
implementation of the HPID. We have calculated the savings that would 
come from this estimated projection from: data about claims receipts 
from the trade association America's Health Insurance Plans (AHIP),\35\ 
information about eligibility transactions from the Oregon Provider and 
Payer Survey,\36\ and data from the Modifications proposed and final 
rules.
---------------------------------------------------------------------------

    \35\ ``An Updated Survey of Health Care Claims Receipt and 
Processing Times, May 2006,'' America's Health Insurance Plans 
(AHIP) Center for Policy and Research.
    \36\ A comprehensive survey of 55 percent of Oregon's hospitals 
and 225 of the State's ambulatory clinics. http://www.oregon.gov/OHPPR/HEALTHREFORM/AdminSimplification/Docs/FinalReport_AdminSimp_6.3.10.pdf.
---------------------------------------------------------------------------

    One of the main goals of the use of the HPID is to have a 
consistent identifier for each health plan for use in standard 
transactions. This lack of a single identifier has resulted in the need 
for manual intervention to resolve eligibility questions and billing 
and payment issues when there are inconsistent approaches for 
identifying health plans. Covered health care providers would no longer 
have to keep track of and use multiple identifiers for a single health 
plan. After the initial outlay for changes to their systems, health 
care providers would be able to consistently identify the health plan 
to which they must submit claims.
    According to AHIP, 14 percent of all claims were pended by health 
plans.\37\ Assuming 6 billion claims will be submitted in 2014, as is 
projected in the Modifications proposed rule, this calculates to about 
850 million pended claims (Table 10, Column 2).
---------------------------------------------------------------------------

    \37\ AHIP, 2006.
---------------------------------------------------------------------------

    We will assume that pended claims will decrease by a minimum of 5 
percent to a maximum of 10 percent annually attributable to use of the 
HPID (Table 10, Columns 4 and 6). This estimate is based on an AHIP 
survey entitled, ``An Updated Survey of Health Care Claim Receipt and 
Processing Times.'' The survey concluded that 35 percent of all claims 
are pended because they are duplicate claims (or assumed to be 
duplicate claims), 12 percent are pended because of the lack of 
necessary information, 5 percent because of coordination of benefits 
(COB), and 1percent because of invalid codes.\38\ The HPID may help 
alleviate these particular pended claims issues by enabling the 
automation of the COB process \39\ and providing for more accurate 
routing of claims to the correct payer. This conclusion presumes that 
providing an HPID will lead to a measurable reduction of duplicate 
claims and/or claims pended because of a lack of necessary information. 
There is a large measure of uncertainty in this assumption and, as 
noted, the HPID would be foundational for subsequent activities such as 
the automation of the COB process. By itself, though, the HPID does not 
automate any processes. To reflect the uncertainty, we apply a range of 
percentages to the assumption.
---------------------------------------------------------------------------

    \38\ ``An Updated Survey of Health Care Claims Receipt and 
Processing Times, May 2006,'' America's Health Insurance Plans 
(AHIP) Center for Policy and Research.
    \39\ ``National Health Plan Identifier White Paper,'' prepared 
by the American Medical Association (AMA) Practice Management Center 
(PMC), September 22, 2009.
---------------------------------------------------------------------------

    According to AHIP, it costs a health plan $0.85 to reply 
electronically to a ``clean'' claim submission and $2.05 to reply to 
claims that ``necessitate manual or other review cost.'' Therefore, a 
health plan could save $1.20 per claim by automating a claim otherwise 
needing manual review (Table 10, Column 3). In order to calculate the 
savings from a 5 to 10 percent decrease in pended claims due to 
implementation of the HPID, we multiply the projected number of pended 
claims (Table 10, Column 2) times 5 percent for the low estimate and 10 
percent for the high estimate. We then multiplied the high and low 
range of numbers of pended claims that will be avoided due to use of 
HPID times the $1.20 per claim that can be saved.
    In considering how to project this cost avoidance, we decided that 
the 5 to 10 percent savings should continue each year over the 10 years 
following implementation of the standard, resulting in a savings of 
approximately $700 million to $1.4 billion. As stated previously, we 
consider the HPID standards in this notice of proposed rulemaking to be 
foundational standards that will be built upon by future operating 
rules and regulations over the next decade.
    We welcome input and data from industry and other stakeholders with 
regard to these assumptions.

                    Table 10--Annual Savings to Health Plans Due to Decrease in Pended Claims
                                                 (In millions) *
----------------------------------------------------------------------------------------------------------------
                                                             LOW number    LOW total    HIGH number   HIGH total
                                   Number of                  of pended      annual      of pended      annual
                                     pended      Cost to     claims (5%)    savings    claims (10%)    savings
                                     claims      review a   that will be    through    that will be    through
              Year                  annually      pended       avoided     reduction      avoided     reduction
                                      (in       claim ***   attributable   in pended   attributable   in pended
                                   millions)                 to HPID (in   claims (in   to HPID (in   claims (in
                                       **                     millions)    millions)     millions)    millions)
(Col. 1)                             (Col. 2)     (Col. 3)      (Col. 4)     (Col. 5)      (Col. 6)     (Col. 7)
                                 -------------------------------------------------------------------------------
2014............................        848.4        $1.35            .0           .0             0          .00
2015............................        882.0         1.35          44.1        $59.5          88.2       $119.1
2016............................        917.0         1.35          45.9         61.9          91.7        123.8
2017............................        952.0         1.35          47.6         64.3          95.2        128.5
2018............................        994.0         1.35          49.7         67.1          99.4        134.2
2019............................       1036.0         1.35          51.8         69.9         103.6        139.9
2020............................       1077.4         1.35          53.9         72.7         107.7        145.5
2021............................       1120.5         1.35          56.0         75.6         112.1        151.3
2022............................       1165.4         1.35          58.3         78.7         116.5        157.3
2023............................       1212.0         1.35          60.6         81.8         121.2        163.6
2024............................       1260.5         1.35          63.0         85.1         126.0        170.2
                                 -------------------------------------------------------------------------------

[[Page 22983]]

 
    Total.......................  ...........  ...........  ............        716.6  ............       1433.3
----------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.
** Based on 14% of total number of annual claims as projected in Modifications proposed rule.
*** AHIP, 2006, adjusted to 2012 dollars.

3. Increase in Electronic Transmittal of Three Standard Transactions
    The implementation of all administrative simplification initiatives 
mandated by the Affordable Care Act are expected to streamline HIPAA 
electronic transactions, make them more consistent, and decrease the 
dependence on manual intervention in the transmission of health care 
and payment information. This, in turn, will drive more health care 
providers and health plans to utilize electronic transactions in their 
operations. Each transaction that moves from a non-electronic, manual 
transmission of information to an electronic transaction, brings with 
it material and time cost savings by virtue of reducing or eliminating 
the paper, postage, and equipment and additional staff time required to 
conduct paper-based transactions.
    Table 11 lists our estimates of the savings for health plans when 
they move from a non-electronic transaction to an electronic 
transaction on a per transaction basis. For a more detailed description 
of how we arrived at the savings associated with the eligibility for a 
health plan transaction and the health care claim status transactions, 
see the RIA in the ``Administrative Simplification: Adoption of 
Operating Rules for Eligibility for a Health Plan and Health Care Claim 
Status Transactions,'' published in the July 8, 2011 Federal Register 
(76 FR 40471).
    The estimated savings associated with the health care payment and 
remittance advice transaction is taken from Medicare data. Medicare 
found that the average estimated cost avoidance in terms of printing 
and mailing charges was $4.24 per electronic remittance advice 
transaction when it was sent electronically as opposed to through the 
mail in paper form.

   Table 11--Baseline Cost Savings Per Transaction for Commercial and
Governmental Health Plans (Difference Between Non-electronic Transaction
           and Electronic Transaction) In Three Transactions *
------------------------------------------------------------------------
                                                             Savings per
                                                             transaction
                                                                 for
                                                              commercial
                        Transaction                              and
                                                              government
                                                                health
                                                                plans
------------------------------------------------------------------------
Eligibility for a health plan..............................        $3.15
Health care claim status...................................         3.78
Health care electronic funds transfer (EFT) and remittance          4.24
 advice (Remittance Advice only)...........................
------------------------------------------------------------------------
* Based on 2012 dollars.

    We expect that the use of the HPID will result in greater 
efficiency and savings across all HIPAA transactions in addition to the 
three transactions we specifically analyze here. However, we expect 
that the impact will be considerably less in other transactions because 
operating rules for these transactions will likely take effect a number 
of years after the implementation of the HPID.
    We estimate an annual increase of 1 (LOW) to 2 (HIGH) percent in 
the use of the eligibility for a health plan transaction and the health 
care claim status transaction attributable to the implementation of the 
HPID over the next 10 years as illustrated in Table 12. We estimate an 
annual increase of 2 (LOW) to 3 (HIGH) percent in the use of the 
electronic remittance advice transaction resulting from the adoption of 
the HPID. These are not annual increases in percentage points, but 
rather percent increases in the use of electronic transactions from the 
year before. The impact of the HPID on the electronic health care 
payment and remittance advice transaction is more than the impact on 
the other two transactions because NCVHS testimony supported the notion 
that the greatest impact of a standardized health plan identifier would 
be on the payment process.\40\
---------------------------------------------------------------------------

    \40\ Tammy Banks, Director, Practice Management Center and 
Payment Advocacy, ``Testimony By The American Medical Association,'' 
National Committee on Vital and Health Statistics Subcommittee on 
Standards, July 19, 2010.
---------------------------------------------------------------------------

    Based on these assumptions, we estimate that the savings to health 
plans because of increased usage in three transactions will be at least 
$500,000 within 10 years of HPID implementation. Health plan savings 
are summarized in Table 13.

[[Page 22984]]

                  Table 12--Annual Cost Savings for Health Plan From Increase Due to HPID in Volume of Three Electronic Transactions *
                                                                      [In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   I                            II                III                 IV                 V                  VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Savings from increase in eligibility
                                            for a health plan transaction
                                                attributable to HPID
                                        Savings from increase in health care
                                              claim status transaction
                                                attributable to HPID
                                        Savings from increase in health care
                                            payment and remittance advice
                                          transaction attributable to HPID
                                              (remittance advice only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Year                    LOW annual cost    HIGH annual cost   LOW annual cost    HIGH annual cost   LOW annual cost    HIGH annual cost
                                             savings            savings            savings            savings            savings            savings
                                         attributable to    attributable to    attributable to    attributable to    attributable to    attributable to
                                               HPID               HPID               HPID               HPID               HPID               HPID
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014..................................                $.0                $.0                $.0                $.0                $.0                $.0
2015..................................               31.4               54.6                5.1                8.5                6.4               16.0
2016..................................               36.1               62.8                6.1               10.2                7.7               19.2
2017..................................               41.5               72.2                7.4               12.3                9.2               23.0
2018..................................               44.8               83.0                8.1               14.7               11.0               27.6
2019..................................               48.4               89.7                8.9               16.2               12.4               33.1
2020..................................               52.3               96.8                9.8               17.8               13.8               37.1
2021..................................               56.5              104.6               10.8               19.6               15.5               41.5
2022..................................               61.0              113.0               11.9               21.6               17.4               46.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative Annual Cost Savings:
LOW: $534 million.
HIGH: $1,042 million.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.

                                         Table 13--Total Savings For Commercial and Governmental Health Plans *
                                                                      [In millions]
--------------------------------------------------------------------------------------------------------------------------------------------------------
            I                        II                        III                       IV                        V                        VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
Savings from decrease in pendeSavings from increase usage of EDI in three
                                             transactions
                                    Total savings for health plans
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 LOW                      HIGH                       LOW                      HIGH                       LOW                     HIGH
--------------------------------------------------------------------------------------------------------------------------------------------------------
                $717                    $1,433                      $534                    $1,042                    $1,250                   $2,475
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.

4. Savings to Health Care Providers
    We have quantified two areas of savings for health care providers. 
First, time and money will be saved at an administrative-level because 
of a decrease in claims issues that require manual intervention. 
Medical practices will experience these administrative savings by 
virtue of decreased time spent interacting with health plans. Second, 
material savings will be derived because of an increase in the number 
of transactions that are conducted electronically, as we explained in 
our discussion of the potential impact of this rule on health plans.
a. Time Savings for Health Care Providers
    One of the main goals of the use of the HPID is to have a 
consistent identifier for each health plan for use in standard 
transactions. This lack of a single identifier has resulted in the need 
for manual intervention to resolve eligibility questions and billing 
and payment issues when there are inconsistent approaches for 
identifying health plans. Covered health care providers would no longer 
have to keep track of and use multiple identifiers for a single 
controlling health plan. After the initial outlay for changes to their 
systems, health care providers would be able to simplify their billing 
systems and processes and reduce administrative expenses.
    The HPID would also assist and simplify coordination of benefits. 
Health plans that have sole or shared fiduciary responsibilities for 
payment would be more readily identified, and the movement of 
information among these entities would be enhanced. According to a 2009 
study published in Health Affairs, approximately 60 hours per physician 
per week are spent on average interacting with health plans when the 
time spent by the single physician, the staff, and the physician 
practice's administration are totaled.\41\ Of the time spent 
interacting with health plans, 88 percent was spent on authorizations 
and claims/billing issues.
---------------------------------------------------------------------------

    \41\ Lawrence P. Casalino, S. Nicholson, D.N. Gans, T. Hammons, 
D. Morra, T. Karrison and W. Levinson, ``What does it cost physician 
practices to interact with health insurance plans?'' Health Affairs, 
28(4)(2009):w533-w543.
---------------------------------------------------------------------------

    We believe the implementation of an HPID will eliminate some of the 
manual intervention that is required when there are questions or errors 
identifying the entity responsible for eligibility of a patient or the 
payment of a claim. We estimate that the implementation and use of an 
HPID by health plans would save a physician's practice a number of 
phone calls and emails otherwise required to investigate or verify the 
identifier needed for the health plan. Of the 60 hours reported 
previously, our estimate would be that 15 minutes to 30 minutes per 
week--or .4 to .8 percent of the total time spent interacting with

[[Page 22985]]

health plans--could be eliminated if the HPID were implemented. We 
welcome input on our assumption.
    Table 14 illustrates the savings if a physician's office spends 15 
to 30 minutes a week interacting with health plans. Table 14, Column I 
shows the number of hours spent per week per physician interacting with 
health plans, according to the 2009 Health Affairs study. This number 
represents the sum total of hours spent by the physician, the 
physician's staff, and senior administrative staff, accountants, and 
lawyers that support the physician.
    Table 14, Column II is the low to high estimate of 15 to 30 minutes 
(or .4 to .8 percent of the total time spent interacting with health 
plans) that we estimate would be saved with the implementation of the 
HPID.
    Table 14, Column III is the annual cost for a physician's office of 
interacting with a health plan, based on time spent and hourly wages of 
various employees of a physician's office, according to the 2009 Health 
Affairs study. The wages are adjusted 3 percent annually to account for 
cost of living increases.
    Table 14, Column IV is the estimate of savings generated by 
decreasing the time spent interacting with health plans by 15 minutes a 
week (LOW). It is the low estimate of the percentage reduction in time 
(Table 14, Column II) times the annual cost per physicians of 
interacting with health plans (Table 14, Column III). Table 14, Column 
V is the high estimate of savings generated by decreasing the time 
spent interacting with health plans by 30 minutes a week (HIGH 
estimate). It is the high estimate of the percentage reduction in time 
(Table 14, Column II) times the annual cost per physicians of 
interacting with health plans (Table 14, Column III).
    Table 14, Column VII is the low and high estimated savings for all 
physician offices if their interaction with health plans is reduced by 
15 to 30 minutes a week. Table 14, Column VII is the cost avoidance per 
year per physician (Table 14, Column IV and V) times the number of 
physicians (Table 14, Column VI). The number of physicians was 
calculated by taking the average of the projected supply of physicians 
in physician practices and the projected demand for physicians in 
physician practices as calculated in ``Physician Shortages to Worsen 
Without Increases in Residency Training,'' a summary of an analysis by 
the Association of American Medical Colleges.\42\
---------------------------------------------------------------------------

    \42\ Summary of ``The Complexities of Physician Supply and 
Demand: Projections Through 2025, Center for Workforce Studies, 
AAMC,'' 2008, by the Association of American Medical Colleges, and 
``The Impact of Health Care Reform on the Future Supply and Demand 
for Physicians Updated Projections Through 2025,'' June 2010, AAMC.
---------------------------------------------------------------------------

    Based on our calculations, we anticipate that the time physicians 
in physician practices will spend per week interacting with health 
plans will decrease. Due to a lack of baseline data regarding other 
providers and physicians working in hospitals, our calculations do not 
reflect a similar anticipated decrease in time for other providers and 
physicians working in hospitals. We assume, though, that hospitals, 
because they typically consolidate their billing functions, will have 
analogous savings to physicians in physician practices, albeit less on 
a ``per physician'' basis.

