3296 Federal Register / Vol. 74, No. 11 / Friday, January 16, 2009 / Rules and Regulations 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Office of the Secretary 

45 CFR Part 162 

[CMS–0009–F] 

RIN 0938–AM50 

Health Insurance Reform; 

Modifications to the Health Insurance 

Portability and Accountability Act 

(HIPAA) Electronic Transaction 

Standards 

AGENCY: Office of the Secretary, HHS. 

ACTION: Final rule. 

SUMMARY: This final rule adopts updated 

versions of the standards for electronic 

transactions originally adopted under 

the Administrative Simplification 

subtitle of the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA). This final rule also 

adopts a transaction standard for 

Medicaid pharmacy subrogation. In 

addition, this final rule adopts two 

standards for billing retail pharmacy 

supplies and professional services, and 

clarifies who the ‘‘senders’’ and 

‘‘receivers’’ are in the descriptions of 

certain transactions. 

DATES: Effective Dates: These 

regulations are effective March 17, 2009 

except for the provisions of 45 CFR part 

162 Subpart S, which are effective 

January 1, 2010. The incorporation by 

reference of certain publications listed 

in the regulations is approved by the 

Director of the Federal Register as of 

March 17, 2009. 

Compliance Dates: Compliance with 

the provisions of §§ 162.1102(c), 

162.1202(c), 162.1302(c), 162.1402(c), 

162.1502(c), 162.1602(c), 162.1702(c), 

and 162.1802(c) is required on January 

1, 2012. Compliance with the provisions 

of § 162.1902 is required on January 1, 

2013. 

FOR FURTHER INFORMATION CONTACT: 

Lorraine Tunis Doo, (410) 786–6597. 

I. Background 

HIPAA mandated the adoption of 

standards for electronically conducting 

certain health care administrative 

transactions between certain entities. 

Through subtitle F of title II of HIPAA, 

the Congress added to title XI of the 

Social Security Act (the Act) a new Part 

C, entitled ‘‘Administrative 

Simplification.’’ Part C of title XI of the 

Act now consists of sections 1171 

through 1180. These sections define 

various terms and impose several 

requirements on HHS, health plans, 

health care clearinghouses, and certain 

health care providers concerning the 

electronic transmission of health 

information. On August 17, 2000, we 

published a final rule entitled, ‘‘Health 

Insurance Reform: Standards for 

Electronic Transactions’’ in the Federal 

Register (65 FR 50312) (hereinafter 

referred to as the Transactions and Code 

Sets rule). That rule implemented some 

of the HIPAA Administrative 

Simplification requirements by adopting 

standards for eight electronic 

transactions and for code sets to be used 

in those transactions. Those transactions 

were: Health care claims or equivalent 

encounter information; health care 

payment and remittance advice; 

coordination of benefits; eligibility for a 

health plan; health care claim status; 

enrollment and disenrollment in a 

health plan; referral certification and 

authorization; and health plan premium 

payments. We defined these 

transactions and specified the adopted 

standards at 45 CFR part 162, subparts 

I and K through R. 

Since the time of compliance with the 

first set of HIPAA standards, a number 

of technical issues with the standards, 

including issues resulting from new 

business needs, have been identified. 

Industry stakeholders submitted 

hundreds of change requests to the 

standards maintenance organizations, 

with recommendations for 

improvements to the standards. These 

requests were considered, and many 

were accepted, resulting in the 

development and approval of newer 

versions of the standards for electronic 

transactions. However, covered entities 

are not permitted to use those newer 

versions until the Secretary of Health 

and Human Services (HHS) adopts them 

by regulation for HIPAA transactions. 

In addition to technical issues and 

business developments necessitating 

consideration of the new versions of the 

standards, there remain a number of 

unresolved policy issues that were 

identified by the industry early in the 

implementation period for the first set 

of standards, and those issues were 

never addressed through regulation. 

This final rule addresses those 

outstanding issues. 

We refer readers to review the 

following regulations for a more 

detailed discussion of the changes to the 

standards for electronic transactions; the 

Transactions and Code Sets rule; the 

Modifications to Electronic Data 

Transaction Standards and Code Sets 

rule (68 FR 8381), published in the 

Federal Register on February 20, 2003 

(hereinafter the Modifications rule); 

Standards for Privacy of Individually 

Identifiable Health Information (65 FR 

82462), published in the Federal 

Register on December 28, 2000; 

Standards for Privacy of Individually 

Identifiable Health Information; Final 

Rule (67 FR 53182) published in the 

Federal Register on August 14, 2002; 

and the Modifications to the Health 

Insurance Portability and 

Accountability Act (HIPAA) Electronic 

Transaction Standards proposed rule 

(73 FR 49796), published in the Federal 

Register on August 22, 2008 (hereinafter 

the August 22, 2008 proposed rule) for 

further information about electronic 

data interchange, the statutory 

background and the regulatory history. 

In the August 22, 2008 proposed rule, 

we included a table that shows the full 

set of HIPAA transaction standards 

adopted in the Transactions and Code 

Sets rule, as we proposed to modify 

them in the August 22, 2008 proposed 

rule (73 FR 49744), and adopt in this 

final rule. The list is reproduced here in 

Table 1: 

TABLE 1—HIPAA STANDARD AND TRANSACTIONS

Standard Transaction 

ASC X12 837 D ............................... Health care claims—Dental. 

ASC X12 837 P ............................... Health care claims—Professional. 

ASC X12 837 I ................................. Health care claims—Institutional. 

NCPDP D.0 ...................................... Health care claims—Retail pharmacy drug. 

ASC X12 837 P and NCPDP D.0 .... Health care claims—Retail pharmacy supplies and professional services. 

NCPDP D.0 ...................................... Coordination of Benefits—Retail pharmacy drug. 

ASC X12 837 D ............................... Coordination of Benefits—Dental. 

ASC X12 837 P ............................... Coordination of Benefits—Professional. 

ASC X12 837 I ................................. Coordination of Benefits—Institutional. 

ASC X12 270/271 ............................ Eligibility for a health plan (request and response)—dental, professional and institutional. 


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TABLE 1—HIPAA STANDARD AND TRANSACTIONS—Continued 

Standard Transaction 

NCPDP D.0 ...................................... Eligibility for a health plan (request and response)—Retail pharmacy drugs. 

ASC X12 276/277 ............................ Health care claim status (request and response). 

ASC X12 834 ................................... Enrollment and disenrollment in a health plan. 

ASC X12 835 ................................... Health care payment and remittance advice. 

ASC X12 820 ................................... Health plan premium payment. 

ASC X12 278 ................................... Referral certification and authorization (request and response). 

NCPDP D.0 ...................................... Referral certification and authorization (request and response)—Retail pharmacy drugs. 

NCPDP 5.1 and NCPDP D.0 ........... Retail pharmacy drug claims (telecommunication and batch standards). 

NCPDP 3.0 ...................................... Medicaid pharmacy subrogation (batch standard). 

II. Provisions of the Proposed 

Regulations and Responses to 

Comments 

On August 22, 2008 we proposed to 

adopt updated standards for the eight 

adopted electronic transactions 

standards. We proposed to revise 

§ 162.1102, § 162.1202, § 162.1302, 

§ 162.1402, § 162.1502, § 162.1602, 

§ 162.1702, and § 162.1802 to adopt the 

ASC X12 Technical Reports Type 3 

(TR3), Version 005010 (hereinafter 

referred to as Version 5010) as a 

modification of the current X12 Version 

4010 standards (hereinafter referred to 

as Version 4010/4010A) for the HIPAA 

transactions. In some cases, the 

Technical Reports Type 3 have been 

modified by Type 1 Errata, and these 

Errata were also included in our 

proposal. The full discussion of our 

proposal to revise each of the abovereferenced provisions can be found in 

the August 22, 2008 proposed rule (73 

FR 49745–49750). 

We proposed to revise § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802 

by adding new paragraphs (c)(1) to each 

of those sections to adopt the NCPDP 

Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0) and equivalent 

NCPDP Batch Standard Implementation 

Guide, Version 1, Release 2 (Version 

1.2) (hereinafter collectively referred to 

as Version D.0) in place of the NCPDP 

Telecommunication Standard 

Implementation Guide, Version 5, 

Release 1 and equivalent NCPDP Batch 

Standard Implementation Guide, 

Version 1, Release 1 (hereinafter 

collectively referred to as Version 5.1), 

for the following retail pharmacy drug 

transactions: Health care claims or 

equivalent encounter information; 

eligibility for a health plan; referral 

certification and authorization; and 

coordination of benefits. The full 

discussion of our proposal to revise 

each of the above-referenced provisions 

can be found in the August 22, 2008 

proposed rule (73 FR 49751). 

We proposed to add a new subpart S 

to 45 CFR part 162 to adopt a standard 

for the subrogation of pharmacy claims 

paid by Medicaid. The transaction is the 

Medicaid pharmacy subrogation 

transaction, defined at proposed 

§ 162.1901, and the new standard is the 

NCPDP Batch Standard Medicaid 

Subrogation Implementation Guide, 

Version 3, Release 0 (Version 3.0), July 

2007 (hereinafter referred to as Version 

3.0) at proposed § 162.1902. The 

standard would be applicable to 

Medicaid agencies in their role as health 

plans, as well as to other health plans 

that are covered entities under HIPAA, 

but not to providers because this 

transaction is not utilized by them. For 

a complete discussion of the Medicaid 

pharmacy subrogation transaction and 

the proposed adoption of Version 3.0, 

see the August 22, 2008 proposed rule 

(73 FR 49751–49752). 

We proposed to revise § 162.1102 to 

adopt both Version D.0 and the 837 

Health Care Claim: Professional ASC 

X12 Technical Report Type 3 for billing 

retail pharmacy supplies and 

professional services. We proposed that 

the use of either standard would be 

determined by trading partner 

agreements. The full discussion of the 

proposed change can be found in the 

August 22, 2008 proposed rule (73 FR 

49752–49754). 

We proposed to revise the 

descriptions of the transactions at 

§ 162.1301, § 162.1401, and § 162.1501 

to more clearly specify the senders and 

receivers of those transactions. See the 

August 22, 2008 proposed rule for a full 

discussion of this proposal (73 FR 

49754). For Versions 5010 and D.0, we 

proposed a compliance date of April 1, 

2010 for all covered entities. For 

Version 3.0, we proposed a compliance 

date 24 months after the effective date 

of the final rule, except for small health 

plans, which would have to be in 

compliance 36 months after the effective 

date of the final rule. Finally, we 

proposed to revise § 162.923 to resolve 

the problem of different compliance 

dates for different entities, such that the 

requirement for covered entities to use 

the standards applies only when the 

covered entity conducts transactions 

with another entity that is also required 

to comply with the transaction 

standards. 

In response to the August 22, 2008 

proposed rule, we received 192 timely 

public comments from all segments of 

the health care industry, including 

providers, physician practices, 

hospitals, pharmacies, other health care 

professionals, health plans, 

clearinghouses, vendors, standards 

development organizations, professional 

associations, consultants, and State and 

Federal government agencies. We 

reviewed each submission, and grouped 

similar or related comments together to 

address in this final rule, which also 

enabled us to identify the areas of the 

proposed rule that required review in 

terms of policy, consistency or clarity. 

In the following sections, we present 

comments and responses generally in 

the order in which the topics were 

presented in the August 22, 2008 

proposed rule. There were a number of 

comments on topics that were not 

addressed in the proposed rule, and our 

responses to those comments are 

provided at the end of this section. 

Some comments we considered out of 

scope of the August 22, 2008 proposed 

rule, and we list several of them at the 

end of this section as well. 

A. Adoption of X12 Version 5010 

Technical Reports Type 3 for HIPAA 

Transactions 

In the August 22, 2008 proposed rule, 

we proposed to revise § 162.1102, 

§ 162.1202, § 162.1302, § 162.1402, 

§ 162.1502, § 162.1602, § 162.1702, and 

§ 162.1802 to adopt Version 5010. In 

some cases, the version was modified by 

Type 1 Errata, and these Errata were 

also proposed for adoption. In general, 

deficiencies inherent in the current 

standards continue to cause industrywide difficulties to such a degree that 

much of the industry rely on 

‘‘companion guides’’ and proprietary 

‘‘work-arounds.’’ The four types of 

changes in Version 5010 are structural, 

front matter, technical improvements 


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and data content changes. The complete 

discussion of this proposal can be found 

in the August 22, 2008 proposed rule 

(73 FR 49745–49749). 

Comment: Commenters 

overwhelmingly supported our proposal 

to adopt Version 5010 because of the 

technical and business improvements 

made to the standards. With respect to 

the specific changes made to Version 

5010, commenters expressed their 

appreciation for the tightened, clear 

situational rules which will reduce 

analysis time for everyone, and 

minimize the need for companion 

guides. Commenters said that the 

improved eligibility responses and 

better search options will improve 

efficiency for providers and reduce 

phone calls for both providers and 

health plans. Commenters also said that 

the detailed clarifications of commonly 

misunderstood areas such as corrections 

and reversals, refund processing, and 

recoupments should result in a 

consistent implementation of the X12 

835 (remittance advice), which is not 

the case today. They noted that 

incorrect implementations of the X12 

835 have prevented providers from 

implementing electronic posting, or 

automating the data entry of 

reimbursement information, as widely 

as they might otherwise. Correct 

implementation of the X12 835 will 

reduce phone calls to health plans, 

reduce appeals due to incomplete 

information, eliminate unnecessary 

customer support, and reduce the cost 

of sending and processing paper 

remittance advices. Commenters also 

noted that the greatly improved X12 278 

for referrals and authorizations could 

encourage wider implementation and 

save labor costs. Commenters noted that 

the new claims transaction standard 

contained in Version 5010 significantly 

improves the reporting of clinical data, 

enabling the reporting of ICD–10–CM 

diagnosis codes and ICD–10–PCS 

procedure codes, and distinguishes 

between principal diagnosis, admitting 

diagnosis, external cause of injury and 

patient reason for visit codes. 

Commenters noted that these 

distinctions will improve the 

understanding of clinical data and 

enable better monitoring of mortality 

rates for certain illnesses, outcomes for 

specific treatment options, and hospital 

length of stay for certain conditions, as 

well as the clinical reasons for why the 

patient sought hospital care. 

Commenters also noted that another 

improvement in the updated claims 

standard is the ability to handle 

identification of the ‘‘Present on 

Admission’’ (POA) indicator to the 

diagnoses. 

Response: We appreciate the 

overwhelming support of commenters 

for the adoption of Version 5010. 

Comment: We received a few 

comments urging X12 to publish an allinclusive list of changes made to the 

standards. Commenters said that a 

change log is issued after each year’s 

changes are approved. Since Version 

5010 incorporates multiple years of 

changes, users would be required to 

consolidate multiple change logs. A 

cumulative change log that includes 

changes from each interim year should 

be provided so that all of the changes 

are contained in one document. 

Response: We agree that it would be 

helpful to have a comprehensive list of 

the changes made to a current version 

of the standards, and that it would make 

it easier for covered entities to identify 

all of the changes that have occurred 

since the last version of the standard 

was adopted. We have made this 

recommendation to the X12 work group 

as well as the Designated Standards 

Maintenance Organizations (DSMO). 

Many commenters submitted 

technical comments relating to Version 

5010. The comments included highly 

technical issues and suggested 

structural changes to the standards, 

definitional issues requiring 

clarification, and interpretational issues 

regarding routine usage of the standards. 

In total, there were over 470 technical 

comments. We provided all of the 

technical comments to X12, which had 

convened a committee of subject matter 

experts to review the technical 

comments and provide us with 

technical input. The workgroup 

reviewed each comment and categorized 

them into several groups as follows: (1) 

The committee agrees with the comment 

and the change will be made in the next 

version of the TR3s (212 comments); (2) 

the committee does not agree with the 

comment and believes that a change is 

not appropriate (156 comments); (3) the 

functionality already exists elsewhere in 

the TR3s; commenter requires 

explanation and references (5 

comments); and (4) the comment is a 

request for interpretation and/or 

training, and not a request for a change 

in the TR3s (43 comments). There were 

29 comments that were not requests for 

action, but rather statements of opinion 

about Version 5010. Of the 212 

comments falling into the first category, 

most were clarifications that would 

improve usability of the TR3s, but 

would not adversely affect business 

processes. Therefore, we will not 

request that X12 accommodate these 

changes in Version 5010, but rather 

would address them in the course of 

developing later versions of the 

standards. 

After publication of the final rule, all 

of the technical comments reviewed by 

the X12 workgroup, with the 

dispositions, will be posted on the CMS 

Web site at http://www.cms.hhs.gov, in 

the Regulations and Guidance section, 

as well as on the X12 portal at http:// 

www.x12.org. Where education and/or 

additional communication are needed 

about the functionality of the 

transactions, X12 will provide that in 

future programs, in collaboration with 

appropriate industry groups. These 

Standards Development Organizations 

(SDO)-sponsored efforts will specifically 

address the third category of comments 

in which the committee stated that the 

functionality exists elsewhere in the 

TR3s, or the fourth category of 

comments where the commenter 

specifically requested additional 

interpretation guidance. 

During the comment review process, 

X12 provided input to HHS, and we 

selected several comments to include in 

this final rule as examples of the types 

of technical issues that were submitted 

during the public comment period. In 

general, suggested corrections, 

clarifications, and definitional changes 

to Version 5010 transaction standards 

will be reserved for future versions of 

the standards. Any suggested changes to 

the structure of the standard will need 

to be evaluated through the standards 

development process and considered for 

future versions of the standard. All 

comments submitted during the 

comment period for the August 22, 2008 

proposed rule will automatically be 

included in the X12 process for 

considering change requests. Submitters 

will not need to re-submit those 

comments. 

Comment: We received a few 

comments requesting clarification of a 

statement in the August 22, 2008 

proposed rule regarding the field size 

issue in Version 4010/4010A to 

accommodate ICD–10. In the August 22, 

2008 proposed rule, we said that 

Version 4010/4010A does not provide a 

means for identifying ICD–10 procedure 

or diagnosis codes on an institutional 

claim, and that Version 5010 anticipates 

the eventual use of ICD–10 procedure 

and diagnosis codes by adding a 

qualifier as well as the space needed to 

report the number of characters that 

would permit reporting of ICD–10 

procedure and diagnosis codes on 

institutional health care claims. 

Commenters pointed out that the more 

accurate explanation for why Version 

4010/4010A cannot accommodate ICD– 

10 is because of the lack of a qualifier 


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or indicator for the code set name rather 

than the size of the field for the codes. 

Response: We note the correction. 

Comment: One commenter 

recommended a correction to Version 

5010, specific to the claims transactions, 

to enable it to support the creation of a 

proposed National Joint Replacement 

Registry. 

Response: Because of the technical 

nature of this comment, we consulted 

with the X12 work group to better 

understand the context of the comment 

and the stated concern. Based on our 

current understanding of the comment, 

we agreed with the X12 workgroup on 

this recommendation for the next 

version of its TR3s, once the registry is 

finalized. This means that Version 5010 

will not have changes made to it for this 

purpose at this time, but that the next 

version of the standards will likely have 

addressed and resolved this issue. 

Comment: We received several 

comments regarding the external code 

sets used in the standards, such as 

claims adjustment reason codes. Several 

commenters wrote about the X12 835 

remittance advice code mapping 

requirements, stating that providers 

continue to struggle with 

implementation of the X12 835 as many 

health plans struggle to provide quality 

mapping from proprietary to standard 

codes in the health care payment and 

remittance advice transaction. 

Commenters requested that guidelines 

for mapping be provided. 

Response: During our consideration of 

these comments, which we believe 

apply to the technical standards 

maintenance process, and which we feel 

are outside of the scope of this rule, we 

consulted with the WEDI 835 special 

work group (SWG) to confirm that the 

stated concerns were being addressed in 

its standards revision process. The 

WEDI 835 SWG indicated that it is 

developing a recommended set of 

mapping instructions and information 

for the industry. In addition, the WEDI 

835 SWG has adopted recommendations 

that will assist in facilitating a more 

standard implementation of the X12 

835. 

Comment: We received a comment 

from a large specialty association 

representing anesthesiology. This group 

responded to a discussion in the August 

22, 2008 proposed rule in which we 

indicate that efficiencies are gained by 

allowing only the reporting of minutes 

for anesthesia time in Version 5010, 

whereas Version 4010/4010A allows for 

reporting of anesthesia time in either 

units or minutes. The commenter stated 

that this change to Version 5010 will not 

add efficiency and/or cost savings to the 

submission and processing of claims for 

anesthesia care, and requested that units 

continue to be permitted, or 

alternatively, that additional time be 

allowed to implement this change 

because of its impact on business 

processes and contracts. 

Response: Due to the nature of this 

comment, which addresses potential 

efficiencies resulting from a technical 

provision in the Version 5010 

implementation guide, we consulted 

with the X12 workgroup. Based on our 

discussion with the X12 workgroup, we 

think that the appropriate course for the 

commenter to follow would be to 

submit a change request to the 

workgroup because the X12 

development cycle is ongoing, and 

change requests will continue to be 

accepted and reviewed for consideration 

for the next version of the standards. 

Given the change in this final rule in the 

compliance date for Version 5010, we 

believe the commenter’s request for 

more time to implement the data 

requirement is addressed. 

Comment: Several commenters 

suggested changes to the situational rule 

for the health care diagnosis codes 

segment on the X12 837D for dental 

claims. The situational rule requires 

inclusion of diagnosis codes only under 

circumstances involving oral surgery or 

anesthesia. Commenters suggested that 

today’s dental health plans are offering 

benefit plans that provide additional 

coverage for dental services when 

certain medical conditions exist. The 

commenter suggested that the 

situational rule be expanded to allow for 

dental providers to include diagnosis 

codes in cases where specific dental 

procedures may minimize the risks 

associated with the connection between 

the patient’s oral and systemic health 

conditions. 

Response: We do not feel that these 

comments are within the scope of the 

proposed rule, but instead pertain to 

certain technical aspects of the X12 

Technical Reports. As such, we shared 

the comments with the X12 expert 

committee, which agreed with this 

recommendation and committed to 

incorporating this change into future 

versions of X12 Technical Reports Type 

3. As stated earlier, X12 will provide 

guidance on how to accommodate the 

functionality in Version 5010. 

Comment: A few comments focused 

on the ability of dental providers to 

report tooth numbers on the X12 837P 

claim. According to commenters, there 

is a need for all dental providers to be 

able to report tooth numbers on medical 

claims. There were two specific issues 

raised in this regard. First, even though 

a field for the tooth number has been 

designated temporarily, to accommodate 

claims from oral surgeons and other 

practitioners, a permanent data element 

is needed. The second issue pertains to 

the use of either a national or 

international tooth numbering system. 

These commenters stated that both 

numbering systems should be 

accommodated in the X12 837 Dental 

and Professional Guides. Currently, only 

the Universal National Tooth 

Designation System is accommodated in 

Version 5010. 

Response: Once again, we believe 

these comments pertain more directly to 

the technical provisions of the relevant 

implementation guides. We therefore 

consulted with the X12 expert 

committee, which agreed with the first 

issue regarding the ability of dental 

providers to report tooth number 

beyond oral surgery, and committed to 

allowing this level of reporting in future 

versions of the X12 standards. 

Regarding the issue of which tooth 

numbering system should be 

accommodated in Version 5010, the X12 

committee encourages the commenters 

to initiate the discussion through the 

DSMO process with additional business 

justification for future consideration. 

The X12 portal has several HIPAA 

Implementation Guide Requests (HIRs) 

available which explain how to use the 

claims transaction for dental services in 

the interim (http://www.X12.org). 

Overall, the technical comments 

received on Version 5010 did not 

represent issues that would prevent this 

version of the standard from being 

adopted as currently proposed. 

However, enhancements will either be 

implemented in future versions or 

further vetted for inclusion in future 

versions. 

