71008 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

fires; protection of patients, staff, and 

the public; evacuation; and cooperation 

with fire fighting authorities. 

(3) The RNHCI must maintain written 

evidence of regular inspection and 

approval by State or local fire control 

agencies. 

* * * * * 

(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) 

Dated: November 21, 2005. 

Ann C. Agnew, 

Executive Secretary to the Department. 

[FR Doc. 05–23289 Filed 11–23–05; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 424 

[CMS–0008–F] 

RIN 0938–AM22 

Medicare Program; Electronic 

Submission of Medicare Claims 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This final rule adopts as final, 

and makes amendments to, the interim 

final rule published on August 15, 2003. 

That interim final rule implemented the 

statutory requirement that claims for 

reimbursement under the Medicare 

Program be submitted electronically as 

of October 16, 2003, except where 

waived. These regulations identify those 

circumstances for which mandatory 

submission of electronic claims to the 

Medicare Program is waived. 

DATES: Effective date: These regulations 

are effective on December 27, 2005. 

FOR FURTHER INFORMATION CONTACT: 

Kathleen Simmons, (410) 786–6157. 

Stewart Streimer, (410) 786–9318. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Section 3 of the Administrative 

Simplification Compliance Act (ASCA), 

Pub. L. 107–105, was enacted by the 

Congress to improve the administration 

of the Medicare Program by facilitating 

program efficiencies gained through the 

electronic submission of Medicare 

claims. Section 3 of ASCA amends 

subsection (a) of section 1862 of the 

Social Security Act (the Act) (42 U.S.C. 

1395y(a)) and adds a new subsection (h) 

to section 1862 (42 U.S.C. 1395y). The 

amendment to subsection (a) requires 

the Medicare Program, subject to 

subsection (h), to deny payment under 

Part A or Part B for any expenses for 

items or services ‘‘for which a claim is 

submitted other than in an electronic 

form specified by the Secretary.’’

Subsection (h) provides that the 

Secretary shall waive such denial in two 

types of cases and may also waive such 

denial ‘‘in such unusual cases as the 

Secretary finds appropriate.’’

Section 3 of ASCA operates in the 

context of the Administrative 

Simplification provisions of the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA), 

Pub. L. 104–191. Those provisions 

require the Secretary to adopt, among 

other standards, standards for financial 

and administrative transactions for the 

health care industry, including health 

claims transactions (see section 1173(a) 

of the Act). In the August 17, 2000 

Federal Register (65 FR 50311), the 

Secretary of Health and Human Services 

(the Secretary) published a final rule 

(generally known as the Transactions 

Rule) that adopted standards for eight 

electronic transactions. The transactions 

standards adopted by that final rule, as 

subsequently modified by final rule 

published on February 20, 2003 (68 FR 

8381), are codified at 45 CFR part 162, 

subparts A and I through R. 

The HIPAA standards apply to health 

plans, health care clearinghouses, and 

certain health care providers; 

collectively, these entities are known as 

‘‘covered entities.’’ An additional 

category of covered entities—

prescription drug card sponsors—was 

added by the Medicare Prescription 

Drug, Improvement, and Modernization 

Act of 2003 (MMA), Pub. L. 108–173. 

Covered entities are required to comply 

not only with the standards established 

by the Transactions Rule, but also with 

those established via other HIPAA 

Administrative Simplification rules—

such as the Privacy Rule, the Employer 

Identifier Rule, the Security Rule, and 

the National Provider Identifier Rule—

by the respective applicable compliance 

dates specified in those rules. 

Compliance with the standards for the 

electronic transactions established by 

the Transactions Rule was required for 

all covered entities other than small 

health plans by October 16, 2002; 

compliance by small health plans was 

required by October 16, 2003. However, 

section 2 of ASCA extended the October 

16, 2002 compliance deadline to 

October 16, 2003 for covered entities 

that were not small health plans and 

that submitted a compliance plan by 

October 15, 2002. In accordance with 45 

CFR 162.900(c), covered entities that 

were not small health plans and that did 

not timely submit a compliance plan 

under ASCA were required to comply 

by October 16, 2002. Thus, all covered 

entities, regardless of type, were 

required to be in compliance no later 

than October 16, 2003. 

Since a significant number of covered 

entities had expressed strong concern 

over the health care industry’s state of 

readiness to conduct fully compliant 

HIPAA transactions and we wanted to 

promote compliance while ensuring that 

cash flow and health care operations 

would not be unnecessarily disrupted, 

the Department of Health and Human 

Services (HHS) issued guidance on the 

approach CMS would take to enforce 

the HIPAA electronic transactions and 

code sets provisions. In accordance with 

the July 24, 2003 guidance, the 

Secretary explained that we would 

focus on voluntary compliance, use a 

complaint-driven approach, and would 

not impose penalties on covered entities 

that deployed temporary contingency 

plans, if they made reasonable and 

diligent efforts to become compliant 

and, in the case of health plans, 

facilitated the compliance of their 

trading partners. 

By statute, the Medicare Program is a 

health plan under HIPAA (see section 

1171(5)(D) of the Act). It is, therefore, a 

covered entity. In 45 CFR 160.102(a)(3), 

we specify that, in accordance with 

section 1172(a)(3) of the Act, health care 

providers are covered entities if they 

transmit health information in 

electronic form in connection with a 

transaction for which the Secretary has 

adopted a standard (covered 

transaction). In 45 CFR 162.923(a), we 

specify that if a covered entity 

electronically conducts a covered 

transaction with another covered entity, 

it must conduct it as a standard 

transaction. 

Approximately 86.1 percent of claims 

submitted to the Medicare Program are 

submitted electronically, which means 

that approximately 139 million claims 

are submitted on paper per year (fiscal 

year (FY) 2002). Section 3 of ASCA 

required Medicare providers to submit 

Medicare claims electronically by 

October 16, 2003, unless one of the 

specified grounds for waiver applies. As 

the October 16, 2003 deadline 

approached, we made the decision to 

implement our own contingency plan 

after reviewing statistics showing that 

an unacceptably low number of 

Medicare providers would likely be 

capable of submitting compliant claims 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71009 

by the compliance date. Concerned that 

many of its trading partners were still 

completing their transition to HIPAAcompliant transactions, Medicare 

implemented a contingency plan 

permitting the submission and 

processing of claims in electronic 

formats that were then in use and giving 

providers additional time to complete 

the testing processes. Neither CMS’s 

contingency plan for Medicare nor 

HHS’s enforcement guidance modified 

the October 16, 2003 compliance date 

for HIPAA transactions. 

Section 3 of ASCA, thus, in general 

has the effect of requiring Medicare 

providers that are not already covered 

entities to conduct a covered transaction 

(the health claim transaction) 

electronically and, thereby, become 

covered entities. In submitting claims 

electronically, the providers are 

required to comply with the applicable 

HIPAA standard for the health claim 

transaction. Thus, section 3 of ASCA 

promotes the submission of standard 

transactions and will further the goal of 

improved health care delivery by 

reducing the administrative burden and 

paperwork associated with Medicare 

claims submissions. 

Although 86.1 percent of Medicare 

claims are submitted electronically, the 

volume of Medicare claims submitted in 

paper form is substantial. Moving from 

paper to electronic submission has the 

potential for significant savings and 

efficiencies for Medicare physicians, 

practitioners, facilities, suppliers, and 

other health care providers, as well as 

for the Medicare program itself. 

Although these Medicare physicians, 

practitioners, facilities, suppliers, and 

other health care providers would incur 

a cost to comply with the mandatory 

electronic billing requirement, we 

believe their savings will offset the costs 

they incur. Further, the use of the 

HIPAA electronic claim standards could 

result in additional savings if these 

entities begin electronically billing other 

payers. However, the statute recognizes 

that certain circumstances may 

effectively prevent some providers from 

transacting claims with Medicare 

electronically or as standard 

transactions. ASCA, thus, identifies 

exceptions to the mandatory submission 

of electronic Medicare claims. This final 

rule reiterates and interprets these 

exceptions. 

We considered whether the 

amendment to section 1862(a) of the Act 

in section 3 of ASCA could be 

interpreted to apply to payments made 

by Medicare + Choice (M+C) 

organizations to providers for services 

provided to Medicare beneficiaries. 

(Note: The MMA, enacted December 8, 

2003, changed and renamed M+C to 

Medicare Advantage. For discussion 

purposes and to remain consistent with 

the interim final rule, the term ‘‘M+C’’

will continue to be used in this 

preamble.) The question was raised by 

the provision in section 4 of ASCA that 

expressly adds Medicare Part C, found 

in Part C of Title XVIII, to the definition 

of Medicare ‘‘health plans’’ found in 

section 1171(5)(D) of the Act. 

The plain language of section 1862(a) 

of the Act, however, provides that 

‘‘payment may not be made under Part 

A or Part B’’ for a number of activities. 

The Congress could have amended this 

provision, just as it amended section 

1171(5) of the Act, if it had wanted to 

prohibit M+C organizations from paying 

for claims for services given to M+C 

enrollees by the M+C organization’s 

participating providers if those claims 

were not submitted electronically. The 

fact that it did not so amend this 

provision indicates that it did not 

intend to apply the ASCA payment 

prohibition to the M+C organizations. 

The Congress’s intent to apply the 

broader definition of ‘‘health plan’’ in 

section 4 of ASCA solely to the 

Administrative Simplifications 

provisions of HIPAA and not to the 

electronic submission requirement for 

Medicare claims is further suggested by 

the title of section 4 of ASCA: 

‘‘Clarification with Respect to 

Applicability of Administrative 

Simplification Requirement to M+C 

Organizations.’’

The M+C organizations, as health 

plans for the purposes of HIPAA 

Administrative Simplification, were 

required to come into compliance with 

the regulatory requirements related to 

transactions no later than October 16, 

2003. We understand that all M+C 

organizations properly filed ASCA 

compliance plans before October 16, 

2002. Therefore, they obtained 

extensions and had a compliance date of 

October 16, 2003. 