                                  Table 14--Physician Savings Through Decrease in Time Interacting With Health Plans *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                           I                  II                III           IV             V            VI                VII
                                     -------------------------------------------------------------------------------------------------------------------
                                                                               Total
                                      Hours spent   LOW to HIGH percent of  annual cost       LOW          HIGH
                                        per week    time interacting with    per single  reduction in  Reduction in                  LOW to HIGH total
                Year                      per        health plans (Col I)    physician     cost per      cost per     Number of      savings per year
                                       physician      saved per week per    to interact    year per      year per     physicians   attributable to HPID
                                      interacting   physician attributable  with health    physician     physician                     (in millions)
                                      with health     to HPID (15 to 30      insurance   attributable  attributable
                                         plans             minutes)            plans        to HPID       to HPID
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014................................           60  0.4 to 0.8%............      $74,605            $0            $0      340,146  $.00
2015................................           60  0.4 to 0.8%............       76,843           320           640      345,173  111 to 221.0
2016................................           60  0.4 to 0.8%............       79,148           330           660      348,638  115 to 230.0
2017................................           60  0.4 to 0.8%............       81,523           340           679      352,103  120 to 239.2
2018................................           60  0.4 to 0.8%............       83,969           350           700      355,568  124 to 248.8
2019................................           60  0.4 to 0.8%............       86,488           360           721      359,033  129 to 258.8
2020................................           60  0.4 to 0.8%............       89,082           371           742      362,498  135 to 269.1
2021................................           60  0.4 to 0.8%............       91,755           382           765      366,561  140 to 280.3
2022................................           60  0.4 to 0.8%............       94,507           394           788      370,625  146 to 291.9
2023................................           60  0.4 to 0.8%............       97,343           406           811      374,688  152 to 303.9
2024................................           60  0.4 to 0.8%............      100,263           418           836      378,752  158 to 316.5
                                     -------------------------------------------------------------------------------------------------------------------
    Total...........................  ...........  .......................  ...........  ............  ............  ...........  1,330 to 2,659
--------------------------------------------------------------------------------------------------------------------------------------------------------
* In 2012 dollars.

b. Increase in Three Transactions
    The second area of savings for providers is the per transaction 
savings of moving from non-electronic to electronic transactions. We 
used the same assumptions on the number and rate of increase of three 
electronic transactions methodology as illustrated for health plans in 
Table 12. However, the savings per transaction for health care 
providers differ from the savings that health plans will realize, as 
reflected in Table 15. For a more detailed description of how we 
arrived at the savings associated with the eligibility for a health 
plan transaction and the health care claim status transaction, see the 
RIA in the ``Administrative Simplification: Adoption of Operating Rules 
for Eligibility for a Health Plan and Health Care Claim Status 
Transactions,'' published in the July 8, 2011 Federal Register (76 FR 
40471). The estimated savings associated with the health care payment 
and remittance advice transaction were taken from the ``National 
Progress Report on Healthcare Efficiency: 2010'' at 
www.ushealthcareindex.com.

[[Page 22986]]

     Table 15--Cost Savings per Transaction (Difference Between Non-
Electronic Transaction and Electronic Transaction) in Three Transactions
                                    *
------------------------------------------------------------------------
                                                             Savings per
                                                             transaction
                        Transaction                              for
                                                              providers
------------------------------------------------------------------------
Eligibility for a health plan..............................        $2.02
Health care claim status...................................         2.42
Health care payment and remittance advice (Remittance               1.55
 Advice)...................................................
------------------------------------------------------------------------
* In 2012 dollars.

    Table 16 reflects the same assumption that use of the HPID will 
lead to increased use of three electronic transactions. We estimate an 
annual increase of 1 (LOW) to 2 (HIGH) percent in the use of the 
eligibility for a health plan transaction and the health care claim 
status transaction attributable to implementation of the HPID over the 
next 10 years as illustrated in Table 15. We estimate an annual 
increase of 1 (LOW) to 3 (HIGH) percent in the use of the electronic 
health care payment and remittance advice transaction (in the health 
care electronic funds transfers (EFT) remittance advice transaction). 
The savings in each column are a product of the number increase in each 
transaction, with high and low ranges, multiplied by the cost savings 
of each move to an electronic transaction detailed in Table 15.

                   Table 16--Annual Cost Savings for Providers From Increase Due to HPID in Volume of Three Electronic Transactions *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                   I                            II                III                 IV                 V                  VI                VII
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Savings from increase in eligibility
                                            for a health plan transaction
                                                attributable to HPID
                                        Savings from increase in health care
                                              claim status transaction
                                                attributable to HPID
                                        Savings from increase in health care
                                            payment and remittance advice
                                          transaction attributable to HPID/
                                            OEID (remittance advice only)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 Year                    LOW annual cost    HIGH annual cost   LOW annual cost    HIGH annual cost   LOW annual cost    HIGH annual cost
                                             savings            savings            savings            savings            savings            savings
                                         attributable to    attributable to    attributable to    attributable to    attributable to    attributable to
                                             HPID (in           HPID (in           HPID (in           HPID (in           HPID (in           HPID (in
                                            millions)          millions)          millions)          millions)          millions)          millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014..................................               $0.0               $0.0               $0.0                 $0               $0.0                 $0
2015..................................              20.13              35.01               3.28               5.46               2.34               5.84
2016..................................              23.15              40.26               3.93               6.56               2.80               7.01
2017..................................              26.62              46.30               4.72               7.87               3.36               8.41
2018..................................              28.75              53.24               5.19               9.44               4.04              10.09
2019..................................              31.05              57.50               5.71              10.39               4.52              12.11
2020..................................              33.53              62.10               6.28              11.42               5.06              13.56
2021..................................              36.22              67.07               6.91              12.57               5.67              15.19
2022..................................              39.11              72.43               7.60              13.82               6.35              17.01
--------------------------------------------------------------------------------------------------------------------------------------------------------
Cumulative Annual Cost Savings.
LOW: $316 million.
HIGH: $601 million.
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.

    To summarize health care provider savings, providers can expect 
savings from two indirect consequences of the implementation of a 
health plan identifier, as demonstrated in Table 17: the cost avoidance 
of a decrease in administrative time spent by physician practices 
interacting with health plans, and a cost savings for physician 
practices and hospitals for every transaction that moves from a manual 
transaction to an electronic transaction.

                                                   Table 17--Total Health Care Provider HPID Savings *
--------------------------------------------------------------------------------------------------------------------------------------------------------
            I                        II                        III                       IV                        V                        VI
--------------------------------------------------------------------------------------------------------------------------------------------------------
Savings from decrease in pended claims (in
                         milliSavings from increase usage of EDI in three
                                      transactions (in millions)
                               Total savings for providers (in millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                 LOW                      HIGH                       LOW                      HIGH                       LOW                     HIGH
--------------------------------------------------------------------------------------------------------------------------------------------------------
              $1,330                    $2,659                      $316                      $601                    $1,646                   $3,260
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2012 dollars.

c. Savings to Transaction and Software Vendors and Health Care 
Clearinghouses
    None of the studies considered for this analysis was able to 
quantify the costs and savings, or the return on investment of adopting 
the HPID for software vendors and health care clearinghouses. As noted 
previously, we expect that some indirect costs will be borne by health 
care providers in the form of increased fees from transaction vendors 
and health care clearinghouses such as upgraded software costs and an 
increase in volume of claims transactions.

[[Page 22987]]

    We anticipate that the savings, as well as the costs, to software 
vendors of upgrading health care provider software will be passed along 
to their provider clients. We therefore assume that the return on 
investment for software vendors in implementing the operating rules 
reflected in our estimates as those for health care providers.
    Additionally, since health care clearinghouses work on behalf of 
health plans and act as intermediaries between health care providers 
and health plans in regard to electronic transactions, we believe that 
the savings, as well as the costs, to health care clearinghouses will 
be the same savings and costs as those expected by health plans.

I. Summary for the HPID and NPI

                              Table 18--HPID Summary Table for Health Care Industry
----------------------------------------------------------------------------------------------------------------
                                         I            II          III           IV           V            VI
----------------------------------------------------------------------------------------------------------------
                                      Savings (in millions)
                                       Costs (in millions)
                                       Range of return on
                                    investment (in millions)
----------------------------------------------------------------------------------------------------------------
                                        LOW          HIGH         LOW          HIGH       LOW (low    HIGH (high
                                                                                          savings/   savings/low
                                                                                        high costs)     costs)
----------------------------------------------------------------------------------------------------------------
Commercial and Governmental Health       $1,250       $2,475         $652       $1,297         -$47       $1,823
 Plans............................
Health Care Providers.............        1,646        3,260          450          900          746        2,810
                                   -----------------------------------------------------------------------------
    Total.........................        2,896        5,735        1,102        2,197          700        4,633
----------------------------------------------------------------------------------------------------------------

J. Regulatory Flexibility Analysis the HPID and NPI

    The Regulatory Flexibility Act (RFA) of 1980 (Pub. L. 96-354) 
requires agencies to describe and analyze the impact of the proposed 
rule on small entities unless the Secretary can certify that the 
regulation will not have a significant impact on a substantial number 
of small entities. According to the Small Business Administration's 
size standards, a small entity is defined as follows according to 
health care categories: Offices of Physicians are defined as small 
entities if they have revenues of $10 million or less; most other 
health care providers (dentists, chiropractors, optometrists, mental 
health specialists) are small entities if they have revenues of $7 
million or less; hospitals are small entities if they have revenues of 
$34.5 million or less. (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).
    For 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. In the 
following discussion, we have attempted to estimate the number of small 
entities and provide a general discussion of the effects of this 
proposed rule, and where we had difficulty or were unable to find 
information, we solicit industry comment.
1. Number of Small Entities and Scope of Analysis
a. Individual ``Prescribers''
    As detailed in section IV.B. of this proposed rule, the addition to 
the requirements for the NPI will impose a time cost to prescribers in 
terms of applying for an NPI. These individual prescribers are members 
of an organization, or are employed, subcontracted, or given clinical 
privileges by an organization. We assume the majority of these 
prescribers cannot be defined as small entities, because they are 
individuals, not legal businesses. A small number of prescribers are 
sole proprietors \43\ and may be considered small business entities 
under the RFA. However, the only cost to prescribers is the cost to 
obtain an NPI and therefore does not represent a substantive impact. 
Therefore, we will not be including the impact to individual 
prescribers in this analysis. We request industry feedback on this 
assumption.
---------------------------------------------------------------------------

    \43\ For purposes of this RFA, a sole proprietor may be 
contracted by other business entities.
---------------------------------------------------------------------------

b. Health Care Providers: Physician Practices and Hospitals
    As with our RIA for the HPID, in the category of health care 
providers, we analyzed physician practices and hospitals only in terms 
of how they will be impacted by implementation and use of the HPID. 
(There will be no analysis of the impact to physician practices or 
hospitals with regard to the addition to the NPI requirements for the 
reasons described previously.) We did not analyze the impact to nursing 
and residential care facilities, dentists, or suppliers of durable 
medical equipment.
    We narrowed our analysis to physician practices and hospitals for 
two reasons: (1) We have very little data on the usage of EDI among 
dentists, suppliers of durable medical equipment, nursing homes, and 
residential care facilities. The lack of data for these types of health 
care providers have been noted in other studies on administrative 
simplification;\44\ and (2) we assume that the greatest costs will be 
borne by hospitals and physician practices as they conduct the majority 
of standard transactions. While we believe that some small health care 
provider entities outside of these two categories may be impacted, 
albeit in much fewer numbers, we believe the analysis gathered here 
would be indicative of the costs that we would expect all small health 
care provider entities to experience. We welcome comment from industry 
and the public as to our assumptions.
---------------------------------------------------------------------------

    \44\ ``Excess Billing and Insurance-Related Administrative 
Costs,'' by James Kahn, in The Healthcare Imperative; Lowering Costs 
and Improving Outcomes: Workshop Series Summary, edited by Pierre L. 
Yong, Robert S. Saunders, and Leigh Anne Olsen.
---------------------------------------------------------------------------

    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 physician practices, we assumed 
that the costs to implement the HPID would be accounted for at the 
level of firms rather than at the individual establishments.