B. Adoption of NCPDP 

Telecommunication Standard 

Implementation Guide Version D 

Release 0 (D.0) and Equivalent Batch 

Standard Implementation Guide, 

Version 1, Release 2 (1.2) for Retail 

Pharmacy Transactions 

We proposed to revise § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802 

by adding new paragraphs (c)(1) to each 

of those sections to adopt the NCPDP 

Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0) and equivalent 

NCPDP Batch Standard Implementation 

Guide, Version 1, Release 2 (Version 

1.2) in place of the NCPDP 

Telecommunication Standard 

Implementation Guide, Version 5, 

Release 1 (Version 5.1) and equivalent 

NCPDP Batch Standard Implementation 

Guide, Version 1, Release 1 (Version 

1.1), for the following retail pharmacy 

drug transactions: health care claims or 


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equivalent encounter information; 

eligibility for a health plan; referral 

certification and authorization; and 

coordination of benefits. 

Since the time that Version 5.1 was 

adopted as a transaction standard in the 

Transactions and Code Sets rule, the 

industry has submitted requests for 

modifications to Version 5.1 to NCPDP. 

Some of these modification requests 

were necessary for reasons similar to 

those for the X12 standards—changing 

business needs—many of which were 

necessitated by the requirements of the 

Medicare Prescription Drug, 

Improvement and Modernization Act of 

2003 (MMA). The complete discussion 

of our proposal and reasons for the 

proposal can be found in the August 22, 

2008 proposed rule (73 FR 49751). 

Comment: Commenters unanimously 

supported the adoption of Version D.0, 

agreeing that Version D.0 is needed so 

that transactions for the Medicare Part D 

pharmacy benefit can be conducted. We 

did not receive any technical comments 

on Version D.0. 

Response: We agree that Version D.0 

is needed to enhance retail pharmacy 

transactions, as well as to better support 

Medicare Part D requirements. We are 

adopting Version D.0 as proposed. 

C. Adoption of a Standard for Medicaid 

Pharmacy Subrogation: NCPDP 

Medicaid Subrogation Implementation 

Guide, Version 3.0 for Pharmacy Claims 

We proposed adding a new subpart S 

to 45 CFR part 162 to adopt a standard 

for the subrogation of pharmacy claims 

paid by Medicaid. We proposed that the 

transaction would be the Medicaid 

pharmacy subrogation transaction, 

defined at proposed § 162.1901, and that 

the standard for that transaction would 

be the NCPDP Batch Standard Medicaid 

Subrogation Implementation Guide, 

Version 3, Release 0 (Version 3.0), July 

2007 (hereinafter referred to as Version 

3.0) at proposed § 162.1902. The 

complete discussion of our proposal and 

reasons for the proposal can be found in 

the August 22, 2008 proposed rule (73 

FR 49751–49752). 

Comment: Commenters unanimously 

supported the adoption of Version 3.0 

for Medicaid pharmacy subrogation, and 

we did not receive any comments in 

opposition. We also did not receive any 

technical comments on Version 3.0. 

Response: We are adopting Version 

3.0 as the HIPAA standard at 

§ 162.1902, for the Medicaid pharmacy 

subrogation transaction, as described at 

§ 162.1901. 

Comment: Several commenters 

requested that standards for Medicaid 

subrogation also be adopted for other 

claims types in addition to pharmacy 

claims. The commenters pointed out 

that the ASC X12 837 claim standards 

used for processing institutional, 

professional and dental claims already 

include the ability to perform Medicaid 

subrogation and that these standards 

have also gone through the DSMO 

approval process. 

Response: We appreciate the 

suggestion that we adopt standards for 

conducting Medicaid subrogation for 

both pharmacy and medical claims. 

However, since we did not propose the 

adoption of Version 5010 for Medicaid 

subrogation of non-pharmacy claims, we 

cannot adopt it in this final rule. HHS 

will consider whether to adopt the X12 

standard for non-pharmacy Medicaid 

subrogation transactions. If we pursue 

that option, we would propose it in an 

NPRM and take industry comments into 

consideration before we would adopt a 

standard. 

We note that, although we are not 

adopting a standard for Medicaid 

subrogation for non-pharmacy related 

claims in this rule, those standards are 

available for use. Covered entities are 

not prohibited from using Version 5010 

for non-pharmacy Medicaid subrogation 

transactions between willing trading 

partners. Some Medicaid agencies have 

already been successfully using this 

approach with commercial health plans. 

Comment: We received comments 

recommending that HHS clarify that 

State Medicaid agencies would not be 

prohibited from continuing to bill using 

paper claims when necessary. 

Response: We recognize that there 

may be situations where it is not costeffective for State Medicaid agencies 

and certain plans to use an electronic 

format for pharmacy claims. For 

example, while a particular plan may 

process a large volume of claims, the 

same plan may have only a small 

number of Medicaid pharmacy 

subrogation claims. In addition, States 

continue to make advancements in 

identifying other liable payers. This 

enables States to avoid payment by 

returning claims to providers and 

instructing them to bill the other payers. 

This will result in a decrease in the 

volume of subrogation claims for 

Medicaid. Health plans do not always 

have to conduct electronic transactions 

for which a standard has been adopted, 

but if they do, the standard must be 

used. Section 162.923, however, places 

additional requirements on health plans 

so that if a covered entity wanted to 

conduct the transaction electronically 

with the Medicaid agency, the agency 

could not refuse to do so. Medicaid 

agencies could continue to bill on paper 

as long as both parties to the transaction 

agree to conduct the paper transaction. 

However, Medicaid agencies will still be 

required to have the capacity to transmit 

and receive the Medicaid pharmacy 

subrogation transaction electronically, 

in standard format, which the Medicaid 

agency could choose to do through its 

own system or through a health care 

clearinghouse. 

Comment: We received a comment 

from a pharmacy that supports the 

adoption of Version 3.0. The pharmacy 

requested that HHS enforce the use of 

the standard and eliminate the practice 

used by some States of recouping money 

from the pharmacy instead of the third 

party, which puts additional burden on 

the pharmacy to bill the third party and 

in some instances re-bill Medicaid. 

Response: It is not in the purview of 

this regulation to eliminate the practice 

of recoupment from providers. The 

adoption of the Medicaid pharmacy 

subrogation standard will not restrict 

States that choose to recoup from 

providers in lieu of seeking 

reimbursement from the third party 

directly. Once a claim is paid to a 

pharmacy, the State has the option to 

seek recovery directly from liable third 

party payers, or to seek recovery as an 

overpayment from the provider. We 

believe that the adoption of the 

Medicaid pharmacy subrogation 

standard will greatly improve the 

efficiency and effectiveness of the 

health care system which should result 

in more direct billing of third parties in 

States that routinely recoup from 

providers. 

D. Adoption of the NCPDP 

Telecommunication Standard 

Implementation Guide Version D 

Release 0 (D.0) and the Health Care 

Claim: Professional ASC X12 Technical 

Report Type 3 for Billing Retail 

Pharmacy Supplies and Services 

We proposed to revise § 162.1102 to 

adopt both Version D.0 and the 837 

Health Care Claim: Professional ASC 

X12 Technical Report Type 3 for billing 

retail pharmacy supplies and 

professional services. The use of either 

standard would be determined by 

trading partner agreements. The 

complete discussion of our proposal and 

the reasons for the proposal can be 

found in the August 22, 2008 proposed 

rule (73 FR 49752–49754). 

Comment: We received several 

comments in support of the proposal to 

allow the use of either standard for this 

purpose. Commenters agreed that the 

NCPDP Telecommunication and Batch 

Standard supports the billing of the 

various code sets needed to bill retail 

pharmacy supplies and professional 

services (for example, Medication 

Therapy Management (MTM), vaccine 


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administration), and that they can use 

this NCPDP standard for most of their 

transactions. The commenters said that 

workflow will be less disrupted when 

pharmacies can bill for services and 

supplies using the same NCPDP 

standard as that used for pharmacy drug 

claims. Commenters said that the ability 

to use the NCPDP standard will improve 

customer service and lower 

administrative costs. These commenters 

said that in some cases the X12 standard 

was appropriate, and that they preferred 

to have the option of using it on a caseby-case basis. 

Response: We are adopting our 

proposal to allow the use of either 

Version D.0 or Version 5010 for billing 

retail pharmacy supplies and 

professional services. 

Comment: A few commenters noted 

their support of the proposal, 

particularly as it relates to improving 

interoperability of claims processing 

and adjudication, and suggested that we 

clarify how our proposal would be 

implemented with respect to trading 

partner agreements. Another commenter 

was cautiously supportive, and said that 

it agreed with the use of either standard, 

but that we should emphasize the 

requirement that trading partner 

agreements be voluntary, and that a 

health plan could not create a mandate 

to use one standard over the other. 

Response: We reiterate that, by 

adopting both standards for the one 

transaction, we are supporting current 

industry practices with respect to the 

use of these standards for billing 

supplies and services that are 

commonly dispensed or conducted via 

the retail pharmacy channel. With the 

exception of the requirements set forth 

in § 162.915, regarding certain 

particulars that may not be included in 

trading partner agreements, we do not 

dictate the terms of trading partner 

agreements but expect that health plans 

and providers will continue to 

collaborate on the processes for these 

claim types. 

In addition to revising the regulation 

text at § 162.1102 to allow for the use of 

either the X12 or the NCPDP standard 

for billing retail pharmacy supplies and 

professional services, we are also 

making a conforming change to the 

definition of ‘‘standard transaction’’ at 

§ 162.103. We indicate that a standard 

transaction means a transaction that 

complies with ‘‘an’’ applicable standard 

adopted under this part, rather than 

‘‘the’’ applicable standard adopted 

under this part. 

Comment: One commenter said that if 

we are adopting standards for retail 

pharmacy supplies and services, that we 

should clearly state that both adopted 

standards apply to Medication Therapy 

Management (MTM) services. The 

commenter stated that MTM is a service 

designed to ensure that Part D drugs 

prescribed to targeted beneficiaries are 

appropriately used to optimize 

therapeutic outcomes through improved 

medication. 

Response: In the August 22, 2008 

proposed rule, we address MTM 

services, noting that the MMA provides 

coverage for MTM, which is a distinct 

set of services that encompasses a broad 

range of professional activities and 

responsibilities. We noted that some 

pharmacies believe it is appropriate to 

use the NCPDP standard for MTM 

services because the services are part of 

the prescription. Other industry 

segments, however, believe it is 

appropriate to use the X12 standard for 

billing MTM services because they 

interpret ‘‘professional services’’ to 

require the use of a professional claim 

(837P) (73 FR 49753). We agree with the 

commenter and affirm that MTM is 

included as a service to which both 

standards apply. 

E. Modifications to the Descriptions of 

Transactions 

We proposed to revise the 

descriptions of the transactions at 

§ 162.1301, § 162.1401, and § 162.1501 

to clearly specify the senders and 

receivers of those transactions. We 

proposed to revise the descriptions for 

the following transactions: (1) 

Enrollment and Disenrollment in a 

Health Plan; (2) Referral Certification 

and Authorization; and (3) Health Care 

Claim Status. 

Comment: The majority of 

commenters expressed their support for 

the revised transaction descriptions. 

Response: We are adopting the 

revisions to the regulation text as 

proposed. 

Comment: Several pharmacies and a 

national pharmacy chain noted that 

real-time pharmacy claim transaction 

statuses are given using the NCPDP 

standard in real time, whereas Version 

4010/4010A is a batch standard. A 

commenter requested that our definition 

of the health care claim status 

transaction specify that Version 5010 

(ASC X12 276/277) is used to provide 

status on X12 transactions for medical 

claims only, because the commenter 

wanted clear differentiation between 

pharmacy and non-pharmacy claims. 

Response: We are not making a 

change in our regulation text because 

we do not think it is appropriate. In 

§ 162.1401, the description of the health 

care claim status transaction only 

describes the actions and specifies the 

senders and receivers of the transaction, 

whereas § 162.1402 clearly identifies the 

standard that is adopted for the function 

described in § 162.1401. 

Comment: We received a comment 

requesting a technical clarification to 

the enrollment and disenrollment in a 

health plan transaction (§ 162.1501). 

The commenter stated that there has 

always been a concern as to when the 

enrollment/disenrollment (834) 

transaction was required. This 

commenter believed that the definition 

of a group health plan could be applied 

to the plan sponsor role of a self-funded 

employer group, which would require 

the plan sponsor to use the enrollment 

transaction. The commenter 

recommended that the final rule include 

wording to further clarify this 

requirement, by adding to § 162.1501 

the following: For the purpose of 

enrollment and disenrollment in their 

health plan, the term sponsor shall 

include self-funded employer groups 

that transmit electronic information to 

their Third Party Administrator (TPA) to 

establish or terminate insurance 

coverage for their member. 

Response: We proposed to describe 

this transaction as being ‘‘the 

transmission of subscriber enrollment 

information from the sponsor of the 

insurance coverage, benefits, or policy, 

to a health plan to establish or terminate 

insurance coverage.’’ We provided in 

the August 22, 2008 proposed rule that 

a sponsor is an employer that provides 

benefits to its employees, members, or 

beneficiaries through contracted 

services. We further noted that 

numerous entity types act as sponsors in 

providing benefits, including, for 

example, unions, government agencies, 

and associations (73 FR 49754). We do 

not think it is appropriate to further 

revise the definition of the enrollment 

and disenrollment in a health plan 

transaction to specify that a sponsor 

includes any one particular type of 

entity, as the commenter suggests. We 

reiterate here that it is not mandatory for 

a sponsor that is not otherwise a 

covered entity to use the transaction 

standard because, as a non-covered 

entity, HIPAA does not apply to it. 

F. Compliance and Effective Dates 

Versions 5010 and D.0: We proposed 

to adopt a date of April 1, 2010 for all 

covered entities to be in compliance 

with Versions 5010 and D.0. In the 

August 22, 2008 proposed rule, we 

discussed our reasons for proposing the 

compliance timeframe we did. We 

justified the proposed date based on 

assumptions that the industry had 

sufficient expertise in using the X12 and 

NCPDP standards, and that the system 

and business changes could therefore be 


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efficiently coordinated, requiring less 

time than the original standards for 

implementation. We also discussed at 

length an alternative we considered, but 

did not propose—a staggered 

compliance timeframe for Versions 5010 

and D.0 (72 FR 49754–49757). We 

received more than 100 comments on 

compliance dates, with virtually all 

indicating that the proposed compliance 

date was not feasible given the extensive 

changes in Versions 5010 and D.0 from 

the current standards, and the need for 

a coordinated implementation and 

testing schedule. As stated at the 

beginning of the preamble, this rule is 

effective March 17, 2009. We note that 

the effective date is the date that the 

policies set forth in this final rule take 

effect, and new policies are considered 

to be officially adopted. The compliance 

dates, which are different than the 

effective dates, are the dates on which 

entities are required to have 

implemented the policies adopted in 

this rule. The compliance dates we now 

adopt for this regulation are as follows: 

• Versions 5010 and D.0—January 1, 

2012. 

• Version 3.0 for all covered entities 

except small health plans—January 1, 

2012. 

• Version 3.0 for small health plans— 

January 1, 2013. 

Comment: The majority of 

commenters opposed the proposed 

compliance date for Versions 5010 and 

D.0 and requested additional time for 

implementation. Most commenters 

stated that the proposed date did not 

provide sufficient time to adequately 

execute a gap analysis for all of the 

transactions, build programs, train staff, 

and conduct outreach and testing with 

trading partners. These commenters 

stressed the need to avoid compliance 

extensions or contingency periods 

because they complicate 

implementations and increase costs. 

Health plans and providers expressed 

concern that the proposed compliance 

date was unrealistic because large 

segments of the industry have not been 

able to meet any of the deadlines for the 

HIPAA standards to date, including 

Medicare and many State Medicaid 

agencies. 

The majority of commenters who 

opposed the April 2010 compliance date 

suggested a thirty-six month compliance 

period instead. These commenters said 

that this amount of time is needed for 

full implementation because the same 

programmers, developers and 

operations staff who must re-design 

technical and business infrastructure 

activities to accommodate Versions 

5010 and D.0 will also be needed to do 

similar work to implement ICD–10. In 

fact, some commenters suggested that 

the impact of ICD–10 is so significant, 

that there might not be sufficient 

industry resources to address Versions 

5010 and D.0 because of competing 

resource needs. A number of health 

plans stated that, based on their own 

impact assessments, not only would 

record layouts and mapping changes be 

required, but also changes to edits, 

business procedures and system 

capabilities. They stated that there are 

nearly 850 changes between Version 

4010/4010A and Version 5010 to be 

analyzed and potentially implemented. 

One example is the X12 270/271 

eligibility transaction, which will 

require a more detailed response with 

less information supplied. Plans will 

have to determine where the data can be 

accessed and whether it exists within 

the current software; in many cases, it 

will not be a case of moving a few extra 

fields, and databases may have to be 

modified or created. These commenters 

said the complexity of the Technical 

Reports Type 3 requires in-depth 

analysis, which will have to be 

conducted through formal procedures 

(impact analysis, requirements 

definition) before design, build, and 

testing can take place. Similar 

comments were received regarding the 

compliance date for Version D.0. 

All entities that submitted comments 

agreed with the proposed adoption of 

that standard, but did not think enough 

time was given for implementation. 

Commenters stated that the transition 

from Version 5.1 to Version D.0 has 

functional complexity that will require 

standardization of practices, new fields, 

new situational rules for each data 

element, as well as education, testing 

and training. These commenters pointed 

out that, although there have been 22 

version releases of the NCPDP standard 

since Version 5.1, the majority of the 

industry was reluctant to develop 

software for any version that was not 

adopted under HIPAA. These 

commenters suggested a 36-month 

implementation schedule for Version 

D.0. 

Response: Based on the comments 

and our analysis of those comments, we 

are adopting a compliance date later 

than the date we proposed for all 

covered entities for Version 5010 and 

Version D.0. We are requiring that all 

covered entities be in compliance with 

Versions 5010 and D.0 on January 1, 

2012. 

We believe that it is crucial for 

covered entities to meet certain 

milestones during the compliance 

period in order to ensure full, 

successful, and timely compliance. The 

NCVHS recommended a framework for 

compliance that we believe will be very 

effective for these purposes. Therefore, 

we describe below the NCVHS 

recommendation and the schedule to 

which we expect covered entities to 

adhere during the compliance period. 

A letter from the NCVHS to Secretary 

of HHS Michael Leavitt dated 

September 26, 2007 (http:// 

www.ncvhs.hhs.gov) summarized the 

Committee’s Standards and Security 

Subcommittee’s HIPAA transaction 

hearings of July 2007, noting that ‘‘the 

timing of standards implementation is 

critical to success.’’ The NCVHS 

weighed the industry testimony 

presented at that hearing and noted that 

HHS should consider establishing two 

different levels of compliance for the 

implementation of Version 5010. Level 

1 compliance, as interpreted by the 

NCVHS, means that the HIPAA covered 

entity could demonstrate that it could 

create and receive Version 5010 

compliant transactions. Level 2 

compliance was interpreted by the 

NCVHS to mean that HIPAA covered 

entities had completed end-to-end 

testing with all of their partners and 

were ready to move into full production 

with the new version. The NCVHS letter 

stated that: ‘‘it is critical that the 

industry is afforded the opportunity to 

test and verify Version 5010 up to two 

years prior to the adoption of Version 

5010.’’ The letter’s Recommendation 2.2 

states that ‘‘HHS should take under 

consideration testifier feedback 

indicating that for Version 5010, two 

years will be needed to achieve Level 1 

compliance.’’ 

Accordingly, our expectations are as 

follows. The Level 1 testing period is 

the period during which covered 

entities perform all of their internal 

readiness activities in preparation for 

testing the new versions of the 

standards with their trading partners. 

When we refer to compliance with Level 

1, we mean that a covered entity can 

demonstrably create and receive 

compliant transactions, resulting from 

the completion of all design/build 

activities and internal testing. When a 

covered entity has attained Level 1 

compliance, it has completed all 

internal readiness activities and is fully 

prepared to initiate testing of the new 

versions in a test or production 

environment, pursuant to its standard 

protocols for testing and implementing 

new software or data exchanges. The 

Level 2 testing period is the period 

during which covered entities are 

preparing to reach full production 

readiness with all trading partners. 

When a covered entity is in compliance 

with Level 2, it has completed end-toend testing with each of its trading 


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partners, and is able to operate in 

production mode with the new versions 

of the standards by the end of that 

period. By ‘‘production mode,’’ we 

mean that covered entities can 

successfully exchange (accept and/or 

send) standard transactions and as 

appropriate, be able to process them 

successfully. 

During the Level 1 and Level 2 testing 

periods, either version of the standards 

may be used in production mode— 

Version 4010/4010A and/or Version 

5010, as well as Version 5.1 and/or 

Version D.0—as agreed to by trading 

partners. Covered entities should be 

prepared to meet Level 1 compliance by 

December 31, 2010, and Level 2 

compliance by December 31, 2011. After 

December 31, 2011, covered entities 

may not use Versions 4010/4010A and 

5.1. On January 1, 2012, all covered 

entities will have reached Level 2 

compliance, and must be fully 

compliant in using Versions 5010 and 

D.0 exclusively. 

The final compliance date provides an 

implementation period of 36 months, or 

three years, as requested by the majority 

of the commenters. Given this revised 

implementation period that 

accommodates NCVHS and industry 

concerns, we expect that covered 

entities will be able to meet the 

compliance date. We anticipate that, 

since there was support for a phased-in 

schedule, health plans and 

clearinghouses will make every effort to 

be fully compliant on January 1, 2012. 

Covered entities are urged to begin 

preparations now, to incorporate 

effective planning, collaboration and 

testing in their implementation 

strategies, and to identify and mitigate 

any barriers long before the deadline. 

While we have authorized contingency 

plans in the past, we do not intend to 

do so in this case, as such an action 

would likely adversely impact ICD–10 

implementation activities. HIPAA gives 

us authority to invoke civil money 

penalties against covered entities who 

do not comply with the standards, and 

we have been encouraged by industry to 

use our authority on a wider scale. We 

refer readers to the HIPAA Enforcement 

Final Rule (71 FR 8390), published in 

the Federal Register on February 16, 

2006, for our regulations implementing 

that HIPAA authority. 

Compliance Date for Version 3.0 

For implementation of Version 3.0 for 

the Medicaid pharmacy subrogation 

transaction, we proposed to revise 

§ 162.900 to adopt a compliance date of 

24 months after the effective date of the 

final rule for all covered entities, except 

for small health plans, which would 

have 36 months. We also proposed to 

revise § 162.923, entitled ‘‘Requirements 

for covered entities’’ to make paragraph 

(a) applicable only to covered entities 

that conduct transactions with other 

entities that are required to comply with 

a transaction standard. We proposed 

this change in order to address the 

situation where transactions require the 

participation of two covered entities, 

where one entity is under a different set 

of compliance requirements. We expect 

that the change we proposed to 

§ 162.923 would resolve the problem of 

a State Medicaid agency attempting to 

transmit a transaction using Version 3.0 

to a small health plan before the small 

health plan is required to be compliant 

and could, therefore, reject the 

transaction on the basis that it is in the 

standard format (73 FR 49754–49755). 

Comment: We received one comment 

explaining that Version 3.0 had to be 

implemented either at the same time as 

Version D.0, or after, because certain 

data elements present in D.0, but not in 

Version 5.1, were needed in order to use 

Version 3.0. The commenter also 

believed that willing trading partners 

would be able to agree to use the 

Medicaid pharmacy subrogation 

standard voluntarily at any time after 

the effective date and before the 

compliance date. 

Response: We agree that Versions D.0 

and 3.0 are tied together by certain data 

elements necessitating their 

concomitant or sequential 

implementation respectively. To 

accommodate these technical needs, we 

are making the effective date of Version 

3.0 later than the effective date for the 

other parts of this rule. We are making 

the effective date for the portion of the 

rule concerning the adoption of Version 

3.0 January 1, 2010, which means that 

covered entities, except small health 

plans, must be in compliance with 

Version 3.0 no later than January 1, 

2012. Small health plans must be in 

compliance no later than January 1, 

2013. This gives States and health plans 

a two-year planning, implementation 

and testing window, in contrast to the 

three years being provided for Versions 

5010 and D.0. States and plans are 

encouraged to do as much planning in 

the year before the effective date 

(calendar year 2009) as possible, to take 

advantage of that window and the work 

already under way for Version D.0, 

since Versions D.0 and 3.0 are tied 

together. In other words, States may use 

calendar year 2009 to conduct a 

preliminary analysis of Version 3.0 

changes, in concert with their analysis 

of Version D.0 changes. States should 

also prepare and submit their budget 

requests to secure funding for design, 

development and implementation in 

2010 and 2011, which would leave time 

to conduct testing with trading partners 

between January 2011 and January 2012. 