An M+C organization that pays a noncompliant electronic claim after October 

16, 2003, would accordingly be out of 

compliance with the HIPAA 

transactions regulations, but would not 

violate the provisions of section 

1862(a)(22) of the Act or the 

requirements of this regulation. This 

final rule applies only to providers, 

practitioners, and suppliers who submit 

claims under Part A or Part B of 

Medicare. It does not apply to the 

submission of claims by providers to 

M+C organizations. Moreover, the 

waiver provisions for small providers, 

practitioners, and suppliers established 

by section 3 of ASCA and this 

regulation do not extend to claims 

submitted by these providers to any 

health plans other than Medicare. 

Section 902 of the MMA amended 

section 1871(a) of the Act and requires 

the Secretary, in consultation with the 

Director of OMB, to establish and 

publish timelines for the publication of 

Medicare final regulations based on the 

publication of Medicare proposed or 

interim final regulations. Section 902 of 

the MMA also states that the timelines 

for these regulations may vary but shall 

not exceed 3 years from the previous 

publication of the proposed or interim 

final rule, except under exceptional 

circumstances. 

The MMA also introduced Part D of 

the Medicare Program. Future 

rulemaking may be needed to explore 

the applicability of section 3 of ASCA 

to Part D. We will initiate such 

rulemaking, if needed, upon further 

evaluation as we get closer to the Part 

D implementation date. 

We note that this rule finalizes the 

provisions of the August 15, 2003 

interim final rule. The final rule is, thus, 

being published within the 3-year time 

period identified in section 902 of the 

MMA. 

II. Provisions of the Interim Final Rule 

Section 3 of ASCA established the 

requirements and exceptions under the 

Medicare Program for the mandatory 

submission of claims in electronic form. 

In the August 15, 2003 Federal Register 

(68 FR 48805), we published an interim 

final rule that implemented these 

statutory requirements. 

A. Definitions Used for Electronic Claim 

Submission 

The interim final rule added a new 

paragraph (d) to § 424.32. Section 

424.32(d)(1) specified the following 

definitions for the purposes of 

paragraph (d): Claim; electronic claim; 

direct data entry; electronic media; 

initial Medicare claim; physician, 

practitioner, facility, or supplier; 

provider of services; and small provider 

of services or small supplier. We 

defined ‘‘claim’’ to mean the transaction 

defined at 45 CFR 162.1101(a) (that is, 

‘‘health care claim’’). We specified the 

definition of ‘‘electronic claim’’ to mean 

a claim that is submitted via electronic 

media. In addition, we specified that the 

definitions of ‘‘direct data entry’’ and 

‘‘electronic media’’ are defined as those 

terms are defined in 45 CFR 162.103 

and 160.103, respectively. 

In § 424.32(d)(1)(v) of the interim final 

rule, we defined an ‘‘initial Medicare 

claim’’ as a claim submitted to Medicare 

for payment under Part A or Part B of 

the Medicare Program for the first time 

for processing, including claims sent to 

71010 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

Medicare for the first time for secondary 

payment purposes. This definition also 

specified that an initial Medicare claim 

excludes any adjustment or appeal of a 

previously submitted claim. This final 

rule adds the phrase ‘‘for initial 

processing’’ to the definition of ‘‘initial 

Medicare claim’’ to clarify that the 

requirement for electronic submission 

applies to claims that have been 

previously rejected before being 

accepted into the Medicare processing 

system. 

In § 424.32(d)(1)(vi), we defined a 

‘‘physician, practitioner, facility, or 

supplier’’ as a Medicare provider other 

than a provider of services. The final 

rule adds the words ‘‘or supplier’’ to 

make the definition precise, so that the 

term is defined as ‘‘a Medicare provider 

or supplier other than a provider of 

services.’’ In § 424.32(d)(1)(vii), we 

defined a ‘‘provider of services’’ as a 

provider of services as defined in 

section 1861(u) of the Act. In 

§ 424.32(d)(1)(viii), we defined a ‘‘small 

provider of services or small supplier’’

as a provider of services with fewer than 

25 full-time equivalent employees; or a 

physician, practitioner, facility, or 

supplier (other than provider of 

services) with fewer than 10 full-time 

equivalent employees. 

B. Submission of Electronic Claims 

Required 

Electronic submission of Medicare 

claims is required for initial Medicare 

claims, including initial claims with 

paper attachments, submitted for 

processing by the Medicare fiscal 

intermediary (FI) or carrier that serves 

the physician, practitioner, facility, 

supplier, or other health care provider. 

No other transactions, including 

changes, adjustments, or appeals to the 

initial claim, are required to be 

submitted electronically in accordance 

with ASCA. 

In § 424.32(d)(2), we specified that, 

except for claims to which 

§ 424.32(d)(3) or (d)(4) applies, an initial 

Medicare claim under Part A or Part B 

or both may be paid only if submitted 

as an electronic claim for processing by 

the Medicare FI or carrier that serves the 

physician, practitioner, facility, 

supplier, or other health care provider. 

This requirement does not apply to any 

other transactions, including adjustment 

or appeal of the initial Medicare claim. 

C. Exceptions to Requirement To Submit 

Electronic Claims 

The regulations at 45 CFR 162.923 

state that, ‘‘except as otherwise 

provided in this part, if a covered entity 

conducts with another covered entity 

(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.’’ HIPAA does not 

require that a health plan be able to 

accept claims via every type of 

electronic media, only that claims 

received via such media comply with 

the standard format and content 

requirements of HIPAA (www.wpcedi.com/HIPAA). The reference in 

section 3 of ASCA to the filing of claims 

‘‘in electronic form’’ does not dictate the 

use of a particular electronic form. 

Thus, the Medicare program will 

continue to accept only those forms 

identified in Chapter 24 of the Medicare 

Internet Only Claims Processing Manual 

(IOM Pub. L. 100–04) that we issue. At 

present, Medicare does not accept 

claims via the Internet, an extranet or, 

in many cases, via removable/ 

transportable storage media. This final 

rule does not change this Medicare 

policy. The interim final rule stated that 

an advance notice of any future plans 

for expansion or contraction in the 

electronic media accepted for 

submission of Medicare claims would 

be published in Medicare program 

instructions and via routine contractor 

notification and instructional media. 

In the interim final rule, we specified 

that we will consider claims submitted 

via a direct data entry screen 

maintained for Medicare, and as 

permitted by 45 CFR 162.923, to be 

electronic claims for purposes of this 

requirement. Also, we stated that claims 

transmitted to a Medicare contractor 

using the free or low cost claims 

software issued by Medicare fee-forservice plans will be considered 

electronic claims for purposes of this 

requirement. 

The ASCA provided for exceptions to 

the requirement for mandatory 

electronic submission of Medicare 

claims. In accordance with ASCA, the 

interim final rule established that the 

Secretary of HHS could waive the 

application of the electronic claim 

requirement in specific cases. To 

implement the statutory mandate, we 

provided more explicit requirements 

that are specified in § 424.32(d). 

Specifically, § 424.32(d)(3) states that 

there are two exceptions to electronic 

submission of initial Medicare claims. 

The first exception, specified in 

§ 424.32(d)(3)(i), applies when there is 

no method available for the submission 

of an electronic claim. For example, we 

could not reasonably expect Medicare 

beneficiaries to submit electronic 

claims. Even though the statute requires, 

with very few exceptions, that providers 

of health care bill Medicare on behalf of 

a beneficiary (sections 1814(a) and 

1848(g)(4) of the Act), some 

beneficiaries will still submit claims to 

Medicare. However, those relatively few 

beneficiaries who submit claims are not 

likely to possess the capability to submit 

a HIPAA compliant claim. Further, 

there are situations in which the 

standard adopted by the Secretary at 45 

CFR 162.1102 does not support all of 

the information necessary for payment 

of the claim. We identified three other 

situations that fall into this category: 

• Roster billing of vaccinations 

covered by the Medicare Program. In 

order to promote an increase in the flu 

vaccinations for Medicare beneficiaries, 

since 1993 Medicare has allowed mass 

immunizers to bill the program using a 

single claim form with an attached list 

of beneficiaries to whom a flu vaccine 

was administered. Many mass 

immunizers bill electronically, but in a 

non-standard format. This roster billing 

simplifies provider billing but is not 

available in electronic form under the 

Transactions Rule. 

• Claims for payment under Medicare 

demonstration projects. Medicare 

demonstration projects often allow for 

unusual situations not normally 

handled by the transactions standards; 

and 

• Claims where more than one health 

plan is responsible for payment before 

Medicare. The interim final rule 

indicated that efforts were underway to 

resolve the confusion in the reporting of 

per service payments by more than one 

primary payer and allowed these claims 

to continue to be submitted to Medicare 

on paper for the time being. Although a 

number of alternatives were considered, 

a clear process for electronic billing of 

Medicare in this case is not yet 

finalized. Once a solution is reached, we 

will then notify the public of the 

effective date of the change. 

Providers to whom an exception does 

not apply will then be required to 

submit Medicare claims electronically. 

In the interim final rule, we established 

that specific program guidance would 

be issued to Medicare providers 

concerning submission of these claims 

on paper effective October 16, 2003. We 

stated that we would also issue specific 

guidance or regulations, as necessary, 

informing covered entities if this or 

another exception no longer applies. 

The second exception, described in 

§ 424.32(d)(3)(ii), provided that 

electronic submission would be waived 

when the entity submitting the claim is 

a small provider of services or small 

supplier. The statute is quite specific as 

to the size requirements, and the interim 

final rule simply incorporated the 

statutory requirements. This final rule 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71011 

makes a slight technical revision, in 

order to use a defined term consistently. 

D. Unusual Cases 

In the interim final rule, we 

established that the Secretary may 

waive the electronic submission 

requirement in certain unusual 

situations as the Secretary finds 

appropriate. In § 424.32(d)(4), we 

specified that such an exception would 

exist in the following three situations: 

• The submission of dental claims. 