[[Page 22988]]

    According to the U.S. Census Bureau, Detailed Statistics, 2007 
Economic Census, there are approximately 220,100 physician practices. 
The U.S. Census Bureau data indicates that two percent of physician 
practices have revenues of $10 million or more, therefore approximately 
4,400 physician practices are not small entities.
    Nevertheless, we have decided to consider all physician practices 
small entities. Our basis for this is the fact that Census Bureau data 
is calculated from report forms that are sent to only a sample of small 
employers (less than 10 employees). Therefore, we can assume that the 
estimates from the Census Bureau are low. The estimated number of 
physician practices in the Modifications proposed rule (234,222 
physician practices) includes physician practices with one to two 
physicians and is within 6 percent of the total number of physician 
practices estimated by the Census Bureau. Therefore, we will assume 
that all physician practices, as calculated by the Census Bureau 
(220,100), are small entities, and accept a small margin of error.
    The 2007 Census Bureau reports that there are approximately 6,500 
hospitals. The data indicates that 85 percent of hospitals have sales/
receipts/revenues of $10 million or more. While we can assume that, of 
those 85 percent, some have revenues over $34.5 million; we do not have 
specific numbers that detail this assumption. Therefore, as with 
physician practices, we will make calculations on the assumption that 
all hospitals are small entities.
c. Health Care Clearinghouses and Transaction Vendors
    We did not calculate costs and benefits to health care 
clearinghouses and transaction vendors in this RFA because we assume 
that any associated costs and benefits will be passed on to the health 
plans or health care providers, and will be included in the costs and 
benefits we apply to health plans and health care providers.
d. Health Plans
    The health insurance industry was examined in depth in the RIA 
prepared for the proposed rule on establishment of the Medicare 
Advantage program (69 FR 46866, August 3, 2004). It was determined, in 
that analysis, that there were few, if any, ``insurance firms,'' 
including HMOs that fell below the size thresholds for ``small'' 
business established by the SBA Health. We assume that the ``insurance 
firms'' are synonymous, for the most part, with health plans that 
conduct standard transactions with other covered entities and are, 
therefore, the entities that will have costs implementing the use of 
HPIDs. In fact, then, and even more so now, the market for health 
insurance is dominated by a relative handful of firms with substantial 
market shares. There are, however, a number of health maintenance 
organizations (HMOs) that are small entities by virtue of their 
nonprofit status even though few if any of them are small by SBA size 
standards. There are approximately 100 such HMOs. These HMOs and those 
Blue Cross and Blue Shield plans that are non-profit organizations, 
like the other firms affected by this proposed rule, will be required 
to obtain and use HPID in standard transactions. Accordingly, this 
proposed rule will affect a ``substantial number'' of small entities. 
We estimate, however, that the costs of this proposed rule on health 
plans do not remotely approach the amounts necessary to be a 
``significant economic impact'' on firms with revenues of tens of 
millions of dollars. Therefore, we do not include health plans in our 
RFA, but have analyzed the costs and benefits to health plans in our 
RIA.
    We welcome industry and stakeholder input on our assumption in this 
regard.
2. Cost for Small Entities
    In Table 19, we take the information from the impact analysis and 
break out the costs for both physician practices and hospitals, using 
the maximum cost of implementation in any one year. As we are treating 
all health care hospitals and physician practices as small entities for 
the purpose of this RFA, we allocated 100 percent of the implementation 
costs reported in the impact analysis for physician practices and 
hospitals. We used the maximum estimated costs from the RIA. Table 19 
shows the impact of the implementation costs of HPID as a percent of 
the health care provider revenues.

              Table 19--Analysis of the Burden of Implementation of HPID on Small Covered Entities*
----------------------------------------------------------------------------------------------------------------
                            I                                   II          III           IV             V
----------------------------------------------------------------------------------------------------------------
                                                                                       Maximum
                                                                                       cost of
                                                              Total     Revenues or  health care  Implementation
                         Entities                           number of     receipts       EFT       cost revenue
                                                              small         (in        standard      receipts
                                                             entities    millions)    annual (in     (percent)
                                                                                      millions)
----------------------------------------------------------------------------------------------------------------
Physician practices......................................      220,100     $359,853         $272        0.00076
Hospitals................................................        6,500      729,870          583        0.00080
----------------------------------------------------------------------------------------------------------------
* In 2012 dollars.

    Table 19, Column II shows the number of entities as discussed in 
this section. Table 19, Column III shows revenues that were reported 
for 2009 in the Survey of Annual Services (http://www.census.gov/services/sas_data.html). Table 19, Column IV shows the costs to health 
care providers for implementation of the HPID, as described in the RIA. 
The estimated high range of costs was used. Table 19, Column V shows 
the percent of the small entity share of implementation costs as a 
percent of the small entity revenues.

K. Conclusion for the HPID and NPI

    We use a baseline threshold of 3 percent of revenues to determine 
if a rule would have a significant economic impact on affected small 
entities. The anticipated economic effect of this rule on small 
entities would not exceed or even come close to meeting this threshold. 
Based on the foregoing analysis, we certify that this proposed rule 
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 proposed rule.

[[Page 22989]]

L. Alternatives Considered for the ICD-10

    Faced with growing evidence that a group of providers would not be 
ready for the transition to ICD-10, and the possibility that payment 
for millions of health care claims would be delayed, we considered a 
number of options before proposing a 1-year delay in the compliance 
date in this proposed rule.
1. Option 1: Maintain October 1, 2013 Deadline
    Segments of the health care industry have expressed strong support 
for staying the course regarding the 2013 date. Many health plans, 
large hospitals, physician practices, and IT vendors have already made 
large investments upgrading systems, hiring personnel for the 
transition, and making other preparations for implementation. There is 
a financial and psychological momentum toward implementing ICD-10 that 
may be disrupted by a delay. According to the Edifecs poll, ``a 
potential delay of the ICD-10 compliance deadline could have far 
reaching--and highly negative--impact to the health care industry's 
effort to implement the mandate.'' \45\
---------------------------------------------------------------------------

    \45\ Edifecs poll, 2012.
---------------------------------------------------------------------------

    A major health informatics association, citing the large 
investments that providers, health plans, academic programs, and others 
have made in creating new jobs, upgrading systems, deploying new EHR 
systems, and other efforts has urged no delay in the ICD-10 2013 
compliance date.\46\ Likewise, due to the long lead time required for 
textbook development and publication, authors and educational 
institutions have already changed their textbooks and coding curricula 
to ICD-10. One university coding program has expressed concern that its 
30 coding students would have to revert to learning ICD-9 codes and 
take additional classes to gain proficiency with ICD-9, at a cost of 
$2,036 per student, so that upon graduation they will be employable in 
an ICD-9 environment should the compliance date for ICD-10 be delayed. 
Other institutions, such as medical schools that include coding as part 
of their curricula, technical and vocational schools, community 
colleges and other entities that offer coding training, would 
experience similar challenges with a delayed ICD-10 compliance date.
---------------------------------------------------------------------------

    \46\ Letter to Kathleen G. Sebelius, Secretary, U.S. Department 
of Health and Human Services, from American Health Information 
Management Association (AHIMA), February 23, 2012.
---------------------------------------------------------------------------

    Hospitals also report extensive ICD-10 financial investments in 
information technology systems re-programming, business process 
changes, and staff training premised upon the October 1, 2013 
compliance date. While a major hospital association has advocated 
retaining the October 1, 2013 compliance date, it still welcomed a 
review of the date as a delay could benefit smaller hospitals with 
fewer resources to invest in ICD-10 implementation.\47\
---------------------------------------------------------------------------

    \47\ ``CMS Hints at Delay in ICD-10 Implementation Deadline,'' 
HCPRO Web site, February 14, 2012, http://www.hcpro.com/HOM-276578-6962/CMS-hints-at-delay-in-ICD10-implementation-deadline.html
---------------------------------------------------------------------------

    Nevertheless, it is clear that a significant number of health care 
entities will not be prepared to meet the October 1, 2013 ICD-10 
compliance date. Reasons for this vary--entities may not have altered 
their systems, thoroughly analyzed their processes, changed their 
forms, prepared for training their personnel, or begun testing their 
internal systems. Regardless of the reason entities will not be able to 
achieve compliance, given the substantial effect that delayed claim 
payments would have on health care delivery industry-wide, a delayed 
compliance date appears to be warranted.
    As demonstrated in the impact analysis in this proposed rule, we 
anticipate that a substantial number of small providers (medical 
practices of between 1 to 5 physicians), would not be ready to use ICD-
10-CM codes by the October 1, 2013 compliance date. If 25 percent of 
physician claims were to continue to be submitted using ICD-9 codes 
after an October 1, 2013 compliance date, millions of claims would 
likely be returned and physicians might experience devastating cash 
flow problems. Lack of reimbursement could force practices to shut 
down, making medical services inaccessible to patients and/or forcing 
physicians to ask patients to pay up front, out-of-pocket, for medical 
services, which, aside from being barred by the terms of some insurance 
programs, would be extraordinarily burdensome to patients.
    Although we believe that a majority of the health care industry 
supports maintaining the October 1, 2013 ICD-10 compliance date and is 
justly concerned that the ill-preparedness of a minority of the 
industry might adversely affect its efforts to achieve timely 
compliance, as we stated in the January 2009 final rule, successful 
ICD-10 compliance is dependent on all industry segments being ready for 
ICD-10 at the same time. More importantly, we believe that concern for 
patient well-being and physicians' continued rendering of health care 
services must be a prime consideration. We have determined that 
maintaining the October 1, 2013 ICD-10 compliance date could disrupt 
significant numbers of physicians' reimbursements, which in turn could 
jeopardize patient care.
2. Option 2: Maintain the October 2013 Compliance Date for ICD-10-PCS 
(Procedure Coding) and Delay the Compliance Date for ICD-10-CM 
Diagnosis Codes Only
    We also considered a split implementation alternative: Maintaining 
the compliance date for ICD-10-PCS, which is used for inpatient 
hospital procedure coding only, at October 1, 2013, while delaying the 
compliance date for ICD-10-CM, the diagnosis codes used by physicians, 
to some later date, for example October 1, 2015. The rationale for this 
option was that hospitals, with their greater access to resources, 
would be in a better position to move forward with ICD-10-PCS, which 
would result in at least partial compliance with the October 1, 2013 
date. This option would also afford small providers additional time to 
become compliant with the ICD-10-CM diagnosis codes.
    However, after analysis, we discerned that this option held the 
potential for penalizing hospitals in that they would effectively have 
to implement ICD-10 twice: Once in 2013 for ICD-10-PCS and then again 
in 2015 for ICD-10-CM, increasing their implementation costs. This 
option also held great potential for confusion among providers and 
payers.
3. Option 3: Forgo ICD-10 and Wait for ICD-11
    The option of foregoing a transition from ICD-9 to ICD-10, and 
instead waiting for ICD-11, was another alternative that was 
considered. This option was eliminated from consideration because the 
World Health Organization, which creates the basic version of the 
medical code set from which all countries create their own specialized 
versions, is not expected to release the basic ICD-11 medical code set 
until 2015 at the earliest.
    From the time of that release, subject matter experts state that 
the transition from ICD-9 directly to ICD-11 would be more difficult 
for industry and it would take anywhere from 5 to 7 years for the 
United States to develop its own ICD-11-CM and ICD-11-PCS versions.\48\
---------------------------------------------------------------------------

    \48\ Rhonda Butler, ``Why we can't skip ICD-10 and go straight 
to ICD-11,'' Healthcare Finance News, March 29, 2012;
    Carl Natale, ``Why we're not ready to plan ICD-11 
implementation,'' ICD10Watch, February 20, 2012, http://www.icd10watch.com/, ''ICD-10 Frequently Asked Questions,'' American 
Health Information Management Association (AHIMA), http://www.ahima.org/ICD10/faqsall.aspx#36.

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

[[Page 22990]]

4. Option 4: Mandate a Uniform Delay in Compliance Date for ICD-10
    The fourth option considered was a uniform delay in the compliance 
date for both ICD-10-CM and ICD-10-PCS. The advantage to contemplating 
an across-the-board delay was that it would yield a single compliance 
date among all industry segments. Contemplating such an option gave 
rise to a secondary question--what length of delay would be 
appropriate?
    Using the existing October 1, 2013 compliance date as a starting 
point, we looked at the potential impact of delaying compliance to 
October 1, 2015. While offering, in effect, an additional 3-year 
implementation timeline (from 2012 through 2015), a delay to 2015 would 
have damaging effects on industry and on the transition to ICD-10 in 
general. The Edifecs poll found that nearly 70 percent of respondents 
felt that a two-year delay would be either ``potentially catastrophic 
or cause an unrecoverable failure,'' and that ``a delay of longer than 
a year will likely freeze budgets, slow down schedules, or stop work 
altogether.'' \49\ A mere 2 percent of Edifecs respondents said there 
would be a benefit to a 2-year delay. Entities' difficulties would 
likely include having to modify their preparation now (likely through 
actions like staff layoffs or terminating contracts), only to have to 
hire other staff or enter into new or revised contracts later.
---------------------------------------------------------------------------

    \49\ Edifecs poll, 2012.
---------------------------------------------------------------------------

    Based upon the methodology and baseline estimates from the RIA that 
follows, we estimate it will cost health plans up to an additional 30 
percent of their current ICD-10 implementation budgets for a 1-year 
delay. We can assume, therefore, that a 2-year delay would be at least 
double the cost; that is, a 2-year delay would cost at least $13 
billion for all commercial and government health plans.
    An informal survey of State Medicaid programs also indicated that 
an October 1, 2015 compliance date may be problematic for some States 
that are undergoing IT-intensive Medicaid Management Information System 
(MMIS) transitions that same year.
    Extending the ICD-10 compliance date to October 1, 2015 would 
likely result in having to lift the current code set freeze, as the 
industry could not wait an additional 2 years for maintenance updates 
to the medical data code sets. A code set freeze is a suspension of 
updates to code sets, in this case, ICD-9. Updates to code sets are 
usually necessary on an annual basis in order to encompass new 
diagnosis and procedure codes that capture new technologies or 
diseases. The ICD-9-CM Coordination and Maintenance Committee 
implemented a partial code set freeze of the ICD-9-CM and ICD-10 codes 
prior to the October 1, 2013 ICD-10 compliance deadline. On October 1, 
2012, there will be only limited code updates to both the ICD-9-CM and 
ICD-10 code sets to capture new technologies and diseases as required 
by section 503(a) of Pub. L. 108-173. On October 1, 2013, there will be 
only limited code updates to ICD-10 code sets to capture new 
technologies and diagnoses as required by that same provision, while no 
updates will be made to the then-obsolete ICD-9-CM. On October 1, 2014, 
regular updates to ICD-10 will begin. For more information on the code 
set freeze, see http://www.cms.gov/ICD9ProviderDiagnosticCodes/Downloads/Partial_Code_Freeze.pdf.
    Lifting the code set freeze would result in the release of 
potentially thousands of changes to the ICD-10-CM and ICD-10-PCS code 
sets, all of which would have to be re-programmed into systems in order 
to be ready for an October 1, 2015 compliance date, at considerable 
industry cost. The Medicare fee-for-service health plan estimated that 
the cost for re-programming just one of its systems due to a code set 
freeze lift would result in, at minimum, $1 million in additional 
expense. If each of the nation's approximately 1,887 health plans 
incurred a similar cost, it would translate into a minimum additional 
expense of nearly $2 billion.
    A 2-year delay in the ICD-10 compliance date may also signal a lack 
of HHS' ICD-10 commitment, potentially engendering industry fear that 
there could be another delay in, or complete abandonment of, ICD-10 
implementation, with subsequent heavy financial losses attributable to 
ICD-10 investments already made. Industry representatives also 
expressed concern about the loss of momentum in progress toward ICD-10 
compliance that would result from a 2-year compliance extension.\50\
---------------------------------------------------------------------------

    \50\ Edifecs poll, 2012: And February 28, 2012 Letter In Regards 
to ICD-10, Implementation Date Delay to Denise M. Buenning, 
Director, Administrative Simplification Group, Office of E-Health 
Standards and Services (OESS), from Maria Buonos, Business 
Development Manager, Wolters Kluwar Law & Business.
---------------------------------------------------------------------------

5. Conclusion
    We believe a 1-year delay in compliance with ICD-10-CM and ICD-10-
PCS achieves a balance between the needs of those who have already 
taken the initiative to plan for on-time compliance with ICD-10 and the 
need for small providers and small hospitals to have additional time to 
become ICD-10 compliant. While not without additional costs, a 1-year 
delay to October 1, 2014 represents what we consider to be a reasonable 
compromise. Short of maintaining the 2013 date, delaying ICD-10-CM and 
ICD-10-PCS by 1-year does the least to disrupt existing implementation 
efforts, while affording the small provider community an additional 
year to become compliant. A 1-year delay does not significantly 
penalize those that have made significant investments to become 
prepared to implement ICD-10 and better maintains momentum than would a 
2-year delay.
    Any ICD-10 delay decision must be accompanied by increased industry 
and Departmental efforts, including further outreach and education, and 
joint pilot testing, to ensure that small providers and hospitals 
achieve compliance. Additionally, a 1-year delay means that the current 
code freeze--which was not contemplated in either the ICD-10 proposed 
or final rules--could be maintained, avoiding costly systems 
reprogramming. Finally, as opposed to the likely significant impact of 
a possible 2-year delay, a 1-year delay allows the industry to maintain 
momentum already achieved in readying for the current October 1, 2013 
compliance date.
    We invite industry and stakeholder comment on all of our ICD-10 
compliance date alternatives and assumptions.

