22950 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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. 

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 


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


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22952 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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. 

2An 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). 

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

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 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. 

TABLE 1—TRANSACTIONS STANDARDS ADOPTED UNDER HIPAA— 

Continued 

Standard Transaction 

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 

1.2.

Health care claims—Retail 

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. 


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22954 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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 


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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 longterm 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, preadmission, admission, and other 

information systems and their screens, 


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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 checkdigit 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 


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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 § 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 


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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 crossreference 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 § 160.103. Because of this, selfinsured 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 selfinsured 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

Entity Enumeration requirements Enumeration options 

CHPs .................................... Must obtain an HPID for itself ......................................... May obtain an HPID(s) for its SHP(s). 

May direct its SHP(s) to obtain an HPID(s). 

SHPs .................................... Not required to obtain an HPID ...................................... May 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. 


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(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. 


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(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 


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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 

Reference 

description Name Code Definition 

Content of the field before HPID compliance 

date 

Content of the field after 

HPID compliance date 

NM101 ............................ Entity identifier Code ..... 2B Third-Party Administrator If a health plan is to be 

identified as the information source, then 

Entity Code Qualifier 

‘‘PR’’ will be used.

If a health plan is to be 

identified as the information source, then 

Entity Code Qualifier 

‘‘PR’’ will be used. 

36 Employer.

GP Gateway Provider.

P5 Plan Sponsor.

PR Payer.

NM108 ............................ Identification Code 

Qualifier.

24 Employer’s Identification 

Number (EIN).

If a health plan is to be 

identified as the information source, Identification Code Qualifier 

24, 46, FI, NI, or PI 

can be used.

If a health plan is to be 

identified as the information source, only 

Identification Code 

Qualifier XV 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 Code ......... Depending on the Identification Code Qualifier, 

this could be the EIN, 

ETIN, Tax Id, the 

NAIC, or any Proprietary Id.

HPID only (if a health 

plan is to be identified 

as the information 

source). 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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3 Individual is defined at 45 CFR 160.103 as ‘‘the 

person who is the subject of protected health 

information.’’ 

(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 § 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. 

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 


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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, allnumeric identifier with a Luhn checkdigit 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. 


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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 


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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-thenational-provider-identifier-(npi)-finalrule-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 


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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 bylaws 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 


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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 selfemployed 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 crossreference 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22968 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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) 


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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. 

5 ‘‘Survey: ICD–10 Brief Progress,’’ February 2012, 

conducted by the Workgroup for Electronic Data 

Interchange (WEDI). 

6An 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. 

7For 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. 

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

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

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22970 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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%). 

10Edifecs poll, 2012. 

11Letter 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. 

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

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. 

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

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 (§ 162.512 and 

§ 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 

Type of entity Number of 

entities 

Self insured group health plans 12,000* 

Health insurance issuers, individuals and group health 

markets, HMOs, including 

companies offering Medicaid 

managed care ....................... 1,827** 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22971 

12See 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. 

CHART 2: NUMBER AND TYPE OF ENTITIES THAT MAY OBTAIN AN HPID OR

OEID—Continued 

Type of entity Number of 

entities 

Medicare, Veterans Health Administration (VHA), Indian 

Health Service (IHS), 

TRICARE, and State Medicaid programs ...................... 60 

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 onetime 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. 

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 

(§ 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 

§ 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22972 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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. 

TABLE 4—ANNUAL INFORMATION COLLECTION BURDEN* 

Regulation section OMB control 

No. Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

Hourly labor 

cost of reporting ($) 

Total labor 

cost 

Total capital/ 

maintenance 

costs ($) 

Total cost 

($) 

§ 162.410 ........................... 0938–New 160,000 160,000 0.33 52,800 24 1,267,200 0 1,267,200 

§ 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. 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
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14 ‘‘National Health Plan Identifier White Paper,’’ 

prepared by the American Medical Association 

(AMA) Practice Management Center (PMC), 

September 22, 2009. 

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). 

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 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. 

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. 

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

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22974 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22975 

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 

20http://www.whitehouse.gov/healthreform/

relief-for-americans-and-businesses 

21S.M. Schappert and E.A. Rechsteiner, 

‘‘Ambulatory Medical Care Utilization Estimates for 

2007,’’ Vital and Health Statistics, Series 13, 

Number 169, 2011. 

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. 