This exception is being included 

because, under HIPAA, dentists who are 

covered entities are required to submit 

electronic transactions to other payers 

in a format different from that generally 

used in the Medicare Program. Since 

Medicare does not generally cover 

dental services, this exception is added 

to minimize the burden on dentists who 

may, at times, need to bill the Program. 

• A service interruption in the mode 

of submitting the electronic claim that is 

outside of the control of the entity 

submitting the claim, for the period of 

the interruption. This exception would 

apply only if the physician, practitioner, 

facility, supplier, or other health care 

provider temporarily loses electricity, or 

telephone or other communication 

service. If electricity, telephone, or other 

communication services exist, but one 

or the other is unavailable for a period 

of time (for example, because of 

inclement weather or due to telephone 

company technical breakdowns), paper 

claims will be accepted during the 

period of disrupted power or 

communication service. 

• On demonstration, satisfactory to 

the Secretary, of other extraordinary 

circumstances precluding submission of 

electronic claims. 

The interim final rule specified that 

entities would not generally need to 

make a special request to determine 

whether an exception applies that 

would make them eligible for a 

mandatory waiver under § 424.32(d)(3) 

or a discretionary waiver under 

§ 424.32(d)(4). A special request would 

have to be submitted to a Medicare FI 

or carrier when an entity did not meet 

the mandated exceptions at 

§ 424.32(d)(3), or the specified 

discretionary waiver criteria at 

§ 424.32(d)(4)(i) and (d)(4)(ii), but 

believed there were other extraordinary 

circumstances that precluded its 

submission of electronic claims. We also 

proposed to issue program guidance to 

Medicare FIs and carriers to enable 

them to handle, on a case-by-case basis, 

requests for relief in extraordinary 

circumstances. This program guidance 

was issued on December 19, 2003 

(Transmittal 44, CR 2966, Instructions 

for the Mandatory Electronic 

Submission of Medicare Claims), and 

may be found at www.cms.hhs.gov/ 

manuals/. Publication of this final rule 

will result in some changes to 

Transmittal 44, CR 2966, which will be 

reissued following publication of this 

final rule. 

This final rule adds two more unusual 

situations under § 424.32(d)(4) for 

which an exception would exist. 

Specifically, the requirement to submit 

electronic claims may be waived when 

the entity submitting the claim (1) 

submits, on average, less than 10 claims 

per month, or (2) furnishes services only 

outside of the U.S. territory. See our 

response to comments in section III of 

this preamble for further discussion 

regarding these additional exceptions. 

E. Enforcement 

ASCA’s amendment to section 1862(a) 

of the Act prescribes that ‘‘no payment 

may be made under Part A or Part B of 

the Medicare Program for any expenses 

incurred for items or services’’ for 

which a claim is submitted in a nonelectronic form. Consequently, absent 

an applicable exception, paper claims 

submitted to Medicare will not be paid. 

We specified that the Secretary may 

review entities that bill Medicare nonelectronically. We stated that entities 

determined to be in violation of the 

statute or the interim final rule would 

be subject to claim denials, 

overpayment recoveries, and applicable 

interest on overpayments. 

F. Effective Date 

In accordance with section 3(b) of 

ASCA, we specified, in § 424.32(d)(5) of 

the regulations, that the effective date 

for these amendments would be for 

claims submitted on or after October 16, 

2003. 

III. Analysis of and Responses to Public 

Comments 

We received 17 timely public 

comments on the August 15, 2003 

interim final rule. Based upon some of 

the comments we received from 

members of the health care provider 

community who bill Medicare, there 

remain questions about Medicare’s 

electronic claim submission 

requirement and how this rule applies 

in certain situations. Additional 

information was provided through 

Medicare manual instructions to FIs and 

carriers (Transmittal 44, CR 2966, 

December 19, 2003, which may be 

found at www.cms.hhs.gov/manuals/). 

Several providers are uncertain about 

how to determine if they meet the 

definition of ‘‘small provider of services 

or small supplier,’’ especially when 

deciding who should be included in the 

‘‘full time equivalent’’ (FTE) employee 

calculation. Furthermore, some 

providers have questions concerning 

whether they are required to submit a 

request to HHS for a small provider 

waiver, which would allow them to 

continue submitting their claims to 

Medicare on paper. 

A. General Issues 

Comment: One commenter stated that 

the August 15, 2003 interim final rule 

did not provide sufficient time for 

providers to comply with the October 

16, 2003 statutory effective date and that 

we should change the implementation 

date. 

Response: We understand the 

commenter’s concern. However, we are 

not able to change the effective date of 

implementation and compliance, 

because the October 16, 2003 effective 

date is mandated by the statute. 

B. Determining Small Provider Status 

To qualify for a waiver as a small 

provider of services or small supplier, 

and thus, be permitted to continue 

billing Medicare on paper, the entity 

submitting a claim must be either: (1) A 

provider of services with fewer than 25 

FTEs that submits its claims to a 

Medicare FI; or (2) a physician, 

practitioner, facility, or supplier with 

fewer than 10 FTEs who bills a 

Medicare carrier or Durable Medical 

Equipment Regional Carrier (DMERC). 

Comment: Several commenters 

believe many in the provider 

community remain unaware that 

providers do not need to request a 

waiver for a small provider exception 

from Medicare electronic claims 

submission. In addition, other 

commenters requested a small provider 

waiver. 

Response: Providers who in good faith 

believe they qualify as ‘‘small providers 

of services or small suppliers’’

automatically qualify for the small 

provider waiver unless, upon 

subsequent review, the Department 

determines that the waiver requirements 

in fact are not met. In that case, if the 

Department finds that none of the 

exceptions applies, the provider must 

submit all claims to Medicare 

electronically. Providers must assess 

their own situation and determine for 

themselves whether they meet the small 

provider criteria. 

Small providers of services and small 

suppliers may elect to submit some of 

their claims to Medicare electronically, 

and some claims on paper. Submission 

of some claims electronically does not 

revoke or cancel their status as a small 

provider of services or small supplier, 

71012 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

nor obligate them to submit all of their 

claims electronically. (More information 

about this will be published through the 

Medicare contractors. The first in a 

series of publications was Transmittal 

44, CR 2966 dated December 19, 2003.) 

Comment: Several commenters 

requested additional guidance on the 

term ‘‘FTE,’’ including direction on who 

is considered an FTE and how the 

number of FTEs should be calculated for 

a small provider of services or small 

supplier. One commenter suggested that 

only clinical staff should be included in 

the FTE count. Other commenters 

believe owners of practices should not 

count toward the FTE total. 

Response: ASCA and its 

implementing regulation do not modify 

pre-existing laws or employer policies 

defining full-time employment. 

Employers have established policies and 

practices, subject to State and Federal 

laws, which define ‘‘full-time 

equivalent’’ and provide methods for 

calculating the number of hours their 

employees must work on average on a 

weekly, biweekly, monthly, or yearly 

basis to constitute a ‘‘full-time 

equivalent’’ employee. Some employers 

classify employees who work an average 

of 32 hours per week as one FTE, 

whereas other employers consider only 

employees who work 35 to 40 hours per 

week on average as one FTE. An 

employee who works an average of 40 

or more hours a week would virtually 

always be considered full-time and one 

FTE, but employees who work fewer 

hours weekly could also be considered 

full-time and one FTE according to the 

policies of, and laws applicable to, a 

different employer. 

Everyone on staff for whom a health 

care provider withholds taxes and files 

reports with the Internal Revenue 

Service (IRS) using an Employer 

Identification Number (EIN) is 

considered an employee including, if 

applicable, the physician(s) who owns a 

practice and provides hands-on 

services, and those support staff who do 

not furnish health care services but do 

retain records of, perform billing for, 

order supplies related to, provide 

personnel services for, and otherwise 

perform support services to enable the 

provider to function. Unpaid volunteers 

would not be considered employees for 

purposes of calculating FTEs. 

Individuals who perform services under 

independent contract for a provider, 

such as individuals employed by a 

billing agency or medical placement 

service, for whom a provider does not 

withhold taxes, are not considered 

members of a provider’s staff for FTE 

calculation purposes when determining 

whether a provider of services or 

supplier can be considered as ‘‘small’’

for electronic billing waiver purposes. 

Medical staff members may 

sometimes work part-time, or may work 

full-time but their time is split among 

multiple providers. Part-time employee 

hours must also be counted when 

determining the number of FTEs 

employed by a provider. For example, if 

a provider has a policy that anyone who 

works at least 35 hours per week on 

average qualifies as full-time (that is, as 

one FTE), and has five full-time 

employees and seven part-time 

employees, each of whom works 25 

hours a week, that provider would have 

ten FTEs (5+[7 × 25 = 175 divided by 

35 = 5]). 

In some cases, the employer 

identification number (EIN) of a parent 

company may be used to file employee 

tax reports for multiple providers under 

multiple Medicare provider numbers. In 

that instance, it is acceptable to consider 

only those staff, or staff hours worked 

for a particular provider as identified by 

Medicare provider number to calculate 

the number of FTEs employed by that 

provider. For example, ABC Health Care 

Company owns hospital, home health 

agency (HHA), ambulatory surgical 

center (ASC), and durable medical 

equipment (DME) subsidiaries. Some of 

those providers bill intermediaries and 

some carriers. All have separate 

provider numbers, but the tax records 

for all employees are reported under the 

same EIN to the IRS. There is a company 

policy that staff must work an average 

of 40 hours a week to be considered fulltime. 

Some of the same staff split hours 

between the hospital and the ASC, or 

between the DME and HHA 

subsidiaries. To determine total FTEs by 

provider number, it is acceptable to base 

the calculation on the number of hours 

each staff member contributes to the 

support of each separate provider by 

provider number. First, each provider 

would need to determine the number of 

staff members who work on a full-time 

basis under a single provider number 

only; not more than 40 hours a week 

should be counted for these employees. 