M. Impacted Entities--ICD-10

    All covered entities may be affected by a delay in the compliance 
date of ICD-10 as proposed in this rule. 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.
    Table 7 outlines the number of covered entities that may be 
affected by a delay in ICD-10, along with the sources of those data. 
These are the same entities that will be affected by HPID.
    While covered entities are required to transition to ICD-10, many 
other entities not required to abide by HIPAA (such as workers' 
compensation

[[Page 22991]]

programs and automobile and personal liability insurers) currently use 
ICD-9 for a variety of purposes. Because their operational and business 
needs often intersect with covered entities, for practical and business 
purposes these other entities may voluntarily transition to ICD-10 
alongside HIPAA covered entities. ICD codes are used in nearly every 
sector of the medical and health industry.

N. Scope and Methodology of the Impact Analysis for ICD-10

    This impact analysis estimates the costs and benefits of a proposed 
delay in required compliance with ICD-10. We are analyzing only the 
impact of a delay, not the impact of ICD-10 implementation that we 
addressed in the August 2008 ICD-10 proposed rule (73 FR 49476) and the 
January 2009 ICD-10 final rule (74 FR 3328).
    Despite the broad utilization of ICD codes that extends beyond 
covered entities, with one exception our analysis is restricted only to 
those entities as only they fall under the auspices of this rule. With 
respect to health care providers, only health care providers that 
transmit health information in electronic form in connection with a 
transaction for which the Secretary has adopted a HIPAA transaction 
standard are considered covered entities. The one area where we provide 
additional analysis is the cost to educational institutions to educate 
students being trained in ICD-10 coding because such training costs 
have been of particular concern to industry and have been included in 
the August 2008 and January 2009 ICD-10 proposed and final rules' cost 
analyses.
    Moreover, while we assume that a delay in the implementation of 
ICD-10 will affect a broad range of health care providers, as 
illustrated in Table 7, we only examine the costs and benefits of a 
delay on two types of health care providers: Hospitals and physician 
practices. We do not analyze the impact on other industry sectors, 
including, but not limited to, nursing and residential care facilities, 
dentists, durable medical equipment (DME) suppliers, or pharmacies for 
various reasons. Consistent with our previous impact analysis in the 
2008 ICD-10 proposed rule, we continue to have very little data on the 
use of EDI among dentists, DME suppliers, nursing homes, and 
residential care facilities. The lack of data for these types of health 
care providers has been noted in other studies on administrative 
simplification.\51\ We assume that the greatest benefits will be gained 
by hospitals and physician practices as they conduct the majority of 
standard transactions, although it cannot be assumed that the costs 
will necessarily be borne by physician practices and hospitals only. We 
have not included an analysis of the impact on pharmacies because 
pharmacies typically do not use ICD codes in their routine course of 
business so we assume there is no impact on pharmacies. We welcome 
comment regarding our assumptions.
---------------------------------------------------------------------------

    \51\ ``Excess Billing and Insurance-Related Administrative 
Costs,'' by James Kahn, in The Healthcare Imperative; Lowering Costs 
and Improving Outcomes: Workshop Series Summary, edited by Pierre L. 
Yong, Robert S. Saunders, and Leigh Anne Olsen, Institute of 
Medicine of the National Academies, the National Academies Press, 
Washington, DC: 2010.
---------------------------------------------------------------------------

    We include health care clearinghouses and transaction vendors as 
affected entities in Table 7. Transaction vendors are entities that 
process claims or payments for other entities such as health plans. 
Transaction vendors may not meet the HIPAA definition of health care 
clearinghouse, but, as used in this context, health care clearinghouses 
would constitute a subset of transaction vendors. Payment vendors would 
be a type of transaction vendor--a transaction vendor that 
``associates'' or ``reassociates'' health care claim payments with the 
payments' remittance advice for either a health plan or provider. For 
our purposes, transaction vendors do not include developers or 
retailers of computer software, or entities that are involved in 
installing, programming or maintaining computer software. Health care 
clearinghouses and transaction vendors will be impacted because they 
will need to transition their systems to accept ICD-10 codes. However, 
we did not calculate costs and benefits to health care clearinghouses 
and transaction vendors in this cost analysis because, as in our 
previous impact analysis in the August 2008 ICD-10 proposed rule, we 
assume that any associated costs and benefits will be passed on to the 
health plans or providers and will be included in the costs and 
benefits we apply to health plans or providers.
    Although self-insured group health plans meet the HIPAA definition 
of ``health plan,'' we did not include them in this impact analysis. 
While self-insured group health plans will be required implement ICD-
10, we assume that, with a few exceptions, such plans do not send or 
receive HIPAA electronic transactions because most are not involved in 
the day-to-day activities of a health plan and outsource those services 
to TPAs or transaction vendors.
    However, we do include TPAs in this RIA. Although TPAs do not meet 
the definition of ``health plans'' and therefore are not required by 
HIPAA to use code sets such as ICD-10, as a practical matter they will 
be required to make the transition in order to continue to conduct 
electronic transactions on the part of self-insured plans. However, the 
impact of a delay of the compliance date of ICD-10 on TPAs will be 
similar to the commercial insurer cost/benefit impact profile since 
they serve a similar function and will have to implement and test their 
systems in the same manner as health plans. Therefore, when we refer to 
``commercial health plans'' in this RIA we will be including TPAs, and 
we include all TPAs in the category of ``small health plans'' in the 
RFA.
    Software vendors will incur considerable responsibility and cost 
with respect to ICD-10 implementation, but we do not analyze the cost 
of delay to software vendors as they ultimately pass their costs to 
their clients.

O. Cost Avoidance of a 1-Year Delay in the ICD-10 for the Health Care 
Industry

    Our analysis of industry benefit is based on cost avoidance. That 
is, we anticipate that there will be greater costs associated with the 
current compliance date for ICD-10 of October 1, 2013 than if the 
compliance date were to be delayed 1 year, as proposed in this rule. 
Therefore, our analysis will demonstrate the costs associated with the 
current compliance date of October 2013, and apply those as savings or 
benefits attributable to a delayed compliance date.
    The assumption behind these savings is that a specific number of 
physicians and hospitals will not be prepared to use ICD-10 by the 
compliance date of October 1, 2013. This lack of readiness would 
engender a number of costly consequences.
    Estimates on the benefit of a 1-year delay are subject to 
considerable variation. A delay in the ICD-10 compliance date increases 
the opportunity for a successful, timely transition and provides an 
opportunity to reduce disruptions in health care delivery and payment. 
A basic assumption in this projection of a benefit is that entities 
will take the 1-year delay to become compliant and to conduct robust 
testing as discussed previously. This is possible, but by no means 
inevitable, even if a vigorous public/private campaign is undertaken to 
promote and assist with compliance and testing.

[[Page 22992]]

    In order to make these projections on cost avoidance, we must first 
estimate the number of physicians and hospitals that we expect will not 
be capable of successfully making the transition to ICD-10 on October 
1, 2013 such that that their claims would be rejected or returned by 
health plans. We base our assumptions on CMS' recent assessment survey. 
The survey was an assessment of health care providers, payers, and 
vendors to determine their awareness of and preparation for the 
transitions to ICD-10 and Version 5010. The research was conducted 
November 1 through December 5, 2011. Table 20 illustrates the number of 
survey participants from the specific health care entity:

      Table 20--Categories of Participants of CMS Readiness Survey
------------------------------------------------------------------------
                                   Payers Including
                                     directors or      Vendors Including
                                   higher at health   managers at health
Providers Including hospital and       insurance           IT system
  pharmacy chain administrators   companies, managed      developers,
    and health care practice             care          billing services
            managers              organizations, and     and clearing
                                   pharmacy benefits   houses, outlined
                                       managers           as follows:
------------------------------------------------------------------------
192 = Provider practices with 10  45 = Private        33 = Software
 or fewer physicians.              payers.             vendors
45 = Provider practices with 11   43 = Public payers  2 = Clearinghouse
 or more physicians.               (for example,
                                   Medicaid,
                                   TRICARE).
50 = Small hospitals with 99 or   13 = Other insurer  22 = Third party
 fewer beds.                       (for example,       biller
                                   property and
                                   casualty).
117 = Large hospitals with 100    ..................  33 = Third party
 or more beds.                                         administrator
    Total: 404 providers........  101 payers........  90 Vendors
------------------------------------------------------------------------

    The questions in the survey were aimed at assessing the entities' 
self-reported readiness. We believe the question of compliance by 
October 1, 2013 is a good baseline from which to draw estimates, 
specifically with regard to providers, approximately a quarter of whom 
stated that they will not be compliant by the October 1, 2013 
compliance date. In general, the survey found no significant 
differences in the responses based on the size or type of provider, 
payer or vendor.\52\ Table 21 illustrates the self-reported assessments 
of readiness for ICD-10 among providers and the other sectors. Refer to 
Table 20 for descriptions of the sectors.
---------------------------------------------------------------------------

    \52\ Differences among provider subgroup categories are reported 
in the CMS Readiness Survey; however, for many questions and 
response options, the base sizes of respondents are too small to be 
eligibilityfor significance testing.

                               Table 21--Summary of CMS Readiness Survey Responses
----------------------------------------------------------------------------------------------------------------
                                                                            Additional
                                                                Will be     percentage  Do not know
                                                               compliant     will be     when they   Do not plan
                                                               by October   compliant     will be      on being
                                                                1, 2013    by December   compliant    compliant
                                                               (percent)     31, 2013    (percent)    (percent)
                                                                            (percent)
----------------------------------------------------------------------------------------------------------------
Providers...................................................           74           14           11            1
Payers......................................................           72           17            4            8
Vendors.....................................................           78            8           13            1
----------------------------------------------------------------------------------------------------------------

    This RIA will base the benefits of the proposed delay of the 
compliance date of ICD-10 on cost avoidance, as opposed to an actual 
financial savings or cost savings. That is, we are proposing that, by 
delaying the compliance date by 1 year, a number of costly, predicted 
consequences will be avoided. Therefore, we use the survey results from 
providers as our baseline for estimating the issues that may arise if 
the compliance date remains October 1, 2013. The providers must first 
code and initiate transactions with ICD-10. Ultimately, the costs of 
noncompliance--returned unpaid claims--will be borne by the providers.
    Based on the CMS readiness survey, we will use the percentage of 
providers who believed they would not be compliant by October 1, 2013 
(26 percent) as our high estimate and the percentage of providers who 
believed they would not be compliant by December 31, 2013 (12 percent) 
as our low estimate. We use 12 percent as the low estimate because that 
percentage seems to indicate that only 12 percent of providers believe 
they will miss the compliance date by more than 3 months. It is 
reasonable to assume that, with some tools and careful planning, some 
to all of the 14 percent of providers that believe they are within 3 
months of making the October 1, 2013 could be assisted in meeting the 
compliance date. Therefore, we estimate that 12 to 26 percent of 
providers will not have achieved ``readiness'' by the October 1, 2013 
compliance date.
    We recognize that the providers that were surveyed in the CMS 
readiness survey do not represent all the various categories of 
providers, and did not include, for example: dentists, chiropractors, 
optometrists, mental health practitioners, substance use treatment 
practitioners, speech and physical therapists, podiatrists, home health 
care services, other ambulatory health care services, resale of health 
care and social assistance merchandise (durable medical equipment), and 
nursing and residential care facilities not associated with a hospital. 
However, as the survey did not find significant differences \53\ 
between the categories of providers surveyed, we will assume that the 
providers in the categories that were not surveyed would have similar 
experience with October 2013 readiness for ICD-10. Further, physician 
practices and hospitals submit the bulk of total

[[Page 22993]]

health care claims. Therefore, we have based our estimates of the cost 
of not delaying the compliance date of ICD-10 on the projection that 12 
to 26 percent of providers will not be ready or will not have 
appropriately tested for implementation of ICD-10 by October 1, 2013.
---------------------------------------------------------------------------

    \53\ Differences among provider subgroup categories are reported 
in the CMS Readiness Survey; however, for many questions and 
response options, the base sizes of respondents are too small to be 
eligibility for significance testing.
---------------------------------------------------------------------------