24The 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/Admin

Simplification/Docs/FinalReport_Admin

Simp_6.3.10.pdf). 

25An 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. 

27The 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,’’ 

Continued 

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. 

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

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 nonelectronic) 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

• 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


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22976 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

conducted by McKinsey & Company, published in 

The McKinsey Quarterly, June 2007. (http://

www.mckinseyquarterly.com/Overhauling_the_US_

health_care_payment_system_2012). 

29National Health Expenditure Projections 2009– 

2019 (CMS), http://www.cms.gov/NationalHealth

ExpendData/25_NHE_Fact_Sheet.asp). 

30CMS Electronic Data Interchange (EDI) 

Performance Statistics (http://www.cms.gov/EDI

PerformanceStatistics/) and CMS CROWD data. 

31There 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. 

32Financial 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. 

33The National Progress Report on Healthcare 

Efficiency, 2010, Produced by the U.S. Healthcare 

Efficiency Index. 

• 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

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

Year 

Eligibility for a health plan transaction: percentage of electronic 

transactions as a proportion of 

total eligibility inquiries and responses 

Health care claim status transaction: percentage of electronic 

transactions as a proportion of 

total claim status transactions 

Health care payment and remittance advice (electronic remittance advice) transaction: percentage of electronic transactions 

as a proportion of total remittance 

advice transactions (does not 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 


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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 nonelectronic, 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 stafftime 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 

Year 

Eligibility for a health plan transaction: percentage of electronic 

transactions attributable to implementation of HPID as a proportion 

of eligibility inquiries and responses 

Health care claim status transaction: percentage of electronic 

transactions attributable to implementation of HPID/OEID as a proportion of total claim status transactions 

Health care payment and remittance advice (electronic remittance advice) transaction: percentage of electronic transactions 

attributable to implementation of 

HPID as a proportion of total remittance advice transactions 

(does not 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 costeffective 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 


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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 Physicians (includes offices of 

mental health specialists and substance use treatment practitioners).

234,222 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 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 residential Care Facilities 

not associated with a hospital.

66,464 2007 Economic Census Data—Health Care and Social Assistance (sector 62) using the number of establishments. 

∼NAICS code 623: Nursing Homes & Residential Care Facilities 

n = 76,395 × 87 percent (percent of nursing and residential 

care facilities not associated with a hospital) = 66,464. 

Other Health Care Providers—Offices of dentists, chiropractors, 

optometrists, mental health practitioners, substance use treatment practitioners, speech and physical therapists, podiatrists, 

outpatient care centers, medical and diagnostic laboratories, 

home health care services, and other ambulatory health care 

services, resale of health care and social assistance merchandise (durable medical equipment). 

384,192 2007 Economic Census Data—Health Care and Social Assistance (sector 62) using the number of establishments: 

∼NAICS code 621: All ambulatory health care services (excluding offices of physicians) = 313,339 (547,561 total ¥ 234,222 

offices of physicians). 

∼NAICS code 62-39600 (product code): Durable medical equipment = 70,853. 

Health Plans—Commercial: Impacted commercial health plans 

considered in this RIA are health insurance issuers; that is, insurance companies, services, or organizations, including 

HMOs, that are required to be licensed to engage in the business of insurance in a State. 

1,827 This number represents the most recent number as referenced 

in ‘‘Patient Protection and Affordable Care Act; Standards Related to Reinsurance, Risk Corridors, and Risk 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 Clearinghouses ..................................... 162 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. 

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 


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Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22979 

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. 

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. 

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 nonelectronic 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 nonelectronic 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 selfinsured 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 


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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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 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* 

Cost category 

Minimum cost 

estimate per 

modifications 

rule 

(in millions) 

Maximum cost 

estimate per 

modifications 

rule 

(in millions) 

Applied percentage 

Minimum estimated cost of 

implementing 

HPID 

(in millions) 

Maximum estimated cost of 

implementing 

HPID 

(in 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, Medicaid, 

VHS, TRICARE, IHS).

System Implementation ...... 281.0 537.8 25 70.25 134.45 

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 * 

I 

II III IV V VI VII 

Cost category 

Minimum 

cost estimate per 

modifications rule 

(in millions) 

Maximum 

cost estimate per 

modifications rule 

(in millions) 

Applied 

percentage 

Minimum 

estimated 

cost of implementing 

HPID 

(in millions) 

Maximum 

estimated 

cost of implementing 

HPID 

(in 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22982 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed 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. 