Then each provider would need to 

determine the number of part-time 

hours a week worked on average by all 

staff who furnished services for the 

provider on a less than full-time basis, 

and divide that total by 40 hours to 

determine their full-time equivalent 

total. If certain staff members regularly 

work an average of 60 hours per week, 

but their time is divided 50 hours to the 

hospital and 10 hours to the ASC, for 

FTE calculation purposes, consider the 

person as one FTE for the hospital and 

.25 FTE for the ASC. 

In some cases, a single provider 

number and EIN may be assigned, but 

the entity’s primary mission is not as a 

health care provider. For instance, a 

grocery store’s primary role is the retail 

sale of groceries and ancillary items 

including over-the-counter medications, 

but the grocery store has a small 

pharmacy section that provides 

prescription drugs and some DME to 

Medicare beneficiaries. A large drug 

store has a pharmacy department that 

supplies prescriptions and DME to 

Medicare beneficiaries, but most of the 

store’s revenue and most of their 

employees are not involved with 

prescription drugs or DME and 

concentrate on non-related departments 

of the store, such as groceries, film 

development, cosmetics, electronics, 

cleaning supplies, etc. A county 

government uses the same EIN for all 

county employees but their health care 

provider services are limited to 

furnishing of emergency medical care 

and ambulance transport to residents. 

For FTE calculation purposes, it is 

acceptable to include only those staff 

members of the grocery store, drug store, 

or county government involved with, or 

that support the provision of, health 

care in the FTE count when assessing 

whether a small provider waiver may 

apply. Support staff who are to be 

included in the FTE calculation in these 

instances include, but are not 

necessarily limited to, those that restock 

the pharmacy or ambulance, order 

supplies, maintain patient records, or 

provide billing and personnel services 

for the pharmacy or emergency medical 

services department if under the same 

EIN. FTEs should be calculated 

according to the number of hours on 

average that each staff member 

contributes to the department that 

furnishes the services or supplies for 

which the Medicare provider number 

was issued. 

Neither unpaid volunteers nor 

individuals that perform services for a 

provider under independent contract, 

such as individuals employed by a 

billing agency or medical placement 

service, for whom a provider does not 

withhold taxes, should be considered 

toward an entity’s FTE count when 

determining if a provider of services or 

supplier can be considered as ‘‘small’’

for electronic billing waiver purposes. 

C. Contingency for Paper Billers 

Comment: Several commenters 

requested that the Medicare HIPAA 

contingency plan extend to paper claims 

so as to avoid cash flow problems 

among providers. 

Response: The ASCA enacted on 

December 27, 2001 (Pub. L. 107–105) 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71013 

requires the electronic submission of 

Medicare claims in an electronic form 

specified by the Secretary of the HHS. 

The statute waives this requirement 

only in limited situations, which are 

detailed in § 424.32 of this regulation. 

The ‘‘electronic form’’ specified by the 

Secretary generally means the electronic 

transactions and code sets standards 

adopted as part of the HIPAA as 

detailed in 45 CFR parts 160 and 162. 

In response to HHS contingency plan 

guidance for the electronic transactions 

and code sets standards under HIPAA, 

issued on July 24, 2003, Medicare 

announced its HIPAA contingency 

plans on September 23, 2003. 

Medicare’s contingency plans allowed 

for the submission of claims in noncompliant electronic formats on and 

after October 16, 2003, for an 

unspecified period of time. However, 

Medicare has revised its contingency 

plan; it is paying electronic, HIPAA 

non-compliant claims no sooner than 27 

days after receipt, beginning with claims 

received on or after July 1, 2004. 

Continued paper submission of 

Medicare claims is not a part of 

Medicare’s HIPAA transactions 

contingency plan. The statute affords no 

latitude for those who do not meet one 

of the exceptions, but Medicare will 

take into consideration the good faith 

efforts by a provider to comply with the 

electronic billing requirement when 

enforcing the provision. 

Comment: One commenter expressed 

concerns that Medicare would not be 

able to handle an increase in paper 

claims submission if a larger portion of 

providers eligible for the ‘‘small 

provider of services or supplier’’ waiver 

opted to continue, or drop back to, 

paper claims submission. 

Response: Approximately 98 percent 

of claims submitted to FIs, and 83 

percent of carrier claims are electronic. 

With the benefits and efficiencies 

gained through electronic billing, we do 

not believe that electronic billers who 

are eligible to bill on paper will indeed 

revert to paper. Paper claims are more 

cumbersome to complete and are paid 

less timely than electronic claims. 

Moreover, we do not expect difficulty 

with Medicare contractors’ ability to 

handle paper claims if there were an 

increase in volume. Since the interim 

final rule’s October 16, 2003 effective 

date, Medicare contractors have not 

experienced any problems in receiving 

and processing electronic claims, and 

we have not observed any increase in 

electronic billers who are eligible to bill 

by paper reverting to paper claims 

submissions. 

D. Definition of Initial Medicare Claim 

We received a number of comments 

related to our definition of ‘‘initial 

Medicare claim.’’ In the interim final 

rule, this term was defined in 

§ 424.32(d)(1)(v) as a claim submitted to 

Medicare for payment under Part A or 

Part B of the Medicare program for the 

first time for processing, including for 

secondary payment purposes. Some 

disagree with our decision to require 

electronic submission of Medicare 

Secondary Payer (MSP) claims. We have 

responded to comments submitted on 

this definition below and provided 

added clarity. Some commenters also 

expressed concerns with their ability to 

submit an electronic MSP claim with a 

paper attachment. 

Comment: We received one comment 

on resubmission of initial Medicare 

claims. The commenter was concerned 

that claims submitted before the 

compliance deadline of October 16, 

2003 on paper and then resubmitted 

after the deadline on paper would be 

rejected. 

Response: We understand the 

concerns of the provider community 

regarding resubmission of claims 

previously submitted on paper in an 

electronic format; however, the statute 

does not afford us any flexibility in 

allowing for paper claims submission 

following the compliance deadline. 

We have interpreted the intent of the 

statute to mean claims submitted to the 

Medicare claims processing system for 

the first time, including claims 

submitted after having been previously 

rejected (which were not previously 

considered as submitted claims since 

they were never accepted into the 

processing system), claims with paper 

attachments, demand bills, claims 

where Medicare is secondary and there 

is only one primary payer, and nonpayment claims, as claims that must be 

submitted electronically barring any 

waiver or exception. Initial Medicare 

claims do not include adjustments 

submitted to intermediaries on 

previously submitted claims or appeal 

requests. 

Comment: One commenter expressed 

concerns with our inclusion of a claim 

sent to Medicare for secondary payment 

(MSP) purposes in our definition of 

‘‘initial Medicare claim.’’ They argued 

that although primary claims and MSP 

claims use the same HIPAA 837 

standard, the HIPAA regulations make a 

distinction between the two transactions 

and, as a result, MSP claims should be 

treated differently than other Medicare 

claims. 

Response: While MSP claims were not 

specifically highlighted, the statutory 

language does not exclude them from 

consideration as initial Medicare claims. 

Furthermore, we do not believe that 

MSP claims should be treated as a 

different type of claims transaction for 

purposes of Medicare electronic claims 

submission, because submission of a 

secondary claim would still constitute 

an initial submission of a claim to 

Medicare. Therefore, we have 

interpreted the statute to mean they 

must not be excluded from the 

electronic submission requirement. Our 

definition of an ‘‘initial Medicare claim’’

is consistent with this interpretation. 

Claims submitted to Medicare when 

there is more than one primary payer 

must be submitted on paper as it is 

difficult to submit service level data for 

more than one primary payer 

electronically at this time. The only 

alternative is for providers to submit 

those claims to Medicare on paper with 

copies of the explanation of benefits 

(EOBs)/remittance advices (RAs) from 

the primary payers attached. 

Comment: We received comments 

from providers concerning submission 

of EOBs/RAs. For instance, one 

commenter was under the impression 

that an 835 electronic remittance advice 

transaction is needed to submit an 837 

MSP claim. The commenter proposed as 

an alternative that the electronic 

submission of claims for which 

Medicare is secondary be phased in and 

only required when providers receive an 

835. 

Response: In order for a provider to be 

reimbursed for an MSP claim, the 

provider must submit to Medicare 

certain payment information contained 

in the EOB/RA from the primary 

payer(s). We encourage providers to 

work with their payers to receive the 

remittance advice in the 835 electronic 

format, but that is not mandated by 

HIPAA or ASCA. A provider may 

receive this information from the 

primary payer(s) either on paper or 

electronically. A provider does not need 

to receive an 835 electronic remittance 

advice transaction from a primary payer, 

however, in order to generate a 

secondary claim for Medicare. 

E. Attachments 

Comment: We received some 

comments on timely reimbursement of 

electronic claims submitted with paper 

attachments. In one case, a provider 

believed that it was unable to receive 

reimbursement for an electronic claim 

unless a paper claim was also 

submitted. 

Response: Transmittal 44, CR 2966, 

December 19, 2003, required Medicare 

contractors to issue further guidance to 

providers and submitters on the 

71014 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

submission of electronic claims when 

there are paper attachments. Providers 

and submitters who experience 

difficulty getting their electronic claims 

that have paper attachments processed 

must first contact their Medicare 

contractor. If problems persist, 

providers and submitters are 

encouraged to contact their regional 

CMS office to troubleshoot these issues. 

Phone numbers for Medicare contractors 

and CMS regional offices can be found 

on our Web site at: http:// 

www.cms.hhs.gov/physicians/ 

default.asp. 

Comment: Another commenter was 

concerned with Medicare connecting 

paperwork and hard copy EOBs with an 

electronic claim, resulting in untimely 

reimbursement and extra follow-up 

time. 