Comment: We received a number of 

comments from providers and health 

plans supporting the proposed revision 

to § 162.923(a). 

Response: We are adopting the 

revision to § 162.923(a), as proposed in 

the August 22, 2008 proposed rule. 

Timeline 

In the proposed rule, we provided a 

timeline for implementation and 

compliance of ICD–10 and Versions 

5010 and D.0. We included the timeline 

to enable the industry to conduct 

preliminary planning (73 FR 49757), 

and indicated that the proposed 

timeline represented our best estimate 

for industry implementation at the time. 

We also indicated that the timeline was 

subject to revision as updated 

information became available. We 

provide the revised timeline here. 

TIMELINE FOR IMPLEMENTING VERSIONS 5010/D.0, VERSION 3.0 AND ICD–10 

Version 5010/D.0 and Version 3.0 ICD–10 

01/09: Publish final rule ............................................................................ 01/09: Publish Final Rule.

01/09: Begin Level 1 testing period activities (gap analysis, design, development, internal testing) for Versions 5010 and D.0.

01/10: Begin internal testing for Versions 5010 and D.0.

12/10: Achieve Level 1 compliance (Covered entities have completed 

internal testing and can send and receive compliant transactions) for 

Versions 5010 and D.0.

01/11: Begin Level 2 testing period activities (external testing with trading partners and move into production; dual processing mode) for 

Versions 5010 and D.0.

01/11: Begin initial compliance activities (gap analysis, design, development, internal testing). 


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TIMELINE FOR IMPLEMENTING VERSIONS 5010/D.0, VERSION 3.0 AND ICD–10—Continued 

Version 5010/D.0 and Version 3.0 ICD–10 

01/12: Achieve Level 2 compliance; Compliance date for all covered 

entities. This is also the compliance date for Version 3.0 for all covered entities except small health plans *.

01/13: Compliance date for Version 3.0 for small health plans.

10/13: Compliance date for all covered entities (subject to the final 

compliance date in any rule published for the adoption of ICD–10). 

* Note: Level 1 and Level 2 compliance requirements only apply to Versions 5010 and D.0 

Other Comments Pertaining to the 

Compliance Date Specific to Versions 

5010 and D.0 

Comment: We received a few 

comments from Medicaid agencies 

explaining why the compliance dates 

were problematic from a funding 

perspective. Commenters explained that 

the State budget environment requires 

more lead time to obtain project 

authority and resources on the scale 

necessary to implement Versions 5010, 

D.0, and 3.0. One State said that it could 

not begin any substantial required 

documentation activities until there is a 

final rule. Finally, a number of States 

said that they are facing fairly 

significant budget shortages. 

Commenters said that, even with 90 

percent federal matching rates, resource 

requests based on a proposed rule 

would be unlikely to receive approval 

from legislatures. 

Response: The comments from the 

States were compelling with respect to 

funding and planning issues, and were 

helpful in our reconsideration of the 

proposed compliance dates. We 

acknowledge the need to work with 

States to coordinate their budget 

requests and implementation activities 

with legacy system replacement. 

Comment: Another State agency 

recommended that the final rule contain 

a waiver provision to permit covered 

entities to seek a waiver for 

implementation of Version 5010 in any 

existing legacy system that is scheduled 

for replacement. 

Response: Waivers cannot be 

accommodated. Neither the statute nor 

the regulations provide for waivers for 

meeting the standards set forth under 

HIPAA. 

Comment: A few commenters favored 

the proposed compliance dates for 

Versions 5010 and D.0, citing their 

eagerness to begin benefiting from the 

updated standards as soon as possible, 

particularly because it has been so long 

between adoption of Versions 4010/ 

4010A1 and 5.1, and the updated 

versions of those standards. 

Response: We believed the proposed 

compliance dates were reasonable for 

the reasons provided in the proposed 

rule (73 FR 49754–49757). Based on the 

comments however, we acknowledge 

that many significant actions would 

have to take place very quickly (for 

example, budget requests, hiring and 

recruitment of subject matter experts, 

design work, schedule of programming 

installations, etc.) in order to meet an 

April 2010 compliance date, and as 

stated above, have adopted a later date 

for both standards. 

Comment: The majority of 

commenters agreed that small health 

plans should not have additional time 

(for example, an additional year as in 

past regulations) to become compliant 

with Versions 5010 and D.0 because 

these entities are, or should be, already 

using Version 4010/4010A and Version 

5.1 through clearinghouses or their own 

systems. Small health plans should be at 

the same stage of implementation as any 

other covered entity, meaning that their 

organizations, business associates and 

trading partners are now well-versed in 

the technology and requirements for 

using Version 4010/4010A and Version 

5.1, and should not require additional 

time to accommodate the new versions. 

All covered entities are essentially at the 

same point with respect to having 

implemented the standards, identified 

and resolved business process issues, 

trained staff, and incorporated the use of 

standards process into their existing 

infrastructure. 

Response: We agree with commenters 

regarding the compliance dates for small 

health plans, and are requiring all 

covered entities, including small health 

plans, to be in compliance on the same 

date. 

Comment: We received several 

comments supporting a different 

schedule which involved staggering 

compliance based on either covered 

entity type or transaction type over the 

course of 3 years. In the first scenario, 

all health plans and clearinghouses 

would be required to be compliant one 

year before covered health care 

providers in order to ensure that 

providers could begin testing with all 

trading partners the following year. For 

example, under a 36-month compliance 

scenario, health plans and 

clearinghouses would have to be in 

compliance 24 months after the effective 

date, and prepared to conduct testing 

with trading partners over the next 12 

months. We also received a few 

comments that suggested a staggered 

implementation schedule by transaction 

type. For example, the updated 

standards for health care claims and 

related transactions could be 

implemented first, followed by updated 

standards for eligibility transactions, 

claims status transactions, etc. However, 

the majority of commenters who had 

opinions about a staggered 

implementation schedule based on 

transaction type believe that assigning 

different compliance dates to different 

transactions would not have the 

intended effect of ensuring compliance 

by the deadline, nor would it facilitate 

the testing process. These commenters 

explained that the use of certain 

transactions, particularly auxiliary 

transactions (for example, 

authorizations and referrals), is so 

inconsistent across the industry, there 

would be no effective means by which 

to stagger their implementation. The use 

of the auxiliary transactions is uneven— 

many entities do not use the claims 

status transactions because they have 

on-line access to their billing files; many 

do not use the eligibility transaction 

because, historically, it has not provided 

useful information. Thus, entities 

actually have very little experience with 

these transactions, and may continue to 

use them minimally. They do not wish 

to expend limited resources on a 

transaction that will not have a return 

on investment in the early years. 

Response: We believe that different 

compliance dates for different types of 

covered entities could significantly 

complicate trading partner testing, 

particularly for those entities that 

function as both health plans and health 

care providers, as well as for other 

entity types that perform in multiple 

roles. It is likely that different 

compliance dates for different entity 

types could be confusing to the 

industry, and could actually delay some 

implementations while entities waited 

for trading partner compliance. For 


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example, this approach presumes that 

providers and their software vendors 

will be making system and operational 

changes at the same time as the health 

plans and clearinghouses in order to be 

ready for testing. 

Comment: We received a number of 

comments about our assumption in the 

August 22, 2008 proposed rule that 

staggered implementation dates for 

health plans and clearinghouses would 

not be feasible because of robust trading 

partner tracking systems that might be 

needed so that entities could know 

which providers were testing Versions 

5010 and/or D.0, which were using 

Versions 4010/4010A and/or 5.1, and 

which had fully converted to Versions 

5010 and/or D.0. This would be very 

complicated to build and manage 

between the thousands of providers, 

health plans, vendors and 

clearinghouses. Commenters also 

expressed concern about the impact on 

coordination of benefits with secondary 

health plans, since each health plan 

would be implementing Version 5010 at 

different times. One commenter said 

that the reality is that all covered 

entities would need robust trading 

partner tracking systems for any 

implementation plan, and that 

coordination of benefits would be 

disrupted with any implementation 

plan because not all covered entities 

would be ready on the same date to 

send and receive the updated HIPAA 

standards. Commenters said that 

covered entities would have to support 

the dual use of Version 4010/4010A and 

Version 5010 until the compliance date 

in any scenario. They explained that all 

covered entities would need to test at 

different times during the 

implementation process, and that a 

complex scheduling process would 

need to exist between health plans, 

clearinghouses and providers testing 

and migrating to the updated 

transactions at different times. 

Response: We agree with the 

commenters’ points regarding the 

complexity of programming, testing and 

coordinating all implementation efforts, 

regardless of the timeline, if we were to 

adopt a staggered implementation 

schedule by entity type or transaction 

type. 

Comment: Some commenters said that 

all health plans, including State 

Medicaid agencies, must be held to the 

same compliance dates, and that 

compliance with prior HIPAA 

implementations varies between nongovernment health plans and State 

Medicaid agencies. Since Medicaid 

agencies have lagged behind and not 

met implementation deadlines, 

hospitals and providers have had to 

maintain a dual submission strategy 

which incurs significant additional 

costs to the providers. We received a 

number of comments expressing 

particular concern about Medicare 

mandating full compliance prior to the 

compliance date adopted by the final 

rule. The commenters specifically 

referenced written communication they 

had received from Medicare stating that 

it (Medicare) would have an early 

compliance date for Version 5010 for 

the coordination of benefits transaction. 

The commenters stated that, if Medicare 

requires covered entities to be ready to 

shift to dual processing several months 

before the adopted compliance date, 

there will be significant implementation 

problems for many providers and other 

health plans. The commenters also 

stated that, if Medicare mandates use of 

Version 5010 for coordination of 

benefits, before any of the other 

transactions were mandated for use, 

other health plans would have to run 

separate processing systems for just the 

one transaction. Other commenters 

stated that health plans do not maintain 

separate processing systems for each 

additional health plan with which they 

conduct COB transactions. Commenters 

stated that, if Medicare is allowed to 

mandate early compliance, it would 

exacerbate an already difficult situation, 

and reiterated that no entity should be 

allowed to require their trading partners 

to implement the standards in a 

production environment, prior to the 

HHS compliance date, if the trading 

partner did not agree. These 

commenters feel that such a prohibition 

would help ease the implementation as 

solutions are deployed across all 

entities, over a defined period of time. 

Response: We agree that no covered 

entity, including State Medicaid 

agencies or Medicare, should be allowed 

to require compliance earlier than the 

compliance date we are adopting in this 

final rule. If entities were allowed to 

require earlier compliance, this would 

cause undue financial and operational 

burdens on other segments of the 

industry. For example, one State chose 

to implement the NPI before the 

compliance deadline, which caused 

significant difficulties and expenses for 

providers because, in some cases, they 

were not ready to comply, and therefore 

had to revert to paper. In many cases, 

the State’s other trading partners, 

namely other commercial health plans 

and the Federal Medicare program, were 

not prepared to accept the NPI, which 

meant that providers (and their vendors 

and clearinghouses) in that State had to 

support a complex infrastructure in 

which the NPI was included on some 

claims, but not on others. HHS will 

ensure that appropriate agencies and 

departments work together to monitor 

Medicaid implementation work plans, 

testing and readiness on a regular basis 

throughout the implementation period. 

We are adopting a revision to 

§ 162.925, by adding a new paragraph 

(a)(6), to specify that a health plan is not 

permitted to delay, reject, or attempt to 

adversely affect the other entity or the 

transaction on the basis that the 

transaction does not comply with 

another adopted standard during the 

period from the effective date of the 

final rule until the compliance date. 

With respect to coordination of benefits, 

this means, for example, that Medicare 

will not be able to require of trading 

partners that they be in full compliance 

with Version 5010 prior to January 1, 

2012, unless willing trading partners 

agree to do so. Health plans that 

participate in Medicare’s Coordination 

of Benefits program will be able to work 

with Medicare to arrange a mutually 

agreeable testing schedule in order to 

expedite this transaction, but they are 

not required to do so, and may revert to 

receiving claims directly from providers 

if they choose to do so. 

Comment: Commenters said that a key 

component of any implementation 

schedule is testing, and a large number 

of commenters stressed the importance 

of both internal testing as well as 

external testing with trading partners. 

Many commenters stated that testing 

often occurs at or near the end of the 

compliance period, and that such lastminute testing causes scheduling 

problems and creates uncertainty about 

whether changes were applied correctly. 

Commenters said that, in many cases, 

hospitals and other providers must wait 

for vendors and health plans to 

schedule testing. Many commenters said 

that health plans do not provide 

sufficient advance communication 

about their testing efforts or their 

readiness to implement the standards, 

and providers have indicated that it is 

difficult to obtain the name of the 

individual or department within the 

health plan with whom they should 

coordinate. One commenter explained 

that testing is done in three parts: 

Testing of the standards themselves for 

workability; conformance testing of 

products and applications that send 

and/or receive the transactions; and 

end-to-end testing to ensure 

interoperability among trading partners. 

All three levels of testing are critical to 

the successful implementation of 

Versions 5010, D.0 and 3.0, and efforts 

to execute all three levels of testing will 

minimize delays and avoid many of the 


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complications afflicting previous 

implementations. 

Response: We agree that testing is 

absolutely crucial to resolving problems 

before the implementation date to 

ensure that there are no payment delays 

or service disruptions. In the August 22, 

2008 proposed rule, we discussed and 

emphasized the importance of testing to 

a successful and timely implementation 

(73 FR 49755–49756). Based on the 

industry’s experience in previous 

implementations, it is clear to us that 

testing is core to resolving issues early 

and effectively. We have revised the 

regulation text that identifies the 

adopted standard for each transaction, 

in every instance, to enable testing to 

occur during the period from the 

effective date of the final rule until the 

compliance date for Versions 5010 and 

D.0. Our revised regulations permit the 

dual use of standards during that 

timeframe, so that either Version 4010/ 

41010A1 or Version 5010, and either 

Version 5.1 or Version D.0, may be used 

for the period prior to the compliance 

date. We note that the adoption of two 

standards for one transaction during the 

period prior to compliance does not 

mean that covered entities must use 

both standards, but, rather, that the use 

of either standard is permitted. 

Comment: Another commenter said 

that the importance of vendor 

compliance cannot be underestimated, 

as practice management system vendors 

are critical to provider compliance. Any 

delays in vendor implementation of 

compliant products will delay end-toend testing, so providing sufficient time 

for the vendors to design, build and test, 

will only facilitate the process. A large 

software vendor explained that, to 

enable compliance with Versions 5010 

and D.0, users must continue to use 

their current software while testing new 

software updates to accommodate the 

changes. The commenter explained that 

there are often several stages of software 

revisions, and this necessity may add 

additional time to the development and 

implementation process. Finally, testing 

and certification activities on each 

version must take place to ensure 

compatibility and stability of software. 

This process almost always takes longer 

than expected. 

Response: While we do not have the 

authority to regulate vendors, as they 

are not covered entities, we agree about 

the critical importance of vendor 

testing, and that, in particular, accurate, 

quality software development and 

testing are critical to the successful 

implementation of the updated versions. 

We also agree that appropriate time is 

necessary for installation, user training 

and coordination of testing with trading 

partners. By adopting a later compliance 

date, we hope to ensure that software 

development vendors have sufficient 

time to conduct the appropriate internal 

and external testing such that the 

software they provide to their covered 

entity clients is compliant with the 

standards, capable of facilitating the 

transmission and receipt of the new 

versions of the standards. 

G. Miscellaneous/General Other 

Comments 

This section includes comments and 

responses to other issues raised during 

the public comment period. 

Claims Attachments 

Comment: We received several 

comments requesting that HHS not 

adopt standards for electronic health 

care claims attachments at this time 

because implementation of Versions 

5010, D.0, and 3.0, and ICD–10 would 

make it impossible to also implement 

standards for claims attachments. One 

commenter stressed that, since claims 

attachments included another new 

standard—the HL7 Attachment 

Specifications—the industry would not 

be able to accommodate the additional 

work needed to implement the claims 

attachment standard if Versions 5010, 

D.0, and 3.0, and ICD–10 also had to be 

implemented in that same time period. 

Response: We appreciate and will 

consider the commenters’ concerns for 

not wanting to have to implement the 

electronic health care claims attachment 

standards at the same time as Versions 

5010, D.0 and 3.0, and ICD–10. 

Standards Adoption and Modifications 

In the August 22, 2008 proposed rule, 

we provided an explanation of the 

procedures for maintaining existing 

standards and for adopting new 

standards and modifications to existing 

standards (73 FR 49744–49755). That 

section of the proposed rule describes 

how § 162.910 sets out the standards 

maintenance process and defines the 

role of SDOs and the DSMOs. For 

additional information about the DSMO 

process and procedures, refer to the 

Web site at http://www.hipaa-dsmo.org/ 

Main.asp. We also described the process 

for adopting modifications to standards 

under § 162.910, which is discussed in 

detail in the Transactions and Code Sets 

rule (65 FR 50312), and implemented at 

§ 162.910. 

The proposed modifications and the 

new transaction standards were 

developed through the process that 

conforms with § 162.910. We received 

many technical comments specific to 

the Version 5010 standards, indicating 

that there are still opportunities for 

improvement in that version. We did 

not receive any technical comments 

specific to Version D.0. 

Comment: A few commenters stated 

that greater industry involvement in the 

X12 standards development and 

balloting process would be helpful to 

their industry segment, e.g., health care 

providers, hospitals, health plans, 

health care clearinghouses and vendors. 

Response: We have suggested to the 

X12 SDO that it consider the following: 

(1) Expanding the current outreach 

efforts to industry to obtain more 

diverse representation from all covered 

entity types. This would take place 

during the development of new versions 

as well as during the balloting process; 

and (2) securing industry volunteers to 

test the balloted standards before they 

are proposed to NCVHS. That way, 

when the suggested modifications are 

submitted to NCVHS for consideration, 

even greater industry support can be 

expected. 

Comment: We received a few 

comments suggesting that HHS 

streamline the standards adoption 

process. Commenters said that the 

marketplace is evolving at a rapid pace, 

creating new products, new 

technologies and new methods of 

conducting business. They stressed that, 

even though X12 continues to improve 

the standards each year, the industry 

has not had the opportunity to benefit 

from necessary and helpful changes 

because too much time elapses between 

the adoption of versions. Others 

reiterated that there is a need for the 

updated standards to be available for 

use by the industry as they are tested 

and balloted. For example, one entity 

found that the industry needs 

information about tax advantaged 

payment mechanisms (for example, 

Medical Savings Accounts, Health 

Savings Accounts, Health 

Reimbursement Accounts, etc.) that are 

now commonly in place to support the 

movement to consumer-directed health 

care. Version 5010 does not contain the 

information needed by patients or 

providers to determine the financial 

impacts and flows. Commenters said 

that the industry cannot wait another 

eight years to be able to exchange this 

type of crucial information for critical 

market needs. They suggest that a more 

streamlined way to develop, implement 

and adopt updated standards must be 

found. Commenters suggested that HHS 

work with industry stakeholders to 

identify and implement a way to 

increase the predictability and 

timeliness of adopting updated 

standards, including a means by which 

the rulemaking process might not be 


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necessary to allow the industry to use 

updated versions of the standards. 

Response: HHS has considered 

similar concerns in the past, and 

continues to assess potential 

alternatives within the context of 

HIPAA and the Administrative 

Procedures Act (APA). HHS will 

continue to work with industry to 

identify a means by which updated 

standards can be used on a timelier 

basis, consistent with the law. 

Comment: One commenter 

recommended that HHS adopt the X12 

standard transaction formats in the final 

rule, but not the specific versions of the 

X12 standards or Technical Reports 

Type 3 (TR3s). The commenter stated 

that it has been eight years since 

publication of the Transactions and 

Code Sets rule adopting the Version 

4010/4010A implementation guides. 

The long passage of time since the 

initial adoption has resulted in 

widespread workarounds in the 

industry to address Version 4010/ 

4010A’s deficiencies. The commenter 

suggests that HHS could designate the 

DSMO coordinating committee to 

biannually determine whether a change 

makes sense for the industry, and which 

updated TR3s would be implemented. 

The DSMO committee would still 

provide open public access to the 

standards development process, but this 

approach would eliminate the timeconsuming NPRM steps and enable 

smaller iterative version updates to take 

place. The commenter noted that the 

ongoing maintenance of the adopted 

code sets is already handled outside of 

the NPRM process. Under this 

recommendation, new standards, as 

opposed to updates or modifications to 

the standards, would continue to be 

adopted by HHS utilizing the regulatory 

process. 

Response: HHS has evaluated options 

for streamlining the process of adopting 

new versions of the standards, and 

agrees with commenters that alternate, 

more expedient methods are necessary, 

consistent with HIPAA and the APA. 

We are committed to working with 

industry and the standards 

organizations to develop a process that 

can be proposed in the near future, 

consistent with the law. With respect to 

the commenter’s reference to the 

ongoing maintenance of the adopted 

code sets, HHS notes that there is 

specific statutory authority in HIPAA 

which permits the routine maintenance, 

testing, enhancement and expansion of 

code sets outside of the rulemaking 

process; modifications to adopted code 

sets, however, are adopted by means of 

the rulemaking process. 

Outreach, Education and Training 

In the proposed rule, at 73 FR 49756, 

we stated that HHS would begin 

preparations for, and execution of, 

outreach and education activities, and 

the engagement of industry leaders and 

stakeholder organizations to provide a 

variety of educational and 

communication programs for various 

constituencies. 

Comment: Many commenters advised 

HHS to establish a network of training 

and outreach partners to work 

collaboratively to educate the industry, 

and outlined the education and 

outreach strategies that will be needed. 

Commenters stated there were needs for: 

National associations to collaborate on 

education efforts; a consistent set of 

messages and/or materials from 

authoritative sources; recognition that 

different audiences may need different 

levels of training; and in-person training 

to supplement Internet training and 

printed documents. Several commenters 

recommended that HHS develop a 

consistent standard set of training 

materials for distribution to industry 

groups as soon as possible. The 

commenter suggested that key 

professional associations should be the 

source for common educational 

materials. One commenter suggested 

that HHS collaborate with other 

organizations to publish a ‘‘lessons 

learned’’ guidance document. A number 

of commenters recommended that HHS 

begin outreach activities as quickly as 

possible, and to clearly differentiate 

between HHS Policy guidance (for the 

industry at large) and Medicare 

guidance (specifically for Medicare 

providers). Other commenters agreed, 

indicating that this was important 

because Medicare policies do not often 

apply to other covered entities’ policies, 

and information is confusing to 

providers when it is not clearly 

differentiated. Another commenter 

provided a summarized list of requested 

technical assistance which included 

migration tools that automatically 

translate Version 4010/4010A to Version 

5010, and Version 5010 to Version 

4010/4010A. 

Response: We agree that it is 

important that consistent and accurate 

messages and/or materials be developed 

by authoritative sources, and will work 

closely with industry to put together a 

comprehensive, diverse plan that 

addresses Medicare-specific policies, as 

well as industry-wide policies and 

implementation issues. 

We agree that different audiences may 

need different levels of training. Our 

current plan is to develop and 

disseminate high-level materials, and 

we anticipate that the industry will 

continue to offer the more in-depth 

materials that specific stakeholder 

groups may need. HHS already 

dedicates a section of its Web site to the 

HIPAA regulations, including guidance 

papers, FAQs, and links to external Web 

sites and to other useful resources. The 

Web site is http://www.cms.hhs.gov. 

Comment: We received a number of 

comments suggesting that HHS ensure 

better coordination of the 

communication of, by, and between, 

Medicare and Medicaid. 

Response: We agree that all segments 

of the industry should collaborate and 

communicate on implementation to 

avoid misunderstanding and to 

coordinate testing schedules. We will 

work with State Medicaid agencies to 

support their development of 

communication and outreach initiatives 

as we develop the overarching 

implementation strategy for education. 

We will also help to ensure that there 

are regular opportunities for Medicare 

and Medicaid to collaborate on 

implementation strategies. 