36A 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. 

37AHIP, 2006. 

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. 

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. 

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). 

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. 

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) * 

Year 

Number of 

pended 

claims annually (in 

millions) ** 

Cost to review a 

pended 

claim *** 

LOW number of 

pended 

claims (5%) 

that will be 

avoided attributable to 

HPID (in 

millions) 

LOW total 

annual savings through 

reduction in 

pended 

claims (in 

millions) 

HIGH number of 

pended 

claims 

(10%) that 

will be 

avoided attributable to 

HPID (in 

millions) 

HIGH total 

annual savings through 

reduction in 

pended 

claims (in 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22983 

40Tammy 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. 

TABLE 10—ANNUAL SAVINGS TO HEALTH PLANS DUE TO DECREASE IN PENDED CLAIMS—Continued 

(In millions) * 

Year 

Number of 

pended 

claims annually (in 

millions) ** 

Cost to review a 

pended 

claim *** 

LOW number of 

pended 

claims (5%) 

that will be 

avoided attributable to 

HPID (in 

millions) 

LOW total 

annual savings through 

reduction in 

pended 

claims (in 

millions) 

HIGH number of 

pended 

claims 

(10%) that 

will be 

avoided attributable to 

HPID (in 

millions) 

HIGH total 

annual savings through 

reduction in 

pended 

claims (in 

millions) 

(Col. 1) (Col. 2) (Col. 3) (Col. 4) (Col. 5) (Col. 6) (Col. 7) 

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 nonelectronic, 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 NONELECTRONIC TRANSACTION AND

ELECTRONIC TRANSACTION) IN

THREE TRANSACTIONS * 

Transaction 

Savings per 

transaction 

for commercial 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 

advice (Remittance Advice 

only) ...................................... 4.24 

* 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

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22984 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

41Lawrence 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. 

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 

savings 

attributable to 

HPID 

HIGH annual cost 

savings 

attributable to 

HPID 

LOW annual cost 

savings 

attributable to 

HPID 

HIGH annual cost 

savings 

attributable to 

HPID 

LOW annual cost 

savings 

attributable to 

HPID 

HIGH annual cost 

savings 

attributable to 

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 pended claims Savings 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. 

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22985 

42Summary 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. 

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

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 * 

Year 

I II III IV V VI VII 

Hours spent 

per week 

per physician interacting with 

health plans 

LOW to HIGH percent of 

time interacting with 

health plans (Col I) 

saved per week per physician attributable to 

HPID 

(15 to 30 minutes) 

Total annual 

cost per single physician to interact with 

health insurance plans 

LOW reduction in cost 

per year per 

physician 

attributable 

to HPID 

HIGH Reduction in 

cost per 

year per 

physician 

attributable 

to HPID 

Number of 

physicians 

LOW to HIGH total savings per year attributable 

to HPID 

(in millions) 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22986 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

TABLE 15—COST SAVINGS PER

TRANSACTION (DIFFERENCE BETWEEN NON-ELECTRONIC TRANSACTION AND ELECTRONIC TRANSACTION) IN THREE TRANSACTIONS * 

Transaction 

Savings per 

transaction 

for providers 

Eligibility for a health plan ........ $2.02 

Health care claim status ........... 2.42 

Health care payment and remittance advice (Remittance Advice) ....................................... 1.55 

* 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 

savings 

attributable to 

HPID (in millions) 

HIGH annual cost 

savings 

attributable to 

HPID (in millions) 

LOW annual cost 

savings 

attributable to 

HPID (in millions) 

HIGH annual cost 

savings 

attributable to 

HPID (in millions) 

LOW annual cost 

savings 

attributable to 

HPID (in millions) 

HIGH annual cost 

savings 

attributable to 

HPID (in 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 

millions) 

Savings 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22987 

43For purposes of this RFA, a sole proprietor may 

be contracted by other business entities. 

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. 

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 

savings/high 

costs) 

HIGH (high 

savings/low 

costs) 

Commercial and Governmental Health Plans ................. $1,250 $2,475 $652 $1,297 ¥$47 $1,823 

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. 

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. 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22988 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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 

Entities 

Total number of small 

entities 

Revenues 

or receipts 

(in millions) 

Maximum 

cost of 

health care 

EFT standard annual 

(in millions) 

Implementation cost 

revenue receipts (percent) 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22989 

45Edifecs poll, 2012. 