Response: Once the electronic claims 

attachment standard is adopted and 

entities have properly implemented it, 

this issue will be resolved. In the 

meantime, and prior to the claims 

attachment standard compliance date, 

paper attachments must be properly 

associated with the corresponding 

electronic claims by incorporating 

correct and appropriate data and 

indicating in the electronic claims 

transaction that separate paper 

documentation is being sent. Separate 

submission of electronic claims and 

related paper attachments should 

consequently not cause a discernable 

delay in payment of claims. Providers 

and other electronic claim submitters 

are advised to contact the Medicare 

contractor to which they submit their 

claims if they have further questions 

about the locally published process. 

Pending issuance of the future 

instructions concerning submission of 

medical records for electronic claims, 

providers and Medicare contractors can 

continue current policies and practices 

regarding submission of attachments 

with claims, whether in a proprietary 

format, on paper, via fax, or by other 

means. 

F. Unusual Cases 

While commenters expressed their 

support for electronic claims 

submission, they were also pleased with 

the flexibility afforded by the outlined 

exceptions, which permit continued 

paper claims submission such as in the 

case of roster vaccinations billing and 

certain Medicare demonstration claims. 

We received a number of comments on 

‘‘unusual cases,’’ asking for further 

clarity. 

Comment: One commenter stated the 

interim final rule was unclear 

concerning whether paper claims would 

be allowable after the compliance 

deadline. The commenter proposed 

designating the HIPAA transition period 

to a largely electronic submission 

environment for Medicare, an ‘‘unusual 

case.’’

Response: The ‘‘unusual case’’

provision is intended to operate as an 

exception to a situation in which 

Medicare providers are generally 

submitting claims electronically. The 

commenter, however, proposes making 

the exception to be the norm, which 

would appear to be contrary to what the 

Congress intended. 

Comment: Another commenter 

suggested we expand the criteria for the 

service interruption to include power 

outages, which result in a phone or 

communication service interruption. 

Response: We have interpreted an 

‘‘unusual case’’ exception to be one 

applied to a temporary situation outside 

of a provider’s control that effectively 

precludes electronic submission of 

claims. For a situation to fall under an 

‘‘unusual case’’ exception, the 

circumstances must be truly out of the 

ordinary and they must genuinely 

prevent the provider from complying 

with the applicable electronic 

submission requirement. 

In the August 15, 2003 interim final 

rule, we described three situations that 

we believe meet the criteria for an 

unusual case exception. The three 

situations we listed were submission of 

dental claims, a service interruption 

outside the control of the submitter, and 

other extraordinary circumstances 

deemed satisfactory to the Secretary. 

We also specified that the service 

interruption exception is limited to 

submitters who have experienced a loss 

of phone or communication service. We 

agree with the commenter that it may be 

possible for an interruption in the mode 

of service used to submit a claim to 

occur resulting from something other 

than inclement weather or phone 

company problems. We further 

recognize that a loss of power could 

occur that does not result in the loss of 

the use of a phone or other 

communication services but precludes 

or severely inhibits a submitter from 

sending claims electronically. In this 

rare and unanticipated situation, a 

waiver may be granted for service 

interruption. This is addressed in 

Medicare manual instructions, 

Transmittal 44, CR 2966, December 19, 

2003. 

Based on comments received and our 

assessment of the reasonableness of an 

entity’s ability to comply, we have 

identified the following two additional 

‘‘unusual case’’ situations we consider 

to be eligible for a waiver under 

§ 424.32(d)(4). First, an unusual case is 

deemed to exist when an entity submits 

fewer than 10 claims to Medicare per 

month on average. We believe entities 

that submit such low volumes of 

Medicare claims are ‘‘unusual cases’’ in 

that the volume does not support 

mandating the acquisition of hardware/ 

software to submit claims electronically. 

The exception for small providers 

indicates to us the Congress’s intention 

that the electronic submission 

requirement not apply to providers for 

whom the electronic submission 

requirement of claims would be truly 

burdensome. This would be the case for 

providers who submit fewer than 10 

claims per month, as the cost of 

converting their billing systems for so 

few claims would be uneconomic. If the 

volume increases, then electronic claim 

submission would be required, unless 

another exception applies. This is selfassessable and the entity need not 

submit a waiver request. Second, it is 

deemed to be an unusual case when the 

entity submitting a claim furnishes 

services only outside of the U.S. 

territory. The HIPAA transactions and 

code sets standards are consensusbased, American National Standards 

Institute (ANSI)-accredited standards 

that rely upon hardware and software 

that meet certain specifications, which 

may not be readily available outside of 

the U.S. territory. We believe that 

entities furnishing services solely 

outside of the U.S. in many cases could 

not properly submit electronic claims. 

Moreover, we think those entities are 

few in number and truly constitute an 

unusual case. This is also self-assessable 

and the entity need not submit a waiver 

request. Section 424.32(d)(4) is revised 

to include these two additional 

‘‘unusual case’’ situations. 

Instructions to the Medicare 

contractors that describe how to go 

about requesting an ‘‘unusual case’’

waiver were issued December 19, 2003 

(Transmittal 44, CR 2966). 

Comment: One commenter urged 

Medicare contractors to furnish all 

providers and mass immunizer billers 

and suppliers with free electronic roster 

billing software, in order to reduce 

dependence on paper roster billing and 

increase cost savings to the program. 

Another commenter suggested there 

remains a need for continued outreach 

to educate providers on these topics. 

Response: We are considering these 

suggestions; however, claims 

submission for roster billing for 

vaccinations is still considered exempt 

from the electronic claims submission 

requirement. To the extent certain 

Medicare contractors’ software permits 

electronic submission of roster bills, we 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71015 

encourage providers to use it; however, 

it is not required. 

We have issued instructions to the 

Medicare contractors that describe in 

greater detail how this regulation is 

operationalized, including instructions 

for requesting an ‘‘unusual case’’ waiver 

(refer to Transmittal 44, CR 2966, dated 

December 19, 2003). In addition, 

Medicare contractors will be instructed 

to include information on their provider 

Web sites and in their newsletters that 

addresses these and other issues 

pertinent to operationalization of the 

regulation. 

G. Testing With Medicare 

Comment: Several commenters 

expressed concerns regarding low 

HIPAA transaction testing rates between 

providers and Medicare. 

Response: Medicare testing has 

increased over the past several months 

and rose steadily in the weeks leading 

up to the HIPAA compliance deadline. 

As of September 10, 2004, 

approximately 97.7 percent of inbound 

claims were being submitted to 

Medicare in the HIPAA-compliant 

format. 

Medicare invoked its HIPAA 

contingency plan to afford added 

flexibility to providers and submitters 

who were not ready to submit claims in 

the HIPAA electronic format on the 

deadline of October 16, 2003, to 

continue to prepare for the electronic 

claims submission requirement in the 

adopted formats. Many Medicare 

contractors were ready to test the 837 

and 835 for 6 or more months before the 

October 16, 2003 deadline. Medicare’s 

revised HIPAA contingency plan 

encourages further HIPAA compliance 

because, effective July 1, 2004, noncompliant electronic claims are paid no 

sooner than 27 days after the date of 

receipt while compliant claims are paid 

sooner. 

Comment: Another commenter 

requested that Medicare relax the 

technical edits to HIPAA transactions so 

that claims may continue to be 

processed after the deadline. 

Response: We believe that Medicare 

has tried to make reasonable 

accommodations regarding its technical 

edits, while remaining considerate of 

how changes in its claims processing 

systems may affect various other 

submitters (some of whom could be 

adversely affected by inappropriate 

technical edits). 

H. Impact of HIPAA Standards 

Comment: Several commenters 

expressed concerns surrounding the 

overall level of readiness by the 

industry for implementing the HIPAA 

transaction and code set standards due 

to possible industry variations in the 

interpretation of the standards. They 

were concerned that unresolved 

questions pertaining to complying with 

the HIPAA standards could impact a 

provider’s ability to submit claims 

electronically and, therefore, comply 

with the Medicare electronic claims 

submission requirement. 

Response: We recognize that a 

number of HIPAA implementation 

issues exist and present obstacles to 

HIPAA compliance; however, these 

issues and obstacles extend beyond the 

scope of this regulation. We are 

addressing these concerns through other 

channels. Medicare’s HIPAA 

contingency plan may afford some 

additional latitude to entities as they 

work toward compliance with the 

HIPAA standards. In the meantime, 

Medicare’s contingency plan allows for 

providers, under specified 

circumstances, to continue to send 

HIPAA non-compliant electronic claims 

to Medicare and, therefore, facilitate 

compliance with the ASCA mandate. 

I. Enforcement 

Comment: One commenter identified 

a few issues related to compliance with 

HIPAA’s electronic transactions and 

code sets standards such as a request for 

new data elements, which could impact 

compliance with the Medicare 

electronic claims submission 

requirement. 

Response: For any change to a 

standard to become effective and 

compliance required, the designated 

standard maintenance organization 

would first have to hold public hearings 

and ultimately the Secretary would 

need to adopt the change formally. 

Comment: Another commenter 

suggested we find an alternate term for 

‘‘audit’’ when discussing enforcement. 

Response: We accept this comment; 

therefore, in the future we will reference 

the Secretary’s ability to ‘‘audit’’ an 

entity as the ability to ‘‘review’’ an 

entity for compliance. In addition, the 

preliminary enforcement process will be 

conducted on a prospective basis and 

will focus on providers that appear to be 

submitting extraordinarily high 

numbers of paper claims. If a review 

establishes that a provider is submitting 

paper claims without properly 

qualifying for a waiver, the provider 

will be notified that any paper claims 

submitted after a certain date will be 

rejected by Medicare. However, 

providers will be afforded a reasonable 

amount of time under the circumstances 

to come into compliance with the 

electronic claim submission 

requirement. 

A future Medicare manual instruction 

to Medicare contractors will explain the 

criteria for review and the enforcement 

requirements for providers that are 

determined to have incorrectly 

submitted paper claims. 