    We also recognize that the survey does not represent a 
statistically valid sample of providers, but we have no other recent 
data with which to base our readiness estimates. We welcome industry 
input and comment on our assumptions with regard to the readiness of 
covered entities.
    The total savings attributable to the 1-year compliance date delay 
is based on the premise that providers who are not ready for ICD-10 
will submit claims to payers that will be automatically returned 
beginning on the October 1, 2013 compliance date. Providers will then 
have to manually crosswalk ICD-9 to ICD-10 codes and ostensibly submit 
paper claims. (Alternately, providers who have not readied their 
systems or processes may proactively submit paper claims using ICD-10 
on October 1, 2013. We assume that the cost to these providers to 
manually crosswalk will entail similar costs to what would be required 
to resubmit returned claims, as the manual task will be similar in 
nature.) We calculate the cost avoidance of a 1-year delay in the 
compliance date of ICD-10 based on two probable scenarios: Returned 
claims will: (1) Cause expensive manual intervention on the part of 
both providers and health plans in order for the ``not ready'' 
providers to be paid; and (2) financially impact providers by 
potentially requiring them to take out loans or apply for lines of 
credit to be able to continue to provide health care in the face of 
delayed payments. We apply calculations to each of these scenarios in 
the analysis that follows. Although the cost to manually process 
returned claims will ostensibly occur from, roughly, October 1, 2013 
through March, 2014, for simplicity sake our calculations reflect a 
cost avoidance that is calculated for 1 year only--the year 2014.
    A halt to the payment process for 12 to 26 percent of all providers 
has a greater effect than requiring manual intervention and requiring 
business loans or lines of credit. In some cases, a payment delay may 
pose a serious threat to the continued operation of some providers. For 
example, many health care safety net clinics operate with no more than 
30 to 60 days of cash on hand, so any prolonged delay would threaten 
such entities' viability.
    We also anticipate that health care services for a great number of 
patients will be adversely affected or interrupted because providers 
will need to spend more time to obtain health care claim payments 
leaving less time to render health care services.
1. Cost Avoidance: Manual Processing of Returned Claims
    Using the estimate of 12 to 26 percent of providers who will not be 
ICD-10 compliant on October 1, 2013, we have calculated that 58 to 126 
million claims per month will be returned as unprocessable across the 
industry. We have estimated the cost of returned claims for health 
plans and for physician practices and hospitals that would follow the 
implementation of ICD-10 in Table 22, assuming that providers could not 
electronically transmit claims with ICD-10 codes for 6 months past an 
October 1, 2013 compliance date. From this calculation, based on the 
following assumptions, we estimate the cost to the health care industry 
to manually process returned claims for 6 months after an October 1, 
2013 compliance date to be approximately $2 to $5 billion. This is 
based on the following assumptions:
     The total number of health care claims in 2013 is 
projected to be 5.8 billion. This is an average of the low and high 
range estimates of total claims as calculated in the Modifications 
proposed rule.
     We use the percentage of providers that project they would 
not be compliant on October 1, 2013 to calculate the percentage of 
claims that will be returned (12 to 26 percent). This is a rough 
equivalency. However, the survey assessed both large and small 
physician offices and hospitals and found no significant difference in 
their readiness. As stated previously, we have projected the readiness 
of physician practices and hospitals, as estimated by the CMS readiness 
survey, as the readiness of all other providers (dentists, etc.). We 
believe the range of the estimate accounts for the great number of 
variables and unknowns inherent in this kind of calculation.
     We use the cost of pended claims to calculate the cost to 
health plans of returned claims. Returned claims are claims that will 
be automatically returned by health plans because their systems will 
not be able to accept the ICD-9 codes that the non-compliant providers 
will submit. Returned claims, in and of themselves, have no cost to 
health plans. Pended claims are claims that require manual intervention 
by the health plan to be processed for payment. While we assume that 12 
to 26 percent of all claims will be returned, we assume that these 
claims will be followed up by providers with calls or contacts with the 
health plans. Ultimately, it is probable that health plans will have to 
manually intervene with the claims submitted in ICD-9, and therefore 
the cost of these returned claims will be similar to the cost of pended 
claims for health plans. The cost to health plans for manually 
processing a pended claim is $2.30 per claim.\54\
---------------------------------------------------------------------------

    \54\ ``An Updated Survey of Health Care Claims Receipt and 
Processing Times,'' May 2006, American Health Insurance Plans (AHIP) 
Center for Policy and Research. Cost in 2006 was $2.05 per claim. We 
have adjusted the cost to 2012 dollars.
---------------------------------------------------------------------------

     According to the Medical Group Management Association 
(MGMA), the staff time required to manually process a returned claim is 
15 minutes,\55\ at a cost of approximately $4.14 for labor, a factor 
derived from the Bureau of Labor Statistics.\56\ This includes staff 
time spent to correct the error and resubmit claims that are returned.
---------------------------------------------------------------------------

    \55\ ``Project Swipe IT Savings Model,'' 2009, citing a LEARN 
Research median figure.
    \56\ For billing and posting clerks in physician offices, 
Department of Labor, 2010 dollars.
---------------------------------------------------------------------------

    We are basing our estimates on the cost to manually process health 
care claims, both to the provider and to the health plan. However, it 
should be clear that these claims, so long as they are otherwise 
properly payable, would ultimately be paid. The impact to providers is 
not that they will lose money from claims altogether. Rather, it will 
take costly staff time for the providers to resubmit properly coded 
claims in order to receive payment, and it will take costly staff time 
for the health plan to manually process and pay the claims. We welcome 
comments on this analysis and these assumptions.

[[Page 22994]]

 table 22--Cost Avoidance in 2014 for Health Plans and Providers Attributable to a Delay in the Compliance Date
                                                   of ICD-10 *
----------------------------------------------------------------------------------------------------------------
                                         LOW to HIGH cost of
                                         processing returned      LOW to HIGH cost of
LOW to HIGH number of claims returned    claims manually for      returned claims for     LOW to HIGH total over
              per month                  health plans over 6    providers over 6 months          6 months
                                                months
----------------------------------------------------------------------------------------------------------------
58 to 126 million....................  $800 to 1,700 million..  $1.5 to 3 billion......  $2.2 to 4.7 billion
----------------------------------------------------------------------------------------------------------------
* Calculated in 2012 dollars.

2. Cost Avoidance: Interest on Loans and Lines of Credit
    The time between when a provider originally submits the claim and 
when the provider finally gets paid will be considerably longer than if 
the claim were an electronically submitted ``clean'' claim; that is., a 
claim for which no additional information or intervention is needed. 
During this time, providers, specifically small physician practices, 
will need to have cash on hand in order to ``keep the doors open'' by 
paying salaries, staying current with contract and lease obligations, 
purchasing equipment and medicines, and maintaining the physical plant. 
In some cases, in order to continue as a health care provider, this 
will require a business loan or a line of credit with interest.
    In Table 23, we estimate the costs in terms of interest if 12 to 26 
percent of physician practices were required to take out a loan in 
order to continue to provide health care services. We use the following 
assumptions in the calculation:
     Using data from the National Health Expenditures 
Projections 2010 to 2020, we calculate the average expenditure per 
physician practice.\57\
---------------------------------------------------------------------------

    \57\ The Center for Medicare & Medicaid Services (CMS), 
``National Health Expenditure Data,'' https://www.cms.gov/NationalHealthExpendData/.
---------------------------------------------------------------------------

     We assume that 12 to 26 percent of physician practices (or 
28,107 to 60, 898 providers who would not be ready for the ICD-10 
transition) times the average expenditure per physician practice over 
half a year would be equal to the monetary amount in payments that 
would be delayed.
     As per the most recent estimate by the Federal 
Reserve,\58\ we use 7.6 percent as the average interest rate on a small 
business loan from $100,000 to $1 million.
---------------------------------------------------------------------------

    \58\ ``Small Business Rate Report,'' Friday, March 16, 2012, 
http://www.businessweek.com/smallbiz/resources/rate_report/lenders.htm.
---------------------------------------------------------------------------

    Based on these assumptions, we estimate the cost avoidance for 
physician practices to be between $1.4 to $3 billion if interest on 
loans to cover delayed payments were to accumulate over 6 months. 
Although these avoidable costs will ostensibly occur at the end of 2013 
through 2014, for simplicity sake we have calculated the cost avoidance 
as occurring in 2014.
    For this calculation, we make no distinction between large or small 
physician practices, though we assume that the 12 to 26 percent of 
providers that may not be ready for the October 1, 2013 compliance date 
are mostly small physician practices. Because we make no distinction 
between the size of physician practices, however, our cost avoidance 
may be high because we are basing our calculation on an average dollar 
amount per physician practice that will be delayed. It is likely that 
the average expenditure per physician practice is much higher than the 
actual expenditure per small physician practices. While there is a high 
level of uncertainty in terms of all of our assumptions, we think it 
illustrative to make the calculation in order to demonstrate the affect 
that a delay in payments will have on small physician practices. In 
this RIA, we only account for interest on loans taken out by the 12 to 
26 percent of providers that do not anticipate being compliant with 
ICD-10 to cover delayed payments. We did not account for any possible 
interest accrued by payers that retain claim payments in our 
calculations, because we do not have sufficient information on the 
financing vehicles used by payers to pay claims. We welcome comments on 
our assumptions and calculations.

          Table 23--Cost Avoidance in 2014 for Physician Practices Based on Interest on Borrowed Funds
----------------------------------------------------------------------------------------------------------------
                                      Expenditure
                                       over six
                                      months per
                                       physician
                                      practice in   LOW to HIGH amount of
                                      millions =    delayed payments over    Avg Annual
Percent of providers that will not      (annual     a six month period in   interest rate   LOW to HIGH Cost to
   be ready for October 1, 2013     expenditure on  millions (% not ready     on small     providers in interest
          compliance date              physician    * number of physician  business loans       in millions
                                      practices)         practices) *         (Federal
                                      divided by       (expenditure per    Reserve, 2011)
                                     ( of        practice)
                                       physician
                                      practices)
                                     divided by 2
----------------------------------------------------------------------------------------------------------------
12% to 26%........................            $1.3  $36,450 to $78,975...           0.076  $1,385 to $3,000
----------------------------------------------------------------------------------------------------------------
* In 2012 dollars

P. Costs for ICD-10

    The cost of a 1-year delay falls on the health care entities that 
are already far along on their preparation for ICD-10. In summarizing 
its February 2012 poll, Edifecs noted that:

    ``Many entities have brought ICD-10 subject matter experts on 
board with defined term contracts. A 1-year delay means entities 
will have to choose between two unpleasant scenarios: Either extend 
the contract or terminate the contract* * * Most entities will 
likely choose [to extend the contract] and retain the expertise they 
already have.

[[Page 22995]]

Many are also concerned about the added costs of maintaining 
technology resources, such as test regions, for an extended time 
period. Unfortunately, this means most organizations will incur a 
much greater cost to implement ICD-10 than originally anticipated.'' 
\59\
---------------------------------------------------------------------------

    \59\ Edifecs poll, 2012.

1. Costs of a 1-Year Delay of Implementation of ICD-10 for Health Plans
a. Cost for Commercial Health Plans and TPAs
    Health plans are a varied group in terms of size, and the cost of a 
delay is calculated using a range that reflects this variance. We 
assume that system costs for health plans to transition to ICD-10 have 
already been budgeted and funds already spent. A delay of a year for 
ICD-10 compliance primarily will allow entities more time to thoroughly 
test, but the testing and the continued maintenance of contracts and 
personnel required for the transition will be 1 year longer than was 
originally budgeted. In fact, one of the main issues for entities that 
argue against a delay is the concern that their companies would divert 
funds currently dedicated to the transition to ICD-10 to other 
priorities.
    We use the following assumptions in calculating the costs for 
health plans of a 1-year delay in the ICD-10 compliance date.
     We assume that continued training, testing, and retention 
of personnel and contracts will cost plans an additional 10 to 30 
percent of what health plans have already budgeted on the ICD-10 
transition to date. We have based this range approximately on the 
Edifecs poll. The Edifecs poll found that, ``Forty-nine percent 
estimated that every year of delay would increase their required budget 
between 11 and 25 percent, while another 37 percent estimated the 
increase would be somewhere between 26 and 50 percent.'' \60\ We 
summarize this by approximating that nearly 86 percent of respondents 
of the Edifecs poll would agree that the cost of a 1-year delay is at 
least in the range of 10 to 30 percent of currently budgeted 
implementation costs.\61\
---------------------------------------------------------------------------

    \60\ Ibid.
    \61\ The Edifecs poll found that ``Forty-nine percent estimated 
that every year of delay would increase their required budget 
between 11 and 25 percent, while another 37 percent estimated the 
increase would be somewhere between 26 and 50 percent.''
---------------------------------------------------------------------------

     We analyzed the costs that were estimated in studies by 
the HayGroup, Inc. (2006), \62\ the Robert E. Nolan Company (2003) \63\ 
the RAND Corporation (2004),\64\ and AHIP (2010).\65\ The estimates 
from the various studies on the costs to health plans are summarized in 
Table 24. These studies were authored before ICD-10 implementation 
began. Since these studies, we have actual health plan costs dedicated 
to the transition to ICD-10. However, we used some of the calculations 
that those studies employed in order to project the experience of a few 
health plans to the larger universe of all health plans.
---------------------------------------------------------------------------

    \62\ ``Examining the Cost of Implementing ICD-10,'' October 12, 
2006, White Paper Prepared by Thomas F. Wildsmith, HayGroup, Inc. on 
behalf of American's Health Insurance Plans.
    \63\ ``Replacing ICD-9-CM with ICD-10-CM and ICD-10-PCS: 
Challenges, Estimated Costs and Potential Benefits,'' October, 2003, 
prepared by Robert E. Nolan Company, October, 2003.
    \64\ Libicki, Martin and Brahmakulam, Irene, ``The Costs and 
Benefits of Moving to the ICD-10 Code Sets,'' March 2004, RAND 
Corporation, Prepared for the Department of Health and Human 
Services.
    \65\ ``Health Plans' Estimated Costs of Implementing ICD-10 
Diagnosis Coding,'' September, 2010, America's Health Insurance 
Plans, Center for Policy & Research.

    Table 24--Estimated Cost to Health Plans for Implementing ICD-10
                          According to Studies
------------------------------------------------------------------------
                                                    Estimated Total Cost
                                                     to Health Plans (in
                       Study                              millions)
                                                   ---------------------
                                                       LOW        HIGH
------------------------------------------------------------------------
Nolan (2003)......................................       $432       $913
RAND (2004).......................................        150        363
Haygroup (2006)...................................        384        868
ICD[dash]10 Proposed Rule (2008) *................        110        274
 AHIP (2010) **...................................      2,000      3,000
------------------------------------------------------------------------
* Estimate under ICD-10 Proposed Rule does not include training costs.
** AHIP study provided costs for specific sized health plans. We have
  projected those costs onto all the health plans.