46Letter to Kathleen G. Sebelius, Secretary, U.S. 

Department of Health and Human Services, from 

American Health Information Management 

Association (AHIMA), February 23, 2012. 

47 ‘‘CMS Hints at Delay in ICD–10 

Implementation Deadline,’’ HCPRO Web site, 

February 14, 2012, http://www.hcpro.com/HOM276578-6962/CMS-hints-at-delay-in-ICD10- 

implementation-deadline.html 

48Rhonda 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, 

Continued 

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

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. 

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

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


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22990 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

2012, http://www.icd10watch.com/, ’’ICD–10 

Frequently Asked Questions,’’ American Health 

Information Management Association (AHIMA), 

http://www.ahima.org/ICD10/faqsall.aspx#36. 

49Edifecs poll, 2012. 

50Edifecs 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. 

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. 

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 reprogramming 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

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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22991 

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. 

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. 

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 selfinsured 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22992 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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. 

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. 

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

Providers 

Including hospital and pharmacy chain administrators and health care practice managers 

Payers 

Including directors or higher at health insurance companies, managed care organizations, and pharmacy benefits managers 

Vendors 

Including managers at health IT system developers, billing services and clearing houses, 

outlined as follows: 

192 = Provider practices with 10 or fewer physicians.45 = Private payers .......................................... 33 = Software vendors 

45 = Provider practices with 11 or more physicians.43 = Public payers (for example, Medicaid, 

TRICARE).

2 = Clearinghouse 

50 = Small hospitals with 99 or fewer beds ...... 13 = Other insurer (for example, property and 

casualty).

22 = Third party biller 

117 = Large hospitals with 100 or more beds ... ........................................................................... 33 = Third party administrator 

Total: 404 providers .................................... 101 payers ....................................................... 90 Vendors 

The questions in the survey were 

aimed at assessing the entities’ selfreported 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. 

TABLE 21—SUMMARY OF CMS READINESS SURVEY RESPONSES

Will be compliant by 

October 1, 

2013 

(percent) 

Additional 

percentage 

will be compliant by 

December 

31, 2013 

(percent) 

Do not 

know when 

they will be 

compliant 

(percent) 

Do not plan 

on being 

compliant 

(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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22993 

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. 

55 ‘‘Project Swipe IT Savings Model,’’ 2009, citing 

a LEARN Research median figure. 

56For billing and posting clerks in physician 

offices, Department of Labor, 2010 dollars. 

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. 

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

• 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. 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22994 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

57The Center for Medicare & Medicaid Services 

(CMS), ‘‘National Health Expenditure Data,’’ 

https://www.cms.gov/NationalHealthExpendData/. 

58 ‘‘Small Business Rate Report,’’ Friday, March 

16, 2012, http://www.businessweek.com/smallbiz/ 

resources/rate_report/lenders.htm. 

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 

number of claims returned per 

month 

LOW to HIGH 

cost of processing returned claims 

manually for health plans over 6 

months 

LOW to HIGH 

cost of returned claims for providers over 6 months 

LOW to HIGH 

total over 6 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

• 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. 

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

Percent of providers that will not be 

ready for October 1, 2013 compliance date 

Expenditure 

over six 

months per 

physician 

practice in millions = (annual 

expenditure on 

physician 

practices) divided by (# of 

physician 

practices) divided by 2 

LOW to HIGH amount of delayed 

payments over a six month period 

in millions (% not ready * number 

of physician practices) * (expenditure per practice) 

Avg Annual interest rate on 

small business 

loans (Federal 

Reserve, 

2011) 

LOW to HIGH Cost to providers in 

interest in millions 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22995 

59Edifecs poll, 2012. 

60 Ibid. 

61The 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.’’ 

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. 

64Libicki, 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. 

66Nolan, 2003. 

67Libicki, 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. 

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

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

• 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. 