J. Costs To Convert From the 

Submission of ‘‘Paper Claims’’ to 

‘‘Electronic Claims’’ 

Comment: One commenter requested 

that we provide a more realistic estimate 

of the costs associated with converting 

from paper claims submission to 

electronic claims submission. Several 

commenters believe that the 

requirement to submit Medicare claims 

electronically represents a costly 

expense without the potential for 

reimbursement to providers. 

Response: When considering this 

comment, we reviewed again the basis 

for the cost estimate and considered 

further possible paperwork burden and 

capital investment issues in the impact 

analysis of the interim final rule. We 

concluded that the cost estimate 

remains the most accurate, given the 

data that were available. 

Due to the high number of Medicare 

claims already submitted electronically 

and the waivers issued for ‘‘small 

providers,’’ moderately sized providers 

are most likely to be affected by this 

requirement. While we do agree that a 

provider’s staff will need some time to 

become fully familiar and proficient 

with the use of the free/low cost 

Medicare billing software, a physician’s 

office (which presently submits claims 

on paper) can purchase hardware to 

enable compliance with this 

requirement for less than $1,000. 

Although the electronic conversion will 

not be reimbursed, we continue to 

believe that we have tried to provide the 

most economical software for providers, 

and we will even provide free technical 

support on the installation and usage 

through our Medicare contractors. 

K. Outside the Scope of This Rule 

Comment: One commenter requested 

that Medicare guidance 

communications or program changes to 

physicians be completed on paper 

rather than electronically. 

Response: Although we appreciate 

this commenter’s concern, because these 

issues were not addressed in the August 

15, 2003 interim final rule, we are not 

able to address this concern in this final 

rule. 

Comment: Another commenter 

suggested that we reimburse for nursing 

service claims. 

Response: Although we appreciate the 

commenter’s concerns, nursing service 

claim reimbursement was not covered 

71016 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

in the August 15, 2003 interim final 

rule. Therefore, we are unable to 

address this concern in this final 

regulation. 

IV. Provisions of This Final Rule 

With some minor editing and 

modification to include two additional 

‘‘unusual cases’’ for an automatic 

exception and changed ‘‘unusual 

circumstances’’ to ‘‘unusual cases’’, we 

are adopting all of the provisions set 

forth in the August 15, 2003 interim 

final rule as final. 

V. Collection of Information 

Requirements 

Under the Paperwork Reduction Act 

(PRA) 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 approval. In order to fairly 

evaluate whether an information 

collection should be approved by OMB, 

section 3506(c)(2)(A) of the PRA 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. 

Therefore, we are soliciting public 

comments on each of these issues for 

the information collection requirements 

discussed below. 

The information collection 

requirements and associated burdens in 

§ 424.32 are subject to the PRA. The 

burden of submitting the information 

required is addressed under OMB 

approval number: 

0938–0866, HIPAA Standards for 

Coding Electronic Transactions, with a 

one-time burden of 34,000,000 hours. 

The current approval expires 5/31/05. 

0938–0279, Medicare Uniform 

Institutional Provider Bill, with an 

annual burden of 1,666,208 hours (form 

CMS–1450). The current approval 

expires 12/31/05. 

0938–0008, Common Claim form, 

instructions, and supporting regulations 

at § 414.40, § 424.32, and § 414.40, with 

an annual burden of 44,189,007 hours 

(form CMS–1500). The current approval 

expires 3/31/06. 

Approximately 205,409 providers and 

suppliers will be affected by this final 

rule and will have to change the format 

for the claims they submit. They will 

incur some costs, either that of 

switching to clearinghouses, which will 

not affect the time it takes to submit the 

information for a claim, but may cost 

them approximately $.30 per claim, or 

that of purchasing computer equipment, 

which we estimate at $500 to $1,000. 

In the final rule published to 

implement the electronic transactions 

and code sets standards, we estimated 

that it would take an average of 10 hours 

per entity to switch over to the 

mandated standard transaction. (The 

switch could be from paper to electronic 

or from another electronic format to the 

standard format.) 

For purposes of this discussion, we 

are estimating that 37.5 percent of the 

affected providers and suppliers (that is, 

those not meeting one of the exceptions) 

already own computers and will not 

incur capital costs. We are also 

estimating that 50 percent of the 

affected providers and suppliers will 

start using a clearinghouse or billing 

service, which will not impose any 

capital costs subject to the PRA. The 

remaining 12.5 percent (25,676) will 

buy computers at an average of $750, for 

a total capital cost of $19.3 million. 

On the other hand, the providers and 

suppliers who own or who will buy a 

computer will require less time to 

submit claims. Form CMS–1450 takes 

approximately 9 minutes to submit in 

hard copy and 0.5 minutes to submit 

electronically; form CMS–1500 takes 15 

minutes and 1 minute, respectively. 

If 50 percent of the entities that will 

bill us directly are responsible for 25 

percent of the paper bills (we assume 

that half of the bills are submitted by 

entities that will be excepted from the 

requirements, and that 25 percent will 

be submitted through an intermediate 

party), they will save 7,651,089 million 

hours for form 1500 and 129,196 hours 

for form 1450. Mailing costs will be 

reduced by approximately $.40 per 

claim on average and the cost of the 

forms by $.03 for the form 1450 and 

form 1500 (the third form is furnished 

by us). 

As required by section 3504(h) of the 

PRA of 1995, we have submitted a copy 

of the revision to § 424.32 to OMB for 

its review of the information collection 

requirements. The revision is not 

effective until OMB has approved it. 

If you comment on these information 

collection and recordkeeping 

requirements, please mail copies 

directly to the following: 

Centers for Medicare & Medicaid 

Services, Office of Strategic Operations 

and Regulatory Affairs, Regulations 

Development and Issuances Group, 

Attn: Jimmy Wickliffe, CMS–0008–F, 

Room C5–11–04, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

Office of Information and Regulatory 

Affairs, Office of Management and 

Budget, Room 10235, New Executive 

Office Building, Washington, DC 20503, 

Attn: Christopher Martin, Desk Officer, 

CMS–0008–F. 

Comments submitted to OMB may 

also be e-mailed to the following 

address: e-mail: 

christophermartin@omb.eop.gov; or 

faxed to OMB at (202)395–6974. 

VI. 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), the Regulatory 

Flexibility Act (RFA) (September 16, 

1980, Pub. L. 96–354), section 1102(b) of 

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), and Executive Order 13132. 

For the purpose of this analysis, we 

use a pre-statute baseline; therefore, all 

costs and benefits identified in this 

impact analysis are attributed to this 

final rule. Nevertheless, the ASCA 

mandates most aspects of this final rule. 

In particular, the ASCA requires 

Medicare providers to submit claims 

electronically and stipulates the 

exceptions that will and may be granted. 

However, we did have discretion in 

setting the conditions for exceptions, 

and believe that these exceptions reduce 

the burden relative to the burden that 

was imposed by ASCA without this 

implementing regulation. 

Executive Order 12866 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). This is not a major rule. 

While additional costs will be imposed 

on those entities that do not meet any 

of the exception requirements and 

which must purchase the capability to 

bill Medicare electronically, we estimate 

the impact to be less than $100 million. 

Our estimates of the cost impact are 

based on the following analysis. (Note: 

The primary sources of data contained 

herein are the Medicare Program’s 

‘‘Contractor Reporting of Operational 

Workload Data’’ (CROWD), the ‘‘2002 

CMS Statistics’’ Handbook, and the Year 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71017 

2000 ‘‘Statistics of U.S. Business’’

issued by the U.S. Census Bureau.) 

The Administrative Simplification 

provisions under HIPAA establish the 

standards for electronic data 

transmission when transactions are 

conducted electronically, but they do 

not require physicians, practitioners, 

facilities, suppliers, and other health 

care providers to transmit claims and 

other transactions electronically. ASCA, 

however, does require Medicare 

physicians, practitioners, facilities, 

suppliers, and other health care 

providers (except those for which this 

rule provides for an exception) to 

submit claims electronically to 

Medicare. Consequently, Medicare 

claims must be submitted in the HIPAAprescribed electronic format. Thus, this 

rule will only have an impact on that 

group of entities that now submit paper 

claims to the Medicare Program and that 

do not fall into one of the excepted 

groups. 

Approximately 139 million paper 

claims were submitted to Medicare in 

FY 2002. This represents about 13.9 

percent of all claims processed. Broken 

down between paper claims submitted 

to FIs and carriers, the number of paper 

claims in FY 2002 was 3.4 million and 

136 million, respectively (source of data 

is CROWD). 

Over the past 4 years, Medicare’s 

electronic media claims (EMC) rate has 

slowly grown at an average of 0.3 

percent per year for FIs and 0.9 percent 

per year for carriers (source of data is 

CROWD). We do not expect a change in 

this trend for the immediate future. 

Therefore, we assume that similar 

changes will continue for FY 2004, the 

first year of implementation of 

mandatory Medicare electronic media 

claims (EMC). Using workload growth 

projections from our FY 2004 budget 

submission to the Congress, we estimate 

the FY 2004 volume of paper claims 

impacted by the ASCA, factoring out 

Medicare’s continuing trend of higher 

EMC rates, will be 2.5 million for 

Medicare FIs and 133.7 million for 

carriers. These volumes could be even 

smaller in FY 2004 due to the 

simultaneous implementation of 

HIPAA. However, the impact of HIPAA, 

coupled with Medicare’s EMC trends, 

cannot be quantified, though the impact 

would only further reduce the cost/ 

savings impact of ASCA and further 

support that a RIA is not needed. 

We do not know at this time how 

many providers will be excepted from 

the ASCA requirements, but projections 

have been made based upon the 

percentage of health care providers 

reported in the Census Bureau’s ‘‘Year 

2000 Statistics of U.S. Businesses,’’

which includes data on the number of 

health care providers by type with fewer 

than 20 employees and the numbers of 

physician, practitioner, and supplier 

entities with fewer than 10 employees. 