     As a baseline, we use the analysis of ICD-10 costs 
conducted by the HayGroup, Inc. on behalf of AHIP in 2006. The HayGroup 
study analyzed the other ICD-10 cost studies that had been published up 
to that point and summarized their shared conclusions, including 
studies conducted by the Robert E. Nolan Company (2003) \66\ and RAND 
Corporation (2004).\67\ The HayGroup estimated implementation of ICD-10 
would cost national health insurers between $324 to $748 million, plus 
about 20 percent more in training costs. (The HayGroup estimate was 
approximately the average of the Nolan and Rand estimates.) The 
HayGroup had a high estimate for national health plans of $25 million 
for implementation (plus an implied $5 million for training). Recently, 
however, national health plans have announced that their budgets for 
ICD-10 add up to nearly $100 million.\68\
---------------------------------------------------------------------------

    \66\ Nolan, 2003.
    \67\ Libicki, 2004.
    \68\ Joseph Zubretsky, Aetna Chief Financial Officer and Senior 
Executive Vice President. Aetna Fourth Quarter 2011 Earnings Call 
Webcast (transcript), Feb. 1, 2012. Wayne S. Deveydt, WellPoint 
Chief Financial Officer and Executive Vice President. WellPoint 
Fourth Quarter 2011 Results Conference Call (transcript), Jan. 25, 
2012.
---------------------------------------------------------------------------

    In other words, the HayGroup high estimate appeared to be off by a 
factor of four in its projections. As illustrated in Table 25, we use 
$100 million as the high cost of implementing ICD-10 for national 
health plans, and $50 million as the low cost. This cost includes both 
system implementation and training. From that baseline, we have 
attributed costs for multi-regional, large, mid-sized, and small health 
plans, proportionate to the costs that are reflected in the HayGroup 
estimate.
     We calculate 10 to 30 percent of the total costs of health 
plans' ICD-10 system implementation and training as the range of costs 
for a 1-year delay.
     For simplicity sake, we have calculated all costs as if 
they occurred in the calendar year 2014.
    Health plans made and continue to make a large investment in 
preparing for ICD-10 based on the expectation that there would be a 
return on investment from the transition to a more robust code set. A 
1-year delay in the compliance date of ICD-10 will also postpone the 
expected time when health plans can expect to see a return on these 
investments (ROI). This delay in ROI will likely have negative impacts 
on health plans in terms of their business plans, budgeting, and 
investor relations. Because of the uncertainties in predicting impacts 
of this sort, we have not attempted to quantify any impact resulting 
from a delay in ROI for health plans. We welcome industry comment or 
guidance on impacts of this category.

[[Page 22996]]

                                                          Table 25--Cost in 2014 of a One-Year Delay in the Compliance Date of ICD-10 *
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                        Col. 1       Col. 2       Col. 3         Col. 4           Col. 5         Col. 6       Col. 7       Col. 8       Col. 9
                                                                    ----------------------------------------------------------------------------------------------------------------------------
                                                                                                               LOW total        HIGH total
                                                                                   LOW total    HIGH total  implementation/  implementation/  LOW percent      HIGH         LOW          HIGH
                     Health insurer categories                        Number of     cost per     cost per     training for     training for     of total    percent of  estimate of  estimate of
                                                                        health    health plan  health plan     all health       all health      cost for    total cost    one-year     one-year
                                                                        plans         (in          (in          plans in         plans in       one year     for one     delay (in    delay (in
                                                                                   millions)    millions)    category (Col.   category (Col.     delay      year delay   millions)    millions)
                                                                                                               1 * Col 2)      1 * Col. 3)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National...........................................................            6       $50.40       100.80        $302.40          $604.80             10           30       $30.24         $181
Multi Regional.....................................................            6        24.00        40.32         144.00           241.92             10           30        14.40           73
Large..............................................................           75        14.40        24.19        1080.00          1814.40             10           30       108.00          544
Mid[dash]Sized.....................................................          325         3.60         6.05        1170.00          1965.60             10           30       117.00          589
TPAs and Small Health Plans........................................         2166         1.20         2.02        2599.20          4366.66             10           30       259.92         1310
                                                                    ----------------------------------------------------------------------------------------------------------------------------
Total..............................................................  ...........  ...........  ...........  ...............  ...............  ...........  ...........          530        2,698
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
* Calculated in 2012 Dollars.

b. Cost of a One-Year Delay for CMS Health Plans
    The Medicare program reports that it is prepared to be ICD-10 
compliant on October 1, 2013. CMS components affected by an ICD-10 
transition delay estimate that there will be additional costs for 
extending contracts for systems programming and testing work and 
extended staff training and associated development costs. It is 
estimated that a 1-year delay in ICD-10 compliance would be reflected 
by additional work at an estimated total cost of $5 to $10 million in 
addition to funding already requested for the coming fiscal years.
c. Cost of a One-Year Delay in the Compliance Date of ICD-10 for State 
Medicaid Agencies
    State Medicaid Agencies (SMAs) were queried informally during 
routine status update calls in February 2012 regarding potential 
mitigation strategies for ICD-10 implementation. Thirty-nine SMAs 
responded, representing all regions of the country from predominantly 
rural to densely populated States. We have extrapolated from these 
responses as best we could to present a quantitative assessment of 
costs and benefits.
    The responses were clearly split between 46 percent predicting more 
benefits than detriments to a delay in the compliance date of ICD-10 
and 37 percent indicated that any delay would prove more detrimental 
than beneficial to their transition to ICD-10. Another 10 percent 
specifically indicated a delay of 1 year would be preferred even though 
a 1 year delay was not a specific option they were asked to consider. 
Of the 46 percent of States that indicated benefits to delay, many 
cited opportunities to improve testing and risk mitigation strategies. 
Another important benefit seen was the ability to spread out 
implementation costs over one or more additional fiscal years. A few 
indicated they would slow or even stop their existing efforts.
    Of the 37 percent of States reporting indicated any delay would be 
detrimental, most indicated additional costs associated with 
maintaining or sustaining ICD-10-related contracts and staff resources 
and potential risks for significant losses of momentum and funding. The 
10 percent of SMAs opposed to a delay longer than 1 year expressed 
concerns that longer delays would put funding and the priority status 
of ICD-10 projects at risk.
    One predominantly rural SMA estimated that a 1-year delay could 
potentially result in a cost increase of over $4 million to their 
overall project. This increase would be due, primarily, to costs 
associated with maintaining contracts and the project staffs.
    Two SMAs specifically reported significant numbers of providers in 
the States that were lagging in preparation and planning. Additionally, 
they indicated the complications with the Version 5010 transition is 
resulting in less time and fewer resources available for ICD-10. Many 
of the resources that would have been working on ICD-10 remediation 
were still committed to the Version 5010/D.0 implementation for both 
SMAs and many providers.
    We note that the types of concerns elicited by SMAs were very 
similar to those expressed in the Edifecs poll. The further along a SMA 
was in its implementation, the more likely it was to view a delay as 
being costly or burdensome and to characterize delays longer than a 
year as placing their conversion efforts at great risk for losses of 
funding and key resources. At the same time, many felt they could make 
good use of a 1 year delay to delay to improve the quality of their 
testing and risk mitigation strategies.
    Those most supportive of delay were those SMAs with less mature 
projects and with few committed resources.
    In Table 26, we calculate the cost to SMAs of a 1-year delay in the 
compliance date of ICD-10. We use the following assumptions:
     Based on the informal poll of SMAs, we assume that 37 
percent or 20 SMAs would be ready for the October 1, 2013 compliance 
date. Therefore, the assumption is that 21 SMAs would be affected 
negatively by a delay.
     We assume that $4 million is the low estimate for a cost 
increase, as exemplified by the rural State that provided that 
estimate, while $7 million is the high estimate for a cost increase, as 
reported by an SMA. The high estimate is derived from a SMA that 
anecdotally described its costs per year of delay. For simplicity sake, 
we have calculated all costs as occurring in calendar year 2014.

    Table 26--Cost in 2014 to State Medicaid Agencies of a One-Year Delay in the Compliance Date of ICD-10 *
----------------------------------------------------------------------------------------------------------------
                                  LOW cost of a one-  HIGH cost of a one- LOW cost of a one-  HIGH cost of a one-
  Number of State Medicaid that     year delay per      year delay per      year delay for      year delay for
  would be negatively affected      state agency in     state agency in    Medicaid agencies   Medicaid agencies
                                       millions            millions           in millions         in millions
----------------------------------------------------------------------------------------------------------------
21..............................                 $4                  $7                 $83                $145
----------------------------------------------------------------------------------------------------------------
* In 2012 dollars.

[[Page 22997]]

2. Cost of a 1-Year Delay for Providers
    We expect that many, if not most, hospitals and large provider 
organizations have already spent funds in preparation for the ICD-10 
transition. As with health plans, any delay in compliance date will add 
costs because large providers must maintain the personnel and 
renegotiate contracts necessary to lengthen preparations an extra year. 
Likewise, large providers must maintain technological resources for an 
extra year.
    Although the expectation is that providers will conduct more robust 
and extensive testing than what may have been originally planned, to 
the extent possible we have not included any testing costs in our 
analysis of provider costs attributable to a 1-year delay. While 
continued maintenance of test regions and resources dedicated to 
testing will be costly with a 1-year delay, it is assumed that 
continued and more robust testing will make it more likely that there 
will be a decrease in costly post-production issues such as returned 
claims. Increased testing costs will theoretically translate to 
decreased post-production error costs, and, therefore, because there is 
significant potential for an offset of expense to savings, no costs or 
benefits will be attributed to an extra year of testing. Because the 
October 1, 2013 compliance date is more than a year out, it is likely 
that few small physician practices have invested a modest amount of 
money and resources into the implementation of and training for ICD-10, 
although they may have begun planning and budgeting for the transition 
and may have contracts in place with vendors to purchase tools to 
manage the transition. While we recognize that there will be costs, we 
assume that these costs are negligible and that the extra time to 
prepare for the transition, as will be possible with a 1 year 
compliance date delay, will be more beneficial than costly for small 
providers. Therefore, we will not include small providers (under 50 
physicians) in the cost analysis for providers.
    There is an expectation that a 1-year delay will give small 
providers more time to analyze their processes, change their forms, 
develop their super bills, negotiate with their vendors, and, most 
importantly, test before production. In fact, giving small providers 
more time to prepare is the main justification for the 1-year delay. As 
with large providers, however, we will not attach any costs to these 
planning and testing activities since they have already been considered 
as costs for implementation of ICD-10 in the January 2009 ICD-10 final 
rule.
    We use the following assumptions in calculating the costs for large 
providers of a 1-year delay, illustrated in Table 27:
     We use the Edifecs poll as a guide in establishing a range 
of costs for a delay of 1 year in implementing ICD-10 for providers. (A 
group of provider representatives participated in the survey.) We will 
use the ``HIGH'' and ``LOW'' estimate that the Edifecs poll suggests 
itself in its narrative: A 1 year delay will cost 10 to 30 percent of 
the costs that providers have spent or have budgeted for ICD-10 
transition.
     We will use costs estimated by an October 2003 study by 
the Robert E. Nolan company commissioned by the Blue Cross and Blue 
Shield Association.\69\ We employed this study, along with a March 2004 
RAND study, in the IDC-10 proposed rule. We considered, as well, an 
October, 2008 analysis on the impact of ICD-10 on physician practices 
and clinical laboratories by Nachimson Advisors, LLC.\70\ The Nachimson 
study, however, approached cost by examining three very specific 
provider environments (for instance, practices with 10 physicians) and 
included costs that would occur after the transition to ICD-10, such as 
increased documentation and claim inquiries.
---------------------------------------------------------------------------

    \69\ Nolan, 2003.
    \70\ ``The Impact of Implementing ICD-10 on Physician Practices 
and Clinical Laboratories: A Report to the ICD-10 Coalition,'' 
October 8, 2008, Nachimson Advisors, LLC.
---------------------------------------------------------------------------

    In general, the Nachimson study's costs were less than the Nolan 
study estimates, but because it is difficult to extrapolate the 
Nachimson study's conclusions to a meaningful cost estimate of a 1 year 
delay for all large providers, we have not used that study in this RIA. 
We have adjusted the Nolan study cost estimates to 2012 dollars.
     The number of physician practices and their categorization 
by size is derived from the Modifications proposed rule.
     The costs to physician practices and hospitals would 
probably be incurred during the year of the proposed delay in 
compliance date, from October 1, 2013 to October 1, 2014. For 
simplicity sake, we have calculated all costs to physician practices 
and hospitals as occurring over one calendar year, 2014.

               Table 27--Cost to Hospitals and Large Physician Practices In 2014 for One-Year Delay in the Compliance Date of ICD-10 1 2 3
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          LOW cost for 1- HIGH cost of 1-
                                                                                   Large      Mid sized    Total cost of   Yr delay (10%   Yr delay (30%
                                          Hospitals:   Hospitals:   Hospitals:   physician    physician       ICD-10        of current      of current
                                         400 or more    100-400     fewer than   practices   groups (50-  implementation  implementation  implementation
                                             beds         beds       100 beds    (over 100       100       (in millions)    costs) (in      costs) (in
                                                                                physicians)  physicians)                     millions)       millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of entities                               521         2486         2757          393          590
LOW Cost Per Entity (in millions)              $1.85        $0.62        $0.12        $2.46         $0.5
HIGH Cost Per Entity (in millions).....        $6.16        $1.85        $0.31        $7.39        $1.48
                                        ----------------------------------------------------------------------------------------------------------------
    Total LOW (in millions)............         $963       $1,531         $339         $968         $291         $4,093            $409          $1,227
                                        ----------------------------------------------------------------------------------------------------------------
    Total HIGH (in millions)...........        $3209       $4,594         $850       $2,905      $872.17         12,429           1,243           3,728
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Numbers are rounded, so totals may not reflect sum of numbers shown.
\2\ Adjusted to 2012 dollars.
\3\ High and low ranges from Nolan 2003, adjusted to 2012 dollars.

[[Page 22998]]

    Similar to health plans, we assume that hospitals and large 
physician practices have made, and continue to make, a large investment 
in preparing for ICD-10 based on the expectation that there would be a 
return on investment from the transition to a more robust code set. A 1 
year delay in the compliance date of ICD-10 will also postpone the 
expected time when these entities can expect to see a return on these 
investments. This delay in ROI will likely have negative impacts on 
these large providers in terms of their business plans, budgeting, and 
investor relations. Because of the uncertainties in predicting impacts 
of this sort, we have not attempted to quantify any impact resulting 
from a delay in ROI. We welcome industry comment or guidance on impacts 
of this category.
3. Cost of Delay to Students
    In the ICD-10 proposed rule, we presented an estimate of training 
costs to implementation of ICD-10. These training costs were calculated 
based on an estimated number of coders working in hospitals and 
ambulatory clinics and multiplying that number by a specific cost to 
train these coders.
    A delay in the implementation of ICD-10 will not substantially 
impact training costs because we assume that the training costs are 
already a part of any entity's budget and a change in compliance date 
will not change the amount of training that is necessary. However, one 
consequence of a 1 year delay to ICD-10 will be the impact to students 
who are now studying to become coders.
    Using the experience of one university's bachelor's-level health 
information management program, students take the ICD coding course in 
the spring of their junior year. Students enrolling in Spring 2012 
courses will graduate in May 2013. Anticipating the October 1, 2013 
compliance date, the university started offering ICD-10 courses this 
spring in place of ICD-9 with the understanding that it will be 
preparing students for employment after graduating in 2013. If ICD-10 
is delayed a year, as proposed in this rule, the 30 students in the 
program will have to take ICD 9 courses in addition to their ICD-10 
courses in order to obtain the ICD 9 competencies to get jobs. The 
extra course will cost each of the 30 students approximately $2,000 
(in-state tuition) or a total of $61,000.
    Taking the university experience, we have projected these costs on 
to students in college and university coding curriculum nationwide. We 
have illustrated our estimates in Table 28 and calculated all costs as 
occurring in 2014.
    Although the impact on students is small when compared to the cost 
for health plans, this impact illustrates some of the practical 
consequences of delay that will affect lives beyond the health care 
financial impacts.