TABLE 24—ESTIMATED COST TO

HEALTH PLANS FOR IMPLEMENTING

ICD–10 ACCORDING TO STUDIES

Study 

Estimated Total Cost 

to Health Plans 

(in millions) 

LOW HIGH 

Nolan (2003) ............. $432 $913 

RAND (2004) ............ 150 363 

Haygroup (2006) ....... 384 868 

ICD-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

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, midsized, 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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22996 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

TABLE 25—COST IN 2014 OF A ONE-YEAR DELAY IN THE COMPLIANCE DATE OF ICD–10 * 

Health insurer categories 

Col. 1 Col. 2 Col. 3 Col. 4 Col. 5 Col. 6 Col. 7 Col. 8 Col. 9 

Number of 

health plans 

LOW total 

cost per 

health plan 

(in millions) 

HIGH total 

cost per 

health plan 

(in millions) 

LOW total 

implementation/training 

for all health 

plans in category (Col. 

1 * Col 2) 

HIGH total 

implementation/training 

for all health 

plans in category (Col. 

1 * Col. 3) 

LOW percent of total 

cost for one 

year delay 

HIGH percent of total 

cost for one 

year delay 

LOW estimate of 

one-year 

delay (in 

millions) 

HIGH estimate of 

one-year 

delay (in 

millions) 

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-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 * 

Number of State Medicaid that would be negatively affected 

LOW cost of a 

one-year delay 

per state agency 

in millions 

HIGH cost of a 

one-year delay 

per state agency 

in millions 

LOW cost of a 

one-year delay for 

Medicaid agencies 

in millions 

HIGH cost of a 

one-year delay for 

Medicaid agencies 

in millions 

21 ............................................................................................. $4 $7 $83 $145 

* In 2012 dollars. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22997 

69Nolan, 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. 

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. 

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–10 123

Hospitals: 

400 or more 

beds 

Hospitals: 

100–400 

beds 

Hospitals: 

fewer than 

100 beds 

Large physician practices (over 

100 physicians) 

Mid sized 

physician 

groups (50– 

100 physicians) 

Total cost of 

ICD–10 implementation (in millions) 

LOW cost 

for 1-Yr 

delay (10% 

of current 

implementation costs) 

(in millions) 

HIGH cost 

of 1-Yr 

delay (30% 

of current 

implementation costs) 

(in 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. 

2Adjusted to 2012 dollars. 

3 High and low ranges from Nolan 2003, adjusted to 2012 dollars. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
22998 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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 of coding 

courses for 30 

students 

Number of 

institutions 

that provide 

coding 

courses 

Cost to students/institutions to 

retrain in 

ICD–9 (in 

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 * 

LOW (in 

millions) 

HIGH (in 

millions) 

MEAN 

(average) 

(in millions) 

Cost Avoidance for Providers (manual submission of claims) ................................................................ $1,385 $3,001 $2,193 

Cost Avoidance for Providers (cost of loan interest) .............................................................................. 1,446 3,134 2,290 

Cost Avoidance for Health Plans (manual submission of claims) .......................................................... 804 1,742 1,273 

TOTAL COST AVOIDANCE FROM A 1-YEAR DELAY IN THE COMPLIANCE DATE OF ICD– 

10 .................................................................................................................................................. 3,635 7,877 5,756 

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 IN THE COMPLIANCE DATE OF ICD–10 .......................... $1,031 $6,586 $3,808 

* Calculated in 2012 dollars. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 22999 

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. 

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. 

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, 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
23000 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

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 

practices 

with less 

than 50 

physicians 

Physician 

practices 

with 50 to 

100 physicians 

Physician 

practices 

with more 

than 100 

physicians 

Hospitals 

with less 

than 100 

beds 

Hospitals 

with 100 to 

400 beds 

Hospitals 

with more 

than 400 

beds 

Totals 

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 nonprofit 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 onethird 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 

non profit 

health plans 

LOW COST 

per health 

plan in millions 

HIGH COST 

per health 

plan in millions 

LOW COST 

AVOIDANCE in 

millions 

HIGH COST 

AVOIDANCE 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 23001 

72 ‘‘Circular A–4,’’ September 17, 2003, Office of 

Management and Budget (OMB), http:// 

www.whitehouse.gov/omb/circulars_a004_a-4/ 

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 

avoidance/ 

savings less 

HIGH Costs 

(in millions) 

HIGH cost 

avoidance/ 

savings less 

LOW costs 

(in millions) 

MEAN 

(in 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. 

TABLE 35—ACCOUNTING STATEMENT FOR HPID IMPLEMENTATION: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM

FY 2013 TO FY 2023 

[In millions of dollars] 

Category Primary estimate 

(millions) 

Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source citation 

(RIA, preamble, 

etc.) 