Companion Guides 

In the August 22, 2008 proposed rule, 

we discussed the deficiencies in Version 

4010/4010A and Version 5.1, and the 

fact that the industry has come to rely 

upon health plan-specific companion 

guides to address the ambiguities in the 

implementation guides for each of the 

standards (73 FR 49746). It is possible 

that the reliance on companion guides 

has minimized some of the potential 

benefits offered by the standards. Based 

on testimony from the standards 

organizations and other industry 

representatives to NCVHS, the 

improvements to Version 5010 should 

minimize dependence on companion 

guides. Some of those improvements 

include clarifications of the standard 

requirements, and consistency in 

requirements across all of the 

transactions. In the August 22, 2008 

proposed rule, we said that companion 

guides could potentially be eliminated if 

the updated versions of the standards 

were adopted. 

Comment: We received a number of 

comments from the industry on this 

subject, offering support for the 

elimination of companion guides 

because of the complexities they create 

in implementing the standards. Health 

plans were less supportive of a complete 

elimination of companion guides, but 

did, in general, comment that the use of 

companion guides could be reduced, 

and that their content could be less 

complex. A few commenters requested 

that HHS prohibit the use of companion 

guides. They justified this 


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recommendation based on the use of 

these guides continuing to undermine 

the potential of standards. A few of the 

clearinghouse commenters suggested 

that companion guides be limited to 

providing supplemental information 

and instruction, but that they could not 

be used to mandate the use of certain 

situational fields. Other commenters felt 

that the next version of the standard 

should do away with nearly all 

situational data elements, and only 

leave a bare minimum of fields eligible 

to be situational, thus further reducing 

the need for companion guides. A few 

of the commenters who supported the 

use of companion guides said that these 

would always be necessary because 

health plans would always have unique 

business rules, and that sometimes these 

rules or practices were to the advantage 

of the provider. 

Response: We acknowledge the issues 

presented by companion guides, but 

note that we do not have the authority 

to expressly prohibit the use of these 

guides. However, based on our review of 

many such documents, and the ongoing 

efforts of the industry to collaborate, we 

strongly discourage health plans from 

having companion guides unless they 

are focused significantly on the basics 

for connectivity, trading partner 

arrangements, and use of situational 

data elements. We encourage X12 to 

evaluate, and address as appropriate, 

industry comments specific to 

situational data elements, so that the 

minimum number of fields remain 

situational. This will enhance 

standardization and further reduce the 

need for companion guides. We also 

note that we have already published 

FAQs clarifying that, if companion 

guides contradict the implementation 

guides, the transaction will not be 

compliant. Covered entities may use the 

existing enforcement process to submit 

official complaints to HHS. Once an 

investigation is opened, HHS will 

review the companion guide at issue 

and a determination will be made as to 

its compliance with the standard(s). 

Standardization of Data Content 

Comment: We received a few 

comments requesting that HHS support 

the work of some industry groups, such 

as the Coalition for Affordable and 

Quality Healthcare (CAQH), that are 

attempting to standardize the use of data 

content to maximize the benefits of 

transaction standards—in other words, 

some industry representatives are trying 

to build consensus on the data elements 

that everyone will request and provide, 

to make implementation more 

consistent throughout the industry. A 

few commenters said that one group has 

been working on standard content for 

the eligibility standard, so that the 

transaction provides more robust and 

useful information above and beyond 

what is currently a ‘‘yes/no’’ 

requirement in response to a request for 

information about an individual’s 

eligibility for health plan benefits. One 

commenter requested that HHS support 

the CAQH certification process for the 

use of the eligibility transaction, in 

which organizations voluntarily agree to 

have their programming reviewed and 

approved by CAQH, and those 

organizations agree to use all of the 

same data elements as others who are 

participating in the certification 

program. 

Response: We do support the work of 

individuals and organizations in efforts 

to make the standard transactions more 

useful to the industry as a whole. While 

HHS cannot mandate participation in 

any certification programs, we do 

support any efforts towards improved 

compliance with the standards, as well 

as efforts towards maximizing the 

usefulness and usability of the 

standards. We also reiterate that we 

have published FAQs clarifying how a 

covered entity may file a complaint 

against another entity who it believes 

may not be in compliance with the 

implementation guides. 

Definition of Compliance 

Comment: We received a few 

comments suggesting that we adopt a 

definition of the term ‘‘compliance,’’ 

using the text from the TR3 guides, 

which provides that compliance 

indicates the receiver of a standard 

transaction does not have to reject a 

transaction that is not in compliance 

with all of the rules within the standard. 

According to commenters, the TR3 

guides have a definition of compliance 

that states a covered entity is out of 

compliance if it receives and accepts a 

transaction that is a non-standard 

transaction. These commenters believe 

this statement conflicts with an HHS 

FAQ which states that a receiver may 

not accept a non-compliant transaction. 

The commenter suggests that the sender 

of the transactions is responsible for the 

compliance of the transaction, and HHS 

should not consider the receiver to be 

out of compliance if it accepts a noncompliant transaction. Another 

commenter said that HHS should 

encourage an ‘‘ignore, don’t reject’’ 

approach to implementation, which 

would mean that, if a transaction is 

submitted conforming to the standard, 

but it contains more information than is 

necessary for an entity to process that 

transaction, the additional information 

should be ignored by the receiver, and 

the transaction not rejected. 

Response: The definitions in the TR3 

reports are not specific to the 

compliance of the transaction with the 

HIPAA rules, so the way ‘‘compliance’’ 

is defined by the TR3 reports does not 

apply to compliance under HIPAA. We 

believe our regulations sufficiently 

address the requirements for 

compliance. Our regulations at 

§ 162.923 address the requirements for a 

covered entity to conduct a standard 

transaction when it conducts a HIPAA 

transaction using electronic media, and 

we define ‘‘standard transaction,’’ as 

revised in this rule, as ‘‘a transaction 

that complies with an applicable 

standard adopted under this part.’’ 

Regarding the commenter’s suggestion 

of an ‘‘ignore, don’t reject’’ policy, we 

point out that § 162.925(a)(3) provides 

that a health plan may not reject a 

standard transaction on the basis that it 

contains data elements not needed or 

used by the health plan. Finally, we do 

have an enforcement program through 

which covered entities may file 

complaints, and we continue to 

encourage the industry to utilize this 

program when faced with conflicts 

about the compliance of a transaction. 

Pilots 

Comment: We received a number of 

comments suggesting that standards 

should be pilot tested before adoption. 

These commenters said that pilot testing 

the standards is needed long before a 

standard is proposed for adoption 

because such testing identifies potential 

pit-falls and could identify and correct 

unanticipated issues with a particular 

standard before it is officially adopted. 

A few commenters noted the lack of a 

pilot testing process and suggested that 

HHS, with industry input, define a pilot 

testing process for future standards. 

Another commenter recommended that 

pilot testing proceed in a certain 

sequence, beginning with internal unit 

testing, and followed by system testing 

and integration testing, and ultimately 

ending with trading partner testing. One 

commenter stated that, without 

workability testing, the government, 

X12 and the industry would be 

repeating implementation mistakes that 

were made with Version 4010/4010A. 

That same commenter recommended 

that the provisions for permitting 

exceptions from the requirements to 

comply with the standards in order to 

test proposed modifications (§ 162.940) 

be suspended until the current version 

of a standard was no longer in use, in 

other words, that some date certain 

would be set to ‘‘retire’’ or sunset a 

particular version of a standard. The 


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commenter said that such a suspension 

would represent cost and administrative 

savings to all parties because it would 

simplify the process of accommodating 

new versions of the standards. We also 

received a comment suggesting that 

HHS fund pilot testing and allow an 

additional twelve months for the testing 

before the compliance date of a final 

rule, implying future final rules. No 

commenters suggested that Version 

5010 be tested prior to adoption; rather, 

recommendations were for the future 

review and adoption of new versions of 

the standards. 

Response: We recognize the value of 

pilot testing and its importance in the 

standards implementation process, and 

intend to work with the industry to 

define parameters for pilot testing in the 

future. We also encourage industry 

stakeholders and the standards 

organizations to take the lead for 

initiating pilot tests and monitoring the 

success of such tests. 

Acknowledgements 

Version 5010 accommodates the 

acknowledgement transaction, for the 

data receiver to communicate any errors 

or transmission problems back to the 

sender. Many health plans and 

clearinghouses use acknowledgement 

transactions, and they are free to do so 

using the standards they choose for that 

transaction. We did not propose to 

adopt a standard for the 

acknowledgement transaction in the 

proposed rule, so we will not adopt one 

here. 

Comment: We received several 

comments on this subject, with most 

commenters indicating that 

acknowledgements improve the process 

of receiving and correcting an error and 

resubmitting the correction back to the 

receiver. These commenters suggested 

that HHS adopt Version 5010 for the 

acknowledgement transaction. 

Commenters said that migration to 

standard acknowledgement transactions 

would offer significant business benefits 

by ensuring that transactions are 

received and front-end errors reported 

on a timely and consistent basis. In spite 

of the support for adopting an 

acknowledgement transaction standard, 

commenters also mentioned that they 

did not wish in any way to delay overall 

implementation of Version 5010 by 

waiting until an acknowledgement 

transaction standard is proposed and 

adopted. In other words, if the choice 

was to wait to adopt Version 5010 until 

the NCVHS advises the Secretary to also 

adopt Version 5010 as the standard for 

the acknowledgement transaction, the 

commenters did not want to see their 

suggestion go forward. 

Response: Before we would adopt an 

acknowledgement transaction standard, 

such standard would have to have been 

vetted through the standards adoption 

process that includes approval of a 

DSMO change request, recommendation 

by the DSMOs to the NCVHS, and 

recommendation by the NCVHS to the 

Secretary. Even though the chair of the 

X12 standards workgroup testified to 

the NCVHS in July 2007, and 

recommended adoption of an 

acknowledgement transaction standard 

for inclusion with NCVHS’ 

recommendation for the adoption of 

Version 5010, NCVHS did not include 

an acknowledgement transaction 

standard in its recommendations. 

Nonetheless, the fact that we have not 

adopted an acknowledgement standard 

does not preclude the industry from 

using Version 5010 to conduct the 

transaction between willing trading 

partners. We will consider the adoption 

of a standard for the acknowledgement 

transaction at the time we receive a 

recommendation from NCVHS. 

Real-Time Eligibility 

Comment: A few commenters stated 

that there was a business need for a realtime eligibility transaction standard for 

all participants in healthcare delivery. 

They stated that, without a national 

standard, varying approaches to realtime eligibility will be detrimental to 

providers and plans that do business on 

a national basis. The commenters 

identified a number of organizations 

such as WEDI, CAQH and Blue Cross 

Blue Shield of North Carolina that 

support real-time eligibility 

transactions. 

Response: Similar to a standard for 

the acknowledgement transaction, 

adopting a standard for real-time 

eligibility transactions would have to be 

vetted through the standards adoption 

process described above. NCVHS did 

not include a real-time eligibility 

transaction standard in its 

recommendations, and we are unable to 

adopt one at this time. 

HHS Funding the Purchase of TR3 

Reports 

When the Transactions and Code Sets 

rule was published, HHS negotiated a 

contract with the publisher of the 

Version 4010/4010A implementation 

guide to enable the industry to 

download the guides at no cost. This 

practice ended in 2006. At that time, 

very few downloads or copies were 

being ordered, and we had no 

complaints about individual providers, 

plans or clearinghouses paying the fee. 

HHS did not have a similar arrangement 

with NCPDP, so the industry has always 

paid for guides for those standards. 

Comment: A few commenters 

suggested that HHS should pay for the 

industry to access copies of Version 

5010. These commenters stated that 

small providers could not afford to buy 

the set of guides, which currently cost 

approximately $800 for the set, or $175 

for each guide. Several other 

commenters expressed concern about 

the cost of the X12 TR3s and a new 

requirement that covered entities 

purchase these guides. Commenters 

noted that HHS underwrote the Version 

4010/4010A guides on behalf of covered 

entities through that implementation 

effort and believe that it is the most 

beneficial way for covered entities to 

access and implement new versions. 

Response: It is not uncommon for 

standards organizations to charge a fee 

for copies of their standards. NCPDP 

charges such a fee for their standards, 

which HHS has never covered for the 

industry. We do not agree that the price 

for the guides will negatively impact 

small providers because we think it is 

unlikely that small providers will find 

them useful in implementing Version 

5010. We understand that small 

providers usually rely on software 

vendors to make their systems 

compliant, and that it is the vendors 

who will require the guides for 

programming. We expect that, as in the 

past, vendors and professional 

associations will provide necessary 

education and training for the provider 

staff on the system changes that will 

require operational changes. Software 

vendors typically have multiple clients, 

and we expect that they will only need 

to purchase one, or at most, just a few 

sets of the standards to program for all 

of their clients. Such multiple usages 

should defray the modest expense. 

HIPAA Enforcement 

At present, most formal compliance 

and enforcement activities for HIPAA 

are complaint-driven and complaintbased. Enforcement efforts are focused 

on investigating complaints to 

determine if a covered entity is in 

compliance. 

Comment: We received a few 

comments recommending that HHS 

increase its enforcement efforts related 

to HIPAA transactions to ensure that 

health plans are adhering to the 

requirements of the X12 transactions. 

We received another comment 

suggesting stronger enforcement of the 

adoption of all of the standard 

transactions by all covered entities. One 

commenter said that, to date, only a 

subset of HIPAA-mandated transaction 

standards that facilitate EDI have been 


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implemented as required, which 

significantly decreases the benefits of 

standardization to the industry. 

Response: Our complaint-driven 

enforcement process has been 

successful in obtaining compliance on a 

case-by-case basis, and we encourage 

covered entities to utilize the process. 

We understand that some of the 

standards have not been implemented 

because of their limited usefulness, or 

because of issues with implementation. 

We believe that, because the standards 

have been significantly improved, the 

standards we adopt here are more 

useful, and therefore will result in 

greater industry implementation. We 

have the authority to conduct 

compliance reviews at our discretion to 

evaluate compliance with any of the 

HIPAA requirements, and have done so 

already with respect to the security 

standards. We plan to expand our 

compliance review program in the 

future to include random reviews of 

compliance with the transaction 

standards as well. 

Certification 

Comment: We received several 

comments suggesting that HHS consider 

petitioning the Certification 

Commission for Healthcare Information 

Technology (CCHIT) to include Versions 

5010 or D.0 in all products that would 

be expected to carry the upgraded 

standards in order to facilitate 

compliance with the final rule. 

Commenters believe this will be 

especially important for small covered 

entities in the process of purchasing 

software until the compliance date. 

They believe that, if purchasers are 

aware of the need to buy products that 

are certified to meet the incoming 

HIPAA requirements, conversion might 

be smoother and less expensive. 

Response: Generally, CCHIT does not 

certify products for administrative 

transactions, and therefore we will not 

pursue this suggestion. Furthermore, 

HHS does not recognize certification of 

any systems or software for purposes of 

HIPAA compliance. 

H. Comments Considered Out of Scope 

We received a number of comments 

on subjects that were outside the scope 

of the proposed rule. We do not directly 

respond to those types of comments 

because we consider them to be outside 

the scope of this rule, but we wish to 

acknowledge them. We have 

summarized them in the following list: 

• One commenter stated the final rule 

should clarify the relationship between 

HIPAA and the Family Educational 

Rights and Privacy Act (FERPA). The 

commenter stated that there are entities 

that are bound by both HIPAA and 

FERPA, and suggested that clarification 

is needed for situations where there are 

inconsistencies between the two laws. 

• One commenter stated that HHS 

should agree to accept and utilize all 

diagnosis codes associated with an 

admission or an encounter, not just 

those accommodated within the limits 

first set by paper forms. The current 

practice of truncating numbers for 

diagnoses and procedures so that they 

are equal to what a paper claim supports 

causes problems for providers when 

they are trying to meet the ‘‘Present on 

Admission’’ (POA) requirement of 

providing adequate information about a 

patient’s condition. 

• One commenter recommended that 

HHS add a definition for real-time 

adjudication with regard to the 837 

claim, 835 remittance advice and the 

277 health care claim status transactions 

in this final rule. The commenter 

referenced the collaborative efforts 

between WEDI and X12 to provide a 

standard way to conduct real-time 

adjudication. 

• One commenter requested that we 

address expectations related to 

§ 162.925 regarding health plan 

incentives to health care providers for 

using direct data entry (DDE) 

transactions. The commenter said there 

are instances where health plans offer 

more information about eligibility and 

benefit information on Web sites than 

they do through the standard X12 270/ 

271 transactions, which the commenter 

believes is an incentive for a provider to 

conduct a transaction using some means 

other than the standard transaction. The 

commenter requested clarification 

regarding the offer of more information 

through a non-standard transaction than 

in the standard transaction, even though 

the standard transaction contains the 

required amount of information. Since 

we did not address this issue in the 

proposed rule, we do not respond here, 

but may provide additional direction in 

a future Frequently Asked Question on 

the CMS Web site. 

III. Provisions of the Final Rule 

This final rule incorporates the 

provisions of the proposed rule, with 

the following exceptions and changes: 

We proposed to adopt a compliance 

date for Versions 5010 and D.0 of April 

1, 2010 for all covered entities. In this 

final rule, we adopt a compliance date 

of January 1, 2012 for Versions 5010 and 

D.0 for all covered entities. We revise 

§ 162.1102, § 162.1202, § 162.1302, 

§ 162.1402, § 162.1502, § 162.1602, 

§ 162.1702, and § 162.1802 accordingly. 

We proposed a compliance date of 24 

months after the effective date of the 

final rule for the Medicaid pharmacy 

subrogation standard (Version 3.0) with 

an additional 12 months for small 

health plans. In this final rule, we 

indicate an effective date of January 1, 

2010 for the provisions of 45 CFR 

Subpart S. This means that covered 

entities other than small health plans 

must be in compliance on January 1, 

2012, while small health plans, which 

have an additional 12 months, must be 

in compliance on January 1, 2013. 

In § 162.925, we add paragraph (a)(6) 

that precludes health plans from 

requiring an earlier compliance date 

than those adopted. Use of Versions 

5010 and D.0 in advance of the 

mandatory compliance date is 

permissible, based upon mutual 

agreement by trading partners. 

We adopt revisions to § 162.1102, 

§ 162.1202, § 162.1302, § 162.1402, 

§ 162.1502, § 162.1602, § 162.1702, and 

§ 162.1802 to enable covered entities to 

engage in Level 2 testing by allowing for 

the use of both the old standard and the 

updated standard. 

We allow covered entities to use 

either Version 4010/4010A, 5010, 5.1 or 

D.0 for billing retail pharmacy supplies 

and services, and reflect that policy in 

revisions to § 162.1102. We also revise 

the definition of ‘‘standard transaction’’ 

in accordance with our policy to allow 

for the dual use of standards, by 

replacing ‘‘the applicable standard’’ 

with ‘‘an applicable standard’’ at 

§ 162.103 

We proposed to clarify the 

descriptions for three standards: 

Enrollment and disenrollment, referral 

certification and authorization, and 

health care claims status and request. In 

the final rule we do so, by specifying the 

senders and receivers of those 

transactions in § 162.1301, § 162.1401 

and § 162.1501. 

In the proposed rule, at § 162.900, we 

stated that ASC X12N implementation 

specifications and the ASCX12 Standard 

for Electronic Data interchange 

Technical Report Type 3 were available 

from the Washington Publishing 

Company. In the final rule, we provide 

the correct address and Web site for 

obtaining the Version 5010 guides, from 

X12. Version 4010/4010A specifications 

may still be obtained from the 

Washington Publishing Company. 

IV. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

of 1995, we are required to provide 30- 

day notice in the Federal Register and 

solicit public comment before a 

collection of information requirement is 

submitted to the Office of Management 

and Budget (OMB) for review and 


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approval. In order to fairly evaluate 

whether an information collection 

should be approved by OMB, section 

350(c)(2)(A) of the Paperwork Reduction 

Act of 1995 requires that we solicit 

comment on the following issues: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

In this rule, we are finalizing the 

revisions to the information collection 

requirements that were announced in 

the proposed rule that was published on 

August 22, 2008 (73 FR 49742). 

Specifically, we are revising the 

currently approved information 

collection requirements contained in 

§ 162.1102, § 162.1202, § 162.1301, 

§ 162.1302, § 162.1401, § 162.1402, 

§ 162.1501, § 162.1502, § 162.1602, 

§ 162.1702, and § 162.1802 of this 

document. We believe that the revisions 

will have an impact on the burden (both 

hour burden and cost burden) 

associated with the aforementioned 

affected sections that are currently 

approved under OCN 0938–0866 with 

an expiration date of 7/31/2011. In 

addition to announcing the revisions in 

the proposed rule, we published a 60- 

day Federal Register notice on October 

10, 2008 (73 FR 60296) that solicited 

public comments on the proposed 

revisions. No comments were received. 

Accordingly, we have submitted a 

revised information collection request to 

OMB for its review and approval of the 

revised information collection 

requirements. These requirements are 

not effective until approved by OMB. 

If you wish to comment on these 

information collection and 

recordkeeping requirements, please fax 

your comments to 202–395–6974 or 

email your comments to 

oira_submission@omb.eop.gov. Please 

mark comments to the attention of the 

desk officer for CMS and indicate that 

they are in relation to OMB control 

number 0938–0866. 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the impacts of this 

rule as required by Executive Order 

12866 (September 1993, Regulatory 

Planning and Review), as amended by 

Executive Order 13258 (February 26, 

2002) and further amended by Executive 

Order 13422 (January 18, 2007), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, the Unfunded Mandates Reform 

Act of 1995 (Pub. L. 104–4), Executive 

Order 13132 on Federalism, and the 

Congressional Review Act (5 U.S.C. 

804(2)). 

Executive Order 12866 (as further 

amended) directs 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). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

($100 million or more in any 1 year). 

Because we estimate that this rule will 

have economically significant effects, 

we prepared an RIA. We anticipate that 

the adoption of the new versions of the 

standards and the adoption of Version 

3.0 would result in benefits that will 

outweigh the costs. Accordingly, we 

prepared a Regulatory Impact Analysis 

in the August 22, 2008 proposed rule 

that, to the best of our ability, presented 

the costs and benefits of the proposals. 

We did not receive any comments on 

the Regulatory Flexibility Analysis, and 

therefore provide a summary here. For 

details, we refer readers to the August 

22, 2008 proposed rule at 73 FR 49757. 

B. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (RFA) 

of 1980, Public Law 96–354, requires 

agencies to describe and analyze the 

impact of the rule on small entities 

unless the Secretary can certify that the 

regulation will not have a significant 

impact on a substantial number of small 

entities. In the health care sector, a 

small entity is one with between $6.5 

million and $31.5 million in annual 

revenues or is a nonprofit organization. 

For the purposes of this analysis 

(pursuant to the RFA), nonprofit 

organizations are considered small 

entities; however, individuals and 

States are not included in the definition 

of a small entity. We attempted to 

estimate the number of small entities 

and provided a general discussion of the 

effects of the proposed regulation, and 

where we had difficulty, or were unable 

to find information, we solicited 

industry comment. We stated our belief 

that the conversion to Versions 5010 

and D.0 would have an impact on 

virtually every health care entity. We 

did not receive any comments in 

response to our solicitation for 

comments. 

In our analysis, we combined 

Versions 5010 and D.0 because these 

two standards will be implemented at 

the same time, and in some cases are 

dependent on each other. We provided 

examples in the August 22, 2008 

proposed rule (73 FR 49758). 

The summary table in this final rule 

includes the final cost estimates for 

Versions 5010, D.0 and 3.0 on all 

entities we anticipated would be 

affected by the rule. The data in that 

table were used in this analysis to 

provide cost information. 