The Census figures do not differentiate 

between part-time and full-time 

employees, and would be expected to 

result in inflated numbers on the whole 

when applied to Medicare, but that is 

acceptable for impact assessment 

purposes. The Census did not have a 

category for fewer than 25 employees; 

fewer than 20 employees was their 

closest statistic. Overall, the Census data 

would still be reliable indicators of the 

anticipated worse case scenario of the 

maximum number of Medicare 

providers, physicians, practitioners, and 

suppliers likely to be impacted by this 

regulation. The percentages of small 

providers, physicians, practitioners, and 

suppliers based on employment 

numbers for the universe of all U.S. 

providers, physicians, practitioners, and 

suppliers should be comparable to the 

percentage of the subset of those 

providers that bill the Medicare 

program. 

The Census figures did not include 

each of the same provider, physician, 

practitioner, and supplier breakouts as 

tracked by Medicare’s statistics, but the 

Census figures did include the largest 

provider, physician, practitioner, and 

supplier types. The Census figures 

included 90 percent of all Medicare 

providers, physicians, practitioners, and 

suppliers by type. The provider types, 

tracked differently by the Census 

Bureau and us, include regional referral 

centers, Christian Science Sanitoria, 

rural health clinics, critical access 

facilities, and hospices. The ‘‘2002 CMS 

Statistics’’ directory (number of 

providers) and the 2000 Census data 

health care establishment totals 

(percentage of providers with less than 

20 employees) reported the following: 

Provider type Number of 

providers 

Percentage of 

providers with 

less than 20 

employees 

Likely number 

excepted 

Hospitals ...................................................................................................................................... 6,031 10.6 639 

Home Health Agencies ................................................................................................................ 7,099 69.2 4,913 

ESRD Facilities ............................................................................................................................ 3,991 16.6 663 

Skilled Nursing Facilities .............................................................................................................. 14,841 25.7 3,814 

Totals .................................................................................................................................... 31,962 31.4 10,029 

Type of physician, practitioner or supplier Number of 

providers 

Percentage of 

providers with 

less than 10 

employees 

Likely number 

excepted 

Clinical Labs ................................................................................................................................ 168,333 41.4 69,690 

Ambulatory Surgical Centers ....................................................................................................... 3,147 34.9 1,098 

Physicians .................................................................................................................................... 567,412 70.6 400,593 

All Other Practitioners .................................................................................................................. 297,967 71.8 213,940 

Totals .................................................................................................................................... 1,036,859 66.1 685,321 

As there was a 10 percent difference 

between the Census provider, physician, 

practitioner, and supplier types and the 

Medicare provider types, due to 

differences in type of collection, the 

numbers impacted would need to be 

increased by 10 percent to account for 

the difference. Increased by 10 percent, 

approximately 11,032 (31.4 percent) of 

all Medicare providers, and 753,853 

(66.1 percent) of all Medicare 

physicians, practitioners, and suppliers 

71018 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

could qualify for an exception of the 

electronic claim-filing requirement 

based on provider size, leaving 

approximately 24,126 providers and 

386,692 physicians, practitioners, and 

suppliers (a total of 410,818) potentially 

affected by the ASCA Medicare 

requirement nationally. 

Approximately 98 percent of 

providers, and 83 percent of physicians, 

practitioners, and suppliers already 

submit claims to Medicare 

electronically, and are expected to 

continue doing so, so the total impacted 

must be further reduced to determine 

the approximate number of current 

paper claim submitters that would 

likely be affected. It is reasonable to 

assume that the majority of the paper 

claims received by Medicare are 

submitted by smaller providers, 

physicians, practitioners, and suppliers. 

As a result, it would not be accurate to 

reduce the number of affected providers 

by the full 98 percent or 83 percent. In 

the absence of reliable statistics to 

project the current source of all paper 

claims, however, the number of 

providers potentially affected by the 

mandatory Medicare electronic claim 

requirement will be conservatively 

estimated at a maximum of 50 percent 

of the entities that would not qualify for 

a waiver. This leaves 12,063 providers 

and 193,346 physicians, practitioners, 

and suppliers (a total of 205,409) that 

would need to begin submitting claims 

to Medicare electronically. 

Statistics collected for PRA clearance 

of the Medicare paper claim forms and 

referenced in the ‘‘Collection of 

Information Requirements’’ section of 

this preamble indicate that, in the 

absence of a mandatory electronic claim 

requirement effective for FY 2004, 2.5 

million paper claims are expected to be 

sent to Medicare intermediaries and 

133.7 million paper claims are to be sent 

to Medicare carriers. 

Prior to HIPAA, many Medicare 

providers used billing agents or 

clearinghouses to bill the Medicare 

program. Many providers, physicians, 

practitioners, and suppliers that 

submitted paper claims indicated 

anecdotally that they used paper as they 

would rather avoid the ‘‘hassle’’ of 

dealing with the multiple electronic 

claim formats required by payers, and 

the need to have staff keep abreast of the 

updates to those formats. HIPAA largely 

eliminates format differences among 

payers, but there will always be 

differences concerning use of certain 

‘‘situational’’ segments and data 

elements in the formats. It is reasonable 

to assume that up to half (205,409 × 50 

percent = 102,704) of those entities that 

do not submit claims to Medicare 

electronically today would prefer to 

contract with a third party to deal with 

such differences on their behalf. 

A small sampling of Medicare 

contractors indicated an average cost of 

$0.30 per claim for billing agent and 

clearinghouse services. The total cost to 

physicians, practitioners, facilities, 

suppliers, and other health care 

providers to use a billing agent or 

clearinghouse should not be more than 

$7,055,895 (that is, $.30 × {the sum of 

2.5 million paper claims sent to 

intermediaries as estimated previously 

for FY 2004 multiplied by the 68.6 

percent of providers that would not 

meet the exception criteria, plus 133.7 

million paper claims estimated to be 

sent to carriers multiplied by the 33.9 

percent of physicians, practitioners, and 

suppliers that would not meet the 

exception criteria}). 

Finally, in regard to the balance of 

102,704 (205,409 × 50 percent) 

providers, physicians, practitioners, and 

suppliers that would not be expected to 

meet the criteria to submit paper claims, 

we conservatively estimate that 

approximately 75 percent of these 

already own personal computers that 

are used to prepare the paper claim 

forms they currently submit to 

Medicare. Very few hand-written or 

manually typed claims are submitted to 

Medicare. Although many paper claim 

submitters have not used personal 

computers for electronic billing, they 

have used them for claims preparation, 

patient scheduling, and other aspects of 

their practice. 

We estimate that, at a maximum, the 

remaining total of 25,676 (25 percent of 

102,704) providers, physicians, 

practitioners, and suppliers will obtain 

personal computers to allow them to 

submit their claims directly to Medicare 

electronically. A recent review of 

computer costs in the marketplace 

indicated that personal computers 

sufficient to meet the mandatory 

electronic claim requirement could be 

obtained for $500 to $1,000 for 

hardware (personal computer, monitor, 

printer, and modem). Billing software is 

available free or at low cost (less than 

$25 for shipping and handling) from 

Medicare. At the average rate of $750, it 

would cost $19.3 million to purchase 

25,676 personal computer systems. 

More expensive equipment and 

peripherals could be used, but would 

not be necessary for basic compliance. 

Therefore, the total maximum cost 

should be no higher than $26.4 million 

($7.1 million for users of clearinghouses 

or billing services, and $19.3 million for 

those that obtain personal computers). 

Following the HIPAA savings 

calculation used in the Transaction 

Rule, but projected to FY 2004 to 

account for inflation, a savings of $615 

per provider could result in a total 

provider savings of approximately $15.8 

million (that is, 25,676 times $615). 

We note that the Transaction Final 

Rule (65 FR 50353 through 50359) used 

a 10-year timeframe to capture the full 

extent of costs and savings that could be 

attributed to the use of the transactions 

adopted under HIPAA. Data from the 

2000 edition of Faulkner and Gray’s 

‘‘Health Data Directory,’’ from a 

Workgroup for Electronic Data 

Interchange study report, and from the 

Department of Labor was used in those 

calculations to determine total claims in 

the health care industry, costs to use the 

transactions electronically, savings 

expected to be realized, the historical 

growth rate for claims overall as well as 

electronic claims, the percentage of 

electronic health care claims nationally 

in 2000, and the anticipated inflation 

rate for the 10-year period. 

Thus, we estimate that the total costplus savings would be approximately 

$42.2 million, which is less than the 

$100 million threshold for an RIA. 

Again, these total costs and savings 

attributable to ASCA could be even less 

if we were able to factor in the impact 

HIPAA may have on electronic billing 

growth. 

The RFA requires agencies to analyze 

options for regulatory relief of small 

businesses. For purposes of the RFA, 

small entities include small businesses, 

nonprofit organizations, and 

government agencies. According to the 

Small Business Administration’s 

(SBA’s) data, approximately 95 percent 

of offices of physicians are considered 

small businesses (see the Small 

Business Administration’s final rule 

titled ‘‘Small Business Size Standards, 

Health Care,’’ published in the Federal 

Register on November 17, 2000, 65 FR 

69432). Most practitioners, facilities, 

suppliers, and other providers are small 

entities either because of nonprofit 

status or because of having revenues of 

$6 million to $29 million or less in any 

1 year. For purposes of the RFA, all 

physicians, practitioners, facilities, 

suppliers, and other health care 

providers that serve Medicare 

beneficiaries are considered to be small 

entities. However, as stated earlier, this 

rule in and of itself does not impose a 

regulatory burden. The ASCA mandates 

most aspects of this rule, in particular, 

the ASCA requires Medicare providers 

to submit claims electronically and 

stipulates the exceptions that will and 

may be granted. We did have discretion 

however, in setting conditions for 

exceptions, and believe these exceptions 

reduce the burden relative to the burden 

Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 71019 

that may have been imposed by ASCA 

without this implementing regulation. If 

this final rule has an average annual 

impact that exceeds 3 to 5 percent of 

total costs or revenues, it would be 

considered significant according to the 

Department of Health and Human 

Services (HHS) Guidelines. However, at 

a cost of $750 per computer and savings 

of $615 ($750–$615), we expect this to 

fall significantly below the revenue rule 

given by the HHS. Therefore, we have 

determined that this rule will not have 

a significant economic impact on a 

substantial number of small entities. 