Table 28--Cost to Students of a One-Year Delay in the Compliance Date of
                                ICD-10 *
------------------------------------------------------------------------
                                                               Cost to
                                                Number of     students/
                                              institutions  institutions
   Cost of coding courses for 30 students     that provide   to retrain
                                                 coding     in ICD-9 (in
                                                 courses      millions)
------------------------------------------------------------------------
$6,000......................................            68         $4.15
------------------------------------------------------------------------
* In 2012 dollars.

Q. Summary for ICD-10

    We summarize the low and high estimates of a 1-year delay in the 
compliance date for ICD-10 in Table 29. The total costs and cost 
avoidance of a proposed delay in the compliance date will likely be 
incurred over a 12 month period; however, due to the range in impacted 
entities, including educational institutions, those 12 months may span 
different dates and different budget periods. Further complicating the 
question of the timeframe in which the costs occur is the question of 
whether the cost should be calculated during the time it is incurred or 
in the budget period in which it is attributed. For instance, an 
educational institution may base its budget on a school year, September 
to August, while health plans and TPAs may base their budgets on 
calendar years or on varying fiscal years. Given the diversity of 
budgeting in the industry, there is no precise way of calculating how 
much of the cost and cost avoidance falls outside of the October 1, 
2013 to October 1, 2014 proposed delay in compliance date. For 
simplicity sake, we calculate all cost avoidance and costs of a delay 
in the compliance date for ICD-10 as occurring in the calendar year 
2014.
    In Table 30, the net cost avoidance is illustrated with a--
     Low net estimate that reflects the low estimate of cost 
avoidance less the high estimate of costs;
     High net estimate that reflects the high estimate of cost 
avoidance less the low estimate of costs; and
     Medium net cost avoidance that reflects the average cost 
avoidance less the average cost.

 Table 29--Summary of Cost Avoidance and Costs in 2014 of a 1-Year Delay
                   in the Compliance Date of ICD-10 *
------------------------------------------------------------------------
                                                                 MEAN
                                     LOW (in      HIGH (in    (average)
                                    millions)    millions)       (in
                                                              millions)
------------------------------------------------------------------------
Cost Avoidance for Providers            $1,385       $3,001       $2,193
 (manual submission of claims)...
Cost Avoidance for Providers             1,446        3,134        2,290
 (cost of loan interest).........
Cost Avoidance for Health Plans            804        1,742        1,273
 (manual submission of claims)...
                                  --------------------------------------
    TOTAL COST AVOIDANCE FROM A 1-       3,635        7,877        5,756
     YEAR DELAY IN THE COMPLIANCE
     DATE OF ICD-10..............
------------------------------------------------------------------------
Cost to Commercial Health plans..          530        2,698        1,614
Cost to Medicare.................            5           10            8
Cost to State Medicaid Agencies..           83          145          114
Cost to Large Providers..........          409        3,728        2,069
Cost to Students.................            4            4            4
                                  --------------------------------------
    TOTAL COST OF A 1-YEAR DELAY        $1,031       $6,586       $3,808
     IN THE COMPLIANCE DATE OF
     ICD-10......................
------------------------------------------------------------------------
* Calculated in 2012 dollars.

[[Page 22999]]

   Table 30--Cost Avoidance Less Cost (Net) of a One-Year Delay in the
                        Compliance Date of ICD-10
                             [In millions] *
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Low Net Estimate (Low Cost Avoidance with High Costs)......      -$2,950
High Net Estimate (High Cost Avoidance with Low Costs).....        6,846
Mean Net Cost Avoidance (average)..........................        1,948
------------------------------------------------------------------------
* Calculated in 2012 dollars.

R. Regulatory Flexibility Analysis: Impact on Small Entities of a Delay 
in the Compliance Date of ICD-10

    The Regulatory Flexibility Act (RFA) of 1980 (Pub. L. 96-354) 
requires agencies to describe and analyze the impact of the proposed 
rule on small entities unless the Secretary can certify that the 
regulation will not have a significant impact on a substantial number 
of small entities. According to the Small Business Administration's 
size standards, a small entity is defined as follows according to 
health care categories: Offices of Physicians are defined as small 
entities if they have revenues of $10 million or less; most other 
health care providers (dentists, chiropractors, optometrists, mental 
health specialists) are small entities if they have revenues of $7 
million or less; hospitals are small entities if they have revenues of 
$34.5 million or less. (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).
    For 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. In the 
following discussion, we have attempted to estimate the number of small 
entities and provide a general discussion of the effects of this 
proposed rule, and where we had difficulty or were unable to find 
information, we solicit industry comment.
1. Number of Small Entities and Scope of Analysis
a. Health Care Providers: Physician Practices and Hospitals
    As with the RIA on the delayed compliance date of ICD-10, in the 
category of health care providers, we analyzed physician practices and 
hospitals only in terms of how they will be impacted by a delay of 1 
year in the compliance date of ICD-10. We did not analyze the impact to 
nursing and residential care facilities, dentists, or suppliers of 
durable medical equipment, nor did analyze the impact of implementation 
of ICD-10, as that analysis is provided in the RIA included in the ICD-
10 proposed rule.
    We narrowed our analysis to physician practices and hospitals for 
two reasons: (1) We have very little data on the usage of EDI among 
dentists, suppliers of durable medical equipment, nursing homes, and 
residential care facilities. The lack of data for these types of health 
care providers have been noted in other studies on administrative 
simplification; \71\ and (2) we assume that the greatest costs will be 
borne by hospitals and physician practices as they conduct the majority 
of standard transactions. While we believe that some small health care 
provider entities outside of these two categories may be impacted, 
albeit in much fewer numbers, we believe the analysis gathered here 
would be indicative of the costs that we would expect all small health 
care provider entities to experience. We welcome comment from industry 
and the public as to our assumptions.
---------------------------------------------------------------------------

    \71\ ``Excess Billing and Insurance-Related Administrative 
Costs,'' by James Kahn, in The Healthcare Imperative; Lowering Costs 
and Improving Outcomes: Workshop Series Summary, edited by Pierre L. 
Yong, Robert S. Saunders, and Leigh Anne Olsen.
---------------------------------------------------------------------------

    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 physician practices, we assumed 
that the costs of a delay of the compliance date for ICD-10 would be 
accounted for at the level of firms rather than at the individual 
establishments.
    According to the U.S. Census Bureau, Detailed Statistics, 2007 
Economic Census, there are approximately 220,100 physician practices.. 
The U.S. Census Bureau data indicates that two percent of physician 
practices have revenues of $10 million or more, therefore approximately 
4,400 physician practices are not small entities.
    Nevertheless, we have decided to consider all physician practices 
small entities. Our basis for this is the fact that Census Bureau data 
is calculated from report forms that are sent to only a sample of small 
employers (less than 10 employees). Therefore, we can assume that the 
estimates from the Census Bureau are low. The estimated number of 
physician practices in the Modifications proposed rule (234,222 
physician practices) includes physician practices with one to two 
physicians and is within 6 percent of the total number of physician 
practices estimated by the Census Bureau. Therefore, we will assume 
that all physician practices, as calculated by the Census Bureau 
(220,100), are small entities, and accept a small margin of error.
    The 2007 Census Bureau reports that there are approximately 6,500 
hospitals. The data indicates that 85 percent of hospitals have sales/
receipts/revenues of $10 million or more. While we can assume that, of 
those 85 percent, some have revenues over $34.5 million; we do not have 
specific numbers that detail this assumption. Therefore, as with 
physician practices, we will make calculations on the assumption that 
all hospitals are small entities.
b. Health Care Clearinghouses and Transaction Vendors
    We did not calculate costs and benefits to health care 
clearinghouses and transaction vendors in this Regulatory Flexibility 
Analysis because we assume that any associated costs and benefits will 
be passed on to the health plans or health care providers, and will be 
included in the costs and benefits we apply to health plans and health 
care providers.
c. Health Plans
    The health insurance industry was examined in depth in the 
Regulatory Impact Analysis prepared for the proposed rule on 
establishment of the Medicare Advantage program (69 FR 46866, August 3, 
2004). It was determined, in that analysis, that there were few if any 
``insurance firms,'' including HMOs that fell below the size thresholds 
for ''small'' business established by the SBA Health. We assume that 
the ``insurance firms'' are synonymous, for the most part, with health 
plans who conduct standard transactions with other covered entities and 
are, therefore, the entities that will have costs associated with a 
delay of the compliance date for ICD-10. In fact, then, and even more 
so now, the market for health insurance is dominated by a relative 
handful of firms with substantial market shares.
    There are, however, a number of health maintenance organizations 
(HMOs) that are small entities by virtue of their nonprofit status even 
though few if any of them are small by SBA size standards. There are 
approximately 100 such HMOs. These HMOs and those Blue Cross and Blue 
Shield plans that are non-profit organizations, like the other firms 
affected by this proposed rule, will be required to delay their 
implementation of ICD-10. Accordingly, this proposed rule will affect a 
``substantial number'' of small entities,

[[Page 23000]]

and we include the impact of a delay in the compliance date of ICD-10 
for the 100 HMOs and Blue Cross and Blue Shield plans in this RFA.
    We welcome industry and stakeholder input on our assumption in this 
regard.
2. Cost for Providers
    We have applied the same methodology and assumptions as we applied 
in the RIA to arrive at estimates to impacts to small entities. For 
providers, as we stated previously in the RIA, there is a distinction 
between the costs and benefits for large providers, hospitals and large 
physician practices, and smaller physician practices. In general, our 
assumption is that the delay in the compliance date of ICD-10 will be 
more costly for large providers because many of them have already made 
substantial investments. The cost of implementing ICD-10, for all 
entities that have already invested funds and resources to that 
endeavor, will increase by a factor of 10 to 30 percent of the current 
cost.
    On the other hand, the justification for a delay in the compliance 
date of ICD-10 rests on the assumption that the delay will give many 
small providers more time to prepare for the transition. Therefore, our 
assumption is that there will be little to no cost for most small 
providers and that the cost avoidance of a delay will be high.
    Table 31 illustrates the estimated costs and benefits for providers 
according to their size. All costs and benefits are calculated as 
occurring in 2014. It is important to note that these are very general 
estimates, and reflect our assumption for these provider groups at 
large. Due to the high variability in provider settings and systems, 
these estimates are not meant to reflect costs for specific providers. 
We welcome comments on our assumptions.

                             Table 31--Costs and Benefits in 2014 of a Delay in the Compliance Date of ICD-10 for Providers
                                                                   [Small Entities] *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                Physician    Physician    Physician
                                                                practices    practices    practices    Hospitals    Hospitals    Hospitals
                                                                with less    with 50 to   with more    with less   with 100 to   with more      Totals
                                                                 than 50        100        than 100     than 100     400 beds     than 400
                                                                physicians   physicians   physicians      beds                      beds
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of Entities...........................................      233,239          590          393        2,757        2,486          521      239,986
LOW Costs (in millions)......................................         $.00       $29.07          $97          $34         $153          $96         $409
HIGH Costs (in millions).....................................         $.00      $261.65         $871         $255       $1,378         $963       $3,728
LOW Cost Avoidance (in millions).............................       $1,446         $.00         $.00         $.00         $.00          .00       $1,446
HIGH Cost Avoidance (in millions)............................       $3,134         $.00         $.00         $.00         $.00          .00       $3,134
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Both cost and cost avoidance occur in 2014. In 2012 dollars.

3. Cost to Nonprofit Health Plans
    As noted, there are a number of health maintenance organizations 
(HMOs) that are small entities by virtue of their nonprofit status even 
though few if any of them are small by SBA size standards. There are 
approximately one hundred such HMOs and 38 Blue Cross and Blue Shield 
plans that are non-profit organizations. We have applied the same 
methodology and assumptions as we applied in the RIA to arrive at 
estimates to impacts to these non-profit health plans. We have 
estimated that all of the Blue Cross and Blue Shield plans are large 
health plans, and all of the HMOs are small health plans.
    Table 31 illustrates the costs and benefits for nonprofit health 
plans. We calculated the costs per health plan from the low and high 
range estimates used in the RIA for large health plans (for Blue Cross 
and Blue Shield plans), and small health plans (for non-profit HMOs). 
We calculated the cost avoidance by assuming that large health plans 
would return 10 percent of the total health care claims--and small 
health plans would return 5 percent of the total health care claims--if 
the compliance date of ICD-10 continued to be October 1, 2013. This 
assumption is based on the fact that 25 national and regional health 
insurers account for nearly two-thirds of the total market, and that 
this proportion accounts can be applied to total claims; for example 
that smaller health insurers process one-third of the claims. All costs 
and cost avoidance are calculated as occurring in 2014.

Table 32--Costs and Cost Avoidance in 2014 for Non-Profit Health Plans for a 1-Year Delay of the Compliance Date
                                                   for ICD-10*
----------------------------------------------------------------------------------------------------------------
                                                  Number of     LOW COST    HIGH COST
                                                  non profit   per health   per health    LOW COST    HIGH COST
                                                    health      plan in      plan in     AVOIDANCE    AVOIDANCE
                                                    plans       millions     millions   in millions  in millions
----------------------------------------------------------------------------------------------------------------
Blue Cross Blue Shield.........................           38        $1.44        $7.26       $88.26      $122.21
HMO............................................          100          .12          .60         4.02         5.57
                                                ----------------------------------------------------------------
    Total......................................          .00         1.56         7.86        92.28       127.77
----------------------------------------------------------------------------------------------------------------
* Both cost and cost avoidance occur in 2014. In 2012 dollars.

    Tables 31 and 32 both illustrate that a 1-year delay in the 
compliance date of ICD-10 will be more beneficial to small and 
nonprofit entities than it will be burdensome. Nevertheless, we are 
specifically requesting comments on our analysis.

S. Summary and Accounting Statement for HPID, NPI and ICD-10

    Table 33 summarizes the impacts of this proposed rule, including 
the costs and benefits of implementation of the

[[Page 23001]]

HPID and the costs and cost avoidance of a one-year delay in the 
compliance date of ICD-10. The costs and benefits of implementation of 
the HPID are calculated over a ten year period, while the cost 
avoidance and costs of the delay of the compliance date of ICD-10 will 
all occur in 2014.