Because most health care providers 

are either nonprofit or meet the Small 

Business Administration’s (SBA) size 

standard for small business, we treated 

all health care providers as small 

entities. For providers, we predicted 

that the changes would be minimal 

involving software upgrades for practice 

management and billing systems. We 

included pharmacies in the analysis, 

and considered some of them to be 

small businesses. We considered some 

health plans small businesses, but were 

unable to identify data for these entities, 

nor was any information submitted in 

response to our solicitation. We 

addressed clearinghouses and Pharmacy 

Benefit Managers (PBMs) in our 

discussion, though we did not believe 

that there were a significant number of 

clearinghouses that would be 

considered small entities. This was 

confirmed by a number of associations, 

including the Maryland Commission for 

Health Care. PBMs were excluded from 

the analysis because we had no data to 

indicate that they would qualify as a 

small entity. State Medicaid agencies 

were excluded from the analysis 

because States are not considered small 

entities in any Regulatory Flexibility 

Analysis. 

Final Regulatory Flexibility Analysis 

(FRFA) 

1. Number of Small Entities 

In total, we estimated that there are 

more than 300,000 health care 

organizations that may be considered 

small entities either because of their 

nonprofit status or because of their 

revenues. The Business Census data 

shows that there are 4,786 firms 

considered as health plans and/or 

payers (NAICS code 5415) responsible 

for conducting transactions with health 

care providers. In the proposed rule’s 

impact analysis, we used a smaller 

figure based on a report from AHIP. But 

for purposes of the RFA, we did not 

identify a subset of small plans, and 

instead solicited industry comment as to 

the percentage of plans that would be 

considered small entities. We identified 


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the top 78 clearinghouses/vendors in 

the Faulkner and Gray health data 

directory from 2000—the last year this 

document was produced. Health care 

clearinghouses provide transaction 

processing and translation services to 

both providers and health plans. 

We identified nearly 60,000 

pharmacies, using the National 

Association of Chain Drug Stores 

Industry Profile (2007) (http:// 

www.nacds.org), and for the purposes of 

the initial regulatory flexibility analysis 

we are treating all independent 

pharmacies reported in the Industry 

Profile as ‘‘small entities.’’ The number 

of independent pharmacies reported for 

2006 is approximately 17,000 entities. 

We specifically invited comments on 

the number of small pharmacies, but 

received none. 

Based on Figure 2 of the Industry 

Profile, independent pharmacy 

prescription drug sales accounted for 

17.4 percent of total pharmacy drug 

sales of $249 billion sales for 2006. 

Allocating the Versions 5010 and D.0 

costs based on the share of prescription 

drug revenues to independent 

pharmacies (the small businesses), 

implementation costs are expected to 

range between $6.4 million and $13 

million or 0.02 and 0.03 percent of 

revenues. These figures indicate that 

there is minimal impact, and the effect 

falls well below the HHS threshold of 3 

to 5 percent specified in the HHS 

guidance on treatment of small entities 

(see: ‘‘Guidance on Proper 

Consideration of Small Entities in 

Rulemakings of the U.S. Department of 

Health and Human Services’’ http:// 

www.hhs.gov/execsec/ 

smallbus.pdf.pdf). 

2. Costs for Small Entities 

To determine the impact on health 

care providers we used Business Census 

data on the number of establishments 

for hospitals and firms for the classes of 

providers and revenue data reported in 

the Survey of Annual Services for each 

NAICS code. For other providers, we 

assumed that the costs to implement 

Version 5010 would be accounted for at 

the level of firms rather than at the 

individual establishments. Since we 

treated all health care providers as small 

entities for the purpose of the initial 

regulatory flexibility analysis, we 

allocated 100 percent of the 

implementation costs reported in the 

impact analysis for provider type. Table 

2 shows the impact of the Version 5010 

implementation costs as a percent of the 

provider revenues. For example, 

dentists, with reported 2005 revenues of 

$87.4 billion and costs ranging from 

$299 million to $598 million have the 

largest impact on their revenues of 

between 0.11 percent and 0.21 percent. 

We solicited comments specifically on 

the number of providers affected by the 

proposed rule, but received none. 

We did not include an analysis of the 

impact on small health plans, because 

we were not able to determine the 

number of plans that meet the SBA size 

standard of $6.5 million in annual 

receipts. 

In evaluating whether there were any 

clearinghouses that could be considered 

small entities, we consulted with three 

national associations (EHNAC, HIMSS 

and the Cooperative Exchange), as well 

as the Maryland Commission for Health 

Care, and determined that the number of 

clearinghouses that would be 

considered small entities was negligible. 

We identified the top 78 clearinghouses, 

and determined that they are typically 

part of large electronic health networks, 

such as Siemens, RxHub, Availity, GE 

Healthcare etc., none of which fit into 

the category of small entity. As 

referenced earlier, in a report by 

Faulkner and Gray in 2000, the top 51 

entities were listed, and the range of 

monthly transactions was 2,500 to 4 

million, with transaction fees of $0.25 

per transaction to $2.50 per transaction. 

We determined that even based on these 

data, few of the entities would fall into 

the small entity category, and we did 

not count them in the analysis. 

With respect to Version 3.0, we point 

out that, while we do not know how 

many health plans/payers will exchange 

the pharmacy subrogation standard with 

Medicaid agencies, those entities would 

be counted in the health plan category 

and addressed under the analysis for 

Versions 5010 and D.0. We did not 

provide a separate analysis in this 

section. 

In sum, we assumed that the financial 

burden would be equal to or less than 

three percent of revenues. Based on the 

results of this analysis, we remain 

reasonably confident that the rule will 

not have a significant impact on a 

substantial number of small entities. As 

stated throughout this section, in spite 

of our request for comments on this 

analysis, we received none. 

Table 2 below summarizes the impact 

of the rule on the health care industry. 

TABLE 2—ANALYSIS OF IMPLEMENTATION OF THE BURDEN OF VERSIONS 5010, D.0 AND 3.0 ON SMALL COVERED

ENTITIES

NAICS Entities Total no. 

of entities 

Small entities 

Revenue 

or receipts ($ 

millions) 

% Small 

entity receipts of 

total receipts 

Version 

5010/D.0 

annual 

costs (in 

millions) 

Small entity share 

of version 

5010/D.0 

costs (in 

millions 

$) 

% Implementation 

cost revenue-receipts 

(costs/receipts) 

6221 ................................ General Acute Care Hospitals (establishments) ..... 5,386 5,386 612,245 100 292–583 ................ .05–.10 

6211 ................................ Physicians (firms) .................................................... 189,562 189,562 330,889 100 136–272 ................ .04–.08 

6212 ................................ Dentists (firms) ........................................................ 118,163 118,163 87,405 100 94–187 ................ .11–.21 

44611 .............................. Pharmacies (includes 5010 and D.0) ...................... 56,946 17,482 249,000 

(42,330 

@ 17%) 

17.4 37–75 6.4–13 .02–.03 

In column 1 we display the NAICS 

code for class of entity. Column 3 shows 

the number of entities that are reported 

in the Business Census for 2006 or 

‘‘Chain Pharmacy Industry Profile.’’ 

Column 4 shows the number of small 

entities that were computed based on 

the Business Census and Survey of 

Annual Service when the data was 

available. All health care providers were 

assumed to be small. We assumed that 

all independent pharmacies reported in 

Table 2 of the Industry profile are small 

entities. 

Column 5 shows revenues that were 

reported for 2005 in the Survey of 

Annual Services, or in the case of 

pharmacies, in Figure 2 of the Industry 

profile. In the case of health plans and 

third party administrators, we used the 

consumer payments reported for private 

health insurance in 2006 in the National 

Health Expenditure accounts. 

Column 6 shows the percent of small 

entity revenues. 

Column 7 shows the implementation 

costs for Versions 5010, D.0 and 3.0 


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taken from Table 14a of the impact 

analysis and annualized. 

Column 8 shows the costs allocated to 

the small entities based on the percent 

of small entity revenues to total 

revenues. 

Column 9 presents the percent of the 

small entity share of implementation 

costs as a percent of the small entity 

revenues. As stated in the guidance 

cited earlier in this section, HHS has 

established a baseline threshold of 3 

percent of revenues that would be 

considered a significant economic 

impact on affected entities. None of the 

entities exceeded or came close to this 

threshold. 

We note that the impact in our 

scenarios is consistently under the 

estimated impact of 3 percent for all of 

the entities listed above, which is below 

the threshold the Department considers 

as a significant economic impact. As 

expressed in the Department guidance 

on conducting regulatory flexibility 

analyses, the threshold for an economic 

impact to be considered significant is 3 

percent to 5 percent of either receipts or 

costs. As is clear from the analysis, the 

impact does not come close to the 

threshold. Thus, based on the foregoing 

analysis, we conclude that some health 

care providers may encounter 

significant burdens in the course of 

converting to the modified Versions 

5010 and D.0. However, we are of the 

opinion that, for most providers, health 

plans, and clearinghouses the costs will 

not be significant. 

3. Alternatives Considered 

As stated in the August 22, 2008 

proposed rule, we considered various 

policy alternatives to adopting Versions 

5010, D.0 and 3.0, including not 

adopting the modifications, using 

staggered implementation schedules, 

allowing implementation delays for 

small entities, and waiting to adopt a 

later version of the X12 and/or NCPDP 

standards. We rejected all of these 

alternatives, resulting in the adoption of 

the standards, as proposed, with an 

alternate compliance date. 

4. Conclusion 

As stated in the HHS guidance cited 

earlier in this section, HHS uses a 

baseline threshold of 3 percent of 

revenues to determine if a rule would 

have a significant economic impact on 

affected entities. None of the entities 

exceeded or came close to this 

threshold. Based on the foregoing 

analysis, the Secretary certifies that this 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a rule would have a significant impact 

on the operations of a substantial 

number of small rural hospitals. This 

analysis must conform to the provisions 

of section 603 of the RFA. For purposes 

of section 1102(b) of the Act, we define 

a small rural hospital as a hospital that 

is located outside of a metropolitan 

statistical area and has fewer than 100 

beds. This final rule will affect the 

operations of a substantial number of 

small rural hospitals because they are 

considered covered entities under 

HIPAA, however, we do not believe the 

rule will have a significant impact on 

those entities, for the reasons stated 

above in reference to small entities. 

Therefore, the Secretary has determined 

that this final rule will not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

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 would 

require spending, in any 1 year, $100 

million in 1995 dollars, updated 

annually for inflation. In 2008, that 

threshold is approximately $130 

million. This final rule contains 

mandates that will impose spending 

costs on State, local, or tribal 

governments in the aggregate, or by the 

private sector, in excess of the current 

threshold. The impact analysis in the 

proposed rule addressed those impacts 

both qualitatively and quantitatively. In 

general, each State Medicaid Agency 

and other government entity that is 

considered a covered entity will be 

required to invest in software, testing 

and training to accommodate the 

adoption of the updated versions of the 

standards, and Version 3.0. UMRA does 

not address the total cost of a rule. 

Rather, it focuses on certain categories 

of cost, mainly those ‘‘Federal mandate’’ 

costs resulting from (A) imposing 

enforceable duties on State, local, or 

tribal governments, or on the private 

sector, or (B) increasing the stringency 

of conditions in, or decreasing the 

funding of, State, local, or tribal 

governments under entitlement 

programs. 

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 law, or 

otherwise has Federalism implications. 

This final rule will have a substantial 

direct effect on State or local 

governments, could preempt State law, 

or otherwise have a Federalism 

implication because, even though State 

Medicaid agencies will be converting to 

a modified version of an existing 

standard (Version 4010/4010A to 

Version 5010 and NCPCP 5.1 to NCPDP 

D.0) with which they are familiar, there 

are expenses for implementation and 

widescale testing. State Medicaid 

agencies are currently required to 

conduct pharmacy subrogation, and in 

accordance with this final rule, will be 

able either to use the new Medicaid 

pharmacy subrogation transaction 

standard or contract with trading 

partners and/or contractors who 

specialize in this field to fulfill its 

subrogation requirement. With respect 

to subrogation for pharmacy claims, we 

note that this final rule does not add a 

new business requirement for States, but 

rather mandates a standard to use for 

this purpose which will be used 

consistently by all States. There will 

also be expenditures for States as they 

convert from Version 5.1 to D.0 for other 

pharmacy transactions, and this 

transition will have implementation and 

testing costs as well, meaning there will 

be additional fiscal impacts on States 

based on this rule. 

C. Anticipated Effects 

The objective of this regulatory 

impact analysis was to summarize the 

costs and benefits of the following 

proposals: 

• Migrating from Version 4010/4010A 

to Version 5010 in the context of the 

current health care environment; 

• Migrating from Version 5.1 to 

Version D.0; and 

• Adopting a new standard for the 

Medicaid subrogation transaction. 

The following are the key issues that 

we believe necessitate the adoption of 

these modified standards and of a 

standard for Medicaid pharmacy 

subrogation: 

• The current X12 and NCPDP 

standards were adopted in 2000 and do 

not reflect the numerous business 

changes that have emerged during that 

time. 

• The current standards do not 

accommodate the use of ICD–10 codes. 

• The standard for Medicaid 

pharmacy subrogation will significantly 

improve the efficiency of this process. 

The remainder of this section 

provides details supporting the cost 

benefit analysis for each of the three 

above-referenced proposals. 

In the August 22, 2008 proposed rule 

(73 FR 49761), we described the 

research conducted for us by Gartner, 

Incorporated (Gartner) to assess the 

costs and benefits associated with the 


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adoption of Version 5010. Details about 

Gartner’s methodology were provided in 

the August 22, 2008 proposed rule, and 

a summary of the calculations and 

methodology is available on the CMS 

Web site at: http://www.cms.hhs.gov/ 

TransactionCodeSetsStands/Downloads

/5010RegulatoryImpactAnalysis

Supplement.pdf. 

In this section of the final rule, we 

summarize the key assumptions from 

the August 22, 2008 proposed rule, and 

discuss those with which commenters 

did not agree. In cases where we agreed 

with commenters, and changed our 

assumptions, we provide both the 

original and revised amounts, 

unadjusted for present value. The last 

section of the impact analysis contains 

the summary detailed tables with all of 

the costs and benefits recalculated to 

reflect the changes to the estimates for 

each of the standards and adjusted for 

present value. The analysis contained 

herein is presented at a high level. For 

a complete description of the analysis, 

see the Economic Impact Analysis in the 

docket of this final rule. 

Additionally, although many 

commenters mentioned that we 

underestimated the costs, or 

overestimated the benefits of 

transitioning to the new versions, no 

substantive data or additional 

information was provided to counter 

our analysis, and therefore, though some 

changes have been made, they are not 

substantial, particularly for the benefits 

that are detailed in this final rule. 

However, based on the information we 

did receive, there are three items that 

changed, which affected some of the 

figures in the impact analysis: (1) The 

cost estimate was increased from 

between 20 percent and 40 percent of 

the Version 4010/4010A costs to 

between 25 percent and 50 percent; (2) 

the salary for provider billing specialist 

was reduced from $60 thousand per 

year to $50 thousand per year; (3) the 

timing for adoption of the auxiliary 

standards was changed to begin in 

calendar year 2013 instead of calendar 

year 2012; These three items represent 

cost and benefit changes that are 

reflected in this revised impact analysis, 

and we have updated the tables for each 

industry sector accordingly. One of the 

benefit categories, Cost savings or 

savings due to new users of claims 

standards, is not impacted by the 

aforementioned items. We do not repeat 

this entire explanation in each section, 

but rather refer the reader back to this 

introduction. 

As noted in the preamble, the 

compliance date for Version 5010 has 

been changed to January 1, 2012, and 

the cost allocations have been updated 

in accordance with the new timeline. 

We assumed transition costs would 

occur in the fourth year of 

implementation (monitoring, 

maintaining, and adjusting the upgraded 

systems and related processes) and 

continue until all parties reach a 

‘‘steady state.’’ 

While significant efforts were taken to 

ensure that the cost and benefits 

captured for this rule were accurate, 

there are a few key uncertainty factors 

that should be considered in reviewing 

the regulatory impact analysis: 

• As detailed in the next section 

(Assumptions for Version 5010 Impact 

Analysis), the primary driver for all of 

the cost estimates was the expected 

range of costs for all covered entities 

relative to those same costs for 

implementation and transition to 

Version 4010. 

• As detailed in the next section 

(Assumptions for Version 5010 Impact 

Analysis), one of the key drivers for all 

of the benefit estimates was increased 

use in electronic transactions. In all 

cases, HHS evaluated the industry 

feedback and used the conservative 

estimates for expected uptake in the 

electronic transactions so as to not 

inflate the benefits. 

• As explained in the section on 

Version D.0, there is uncertainty as to 

the complexity and the number of 

systems that will be affected, and 

industry experts made their best 

estimates on the possible impacts to 

their constituents. 

Assumptions for Version 5010 Impact 

Analysis 

In calculating the costs and benefits, 

Gartner made a number of assumptions, 

based on interview data and secondary 

research. We outlined the key 

assumptions used to support Version 

5010 impact analysis in the August 22, 

2008 proposed rule (73 FR 49762). 

Gartner projected the annual increase 

in the number of claims at four percent, 

and used these figures to calculate the 

provider benefits. We outlined annual 

claim volume projections in the August 

22, 2008 proposed rule (73 FR 49762), 

and did not receive any comments on 

those figures. 

Gartner estimated the current 

adoption rate for each of the HIPAA 

standards, and the projected rate of 

adoption for each of the modified 

versions of the standards over the 

planning horizon. We outlined those 

rates in the August 22, 2008 proposed 

rule (73 FR 49763). These figures were 

used to calculate the benefits for 

healthcare industry. 

Comment: We received a few 

comments disagreeing with our 

assumptions about the increased use of 

auxiliary transactions. They stated that 

there will not be an automatic increase 

in the usage/volume of the auxiliary 

transactions, because the industry is 

still establishing a clear business need 

for these less widely used transactions 

(which are required for plans, but 

voluntary for providers). Auxiliary 

transactions are those that supplement 

or support claims information, 

including eligibility, enrollment and 

disenrollment, referral requests and 

authorizations and premium payments. 

Commenters also stated that, because 

these transactions were not useful in 

Version 4010/4010A, there is still some 

hesitancy to use Version 5010 until the 

transactions can be evaluated. Because 

efforts will be focused on implementing 

the claims and eligibility transactions 

for Version 5010, commenters stated 

that it may take industry longer to 

schedule testing for the auxiliary 

transactions. 

Response: Gartner conducted 

additional discussions with industry 

experts regarding the original 

assumptions in the August 22, 2008 

proposed rule. These experts 

acknowledged that providers that do not 

now use these transactions will be 

focusing all their initial efforts on 

implementing the key claims 

transactions—claims and remittance 

advice—and that they would likely 

focus on implementing the auxiliary 

transactions later. Accordingly, we 

changed the benefits realization 

assumption for auxiliary transactions to 

start in year 2013 instead of 2012. We 

do not agree with the few commenters 

who stated there would be no increase 

in the use of auxiliary transactions. In 

fact, the Gartner interviewees did not 

veer from their original statements that 

the auxiliary transactions would be used 

by more providers, albeit after initial 

implementation of the core transactions 

for claims and remittance advice. An 

association for physicians, in its 

comments, stated that these transactions 

would be increasingly used because of 

the improvements in the standards 

themselves and increased streamlining 

of various administrative processes. 

The total benefits (low) across the 

industry declined from $18,635 million 

to $15,896 million. 

Comment: We received a comment 

from a government health program 

stating that it did not agree with our 

savings/benefits assumption of reduced 

phone calls. The commenter explained 

that the salary savings/benefit has 

historically been found to be false 

savings unless personnel positions were 

actually eliminated. 


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Response: We disagree with the 

comment. Although personnel positions 

may not be eliminated, these personnel 

can be assigned to other tasks; in this 

case, the benefit is cost avoidance. Our 

estimates are based on cost avoidance, 

not personnel reductions. 

General Assumptions for the CostBenefit Analysis for Providers and 

Health Plans 

We outlined the key assumptions 

used to develop the cost benefit analysis 

for each of the provider segments— 

hospitals, physicians, pharmacies, and 

dentists as well as the health plans in 

the August 22, 2008 proposed rule (73 

FR 49763). 

Explanation of Cost Calculations 

To determine the costs for each 

subsegment (that is, providers and 

health plans), we established an 

estimate for what the total approximate 

Version 4010/4010A costs were for an 

individual entity within that 

subsegment (based on the interviews 

and other data available through 

research—see 73 FR 49761) and then 

applied an estimated range of 20 to 40 

percent of those costs to come up with 

estimated low and high costs for 

Version 5010. Additional information 

about the cost calculations and Gartner 

methodology are available in our 

supplemental document on the CMS 

Web site at: http://www.cms.hhs.gov/ 

TransactionCodeSetsStands/Downloads

/5010RegulatoryImpact

AnalysisSupplement.pdf. 

Comment: As stated above, a number 

of commenters disagreed with our 

assumptions concerning the level of 

effort necessary to migrate to Version 

5010, in comparison with the initial 

implementation costs for Version 4010/ 

4010A, and believed the costs to be 

significantly higher than our 

projections. Although no commenters 

actually provided a cost figure, a small 

number of commenters wrote that it 

would take 50 to 75 percent of the 

initial implementation effort to migrate 

to the new versions. The rationale 

provided was that: 

(1) Organizations will have to operate 

dual systems through both testing and 

implementation phases as different 

trading partners migrate at different 

times. 

(2) Additional considerations in the 

salary cost assumptions such as real 

estate, utilities, phone, computer 

systems, infrastructure, etc., to represent 

total cost of employee should be taken 

into consideration. 

Other commenters supported our 

assumptions regarding costs of 

operating dual systems through both 

testing and implementation phases. 

These commenters explained that there 

may be additional hardware costs to 

upgrade existing equipment to manage 

the dual use period, or enhanced 

functionality necessary when upgrading 

to new versions of software ready to 

handle the new versions. Another 

commenter disagreed with our 

statement that little or no transmission 

costs would be required to comply with 

the new regulation. The commenter said 

that new transmission costs will be 

created with new trading partners and 

new or increased number of 

transactions. Another commenter stated 

that, while there would be a number of 

one-time costs to implement Version 

5010 (for business flow changes, 

software procurement or customized 

software development, etc.), they did 

not agree that the system testing costs 

would account for 60 to 70 percent of 

all costs, but did not provide any 

additional detail for their dissension. In 

sum, while we received a variety of 

comments, none provided specific cost 

or implementation data to support their 

statements. 

Response: We agree that the industry 

will need to operate dual systems to 

process both versions of the standards, 

and that transmission costs will 

increase. The implementation of 

Version 4010/4010A required extensive 

remediation of applications; 

development of external support 

capability to deal with expanded code 

lengths; different handling of 

coordination of benefits; and a variety of 

other business changes. It further 

involved the first implementation of 

X12 transaction formats for many 

providers, health plans and 

clearinghouses. In addition, many 

providers switched from paper to 

electronic transmission concurrent with 

this change. The changes going from 

Version 4010/4010A to Version 5010 are 

far less extensive on the whole, even 

though there are a host of content and 

format changes. While we acknowledge 

the need to support both formats, the 

time spent dealing with errors and 

reworking business flows should not be 

nearly as great as the experience of 

implementing Version 4010/4010A. 

This difference in the scope of the 

changes between implementation of 

Version 4010/4010A and Version 5010 

was one of the key bases for the original 

estimates that we obtained when 

surveying industry segments in 

preparing the August 22, 2008 proposed 

rule. 

With regard to the comments 

regarding dual hardware, many 

transaction mapping products are 

capable of supporting more than one 

variant of the transaction format using 

the same hardware and communications 

channels. Although some additional 

transaction volume will be required for 

testing and parallel operations, HHS has 

concluded that there will be an 

incremental need for added hardware 

and communications capacity to 

support submitting all transactions in 

both formats during the conversion 

period. 

With regard to the comment regarding 

additional salary cost assumptions, all 

cost estimates provided in the analysis 

presented in the proposed rule (73 FR 

49762) included the full set of overhead 

and added personnel costs including 

real estate, utilities, phone, computer 

systems, infrastructure, etc. These items 

are considered to be part of the fully 

loaded costs to implement and maintain 

the Version 5010 transactions and 

would also be considered to be costs 

avoided in the benefit period once all 

parties have implemented the new 

version. 

While most commenters did not 

provide specific data regarding 

additional costs, we nonetheless 

acknowledge that commenters generally 

believed our estimates to be too low, 

and did note specific areas of concern. 