BENEFITS: 

Annualized Monetized benefits: 

7% Discount ........................... $376 ..................................................... $252 ...................... $532 ...................... RIA. 

3% Discount ........................... 367 ....................................................... 258 ........................ 527 ........................ RIA. 

Qualitative (un-quantified) 

benefits.

HPID: Environmental (electronic over 

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. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
23002 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

TABLE 35—ACCOUNTING STATEMENT FOR HPID IMPLEMENTATION: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM

FY 2013 TO FY 2023—Continued 

[In millions of dollars] 

Category Primary estimate 

(millions) 

Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source citation 

(RIA, preamble, 

etc.) 

Qualitative (unquantified) 

costs.

HPID: Cost for system changes for 

dentists, suppliers of durable medical equipment, nursing homes, residential care facilities, and providers 

other than physician practices and 

hospitals.

None ..................... None.

TRANSFERS: 

Annualized monetized transfers: 

‘‘on budget’’.

N/A ....................................................... N/A ........................ N/A.

From whom to whom? ................... N/A ....................................................... N/A ........................ N/A.

Annualized monetized transfers: 

‘‘off-budget’’.

N/A ....................................................... N/A ........................ N/A.

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] 

Category Primary estimate 

(millions) 

Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source citation 

(RIA, preamble, etc.) 

BENEFITS: 

Annualized Monetized benefits: 

7% Discount $717 ............................................................... $453 ........................... $982 ........................... RIA. 

3% Discount 604 ................................................................. 381 ............................. 827 ............................. RIA. 

Qualitative 

(un-quantified) benefits.

Avoidance of returned 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 

(unquantified) costs.

Downstream costs of a delayed return on investment for covered entities..None .......................... None.

TRANSFERS: 

Annualized monetized transfers: 

‘‘on budget’’.

N/A ................................................................. N/A ............................. N/A.

From whom to 

whom?.

N/A ................................................................. N/A ............................. N/A.

Annualized monetized transfers: 

‘‘off-budget’’.

N/A ................................................................. N/A ............................. N/A.

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] 

Category Primary estimate (millions) Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source citation (RIA, 

preamble, etc.) 

BENEFITS: 

Annualized Monetized benefits: 

7% Discount ................ $1,069 ...................................................... $705 ........................ $1,479 ..................... RIA. 

3% Discount ................ $960 ......................................................... $640 ........................ $1,338 ..................... RIA. 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 23003 

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—Continued 

[In millions of dollars] 

Category Primary estimate (millions) Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source citation (RIA, 

preamble, etc.) 

Qualitative 

(unquantified) benefits.

HPID: Environmental (electronic over 

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 

(unquantified) costs.

HPID: Cost for system changes for dentists, suppliers of durable medical 

equipment, nursing homes, residential 

care facilities, and providers other than 

physician practices and hospitals.

DELAY IN COMPLIANCE DATE OF 

ICD–10: Downstream costs of a delayed return on investment for covered 

entities.

None ....................... None .......................

TRANSFERS: 

Annualized monetized 

transfers: ‘‘on budget’’.

N/A ........................................................... N/A .......................... N/A ..........................

From whom to whom? ....... N/A ........................................................... N/A .......................... N/A ..........................

Annualized monetized 

transfers: ‘‘off-budget’’.

N/A ........................................................... N/A .......................... N/A ..........................

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: 

§ 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 

§ 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 

§ 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: 

§ 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 

§ 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: 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
23004 Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 

§ 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 

§ 162.502 [Reserved] 

§ 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 § 162.510 no later than 

October 1, 2014. 

(b) Health plans. A health plan must 

comply with the implementation 

specifications in § 162.510 and 

§ 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 § 162.510 no later than October 1, 

2014. 

§ 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 

§ 162.508. 

(b) Required and permitted uses for 

the HPID. (1) The HPID must be used as 

specified in § 162.510 and § 162.512. 

(2) The HPID may be used for any 

other lawful purpose. 

§ 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 § 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. 

§ 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. 

§ 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. 

§ 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 

§ 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: 

§ 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: 

* * * * * 


tkelley on DSK3SPTVN1PROD with PROPOSALS2
Federal Register / Vol. 77, No. 74 / Tuesday, April 17, 2012 / Proposed Rules 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 


tkelley on DSK3SPTVN1PROD with PROPOSALS2