Table 33--Summary of Costs and Savings/Cost Avoidance, of Implementation
   of HPID, NPI and a One-Year Delay in the Compliance Date of ICD-10*
------------------------------------------------------------------------
                                       LOW          HIGH         MEAN
------------------------------------------------------------------------
Total Savings/Cost Avoidance.....       $6,532      $13,612      $10,072
Total Costs......................        2,133        8,784        5,459
------------------------------------------------------------------------
* Costs and savings of HPID are calculated over 11 years, 2014 through
  2024. Costs and cost avoidance of a delay in the compliance date of
  ICD-10 are calculated over 1 year, 2014.

    In Table 34, the LOW estimate Net Savings/Cost Avoidance is 
calculated using the LOW Savings/Cost Avoidance minus the HIGH 
estimated Costs; that is, the worst case scenario in terms of low 
benefits and high costs. The HIGH estimate Net Savings/Cost Avoidance 
is estimated using the HIGH Savings/Cost Avoidance minus the LOW 
estimated Costs; that is the best case scenario in terms of high 
benefits and low costs. The MEAN Net Savings/Cost Avoidance is the 
average of the best case scenario and the worst case scenario.

  Table 34--Summary of Net Cost Avoidance/Savings of Implementation of
     HPID, NPI and a One-Year Delay in the Compliance Date of ICD-10
------------------------------------------------------------------------
                                     LOW cost    HIGH cost
                                    avoidance/   avoidance/
                                     savings      savings     MEAN  (in
                                    less HIGH     less LOW    millions)
                                    Costs  (in   costs  (in
                                    millions)    millions)
------------------------------------------------------------------------
Net Savings/Cost Avoidance.......      -$2,252      $11,478       $4,613
------------------------------------------------------------------------

    As required by OMB Circular A-4,\72\ Tables 35, 36 and 37 are 
accounting statements showing the classification of the expenditures 
associated with the provisions of this proposed rule. Table 35 provides 
our best estimate of the costs and benefits associated with the 
implementation and use of the HPID. Table 36 provides our best 
estimates of the costs and benefits associated with a 1-year delay in 
the compliance date of ICD-10 proposed herein. Table 37 provides a 
combined estimate of the costs and benefits associated with 
implementation and use of HPID and a 1-year delay in the compliance 
date of ICD-10.
---------------------------------------------------------------------------

    \72\ ``Circular A-4,'' September 17, 2003, Office of Management 
and Budget (OMB), http://www.whitehouse.gov/omb/circulars_a004_a-4/

 Table 35--Accounting Statement for HPID Implementation: Classification of Estimated Expenditures, from FY 2013
                                                   TO FY 2023
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                Source citation
            Category                Primary estimate      Minimum estimate   Maximum estimate   (RIA, preamble,
                                       (millions)            (millions)         (millions)           etc.)
----------------------------------------------------------------------------------------------------------------
BENEFITS:
    Annualized Monetized
     benefits:
        7% Discount............  $376..................  $252.............  $532.............  RIA.
        3% Discount............  367...................  258..............  527..............  RIA.
        Qualitative              HPID: Environmental
         (un[dash]quantified)     (electronic over
         benefits.                paper), patient
                                  benefits (more staff
                                  time), benefits from
                                  a decrease in time
                                  interacting with
                                  health plans for
                                  hospitals, dentists,
                                  suppliers of durable
                                  medical equipment,
                                  nursing homes, and
                                  residential care
                                  facilities, and
                                  providers other than
                                  physician practices.
COSTS:
    Annualized Monetized costs:
        7% Discount............  $203..................  $135.............  $270.............  RIA and
                                                                                                Collection of
                                                                                                Information.
        3% Discount............  172...................  115..............  229..............  RIA and
                                                                                                Collection of
                                                                                                Information.

[[Page 23002]]

 
        Qualitative              HPID: Cost for system   None.............  None.............
         (unquantified) costs.    changes for dentists,
                                  suppliers of durable
                                  medical equipment,
                                  nursing homes,
                                  residential care
                                  facilities, and
                                  providers other than
                                  physician practices
                                  and hospitals.
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[dash]budget''.
----------------------------------------------------------------------------------------------------------------

Table 36--Accounting Statement: Classification of Estimated Expenditures for one-Year Delay of ICD-10 Compliance
                                          Date from FY 2013 to FY 2023
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                Source citation
            Category                Primary estimate      Minimum estimate   Maximum estimate   (RIA, preamble,
                                       (millions)            (millions)         (millions)           etc.)
----------------------------------------------------------------------------------------------------------------
BENEFITS:
    Annualized Monetized
     benefits:
        7% Discount............  $717..................  $453.............  $982.............  RIA.
        3% Discount............  604...................  381..............  827..............  RIA.
Qualitative                      Avoidance of returned
 (un[dash]quantified) benefits.   health care claims.
COSTS:
    Annualized Monetized costs:
        7% Discount............  $475..................  $128.............  $821.............  RIA and
                                                                                                Collection of
                                                                                                Information.
        3% Discount............  400...................  108..............  691..............  RIA and
                                                                                                Collection of
                                                                                                Information.
        Qualitative              Downstream costs of a   None.............  None.............
         (unquantified) costs.    delayed return on
                                  investment for
                                  covered entities..
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[dash]budget''.
----------------------------------------------------------------------------------------------------------------

  Table 37--Accounting Statement: Classification of Estimated Expenditures for HPID Implementation and One-Year
                            Delay of ICD-10 Compliance Date, From FY 2013 to FY 2023
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                                Source citation
            Category                Primary estimate      Minimum estimate   Maximum estimate   (RIA, preamble,
                                       (millions)            (millions)         (millions)           etc.)
----------------------------------------------------------------------------------------------------------------
BENEFITS:
    Annualized Monetized
     benefits:
        7% Discount............  $1,069................  $705.............  $1,479...........  RIA.
        3% Discount............  $960..................  $640.............  $1,338...........  RIA.

[[Page 23003]]

 
        Qualitative              HPID: Environmental
         (unquantified)           (electronic over
         benefits.                paper), patient
                                  benefits (more staff
                                  time), benefits from
                                  a decrease in time
                                  interacting with
                                  health plans for
                                  hospitals, dentists,
                                  suppliers of durable
                                  medical equipment,
                                  nursing homes, and
                                  residential care
                                  facilities, and
                                  providers other than
                                  physician practices.
                                 Delay in Compliance
                                  Date for ICD-10:
                                  Avoidance of returned
                                  health care claims.
COSTS:
    Annualized Monetized costs:
        7% Discount............  $677..................  $264.............  $1,091...........  RIA and
                                                                                                Collection of
                                                                                                Information.
        3% Discount............  $572..................  $223.............  $920.............  RIA and
                                                                                                Collection of
                                                                                                Information.
        Qualitative              HPID: Cost for system
         (unquantified) costs.    changes for dentists,
                                  suppliers of durable
                                  medical equipment,
                                  nursing homes,
                                  residential care
                                  facilities, and
                                  providers other than
                                  physician practices
                                  and hospitals.
                                 DELAY IN COMPLIANCE     None.............  None.............  .................
                                  DATE OF ICD-10:
                                  Downstream costs of a
                                  delayed return on
                                  investment for
                                  covered entities.
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[dash]budget''.
----------------------------------------------------------------------------------------------------------------

List of Subjects in 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 proposes to amend 45 CFR part 162 to read as 
follows:

PART 162--ADMINISTRATIVE REQUIREMENTS

    1. The authority citation for part 162 continues 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

    2. Section 162.103 is amended by adding the definitions of 
``Controlling health plan (CHP),'' ``Covered health care provider,'' 
and ``Subhealth plan (SHP)'' in alphabetical order to read as follows:

Sec.  162.103  Definitions.

* * * * *
    Controlling health plan (CHP) means a health plan that--
    (1) Controls its own business activities, actions, or policies; or
    (2)(i) Is controlled by an entity that is not a health plan; and
    (ii) If it has a subhealth plan(s) (as defined in this section), 
exercises sufficient control over the subhealth plan(s) to direct its/
their business activities, actions, or policies.
    Covered health care provider means a health care provider that 
meets the definition at paragraph (3) of the definition of ``covered 
entity'' at Sec.  160.103.
* * * * *
    Subhealth plan (SHP) means a health plan whose business activities, 
actions, or policies are directed by a controlling health plan.

Subpart D--Standard Unique Health Identifier for Health Care 
Providers

Sec.  162.402  [Removed and Reserved]

    3. Section 162.402 is removed and reserved.
    4. Section 162.404 is amended as follows:
    A. Redesignating paragraph (a) as paragraph (a)(1).
    B. Adding a paragraph (a)(2).
    The addition reads as follows:

Sec.  162.404  Compliance dates of the implementation of the standard 
unique health identifier for health care providers.

    (a) * * *
    (2) An organization covered health care provider must comply with 
the implementation specifications in Sec.  162.410(b) by [Date 180 days 
after the effective date of the final rule].
* * * * *
    5. Section 162.410 is amended as follows:
    A. Redesignating paragraph (b) as paragraph (c).
    B. Adding a new paragraph (b).
    The addition reads as follows:

[[Page 23004]]

Sec.  162.410  Implementation specifications: Health care providers.

* * * * *
    (b) An organization covered health care provider that has as a 
member, employs, or contracts with, an individual health care provider 
who is not a covered entity and is a prescriber, must require such 
health care provider to--
    (1) Obtain an NPI from the National Plan and Provider Enumeration 
System (NPPES); and
    (2) To the extent the prescriber writes a prescription while acting 
within the scope of the prescriber's relationship with the 
organization, disclose the NPI upon request to any entity that needs it 
to identify the prescriber in a standard transaction.
* * * * *
    6. Subpart E is added to part 162 to read as follows:
Subpart E--Standard Unique Health Identifier for Health Plans
Sec.
162.502 [Reserved]
162.504 Compliance dates for the implementation of the standard 
unique health plan identifier.
162.506 Standard unique health plan identifier.
162.508 Enumeration System.
162.510 Implementation specifications: Covered entities.
162.512 Implementation specifications: Health plans.
162.514 Other entity identifier.

Subpart E--Standard Unique Health Identifier for Health Plans

Sec.  162.502  [Reserved]

Sec.  162.504  Compliance dates for the implementation of the standard 
unique health plan identifier.

    (a) Covered health care providers. A covered health care provider 
must comply with the implementation specifications in Sec.  162.510 no 
later than October 1, 2014.
    (b) Health plans. A health plan must comply with the implementation 
specifications in Sec.  162.510 and Sec.  162.512 no later than one of 
the following dates:
    (1) A health plan that is not a small health plan--October 1, 2014.
    (2) A health plan that is a small health plan--October 1, 2015.
    (c) Health care clearinghouses. A health care clearinghouse must 
comply with the implementation specifications in Sec.  162.510 no later 
than October 1, 2014.

Sec.  162.506  Standard unique health plan identifier.

    (a) Standard. The standard unique health plan identifier is the 
Health Plan Identifier (HPID) that is assigned by the Enumeration 
System identified in Sec.  162.508.
    (b) Required and permitted uses for the HPID. (1) The HPID must be 
used as specified in Sec.  162.510 and Sec.  162.512.
    (2) The HPID may be used for any other lawful purpose.

Sec.  162.508  Enumeration System.

    The Enumeration System shall do all of the following:
    (a) Assign a single, unique--
    (1) HPID to a health plan, provided that the Secretary has 
sufficient information to permit the assignment to be made; or
    (2) OEID to an entity eligible to receive one under Sec.  
162.514(a), provided that the Secretary has sufficient information to 
permit the assignment to be made.
    (b) Collect and maintain information about each health plan that 
applies for or has been assigned an HPID and each entity that applies 
for or has been assigned an OEID, and perform tasks necessary to update 
that information.
    (c) If appropriate, deactivate an HPID upon receipt of sufficient 
information concerning circumstances justifying deactivation.
    (d) If appropriate, reactivate a deactivated HPID or OEID upon 
receipt of sufficient information justifying reactivation.
    (e) Not assign a deactivated HPID to any other health plan or OEID 
to any other entity.
    (f) Disseminate Enumeration System information upon approved 
requests.

Sec.  162.510  Implementation specifications: Covered entities.

    (a) A covered entity must use an HPID to identify a health plan 
where a covered entity identifies a health plan in a transaction for 
which the Secretary has adopted a standard under this part.
    (b) If a covered entity uses one or more business associates to 
conduct standard transactions on its behalf, it must require its 
business associate(s) to use an HPID to identify a health plan where 
the business associate(s) identifies a health plan in a transaction for 
which the Secretary has adopted a standard under this part.

Sec.  162.512  Implementation specifications: Health plans.

    (a) A controlling health plan must do all of the following:
    (1) Obtain an HPID from the Enumeration System for itself.
    (2) Disclose its HPID, when requested, to any entity that needs the 
HPID to identify the health plan in a standard transaction.
    (3) Communicate to the Enumeration System any changes in its 
required data elements in the Enumeration System within 30 days of the 
change.
    (b) A controlling health plan may do the following:
    (1) Obtain an HPID from the Enumeration System for a subhealth plan 
of the controlling health plan.
    (2) Direct a subhealth plan of the controlling health plan to 
obtain an HPID from the Enumeration System.
    (c) A subhealth plan may obtain an HPID from the Enumeration 
System.
    (d) A subhealth plan that is assigned an HPID from the Enumeration 
System must comply with the requirements that apply to a controlling 
health plan in paragraphs (a)(2) through (a)(3) of this section.

Sec.  162.514  Other entity identifier.

    (a) An entity may obtain an Other Entity Identifier (OEID) to 
identify itself if the entity meets all of the following:
    (1) Needs to be identified in a transaction for which the Secretary 
has adopted a standard under this part;
    (2) Is not eligible to obtain an HPID;
    (3) Is not eligible to obtain an NPI; and
    (4) Is not an individual.
    (b) An OEID must be obtained from the Enumeration System identified 
in Sec.  162.508.
    (c) Uses for the OEID. (1) An other entity may use the OEID it 
obtained from the Enumeration System to identify itself or have itself 
identified on all covered transactions in which it needs to be 
identified.
    (2) The OEID may be used for any other lawful purpose.

Subpart J--Code Sets

    7. Section 162.1002 is amended by revising paragraph (b) 
introductory text and paragraph (c) introductory text to read as 
follows:

Sec.  162.1002  Medical data code sets.

* * * * *
    (b) For the period on and after October 16, 2003 through September 
30, 2014:
* * * * *
    (c) For the period on and after October 1, 2014:
* * * * *

[[Page 23005]]

    Dated: February 2, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: April 5, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-8718 Filed 4-9-12; 11:15 am]
BILLING CODE 4120-01-P
```