Accounting for all of the new cost 

considerations, we have adjusted our 

assumption to a range of 25 to 50 

percent of the Version 4010/4010A 

implementation costs to move to 

Version 5010. The total costs (low 

estimate) incurred by the whole 

industry increased from $5,656 million 

to $7,717 million, unadjusted for 

present value. 

In the August 22, 2008 proposed rule 

(73 FR 49764), we show Gartner’s 

estimates of the percent of the total costs 

allocated to each cost category (for 

example, testing and training) for the 

provider and plan segments. As 

discussed above, we used industry 

comments to revise the estimates for 

hardware and transmission costs. Table 

3 reflects the new allocations of the 

percent of the total costs to each cost 

category. 


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TABLE 3—PERCENTAGE AND TOTAL AMOUNTS FOR COST ITEMS USED FOR VERSION 5010 CALCULATIONS—PROVIDERS

AND HEALTH PLANS

Cost item 

Percent of total costs 

Providers 

(percent) 

Health plans 

(percent) 

Hardware Procurement .................................................................................................................................................... 10 10 

Software Costs ................................................................................................................................................................ 10 7.5 

Transmission Costs ......................................................................................................................................................... 2.5 2.5 

New Data Collection ........................................................................................................................................................ 0 0 

Customized software development ................................................................................................................................. 5 2.5 

Testing Cost ..................................................................................................................................................................... 60 65 

Training Costs .................................................................................................................................................................. 2.5 2.5 

Transition Costs ............................................................................................................................................................... 10 10 

Totals ........................................................................................................................................................................ 100 100 

Original source: Gartner interviews and secondary research. 

Explanation of Benefits and Savings 

Calculations 

In our analysis, we assumed that 

benefits would accrue in three 

categories which were described and 

explained in detail in the August 22, 

2008 proposed rule (73 FR 49764). For 

ease of reference, they were labeled: (1) 

Better standards or savings due to 

improved claims standards; (2) Cost 

savings or savings due to new users of 

claims standards; and (3) Operational 

savings or savings due to increased 

auxiliary standards usage. 

For ease of reference, we repeat the 

explanation of the three savings 

categories: 

(1) Better standards or savings due to 

improved claims standards: The 

improvements in Version 5010 that 

would reduce manual intervention to 

resolve issues related to the claim or 

remittance advice, due to ambiguity in 

the standards; 

(2) Cost savings or savings due to new 

users of claims standards: Increased use 

of electronic transactions for claims and 

remittance advice that would accrue to 

parties who had previously avoided the 

electronic transactions because of their 

deficits and shortcomings; and 

(3) Operational savings or savings due 

to increased auxiliary standards usage: 

Increase use of auxiliary transactions 

through EDI that would result from a 

decrease in manual intervention to 

resolve issues with the data (handled 

through phone calls or correspondence). 

The August 22, 2008 proposed rule 

(73 FR 49765) details the business 

activities, such as manual interventions 

and phone calls, that make up the 

calculations for two of the categories of 

projected savings: Better standards or 

savings due to improved claims 

standards and Operational savings or 

savings due to increased auxiliary 

standards usage. As stated, only two of 

the three benefit categories are impacted 

by the revised assumptions. 

Comment: We received one comment 

disagreeing with our assumption that 

provider billing specialist yearly costs 

are $60,000. The commenter stated that 

the billing specialist yearly cost, on 

average across the country, is not higher 

than $50,000. 

Response: We agree with the 

comment after performing additional 

research regarding this assumption, and 

as a result, have changed our estimate 

regarding yearly costs for a provider 

billing specialist from $60,000 to 

$50,000. Based on this change, the total 

benefits (low estimate) across the 

industry declined from $18,635 million 

to $15,896 million, unadjusted for 

present value. 

The benefits category, ‘‘Cost savings, 

or savings due to new users of claims 

standards,’’ does not change as a result 

of our revised calculations. The revised 

provider billing specialist salary 

assumption only affects the benefit 

calculations for benefit category, ‘‘Better 

standards or savings due to improved 

claims standards’’ and the revised 

benefits realization assumption for 

auxiliary transactions only changes the 

benefit calculation for benefits category, 

‘‘Operational savings or savings due to 

increased auxiliary standards usage’’. 

However, the entire benefit projection 

changes because of the revised 

compliance date. 

1. Health Care Providers 

In the August 22, 2008 proposed rule 

(73 FR 49765), we reiterated that 

providers are not required by HIPAA to 

conduct HIPAA transactions 

electronically, but if they do, they must 

use the standards adopted by the 

Secretary. Providers that conduct these 

transactions electronically would be 

required to implement Version 5010 of 

those transactions. 

Hospitals 

In the August 22, 2008 proposed rule, 

we calculated that the total cost for all 

hospitals to implement Version 5010 

would be within a range of $932 million 

to $1,864 million (73 FR 49767). Based 

on the revised cost assumptions 

outlined earlier (increased rate of 25 to 

50 percent), the new estimate of total 

costs for all hospitals to implement 

Version 5010 will be within a range of 

$1,165 million to $2,331 million, 

unadjusted for present value. 

Hospitals would realize savings and 

benefits in the same three categories we 

identified in the August 22, 2008 

proposed rule (73 FR 49766). In the 

proposed rule, we calculated that the 

savings due to better standards were 

estimated to be a low of $403 million. 

Cost savings due to an increase in use 

of the electronic claims transactions 

(837 and 835) were estimated at a low 

of $66 million. Operational savings due 

to an increase in the use of auxiliary 

transactions were estimated at $1,314 

million. 

Based on the revised benefit 

assumptions outlined earlier, the new 

estimate for minimum savings due to 

better standards is $348 million and 

operational savings due to increase in 

the use of auxiliary claim transactions 

are $1,132 million, unadjusted for 

present value. The cost savings benefit 

category is not impacted by the revised 

benefit assumptions. 

Physicians and Other Providers 

We outlined the key assumptions 

used to develop the cost benefit analysis 

for physicians and other providers 

segment in the August 22, 2008 

proposed rule (73 FR 49767), and 

calculated that the total cost for all 

physicians and other providers segment 

to implement Version 5010 would be 

within a range of $435 million to $870 

million. Based on the revised cost 


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assumption outlined earlier, the new 

estimate of total cost for physicians and 

other providers segment to implement 

Version 5010 is between $544 million to 

$1,088 million, unadjusted for present 

value. 

In the proposed rule, we calculated 

that the savings due to better standards 

was estimated to be a low of $1,612 

million. Cost savings due to an increase 

in use of the electronic claims 

transactions (837 and 835) were 

estimated at a low of $270 million. 

Operational savings due to an increase 

in the use of auxiliary transactions were 

estimated at $5,251 million. 

Based on the revised benefit 

assumptions outlined earlier (change in 

salary and later adoption of auxiliary 

transactions), the new estimate for 

physician savings due to better 

standards is $1,392 million and 

operational savings due to increase in 

the use of auxiliary claim transactions 

are $4,443 million, unadjusted for 

present value. As mentioned earlier, the 

benefit category cost savings is not 

impacted by the revised benefit 

assumptions. 

Dentists 

In the August 22, 2008 proposed rule, 

we acknowledged that the dental 

community has not yet widely adopted 

the HIPAA standards, in large part 

because the standards did not meet their 

practical business needs, particularly for 

claims and remittance advice. We 

assumed that the costs for implementing 

Version 5010 would largely fall on 

vendors as a cost of doing business, as 

they support the majority of dentists. 

We outlined the key assumptions used 

to develop the cost benefit analysis for 

dentists segment in the August 22, 2008 

proposed rule (73 FR 49768). We 

received a few general comments from 

the dental community regarding our 

estimates of the dental profession. We 

did not receive any actual cost data from 

any organization or practitioner. 

Comment: We received one comment 

clarifying a figure in Table 18 in the 

supplement document posted on the 

CMS Web site in October 2008. The 

clarification is that the number of 

dentist practices (outlined in Table 18) 

does not include a one-to-one 

relationship between dentists and their 

office, so the calculation assumes too 

large a number. The commenter did not 

provide a figure however. 

Response: We agree with the 

clarification and distinction, and have 

updated the table in the supplement to 

indicate the numbers were for 

individual dentists. However, in HHS’s 

opinion, the current cost estimates are 

not overstated. We derived the cost per 

dentist based on input provided by the 

industry, which reflected office costs, in 

keeping with the other portions of the 

analysis. 

Comment: We received one comment 

clarifying another data point—in Table 

19 in the supplement document posted 

on the CMS Web site in October 2008. 

The clarification is that the size of most 

dental practices is less than 5. In Table 

19, the practice size categories were too 

large (‘‘50–100 physicians’’ and ‘‘100 + 

physicians,’’) for dentistry, and should 

have reflected a smaller number at the 

lower end. 

Response: We agree with the 

clarification, and have updated the table 

to represent the data collected from the 

industry. However, the calculation of 

the costs and benefits are not affected by 

this comment. 

In the August 22, 2008 proposed rule 

(73 FR 49768), we calculated that the 

total cost for dentists to implement 

Version 5010 would be within a range 

of $299 million to $598 million. Based 

on revised cost assumption outlined 

earlier, the new revised estimate of total 

costs for the dentist segment to 

implement Version 5010 is within a 

range of $373 million to $747 million, 

unadjusted for present value. 

Based on the revised benefit 

assumptions outlined earlier, the new 

estimate for savings due to better 

standards is $236 million and 

operational savings due to increase in 

the use of auxiliary claim transactions 

are $753 million, unadjusted for present 

value. As mentioned earlier, the benefit 

category cost savings is not impacted by 

the revised benefit assumptions. 

Pharmacies 

Pharmacies will transition to greater 

use of Version 5010 when the final rule 

becomes effective, specifically for the 

835 transaction (remittance advice). For 

retail pharmacy claims, pharmacies 

primarily use the NCPDP standard, 

Version 5.1. Since we are replacing 

Version 5.1 with Version D.0 in this 

regulation, and many of the system 

changes, costs and benefits for 

implementing both Version 5010 and 

Version D.0 will result from related 

efforts, we combined the impact 

analysis for Version 5010 and Version 

D.0. That analysis is detailed later in 

this analysis. 

Comment: We received a comment 

from a pharmacy chain that identified a 

pharmacy segment that was not 

considered in the regulatory impact 

analysis. The commenter stated that 

there are retail pharmacies that are not 

considered a chain store, and would not 

fall under the category of independent 

pharmacies. In addition, the commenter 

provided representative costs incurred 

by a typical retail pharmacy in this 

segment. This commenter said that the 

cost of implementation of both the 

standards (Versions D.0 and 5010) 

would be approximately $250,000, with 

90 percent of the cost associated with 

the upgrade from Version 4010/4010A 

to Version 5010. 

Response: Although the commenter 

had identified representative costs, it 

did not provide additional information 

regarding the number of retail chains 

that fall in this segment. We were, 

therefore, not able to re-model the 

impact analysis based on the additional 

information provided by the 

commenter. Furthermore, the impact 

analysis for pharmacies is handled in 

the section for Version D.0 and we 

believe those figures are representative 

of the segment overall. 

Health Plans 

In the August 22, 2008 proposed rule 

(73 FR 49769), we outlined the key 

assumptions used to develop the cost 

benefit analysis for the health plans 

segment. We calculated that the total 

cost for health plans to implement 

Version 5010 would be within a range 

of $3,604 million to $7,209 million. 

Based on the revised cost assumption 

outlined earlier, the new estimate of 

total cost for health plans to implement 

Version 5010 is to be within a range of 

$4,505 million to $9,011 million, 

unadjusted for present value. 

In the August 22, 2008 proposed rule 

(73 FR 49769), we calculated that the 

savings due to better standards were 

estimated at a low of $1,283 million. 

Cost savings due to an increase in use 

of the electronic claims transactions 

(837 and 835) were estimated at a low 

of $111 million. Operational savings 

due to an increase in the use of auxiliary 

transactions were estimated at $4,386 

million. We outlined the Version 5010 

cost benefit summary for health plans 

segment (73 FR 49769). 

Based on the revised benefit 

assumptions outlined earlier, the new 

estimate for savings due to better 

standards is $1,093 million, and 

operational savings due to increase in 

the use of auxiliary claim transactions 

are $3,711 million, unadjusted for 

present value. As mentioned earlier, the 

benefit category cost savings is not 

impacted by the revised benefit 

assumptions. 

Government Plans 

We outlined the key assumptions 

used to develop the cost benefit analysis 

for government plans segment in the 

August 22, 2008 proposed rule (73 FR 

49770), and calculated that the total 


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costs for government plans segment to 

implement Version 5010 would be 

within a range of $252 million to $481 

million. Based on the revised cost 

assumption outlined earlier, the new 

estimate of total costs for the 

government plans segment to 

implement Version 5010 is within a 

range of $314 million to $601 million, 

unadjusted for present value. 

In the August 22, 2008 proposed rule, 

we estimated that savings due to better 

standards would be a low of $279 

million. Cost savings due to an increase 

in use of the electronic claims 

transactions (837 and 835) were 

estimated to be a low of $24 million. 

Operational savings due to an increase 

in the use of auxiliary transactions were 

estimated at $953 million. We outlined 

the Version 5010 cost benefit summary 

for government plans segment (73 FR 

49770). 

Based on the revised benefit 

assumptions outlined earlier, the new 

estimate for savings due to better 

standards is $238 million and 

operational savings due to increase in 

the use of auxiliary claim transactions 

are $807 million, unadjusted for present 

value. As mentioned earlier, the benefit 

category cost savings is not impacted by 

the revised benefit assumptions. 

Clearinghouses and Vendors 

We outlined the key assumptions 

used to develop the cost benefit analysis 

for clearinghouses and vendors segment 

in the August 22, 2008 proposed rule 

(73 FR 49770), and calculated that the 

total costs for clearinghouses to 

implement Version 5010 would be 

within a range of $37 million to $45 

million. 

Comment: We received a comment 

from a large clearinghouse stating that 

our cost assumptions were significantly 

understated, and that their costs to 

implement Version 5010 would be at 

least $3.5 million, and would be 

affected specifically by the amount of 

testing that would be required with 

trading partners—both providers and 

health plans. 

Response: We agree with the 

comment based on several additional 

interviews with large and medium 

clearinghouse representatives. In 

preparing the final rule, we did some 

additional analysis on a larger sample of 

the 162 clearinghouses that we included 

in our estimate. In this analysis we 

found that the cost per clearinghouse 

would be driven primarily by the 

number of trading partners with whom 

the clearinghouses would need to test 

Version 5010 transactions. The number 

varied greatly between the smaller 

clearinghouses and the larger ones and, 

therefore, created a range of costs for 

implementation and transition to 

Version 5010 based on this variable. 

Using this analysis, we increased our 

estimates and came up with an average 

implementation cost for each 

clearinghouse of $1 million (low) and 

$1.21 million (high) (up from a range of 

$0.23 million to $0.28 million). The 

total costs (low) for the clearinghouse 

segment increased from $37 million to 

$160 million. 

Based on the comments, we revised 

our estimate of the total costs for the 

clearinghouse segment to implement 

Version 5010 to be within a range of 

$160 million to $196 million, 

unadjusted for present value. 

In the August 22, 2008 proposed rule 

(73 FR 49771), we stated our 

assumption that there would be no 

benefits for clearinghouses. We did not 

receive any comments on this 

assumption, but feedback from industry 

interviews supports our belief that other 

than business stability, there are no 

other benefits for clearinghouses. 

Other Comments Pertaining to Cost 

Estimates 

Comment: We received a few 

comments requesting that HHS review 

the WEDI Cost Benefit Analysis (CBA) 

documents prepared in CY2007 and 

consider the industry projections of 

Version 5010 implementation costs from 

that analysis. 

Response: We reviewed all of the CBA 

documents forwarded by WEDI. We 

were able to make some qualitative 

inferences based on the CBA survey 

responses and used those to solicit 

additional feedback from industry 

leaders regarding the CBA findings and 

to better augment the regulatory impact 

analysis. The input from this analysis 

helped inform the changes we have 

outlined in the final rule. However, we 

did not take the CBA estimates in their 

current form because: 

• The CBA does not capture a 

breakdown of costs by healthcare sub 

segment but rather at the aggregate. 

Although the CBA summarizes the 

survey responses, it does not include 

analysis based on the survey responses. 

For example, the CBA captures the 

survey responses regarding participant 

details and the cost details. It does not 

tie the cost by survey participant as to 

establish a clear basis for comparison 

across organizations of similar size and 

type. 

• It is difficult to develop Version 

5010 costs based on the WEDI CBA 

because each analysis was conducted by 

transaction. For example, there are three 

analyses, one for each transaction: 835, 

837 and 276/277. The costs outlined in 

the CBA have a high potential for 

overlap. In addition, participants are 

different for each survey. For example: 

837 survey participants include four 

long term care health plans while 835 

survey participants did not include any 

health plans. 

• The survey results were not from a 

controlled sample. The depth of the 

survey respondent’s understanding of 

the impact of Version 5010 was unclear. 

The lack of attribution and ability to 

contextualize survey responses makes it 

difficult to use the WEDI CBA directly; 

the utility of the data is extremely 

limited because of the small number of 

respondents, the uncertainty of the 

responses (over 1⁄3 of the payer, provider 

and vendor responders answered ‘‘not 

sure’’ when asked to estimate the costs 

for new software, upgrading of existing 

software, and custom solutions), and the 

lack of consistency of respondents 

across surveys. 

As a result of these factors, this final 

rule is informed by the qualitative input 

from the WEDI CBA, but relies on the 

specific cost benefit study performed by 

Gartner to prepare the regulatory impact 

analysis for the August 22, 2008 

proposed rule to adopt Version 5010. 

Comment: One commenter stated that 

costs estimated to implement Version 

5010 were 150 percent of the costs 

incurred during NPI implementation. 

Response: We understand the context 

of the comment, although the 

commenter did not provide any data on 

which we could conduct any analysis or 

comparison. Since the commenter did 

not provide baseline data, a specific 

analysis could not be done to help us 

consider revising our cost estimates 

further. 

Comment: We received a few 

comments requesting that HHS use the 

actual Version 4010/4010A 

implementation costs incurred by 

Medicare and Medicaid to estimate the 

truer costs to implement Version 5010. 

Response: We acknowledge the 

comment, but do not provide a specific 

number for the Version 4010/4010A 

implementation costs incurred by 

Medicare and Medicaid. The budgetary 

process used by Medicare and Medicaid 

allocates funds for all approved Health 

Information Technology initiatives, and 

those estimates were used in our 

analysis, as was other data obtained 

from the industry at large. With respect 

to Medicare expenditures specifically, 

funds are allocated to the contractors for 

purposes of all updates and releases 

each year. Medicaid agencies do not 

report on a specific implementation, but 

rather track all system changes for 

purposes of federal cost sharing. 


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Comment: We received one comment 

requesting that HHS examine the costs 

for providers who must submit 

electronic information to HIPAAexempt payers such as auto insurance, 

workers’ compensation, property and 

casualty insurers who are not required 

to accept the HIPAA standard 

transactions. These providers must 

operate separate systems to support the 

requirements of covered and noncovered entities. 

Response: This is consistent with 

current practice. These referenced 

entities have never been covered under 

HIPAA; there are already processes and 

systems being used to submit claims to 

different payer types. The commenter 

did not submit any data with respect to 

claims volumes or costs to help support 

the statement that these costs are unique 

and need to be examined. 

Version D.0 (and Version 5010 for 

pharmacies) 

In this section of the impact analysis, 

we summarize the key assumptions 

from the August 22, 2008 proposed rule, 

and discuss those with which the 

commenters disagreed. In cases where 

we agreed with the commenters and 

changed our estimates, revised tables 

are provided. In cases where we did not 

change our assumptions or estimates, 

the table from the August 22, 2008 

proposed rule is not repeated. The last 

section of the impact analysis contains 

the summary detailed tables with all of 

the costs and benefits recalculated to 

reflect the changes. In general, 

pharmacy chains, health plans and 

PBMs believed that our cost estimates 

were too low, and provided modest 

justification for their position, but no 

entity provided actual data that could be 

used to adjust our estimates with 

precision. Based on the comments, we 

made some changes to our original 

assumptions and estimates for the cost 

of implementing Versions D.0 for 

pharmacy benefit managers. 

As stated in the preamble, there was 

consensus that we should adopt Version 

D.0 to replace Version 5.1. No 

commenters disagreed with our 

estimates of the number of organizations 

and professionals affected by this rule, 

and there was also no disagreement 

about the estimate of more than 2.3 

billion prescriptions annually. 

Costs 

a. Chain Pharmacies 

The retail pharmacy industry would 

be the most impacted by the transition 

from Version 5.1. to Version D.0. In the 

August 22, 2008 proposed rule, we 

reported that one large national 

pharmacy chain estimated that it spent 

approximately $10 million when it 

converted to Version 5.1. In comparison, 

this chain estimated that corporate-wide 

costs for the conversion to Version D.0, 

including programming, system testing 

and personnel training, would be 

around $2 million per chain. Another 

large national pharmacy chain estimated 

its migration costs from Version 5.1 to 

Version D.0 would be $1.5 million. We 

solicited industry input in preparation 

for the proposed impact analysis, and 

the overall initial industry input for 

conversion to D.0 ranged from $100,000 

for a small pharmacy chain to $1 

million for large national pharmacy 

chains. Based on this information, we 

estimated implementation costs to be 

$20 million for large national pharmacy 

chains, and $18 million for small 

chains, for a total of $38 million. 

Comment: We received a few 

comments disagreeing with our original 

cost estimates. One large chain 

estimated their cost at $4.9 million over 

two years but did not provide specifics. 

Another commenter estimated 

implementation costs of $2 million for 

small chains with costs increasing based 

on the size of the chain, but indicated 

that this estimate included both Version 

D.0 and Version 5010 costs. 

Response: The few comments we 

received on this topic did not provide 

enough detail to permit us to assess 

them, and in one case the estimate did 

not distinguish between Version D.0 

and Version 5010 costs. We retain our 

original estimates of $100,000 per small 

pharmacy chain and $1 million per 

large pharmacy chain company, 

unadjusted for present value. We 

estimate that these costs would be 

spread over the first two years of 

implementation of Version D.0. 

b. Independent Pharmacies 

In the August 22, 2008 proposed rule, 

we stated that independent pharmacies 

would incur costs resulting from 

software upgrades to accommodate 

Version D.0. We stated that we believed 

that maintenance fees would increase 

slightly, as vendors pass along their cost 

of the upgrade to the pharmacy. Based 

on industry input, we estimated that the 

average monthly maintenance contract 

between a pharmacy and a vendor 

amounts to a range of $400 to $800 per 

month per pharmacy with an additional 

percent for maintenance fee increases 

attributable to the conversion to Version 

D.0. Our original estimate per pharmacy 

was a range of $540,000 to $1,080,000 

based on 18,000 independent 

pharmacies. 

We did not receive any comments 

from any independent pharmacist or 

from any of their associations; therefore 

we stand by our original assumptions. 

We have modified the dates for those 

costs, in accordance with the revised 

compliance schedule. 

c. Health Plans and PBMs 

In the August 22, 2008 proposed rule 

(73 FR 49773), we stated that health 

plans should see minimal changes in 

their operations and workflows between 

Version 5.1 and Version D.0. We 

estimated the cost for large PBMs to 

migrate to Version D.0 to be 

approximately $1 million to $1.5 

million per large national PBM, and 

approximately $100,000 for specialty 

PBMs. Our total estimated costs for 

health plans and PBMs ranged between 

$3.6 and $10.6 million per plan based 

on the size of the PBM. 

Comment: We received a few 

comments suggesting that we 

understated the cost for health plans 

and PBMs to transition to Version D.0. 

While commenters agreed with our 

assessment of the consolidation of the 

PBM industry nationwide, they claimed 

that we did not account for the effect on 

a large PBM. Commenters explained 

that maintenance of multiple platforms 

results in increased complexities of 

operations and upgrades. One 

commenter estimated that costs for their 

upgrades would be $11 million, and, 

unlike the upgrades to the retail 

systems, they stated that few if any 

benefits will result from the costs. 

Another commenter expanded on the 

cost issues, stating that the business 

requirements for commercial and 

Medicare Part D clients have required 

significant changes to the claim 

standard. They stated that the 

requirements affect all of the logic 

associated with the new fields which 

must be accommodated. They explained 

that even the customer service screens 

will require revision and that the 

representatives will require training on 

the new fields and the benefit changes 

so that they can answer beneficiaries’ 

questions correctly. They estimate their 

total cost to be in excess of $10 million 

dollars. 

Another commenter challenged our 

assumption that health plans and PBMs 

should see minimal changes in their 

operations and workflows between 

Version 5.1 and Version D.0., stating 

that Version D.0 requires additional data 

reporting related to the eligibility or 

subrogation/secondary plan aspects of 

the transaction, and that this represents 

a significant workload. 

Response: When we prepared our 

original cost estimates, we treated the 

large PBMs the same as a large chain 

pharmacy. We did not completely 


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account for the complexity that the 

systems changes would present to large 

PBMs. At the time, we allowed for 

changes to be made on only one 

operating platform, while commenters 

pointed out that as many as seven 

platforms might need to be updated. We 

agree with commenters that large PBMs 

have complex systems that often 

include more than one platform, and 

that such comprehensive system 

upgrades can be more costly. Based on 

the comments, we have revised our cost 

projections. We amend our estimates 

from $2 million to $10.5 million for 

each large PBM company. Since we did 

not receive any comments from the 

smaller specialty PBMs, we leave our 

original assumption as stated in the 

August 22, 2008 proposed rule. Thus, 

our cost estimates have increased to $42 

million for the large PBMs, and $3.6 

million for the remaining small chains, 

for a total of $45.6 million, unadjusted 

for present value. We estimate that these 

costs would be incurred during the first 

two years of implementation. 

d. Vendors 

In the August 22, 2008 proposed rule 

(73 FR 49772), we solicited industry and 

stakeholder comment on the 

assumptions that vendor costs will be 

passed on to the customer over time, 

and solicited feedback on actual costs 

for vendor software upgrades and 

impact on covered entities, including 

the conversion of historical data. We 

received no comments from vendors 

related to their costs to upgrade to 

Version D.0 and therefore make no 

changes to this section. The figures from 

the proposed rule will be included in 

the summary table at the end of the 

impact analysis. 

Benefits 

In the August 22, 2008 proposed rule 

(73 FR 49742), we assumed that the 

benefits of converting to Version D.0 

would accrue over several years, 

beginning in 2012. For a full overview 

of the benefit assumptions, refer to the 

discussion in the August 22, 2008 

proposed rule at 73 FR 49773–49778. 

a. Pharmacies 

In the August 22, 2008 proposed rule 

(73 FR 49742), we said pharmacies need 

Version D.0 to process Medicare Part D 

claims more efficiently, and with fewer 

workarounds, particularly with respect 

to processing coordination of benefits 

claims. 

Comment: We received a few 

comments on our benefit assumptions. 

One large pharmacy chain commented 

that, while they do not disagree that 

there will be benefits and savings 

following complete implementation of 

Version D.0, they are concerned that 

HHS has overstated those savings. The 

commenter recognized that the use of 

Version D.0 will decrease audit risks, 

however the savings assumption by 

HHS failed to recognize other gaps that 

will continue to exist in the outpatient 

health care system, specifically relative 

to the coordination of benefits. 

Another commenter said that some of 

the savings numbers are so small (for 

example, the 1.1 percent of time of a 

pharmacist being spent on benefit 

issues), that they become hard to 

validate. Commenters did not provide 

any alternative data to show what the 

benefits to the pharmacies would be in 

their view. 

Response: As we stated in the August 

22, 2008 proposed rule (73 FR 79744), 

we based our assumptions on a study 

funded by the National Association of 

Chain Drug Stores (NACDS), ‘‘Pharmacy 

Activity Cost and Productivity Study’’ 

(http://www.nacds.org/user-assets/ 

PDF_files/ arthur_andersen.PDF ). In 

projecting the growth in the number of 

pharmacies over the next 9 years, we 

used data from the NACDS, 

‘‘Community Retail Pharmacy Outlets 

by Type of Store, 1996–2006’’ (http:// 

www.nacds.org/userseets/pdfs/ 

facts_resources/2006/ 

Retail_Outlets2006.pdf ). Since we did 

not get any new data on the benefits, we 

stand by our assumptions and make no 

changes to the benefit data. 

Health Plans and PBMs 

We assumed that if pharmacists and 

technicians realize productivity savings 

as a result of the use of Version D.0, 

then conversely, health plans and PBMs 

would realize commensurate savings 

though a reduction in pharmacist and 

technician calls to customer service 

representatives at health care plans and 

PBMs. For a more detailed discussion of 

these savings through reductions in 

pharmacist and technician calls to 

customer service representatives at 

health plans and PBMs, please refer to 

the August 22, 2008 proposed rule (73 

FR 49778). 

Comment: One commenter stated that 

they felt that there are few if any 

benefits that will result from the cost of 

upgrading their system to Version D.0, 

however they did not expand on this 

statement or offer any alternative 

information. 

Response: When estimating the 

benefits accrued to dispensers, we 

solicited industry and stakeholder 

comments on our assumptions. 

Although we received one comment 

stating that there were few, if any 

benefits to upgrading to Version D.0, the 

commenter did not provide us with any 

other data to refute what we originally 

proposed. Since most commenters did 

not dispute our assumptions, we do not 

make changes in the final rule. 

Version 3.0 (Medicaid Pharmacy 

Subrogation) 

As stated in the impact analysis for 

Version 5010 and Version D.0 above, in 

this section, we summarize the cost and 

benefit assumptions from the August 22, 

2008 proposed rule, and discuss those 

with which the commenters disagreed. 

In cases where we agreed with the 

commenters and changed our estimates, 

revised tables are provided. The last 

section of the impact analysis contains 

the summary detailed tables with all of 

the costs and benefits recalculated to 

reflect the changes. 

There was consensus that we should 

adopt Version 3.0, and we received no 

comments opposing our cost or benefit 

assumptions or estimates. However, to 

accommodate the change in effective 

and compliance dates for Version 3.0, 

we have made modifications to each of 

the tables presented in the proposed 

rule, and re-published them below. 

In the August 22, 2008 proposed rule 

(73 FR 49779), we said that 

approximately 37 States were already 

billing a major portion of their Medicaid 

pharmacy subrogation claims 

electronically. Of those 37 States, 33 of 

them were using a contingency fee 

contractor to bill their (electronic) 

claims. The other four (out of 37) States 

were billing electronically without the 

use of a contractor. The remaining 14 

States were still billing most of their 

Medicaid pharmacy subrogation claims 

on paper. 

A detailed analysis of the impact on 

Medicaid agencies and health plans can 

be found in the proposed rule (73 FR 

49779–49781). 

In the August 22, 2008 proposed rule 

(73 FR 49779), we said that the costs for 

States that currently bill electronically 

to upgrade their systems to Version 3.0, 

and to transition from paper Medicaid 

subrogation claims to using Version 3.0, 

would be outweighed by the benefits. 

We did not receive any comments on 

this conclusion. 

1. Impact on States That Use a 

Contingency Fee Contractor 

In the August 22, 2008 proposed rule 

(73 FR 49779), we said that, for the 33 

States that contract out their Medicaid 

pharmacy subrogation billing processes, 

there would be no direct costs, and that 

reimbursement to States would increase 

proportionally to a projected increase in 

the volume of electronic claims. The 

contractors supporting these States 


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would recover their cost on the backend, as they would be recouping 

additional contingency fees based on 

the volumes. We received no comments 

on this assumption. 

2. Impact on States Converting From 

Paper 

a. Cost of Development 

In the August 22, 2008 proposed rule 

(73 FR 49780), we described the costs 

that would be incurred by the 14 States 

converting from a paper process to an 

electronic process, using Version 3.0, 

including the cost of development for 

gap analysis, requirements 

documentation, training, translator 

mapping, legacy system changes, 

acceptance testing and external, end-toend testing. We said that infrastructure 

costs would be relatively small, in the 

range of $50,000 to $150,000 per State, 

unadjusted for present value. The State 

would be responsible for 10 percent of 

those sums, and the Federal government 

would reimburse the State 90 percent of 

the design, development, and 

installation costs related to changes in 

their Medicaid Management Information 

Systems (MMIS). We projected that 

seven States would incur development 

costs in order to conduct their own 

billing and the other seven would hire 

a contingency fee contractor to conduct 

their billing. We received no comments 

on these estimates or assumptions. 

b. Costs of Adopting and Implementing 

Trading Partner Agreements (TPAs) 

With Third Party Payers 

In the proposed rule, (73 FR 49780), 

we said that States would enter into 

Trading Partner Agreements with other 

payers in order to conduct subrogation 

electronically. We projected that 

approximately forty (40) third party 

payers, primarily PBMs and claims 

processors, as well as a few large health 

plans that process claims in-house, 

would participate. We stated that 

trading partner agreements would cost 

approximately $14,000 to $20,000— 

with a range of $5,000 to $15,000 for 

each agreement. We assumed that each 

State would enter into a trading partner 

agreement with an average of 15 payers, 

and that the anticipated costs per State 

would range from $75,000 to $225,000. 

As stated in the previous section, we 

projected that half of the 14 States 

would hire a contractor, and half would 

adopt trading partner agreements. 

Therefore, the agreements with 15 plans 

would range from $525,000 to $1.6 

million, unadjusted for present value. 

The State would be responsible for 50 

percent of the cost since the Federal 

government reimburses States 50 

percent of their administrative costs. We 

did not receive any comments on this 

section of the analysis. 

3. Impact on States That Bill 

Electronically (Without a Contractor) 

a. Cost of Development 

In the August 22, 2008 proposed rule 

(73 FR 49780), we said that changes for 

States that bill electronically would be 

minimal and the cost impact would be 

much less than for the States that 

currently bill paper to convert to 

Version 3.0. We did not receive any 

comments on this section of the 

analysis. 

b. Costs of Adopting and Implementing 

Trading Partner Agreements With Third 

Party Payers 

In the August 22, 2008 proposed rule 

(73 FR 49780), we suggested that the 

cost to execute and implement trading 

partner agreements would be 

approximately $5,000 to $15,000 per 

agreement, and that four States would 

establish trading partner agreements 

with an additional 12 health plans/ 

payers, for a total cost ranging from 

$20,000 to $60,000, unadjusted for 

present value. We did not receive any 

comments on this section of the 

analysis. 

Medicaid Savings 

In the August 22, 2008 proposed rule, 

73 FR 49780, we stated that the accrued 

savings to States would outweigh the 

costs because Medicaid agencies would 

no longer have to keep track of and use 

various electronic formats for different 

payers. We estimated the total number 

of paper Medicaid pharmacy 

subrogation claims to be between 2.5 

and 3.4 million annually. We cited a 

study by Milliman in 2006, which was 

also referenced by the American 

Medical Association (AMA), which 

stated that electronic claims can save an 

average of $3.73 per clean claim. Based 

on this study, we estimated that the 

Medicaid program could save an 

estimated $12.7 million annually 

unadjusted for present value, once 

Version 3.0 is fully implemented. We 

said that the savings represents both 

State agencies and the Federal 

government, as the Federal government 

would share 50 percent of any 

administrative savings. We did not 

receive any comments on this section of 

the analysis. 

Impact on Medicaid Pharmacy 

Providers 

In situations where Medicaid has 

been unable to successfully bill third 

parties, due to the current challenges of 

having to use various formats to meet 

the needs of different payers, States 

sometimes recoup the subrogation 

monies from pharmacy providers. We 

do not believe this practice is 

widespread and, therefore, did not 

account for it in the impact analysis. We 

did not receive any comments on this 

section of the analysis. 

Impact on Third Party Payers (Includes 

Plan Sponsors, Pharmacy Benefit 

Managers (PBMs), Prescription Drug 

Plans (PDPs) and Claims Processors) 

1. Impact on Plan Sponsors That Use a 

PBM or Claim Processor 

In the August 22, 2008 proposed rule 

(73 FR 49781), we stated that the four 

large PBMs handle about 75 percent of 

all prescription orders dispensed 

annually in the United States, and that 

many of these organizations already 

accept Version 2.0 subrogation 

transactions. We said that, for the 

majority of plan sponsors that contract 

out their claims adjudication, the costs 

of implementing Version 3.0 and 

establishing trading partner agreements 

would be minimal. We received no 

comments on this portion of the 

analysis. 

2. Impact on Plan Sponsors That Do Not 

Use a PBM or Claim Processor 

We did not estimate any costs for this 

sector, as we believe there are few large 

payers that administer their own claims 

adjudication. We continue to assume 

that these payers have already made the 

necessary investments in developing 

electronic capabilities to meet HIPAA 

mandates, and that they will be 

upgrading their systems in order to 

accommodate Version D.0, to meet the 

requirements of this final rule. Since 

Version 3.0 utilizes a number of the data 

elements found in Version D.0, we 

expect additional infrastructure costs to 

be small. We did not receive any 

comments on this assumption. 

a. Cost of Development 

In the August 22, 2008 proposed rule 

(73 FR 49781), we estimated the 

development costs to individual health 

plans that would need to implement 

Version 3.0 to be similar to the cost for 

State Medicaid programs, or 

approximately $50,000 to $150,000. We 

estimate that there are about 20 payers 

that do not contract with a PBM and 

that they would need to upgrade their 

systems for a total cost of 

$1 to $3 million, unadjusted for present 

value. We solicited comments on this 

subject but received none. 


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b. Costs of Adopting and Implementing 

Trading Partner Agreements With States 

In the proposed rule (73 FR 49781), 

we estimated the plan sponsor’s costs of 

adopting and implementing trading 

partner agreements with States would 

be similar to the cost estimated for State 

Medicaid programs, which would range 

from $5,000 to $15,000 per agreement. 

We also anticipated that approximately 

40 States would utilize a contingency 

fee contractor, setting up trading partner 

agreements. We estimated the cost per 

plan sponsor to range from $60,000 to 

$180,000, unadjusted for present value, 

and received no comments on this 

assumption. 

3. Savings Impact 

We assumed that 50 percent of all 

subrogation claims currently require 

manual review, and that the savings of 

converting 3.4 million paper claims to 

electronic transmission would be $3.3 

million, unadjusted for present value. 

We did not receive any comments in the 

section on savings. 

In summary, we did not receive any 

public comments on the impact analysis 

for Version 3.0. However, we did 

receive comments, as described earlier, 

requesting additional time to implement 

the standards and expressing the need 

to implement Version 3.0 either at the 

same time as, or after, implementation 

of Version D.0 because of the 

interdependency of the two standards. 

The compliance date has been changed 

to allow for additional implementation 

time, and to ensure that the Version 3.0 

transactions can be used in concert with 

Version D.0. Based on the adopted 

effective and compliance dates, we have 

revised the tables to coincide with the 

new dates. 

Summary of Costs and Benefits for This 

Final Rule 

The final tables, 4a and 4b, which 

replace tables 14a and 14b from the 

proposed rule, are the compilation of 

the total low and high costs and benefits 

for all of the standards being adopted in 

this final rule. In the proposed rule, we 

did not adjust for present value. In order 

to assure readers a valid comparison, we 

also did not adjust for present value in 

the final rule in the main text of the 

document. However, for the reader’s 

edification, in Tables 4a and 4b, we 

show the costs and benefits discounted 

by 7% and 3% to reflect present value. 

TABLE 4A—ESTIMATED LOW AND HIGH COSTS—IN MILLIONS*—FOR YEARS 2009 THROUGH 2019 FOR IMPLEMENTATION

OF VERSIONS 5010, D.0 AND 3.0 

Cost type Industry 

Unadjusted 

for present 

value 

@ 3% 

Discount 

@ 7% 

Discount 

5010—Imp costs ................................................... Hospitals—low ...................................................... $792 $762 $727 

Hospitals—high .................................................... 1,584 1,525 1,453 

Physicians—low ................................................... 370 356 339 

Physicians—high .................................................. 740 712 679 

Dentists—low ....................................................... 254 245 233 

Dentists—high ...................................................... 508 489 466 

pharmacy—low ..................................................... 57 55 52 

pharmacy—high ................................................... 114 110 105 

private hp—low .................................................... 3,063 2,949 2,810 

private hp—high ................................................... 6,127 5,898 5,621 

govt hp—low ........................................................ 213 205 195 

govt hp—high ....................................................... 410 395 376 

CH—low ............................................................... 137 132 126 

CH—high .............................................................. 167 161 153 

5010 Transition costs ............................................ Hospitals—low ...................................................... 373 338 298 

Hospitals—high .................................................... 746 677 597 

Physicians—low ................................................... 174 158 139 

Physicians—high .................................................. 348 316 279 

Dentists—low ....................................................... 120 109 96 

Dentists—high ...................................................... 239 217 191 

pharmacy—low ..................................................... 27 24 22 

pharmacy—high ................................................... 54 49 43 

private hp—low .................................................... 1,442 1,308 1,154 

private hp—high ................................................... 2,883 2,615 2,307 

govt hp—low ........................................................ 100 91 80 

govt hp—high ....................................................... 193 175 154 

CH—low ............................................................... 24 22 19 

CH—high .............................................................. 30 27 24 

Medicaid subrogation development ...................... federal—low ......................................................... .32 .29 .27 

federal—high ........................................................ .94 .87 .79 

state—low ............................................................. .040 .037 .034 

state—high ........................................................... .1 .093 .084 

payers—low .......................................................... 1 .93 .844 

payers—high ........................................................ 3 2.78 2.53 

Medicaid subrogation—Trading Partner agreements.federal—low ......................................................... .38 .35 .32 

federal—high ........................................................ 1.16 1.07 .98 

state—low ............................................................. .38 .35 .32 

state—high ........................................................... 1.16 1.07 .98 

payers—low .......................................................... 2.4 2.2 2 

payers—high ........................................................ 7 7 6 

D.0—pharmacy chain systems implementation ... pharmacy—low ..................................................... 18 17 16 

pharmacy—high ................................................... 38 36 34 

Independent pharmacy maintenance fees ........... pharmacy—low ..................................................... .54 .51 .48 

pharmacy—high ................................................... 1.08 1.03 .97 


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TABLE 4A—ESTIMATED LOW AND HIGH COSTS—IN MILLIONS*—FOR YEARS 2009 THROUGH 2019 FOR IMPLEMENTATION

OF VERSIONS 5010, D.0 AND 3.0—Continued 

Cost type Industry 

Unadjusted 

for present 

value 

@ 3% 

Discount 

@ 7% 

Discount 

PBM programming ................................................ PBM—low ............................................................. 8 8 7 

PBM—high ........................................................... 10 9.5 9 

Total Costs ..................................................... LOW ..................................................................... 7,177 6,783 6,319 

Total Costs ..................................................... HIGH .................................................................... 14,206 13,425 12,505 

TABLE 4B—ESTIMATED LOW AND HIGH BENEFITS—IN MILLIONS*—FOR YEARS 2009 THROUGH 2019 FOR

IMPLEMENTATION OF VERSIONS 5010, D.0 AND 3.0 

Savings type Industry 

Unadjusted 

for present 

value 

@ 3% 

Discount 

@ 7% 

Discount 

5010 operational savings ...................................... Hospitals—low ...................................................... $348 $286 $224 

Hospitals—high .................................................... 952 783 612 

Physicians—low ................................................... 1,392 1,144 895 

Physicians—high .................................................. 3,802 3,126 2,445 

Dentists—low ....................................................... 237 195 153 

Dentists—high ...................................................... 605 497 389 

pharmacy—low ..................................................... 16 13 10 

pharmacy—high ................................................... 23 19 15 

private and govt hp—low ..................................... 1,330 1,093 855 

private and govt hp—high .................................... 3,577 2,941 2,300 

CH—low ............................................................... 0 0 0 

CH—high .............................................................. 0 0 0 

5010 cost savings increase in transactions .......... Hospitals—low ...................................................... 66 53 40

Hospitals—high .................................................... 219 176 133 

Physicians—low ................................................... 270 217 164 

Physicians—high .................................................. 874 702 532 

Dentists—low ....................................................... 45 36 27 

Dentists—high ...................................................... 56 45 34 

pharmacy—low ..................................................... 0 0 0 

pharmacy—high ................................................... 0 0 0 

private and govt hp—low ..................................... 135 110 86 

private and govt hp—high .................................... 338 276 214 

CH—low ............................................................... 0 0 0 

CH—high .............................................................. 0 0 0 

5010 operational savings—increase in auxiliary 

claim transaction.

Hospitals—low ...................................................... 1,131 897 669 

Hospitals—high .................................................... 2,890 2,288 1,700 

Physicians—low ................................................... 4,442 3,517 2,612 

Physicians—high .................................................. 11,553 9,147 6,795 

Dentists—low ....................................................... 752 595 442 

Dentists—high ...................................................... 1,839 1,456 1,082 

pharmacy—low ..................................................... 0 0 0 

pharmacy—high ................................................... 0 0 0 

private and govt hp—low ..................................... 4,519 3,578 2,658 

private and govt hp—high .................................... 11,749 9,302 6,910 

CH—low ............................................................... 0 0 0 

CH—high .............................................................. 0 0 0 

Medicaid subrogation ............................................ fed—low ............................................................... 13 11 10 

fed—high .............................................................. 18 16 13 

state—low ............................................................. 13 11 10 

state—high ........................................................... 18 16 13 

payer—low ........................................................... 7 6 5 

payer—high .......................................................... 9 8 7 

Version D.0 ........................................................... Pharmacist productivity—low ............................... 951 779 607 

Pharmacist productivity—high .............................. 1,921 1,574 1,225 

Version D.0 ........................................................... Pharmacy technician productivity—low ............... 77 63 49 

Pharmacy technician productivity—high .............. 160 132 103 

Version D.0 ........................................................... Avoided audits—low ............................................. 152 126 99 

Avoided audits—high ........................................... 304 251 198 

Total Benefits ................................................. LOW ..................................................................... 15,896 12,732 9,615 

Total Benefits ................................................. HIGH .................................................................... 40,906 32,753 24,719 


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Accounting Statement and Table 

Whenever a rule is considered a 

significant rule under Executive Order 

12866, we are required to develop an 

Accounting Statement. This statement 

must state that we have prepared an 

accounting statement showing the 

classification of the expenditures 

associated with the provisions of this 

final rule. Monetary annualized Benefits 

and non-budgetary costs are presented 

as discounted flows using three percent 

and seven percent factors. 

TABLE 5—ACCOUNTING STATEMENT

[Accounting statement: classification of estimated expenditures, from FY2009 to FY2019 (in millions)] 

Category Primary estimate 

(millions) 

Minimum 

estimate 

(millions) 

Maximum 

estimate 

(millions) 

Source 

citation 

(RIA, preamble, 

etc.) 

BENEFITS: 

Annualized Monetized benefits: 

7% Discount ................................................... 2,142.4 ................................................................. 1,203.7 3,081.1 RIA 

3% Discount ................................................... 2,389.5 ................................................................. 1,314.8 3,437.2 RIA 

Qualitative (un-quantified) benefits ....................... Wider adoption of standards due to decrease in 

use of companion guides; increased productivity due to decrease in manual intervention 

requirements.

Benefits generated from plans to providers and pharmacies, providers to plans and pharmacies, and pharmacies to beneficiaries. 

COSTS: 

Annualized Monetized costs: 

7% Discount ................................................... 1,144.0 ................................................................. 787.5 1,500.5 RIA 

3% Discount ................................................... 1,034.8 ................................................................. 711.7 1,357.8 RIA 

Qualitative (un-quantified) costs ........................... None ..................................................................... None None 

Cost will be paid by health plans to contractors, programming consultants, IT staff and other outsourced entities; providers will pay costs to software vendors, trainers and other consultants. Clearinghouses will pay costs to IT staff/contractors and software developers; pharmacies will 

pay costs to contractors, software vendors and trainers, and government plans will pay costs to consultants, vendors and staff.

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 

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

In accordance with the provisions of 

Executive Order 12866, as amended, 

this regulation was reviewed by the 

Office of Management and Budget. 

List of Subjects in 45 CFR Part 162 

Administrative practice and 

procedure, Electronic transactions, 

Health facilities, Health insurance, 

Hospitals, Incorporation by reference, 

Medicare, Medicaid, Reporting and 

recordkeeping requirements. 

■ For the reasons set forth in the 

preamble, the Department of Health and 

Human Services amends 45 CFR Part 

162 as set forth below: 

PART 162—ADMINISTRATIVE 

REQUIREMENTS 

■ 1. The authority citation for part 162 

is revised to read as follows: 

Authority: Secs. 1171 through 1180 of the 

Social Security Act (42 U.S.C.1320d–1320d– 

9), as added by sec. 262 of Pub. L. 104–191, 

110 Stat. 2021–2031, and sec. 105 of Public 

Law 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)). 

Subpart A—General Provisions 

■ 2. Amend § 162.103 by revising the 

definition of ‘‘standard transaction’’ to 

read as follows: 

§ 162.103 Definitions. 

* * * * * 

Standard transaction means a 

transaction that complies with an 

applicable standard adopted under this 

part. 

Subpart I—General Provisions for 

Transactions 

§ 162.900 [Removed and Reserved] 

■ 3. Remove and reserve § 162.900. 

■ 4. Amend § 162.920 as follows: 

■ A. Revise introductory text and 

paragraph (a) introductory text. 

■ B. Add paragraphs (a)(10) through 

(a)(18). 

■ C. Revise paragraph (b) introductory 

text. 

■ D. Add paragraphs (b)(4) through 

(b)(6). 

The revisions and additions read as 

follows: 

§ 162.920 Availability of implementation 

specifications. 

A person or an organization may 

directly request copies of the 

implementation specifications and the 

Technical Reports Type 3 described in 

subparts I through S of this part from 

the publishers listed in this section. The 

Director of the Federal Register 

approves the implementation 

specifications, which include the 

Technical Reports Type 3 described in 

this section, for incorporation by 

reference in subparts I through S of this 

part in accordance with 5 U.S.C. 552(a) 

and 1 CFR part 51. The implementation 

specifications and Technical Reports 

Type 3 described in this section are also 

available for inspection by the public at 

the Centers for Medicare & Medicaid 

Services (CMS), 7500 Security 

Boulevard, Baltimore, Maryland 21244. 

For more information on the availability 

on the materials at CMS, call (410) 786– 

6597. The implementation 

specifications and Technical Reports 

Type 3 are also available at the National 

Archives and Records Administration 

(NARA). For information on the 


sroberts on PROD1PC70 with RULES
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availability of this material at NARA, 

call (202) 714–6030, or go to: http:// 

www.archives.gov/federal_register/ 

code_of_federal_regulations/

ibr_locations.html. Implementation 

specifications are available for the 

following transactions. 

(a) ASC X12N specifications and the 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3. 

The implementation specifications for 

the ASC X12N and the ASC X12 

Standards for Electronic Data 

Interchange Technical Report Type 3 

(and accompanying Errata or Type 1 

Errata) may be obtained from the ASC 

X12, 7600 Leesburg Pike, Suite 430, 

Falls Church, VA 22043; Telephone 

(703) 970–4480; and FAX (703) 970– 

4488. They are also available through 

the internet at http://www.X12.org. A 

fee is charged for all implementation 

specifications, including Technical 

Reports Type 3. Charging for such 

publications is consistent with the 

policies of other publishers of 

standards. The transaction 

implementation specifications are as 

follows: 

* * * * * 

(10) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Dental (837), May 2006, ASC X12N/ 

005010X224, and Type 1 Errata to 

Health Care Claim Dental (837), ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, ASC X12N/ 

005010X224A1, as referenced in 

§ 162.1102 and § 162.1802. 

(11) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, ASC X12, 

005010X222, as referenced in 

§ 162.1102 and § 162.1802. 

(12) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Institutional (837), May 2006, ASC X12/ 

N005010X223, and Type 1 Errata to 

Health Care Claim: Institutional (837), 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, ASC X12N/ 

005010X223A1, as referenced in 

§ 162.1102 and § 162.1802. 

(13) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Payment/Advice (835), April 2006, ASC 

X12N/005010X221, as referenced in 

§ 162.1602. 

(14) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, ASC 

X12N/005010X220, as referenced in 

§ 162.1502. 

(15) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Payroll Deducted and 

Other Group Premium Payment for 

Insurance Products (820), February 

2007, ASC X12N/005010X218, as 

referenced in § 162.1702. 

(16) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Services 

Review—Request for Review and 

Response (278), May 2006, ASC X12N/ 

005010X217, and Errata to Health Care 

Services Review—Request for Review 

and Response (278), ASC X12 Standards 

for Electronic Data Interchange 

Technical Report Type 3, April 2008, 

ASC X12N/005010X217E1, as 

referenced in § 162.1302. 

(17) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Status Request and Response (276/277), 

August 2006, ASC X12N/005010X212, 

and Errata to Health Care Claim Status 

Request and Response (276/277), ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

April 2008, ASC X12N/005010X212E1, 

as referenced in § 162.1402. 

(18) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Eligibility 

Benefit Inquiry and Response (270/271), 

April 2008, ASC X12N/005010X279, as 

referenced in § 162.1202. 

(b) Retail pharmacy specifications 

and Medicaid subrogation 

implementation guides. The 

implementation specifications for the 

retail pharmacy standards and the 

implementation specifications for the 

batch standard for the Medicaid 

pharmacy subrogation transaction may 

be obtained from the National Council 

for Prescription Drug Programs, 9240 

East Raintree Drive, Scottsdale, AZ 

85260. Telephone (480) 477–1000; FAX 

(480) 767–1042. They are also available 

through the Internet at http:// 

www.ncpdp.org. A fee is charged for all 

NCPDP Implementation Guides. 

Charging for such publications is 

consistent with the policies of other 

publishers of standards. The transaction 

implementation specifications are as 

follows: 

* * * * * 

(4) The Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0), August 2007, 

National Council for Prescription Drug 

Programs, as referenced in § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802. 

(5) The Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), January 2006, 

National Council for Prescription Drug 

Programs, as referenced in § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802. 

(6) The Batch Standard Medicaid 

Subrogation Implementation Guide, 

Version 3, Release 0 (Version 3.0), July 

2007, National Council for Prescription 

Drug Programs, as referenced in 

§ 162.1902. 

■ 5. Revise § 162.923 paragraph (a) to 

read as follows: 

§ 162.923 Requirements for covered 

entities. 

(a) General rule. Except as otherwise 

provided in this part, if a covered entity 

conducts, with another covered entity 

that is required to comply with a 

transaction standard adopted under this 

part (or within the same covered entity), 

using electronic media, a transaction for 

which the Secretary has adopted a 

standard under this part, the covered 

entity must conduct the transaction as a 

standard transaction. 

* * * * * 

■ 6. Section 162.925 is amended by 

adding a new paragraph (a)(6) to read as 

follows: 

§ 162.925 Additional requirements for 

health plans. 

(a) * * * 

(6) During the period from March 17, 

2009 through December 31, 2011, a 

health plan may not delay or reject a 

standard transaction, or attempt to 

adversely affect the other entity or the 

transaction, on the basis that it does not 

comply with another adopted standard 

for the same period. 

* * * * * 

Subpart K—Health Care Claims or 

Equivalent Encounter Information 

■ 7. Amend § 162.1102 by— 

■ A. Removing paragraph (a). 

■ B. Redesignating existing paragraph 

(b) as paragraph (a). 

■ C. Revising the introductory text of 

newly redesignated paragraph (a). 

■ D. Adding new paragraphs (b) and (c). 

The revisions and additions read as 

follows: 

§ 162.1102 Standards for health care 

claims or equivalent encounter information 

transaction. 

* * * * * 

(a) For the period from October 16, 

2003 through March 16, 2009: 

* * * * * 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1)(i) The standards identified in 

paragraph (a) of this section; and 

(ii) For retail pharmacy supplies and 

professional services claims, the 


sroberts on PROD1PC70 with RULES
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following: The ASC X12N 837—Health 

Care Claim: Professional, Volumes 1 and 

2, Version 4010, May 2000, Washington 

Publishing Company, 004010X096, 

October 2002 (Incorporated by reference 

in § 162.920); and 

(2)(i) Retail pharmacy drug claims. 

The Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0), August 2007 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920.) 

(ii) Dental health care claims. The 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3— 

Health Care Claim: Dental (837), May 

2006, ASC X12N/005010X224, and 

Type 1 Errata to Health Care Claim: 

Dental (837) ASC X12 Standards for 

Electronic Date Interchange Technical 

Report Type 3, October 2007, ASC 

X12N/005010X224A1. (Incorporated by 

reference in § 162.920.) 

(iii) Professional health care claims. 

The ASC X12 Standards for Electronic 

Data Interchange Technical Report Type 

3—Health Care Claim: Professional 

(837), May 2006, ASC X12N/ 

005010X222. (Incorporated by reference 

in § 162.920.) 

(iv) Institutional health care claims. 

The ASC X12 Standards for Electronic 

Data Interchange Technical Report Type 

3—Health Care Claim: Institutional 

(837), May 2006, ASC X12N/ 

005010X223, and Type 1 Errata to 

Health Care Claim: Institutional (837) 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, ASC X12N/ 

005010X223A1. (Incorporated by 

reference in § 162.920.) 

(v) Retail pharmacy supplies and 

professional services claims. (A) The 

Telecommunication Standard, 

Implementation Guide Version 5, 

Release 1, September 1999. 

(Incorporated by reference in § 162.920.) 

(B) The Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0), August 2007, 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs 

(Incorporated by reference in § 162.920); 

and 

(C) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, ASC 

X12N/005010X222. (Incorporated by 

reference in § 162.920.) 

(c) For the period on and after the 

January 1, 2012, the standards identified 

in paragraph (b)(2) of this section, 

except the standard identified in 

paragraph (b)(2)(v)(A) of this section. 

Subpart L—Eligibility for a Health Plan 

■ 8. Section 162.1202 is amended by— 

■ A. Removing paragraph (a). 

■ B. Redesignating existing paragraph 

(b) as paragraph (a). 

■ C. Revising the introductory text of 

newly redesignated paragraph (a). 

■ D. Adding new paragraphs (b) and (c). 

The revisions and additions read as 

follows: 

§ 162.1202 Standards for eligibility for a 

health plan transaction. 

* * * * * 

(a) For the period from October 16, 

2003 through March 16, 2009: 

* * * * * 

(b) For the period from March 17, 

2009 through December 31, 2011 both: 

(1) The standards identified in 

paragraph (a) of this section; and 

(2) (i) Retail pharmacy drugs. The 

Telecommunication Standard 

Implementation Guide Version D, 

Release 0 (Version D.0), August 2007, 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920.) 

(ii) Dental, professional, and 

institutional health care eligibility 

benefit inquiry and response. The ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3— 

Health Care Eligibility Benefit Inquiry 

and Response (270/271), April 2008, 

ASC X12N/005010X279. (Incorporated 

by reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standards identified in 

paragraph (b)(2) of this section. 

Subpart M—Referral Certification and 

Authorization 

■ 9. Revise § 162.1301 to read as 

follows: 

§ 162.1301 Referral certification and 

authorization transaction. 

The referral certification and 

authorization transaction is any of the 

following transmissions: 

(a) A request from a health care 

provider to a health plan for the review 

of health care to obtain an authorization 

for the health care. 

(b) A request from a health care 

provider to a health plan to obtain 

authorization for referring an individual 

to another health care provider. 

(c) A response from a health plan to 

a health care provider to a request 

described in paragraph (a) or paragraph 

(b) of this section. 

■ 10. Section 162.1302 is amended by— 

■ A. Removing paragraph (a). 

■ B. Redesignating existing paragraph 

(b) as paragraph (a). 

■ C. Revising the introductory text of 

newly redesignated paragraph (a). 

■ D. Adding new paragraphs (b) and (c). 

The revisions and additions read as 

follows: 

§ 162.1302 Standards for referral 

certification and authorization transaction. 

* * * * * 

(a) For the period from October 16, 

2003 through March 16, 2009: 

* * * * * 

(b) For the period from March 17, 

2009 through December 31, 2011 both— 

(1) The standards identified in 

paragraph (a) of this section; and 

(2)(i) Retail pharmacy drugs. The 

Telecommunication Standard 

Implementation Guide Version D, 

Release 0 (Version D.0), August 2007, 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920.) 

(ii) Dental, professional, and 

institutional request for review and 

response. The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Services 

Review—Request for Review and 

Response (278), May 2006, ASC X12N/ 

005010X217, and Errata to Health Care 

Services Review-—Request for Review 

and Response (278), ASC X12 Standards 

for Electronic Data Interchange 

Technical Report Type 3, April 2008, 

ASC X12N/005010X217E1. 

(Incorporated by reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standards identified in 

paragraph (b)(2) of this section. 

Subpart N—Health Care Claim Status 

■ 11. Revise § 162.1401 to read as 

follows: 

§ 162.1401 Health care claim status 

transaction. 

The health care claim status 

transaction is the transmission of either 

of the following: 

(a) An inquiry from a health care 

provider to a health plan to determine 

the status of a health care claim. 

(b) A response from a health plan to 

a health care provider about the status 

of a health care claim. 

■ 12. Section 162.1402 is revised to read 

as follows: 

§ 162.1402 Standards for health care claim 

status transaction. 

The Secretary adopts the following 

standards for the health care claim 

status transaction: 


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(a) For the period from October 16, 

2003 through March 16, 2009: The ASC 

X12N–276/277 Health Care Claim Status 

Request and Response, Version 4010, 

May 2000, Washington Publishing 

Company, 004010X093 and Addenda to 

Health Care Claim Status Request and 

Response, Version 4010, October 2002, 

Washington Publishing Company, 

004010X093A1. (Incorporated by 

reference in § 162.920.) 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1) The standard identified in 

paragraph (a) of this section; and 

(2) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Status Request and Response (276/277), 

August 2006, ASC X12N/005010X212, 

and Errata to Health Care Claim Status 

Request and Response (276/277), ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

April 2008, ASC X12N/005010X212E1. 

(Incorporated by reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standard identified in 

paragraph (b)(2) of this section. 

Subpart O—Enrollment and 

Disenrollment in a Health Plan 

13. Revise § 162.1501 to read as 

follows: 

§ 162.1501 Enrollment and disenrollment 

in a health plan transaction. 

The enrollment and disenrollment in 

a health plan transaction is the 

transmission of subscriber enrollment 

information from the sponsor of the 

insurance coverage, benefits, or policy, 

to a health plan to establish or terminate 

insurance coverage. 

■ 14. Section 162.1502 is revised to read 

as follows: 

§ 162.1502 Standards for enrollment and 

disenrollment in a health plan transaction. 

The Secretary adopts the following 

standards for enrollment and 

disenrollment in a health plan 

transaction. 

(a) For the period from October 16, 

2003 through March 16, 2009: ASC 

X12N 834—Benefit Enrollment and 

Maintenance, Version 4010, May 2000, 

Washington Publishing Company, 

004010X095 and Addenda to Benefit 

Enrollment and Maintenance, Version 

4010, October 2002, Washington 

Publishing Company, 004010X095A1. 

(Incorporated by reference in § 162.920.) 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1) The standard identified in 

paragraph (a) of this section; and 

(2) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, ASC 

X12N/005010X220 (Incorporated by 

reference in § 162.920) 

(c) For the period on and after January 

1, 2012, the standard identified in 

paragraph (b)(2) of this section. 

Subpart P—Health Care Payment and 

Remittance Advice 

■ 15. Section 162.1602 is revised to read 

as follows: 

§ 162.1602 Standards for health care 

payment and remittance advice transaction: 

The Secretary adopts the following 

standards for the health care payment 

and remittance advice transaction: 

(a) For the period from October 16, 

2003 through March 16, 2009: Health 

care claims and remittance advice. The 

ASC X12N 835—Health Care Claim 

Payment/Advice, Version 4010, May 

2000, Washington Publishing Company, 

004010X091, and Addenda to Health 

Care Claim Payment/Advice, Version 

4010, October 2002, Washington 

Publishing Company, 004010X091A1. 

(Incorporated by reference in § 162.920.) 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1) The standard identified in 

paragraph (a) of this section; and 

(2) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Payment/Advice (835), April 2006, ASC 

X12N/005010X221. (Incorporated by 

reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standard identified in 

paragraph (b)(2) of this section. 

Subpart Q—Health Plan Premium 

Payments 

■ 16. Section 162.1702 is revised to read 

as follows: 

§ 162.1702 Standards for health plan 

premium payments transaction. 

The Secretary adopts the following 

standards for the health plan premium 

payments transaction: 

(a) For the period from October 16, 

2003 through March 16, 2009: The ASC 

X12N 820—Payroll Deducted and Other 

Group Premium Payment for Insurance 

Products, Version 4010, May 2000, 

Washington Publishing Company, 

004010X061, and Addenda to Payroll 

Deducted and Other Group Premium 

Payment for Insurance Products, 

Version 4010, October 2002, 

Washington Publishing Company, 

004010X061A1. (Incorporated by 

reference in § 162.920.) 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1) The standard identified in 

paragraph (a) of this section, and 

(2) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Payroll Deducted and 

Other Group Premium Payment for 

Insurance Products (820), February 

2007, ASC X12N/005010X218. 

(Incorporated by reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standard identified in 

paragraph (b)(2) of this section. 

Subpart R—Coordination of Benefits 

■ 17. Section 162.1802 is amended by— 

■ A. Removing paragraph (a). 

■ B. Redesignating existing paragraph 

(b) as paragraph (a). 

■ C. Revising the introductory text of 

newly redesignated paragraph (a). 

■ D. Adding new paragraphs (b) and (c). 

The additions and revisions read as 

follows: 

§ 162.1802 Standards for coordination of 

benefits information transaction. 

* * * * * 

(a) For the period from October 16, 

2003 through March 16, 2009: 

* * * * * 

(b) For the period from March 17, 

2009 through December 31, 2011, both: 

(1) The standards identified in 

paragraph (a) of this section; and 

(2)(i) Retail pharmacy drug claims. 

The Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0), August 2007, 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920.) 

(ii) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Dental (837), May 2006, ASC X12N/ 

005010X224, and Type 1 Errata to 

Health Care Claim: Dental (837), ASC 

X12 Standards for Electronic Date 

Interchange Technical Report Type 3, 

October 2007, ASC X12N/ 

005010X224A1. (Incorporated by 

reference in § 162.920.) 

(iii) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, ASC 

X12N/005010X222. (Incorporated by 

reference in § 162.920.) 

(iv) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Institutional (837), May 2006, ASC 

X12N/005010X223, and Type 1 Errata to 

Health Care Claim: Institutional (837), 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 


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3328 Federal Register / Vol. 74, No. 11 / Friday, January 16, 2009 / Rules and Regulations 

October 2007, ASC X12N/ 

005010X223A1. (Incorporated by 

reference in § 162.920.) 

(c) For the period on and after January 

1, 2012, the standards identified in 

paragraph (b)(2) of this section. 

■ 18. Add a new Subpart S to read as 

follows: 

Subpart S—Medicaid Pharmacy 

Subrogation 

Sec. 

162.1901 Medicaid pharmacy subrogation 

transaction. 

162.1902 Standard for Medicaid pharmacy 

subrogation transaction. 

§ 162.1901 Medicaid pharmacy 

subrogation transaction. 

The Medicaid pharmacy subrogation 

transaction is the transmission of a 

claim from a Medicaid agency to a payer 

for the purpose of seeking 

reimbursement from the responsible 

health plan for a pharmacy claim the 

State has paid on behalf of a Medicaid 

recipient. 

§ 162.1902 Standard for Medicaid 

pharmacy subrogation transaction. 

The Secretary adopts the Batch 

Standard Medicaid Subrogation 

Implementation Guide, Version 3, 

Release 0 (Version 3.0), July 2007, 

National Council for Prescription Drug 

Programs, as referenced in § 162.1902 

(Incorporated by reference at § 162.920): 

(a) For the period on and after January 

1, 2012, for covered entities that are not 

small health plans; 

(b) For the period on and after January 

1, 2013 for small health plans. 

(Catalog of Federal Domestic Assistance 

Program No. 93.778, Medical Assistance 

Program) (Catalog of Federal Domestic 

Assistance Program No. 93.773, Medicare— 

Hospital Insurance; and Program No. 93.774, 

Medicare—Supplementary Medical 

Insurance Program) 

Approved: December 11, 2008. 

Michael O. Leavitt, 

Secretary. 

[FR Doc. E9–740 Filed 1–15–09; 8:45 am] 

BILLING CODE 4150–28–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Office of the Secretary 

45 CFR Part 162 

[CMS–0013–F] 

RIN 0958–AN25 

HIPAA Administrative Simplification: 

Modifications to Medical Data Code Set 

Standards To Adopt ICD–10–CM and 

ICD–10–PCS 

AGENCY: Office of the Secretary, HHS. 

ACTION: Final rule. 

SUMMARY: This final rule adopts 

modifications to two of the code set 

standards adopted in the Transactions 

and Code Sets final rule published in 

the Federal Register pursuant to certain 

provisions of the Administrative 

Simplification subtitle of the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA). 

Specifically, this final rule modifies the 

standard medical data code sets 

(hereinafter ‘‘code sets’’) for coding 

diagnoses and inpatient hospital 

procedures by concurrently adopting 

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, as maintained and 

distributed by the U.S. Department of 

Health and Human Services (HHS), 

hereinafter referred to as ICD–10–CM, 

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, as 

maintained and distributed by the HHS, 

hereinafter referred to as ICD–10–PCS. 

These new codes replace the 

International Classification of Diseases, 

9th Revision, Clinical Modification, 

Volumes 1 and 2, including the Official 

ICD–9–CM Guidelines for Coding and 

Reporting, hereinafter referred to as 

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, hereinafter referred to as 

ICD–9–CM Volume 3, for diagnosis and 

procedure codes, respectively. 

DATES: The effective date of this 

regulation is March 17, 2009. The 

effective date is the date that the 

policies herein take effect, and new 

policies are considered to be officially 

adopted. The compliance date, which is 

different than the effective date, is the 

date on which entities are required to 

have implemented the policies adopted 

in this rule. The compliance date for 

this regulation is October 1, 2013. 

FOR FURTHER INFORMATION CONTACT: 

Denise M. Buenning, (410) 786–6711 or 

Shannon L. Metzler, (410) 786–3267. 

I. Background 

A. Statutory Background 

The Congress addressed the need for 

a consistent framework for electronic 

transactions and other administrative 

simplification issues in the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA), 

Public Law 104–191, enacted on August 

21, 1996. HIPAA has helped to improve 

the Medicare and Medicaid programs, 

and the efficiency and effectiveness of 

the health care system in general, by 

encouraging the development of 

standards and requirements to facilitate 

the electronic transmission of certain 

health information. 

Through subtitle F of title II of that 

statute, the Congress added to title XI of 

the Social Security Act (the Act) a new 

Part C, titled ‘‘Administrative 

Simplification.’’ Part C of title XI of the 

Act now consists of sections 1171 

through 1180. Section 1172 of the Act 

and the implementing regulations make 

any standard adopted under Part C 

applicable to: (1) Health plans; (2) 

health care clearinghouses; and (3) 

health care providers who transmit any 

health information in electronic form in 

connection with a transaction for which 

the Secretary has adopted a standard. 

Section 1172(c)(1) of the Act requires 

any standard adopted by the Secretary 

of the Department of Health and Human 

Services (HHS) to be developed, 

adopted, or modified by a standard 

setting organization (SSO), except in the 

cases identified under section 1172(c)(2) 

of the Act. Under section 1172(c)(2)(A) 

of the Act, the Secretary may adopt a 

standard that is different from any 

standard developed by an SSO if it will 

substantially reduce administrative 

costs to health care providers and health 

plans compared to the alternatives, and 

the standard is promulgated in 

accordance with the rulemaking 

procedures of subchapter III of chapter 

5 of Title 5 of the United States Code. 

Under section 1172(c)(2)(B) of the Act, 

if no SSO has developed, adopted, or 

modified any standard relating to a 

standard that the Secretary is authorized 

or required to adopt, section 1172(c)(1) 

does not apply. 

Section 1172 of the Act also sets forth 

consultation requirements that must be 

met before the Secretary may adopt 


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