Individuals and States are not 

considered small entities. Therefore, no 

regulatory relief options are considered. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule may have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 604 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. As indicated 

above, this rule could have an impact on 

those small rural hospitals that bill 

Medicare and that do not meet one of 

the exceptions. However, we do not 

believe the impact is significant since 

the cost of compliance is relatively 

small ($500 to $1,000) and small rural 

hospitals may be able to qualify for the 

small provider exception. Therefore, no 

regulatory impact analysis is required as 

the impact on small rural hospitals is 

not significant. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 also 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule that may result in expenditure in 

any 1 year by State, local, or tribal 

governments, in the aggregate, or by the 

private sector, of $100 million. This 

final rule will not have an impact of that 

size on State, local, or tribal 

governments or on the private sector. 

Instead, the primary impact on State, 

local, or tribal governments, or the 

private sector will be that entities that 

must begin billing Medicare 

electronically as a result of the ASCA 

are likely to use that capability to also 

bill other payers (such as State, local, or 

tribal governments and the private 

sector). 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it publishes a 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 not have a 

substantial effect on State or local 

governments for the reasons noted in 

this section of this final rule. 

B. Anticipated Effects 

1. Effects on Beneficiaries, Physicians, 

Practitioners, Facilities, Suppliers, and 

Other Health Care Providers 

The anticipated effects on Medicare’s 

beneficiaries will be that additional 

attention and services may be provided 

by their health care physician because, 

for example, electronic billing should 

reduce administrative paperwork. (This 

assertion was made by the medical 

community in numerous forums over 

the years, although documentation to 

this effect is not available.) 

The anticipated effects on the entities 

required to bill electronically will 

reduce or eliminate paper in their 

administrative operations, realizing 

increased efficiencies and 

indeterminable savings. These savings 

may be increased by the fact that the 

Administrative Simplification 

provisions of HIPAA mandate a 

standard transaction for electronic claim 

submissions, and this will facilitate 

electronic claims submissions to all 

health care payers. At this time, we do 

not have additional data to estimate 

those savings to Medicare physicians, 

practitioners, facilities, suppliers, and 

other healthcare providers. As 

previously stated, there will be a cost 

incurred by those entities that cannot 

satisfy one of the exceptions and would 

be required to bill Medicare in 

electronic form. 

2. Effects on the Medicare and Medicaid 

Programs 

Implementation of this final rule will 

result in a savings to the Medicare 

program. If the FY 2004 projected paper 

claims submissions of 136.2 million 

(HHS FY 2004 Budget submission to the 

Congress and estimated electronic 

media claims rate), are reduced by half 

and we assume a savings of $1.40 per 

claim as a result, the program could 

realize administrative savings of over 

$95 million per year. (Note: The $1.40 

per claim savings is our estimate of 

savings based upon a 1990 Industrial 

Engineering Study, contracted by CMS 

(then HCFA). The study documented 

that FI paper claims cost about $3.30 

more to process than electronic claims 

and, similarly, carrier paper claims cost 

about $1.00 more to process than 

electronic claims. Weighing these 

differences by the 2004 workloads and 

combining them yields the $1.40 

estimated per claim savings.) 

We might expect similar types of 

savings for the States, which administer 

the Medicaid Program. That is, 

Medicare providers who become 

electronic billers due to ASCA may 

decide to begin billing Medicaid 

electronically as well. However, this 

would depend on which of the affected 

Medicare physicians, practitioners, 

facilities, suppliers, and other 

healthcare providers also bill Medicaid. 

Again, the fact that the Administrative 

Simplification provisions of HIPAA 

mandate a standard transaction for 

electronic claim submissions will 

facilitate electronic claims submissions 

to all health care payers. 

C. Alternatives Considered 

Section 3 of the ASCA mandated that 

all Medicare claims on or after October 

16, 2003, be submitted electronically. 

Since the statute requires the electronic 

submission of claims, no alternatives to 

electronic submission were considered. 

However, we are interpreting the 

statutory provisions of the ASCA to 

allow for reasonable and limited 

exceptions to the electronic submission 

requirement. 

D. Conclusion 

As described above in section VI.A., 

this final rule establishes the 

requirements for implementing the 

statutory provisions under section 3 of 

the ASCA. The statute requires, with 

few exceptions, that physicians, 

practitioners, facilities, suppliers, and 

other health care providers that bill 

Medicare do so electronically. Coupled 

with the electronic standard transaction 

requirements under HIPAA, this rule 

facilitates greater administrative 

efficiencies for the Medicare program as 

well as for those that bill Medicare. 

There will be a cost incurred for those 

entities that are unable to meet one of 

the statutory exceptions, but we expect 

these initial costs to be offset by 

increased efficiencies and lower 

ongoing costs attributable to Medicare 

claims processing. 

In accordance with the provisions of 

Executive Order 12866, the Office of 

Management and Budget reviewed this 

regulation. 

List of Subjects in 42 CFR Part 424 

Emergency medical services, Health 

facilities, Health professions, Medicare, 

Reporting and recordkeeping 

requirements 

■ For the reasons set forth in the 

preamble, the interim rule amending 42 

CFR part 424 that CMS published on 

August 15, 2003 (68 FR 48805) is 

adopted as a final rule with the 

following amendments: 

71020 Federal Register / Vol. 70, No. 226 / Friday, November 25, 2005 / Rules and Regulations 

PART 424—CONDITIONS FOR 

MEDICARE PAYMENT 

■ 1. The authority citation for part 424 

continues to read as follows: 

Authority: Secs. 1102 and 1871 of the 

Social Security Act (42 U.S.C. 1302 and 

1395hh). 

■ 2. Amend § 424.32 by—

■ A. Revising paragraphs (d)(1)(v); 

(d)(1)(vi); (d)(3)(ii), and (d)(4) 

introductory text. 

■ B. Redesignating (d)(4)(iii) as 

paragraph (d)(4)(v). 

■ C. Adding paragraphs (d)(4)(iii) and 

(iv). 

The revisions and additions read as 

follows: 

§ 424.32 Basic requirements for all claims. 

(d) * * * 

(1) * * * 

(v) Initial Medicare claim means a 

claim submitted to Medicare for 

payment under Part A or Part B of the 

Medicare Program under title XVIII of 

the Act for initial processing, including 

claims sent to Medicare for the first time 

for secondary payment purposes. Initial 

Medicare claim excludes any 

adjustment or appeal of a previously 

submitted claim, and claims submitted 

for payment under Part C of the 

Medicare program under title XVIII of 

the Act. 

(vi) Physician, practitioner, facility, or 

supplier is a Medicare provider or 

supplier other than a provider of 

services. 

* * * * * 

(3) * * * 

(i) * * * 

(ii) The entity submitting the claim is 

a small provider of services or small 

supplier. 

(4) Unusual cases. The Secretary may 

waive the requirement of paragraph 

(d)(2) of this section in unusual cases as 

the Secretary finds appropriate. Unusual 

cases are deemed to exist in the 

following situations: 

* * * * * 

(iii) The entity submitting the claim 

submits fewer than 10 claims to 

Medicare per month, on average. 

(iv) The entity submitting the claim 

only furnishes services outside of the 

U.S. territory. 

* * * * * 

(Catalog of Federal Domestic Assistance 

Program No. 93.774, Medicare—

Supplementary Medical Insurance Program) 

Dated: May 2, 2005. 

Mark B. McClellan, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: August 15, 2005. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: This document was 

received at the Federal Register on 

November 17, 2005. 

[FR Doc. 05–23080 Filed 11–23–05; 8:45 am] 

BILLING CODE 4120–01–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES (HHS) 

Centers for Medicare & Medicaid 

Services 

45 CFR Parts 144, 146, 148, and 150 

[CMS–4091–F] 

RIN 0938–AN35 

Federal Enforcement in Group and 

Individual Health Insurance Markets 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final rule. 

SUMMARY: This rule makes final an 

interim final rule that details procedures 

we use for enforcing title XXVII of the 

Public Health Service Act as added by 

the Health Insurance Portability and 

Accountability Act of 1996, and as 

amended by the Mental Health Parity 

Act of 1996, the Newborns’ and 

Mothers’ Health Protection Act of 1996, 

and the Women’s Health and Cancer 

Rights Act of 1998. Specifically, we are 

responsible for enforcing title XXVII 

requirements in States that do not enact 

the legislation necessary to enforce 

those requirements, or otherwise fail to 

substantially enforce the requirements. 

We are also responsible for taking 

enforcement actions against non-Federal 

governmental plans. The regulation 

describes the process we use in both 

enforcement contexts. This final rule 

deletes an appendix to the interim rule 

that listed examples of violations of title 

XXVII and corrects the description of a 

cross-reference, but makes no 

substantive changes to the interim final 

rule. 

DATES: These regulations are effective 

on December 27, 2005. 

FOR FURTHER INFORMATION CONTACT: 

David Mlawsky (877) 267–2323, ext. 

61565. 

SUPPLEMENTARY INFORMATION

I. Background 

Title I of the Health Insurance 

Portability and Accountability Act of 

1996 (HIPAA) created a new title XXVII 

of the Public Health Service (PHS) Act 

(42 U.S.C. 300gg, et seq.) that requires 

group health plans and health insurance 

issuers to provide certain guarantees for 

availability and renewability of health 

coverage in the group and individual 

health insurance markets. 

HIPAA created a series of parallel 

provisions that were placed in the 

Employee Retirement Income Security 

Act (ERISA), which is within the 

jurisdiction of the Department of Labor; 

the Public Health Service (PHS) Act, 

which is within the jurisdiction of the 

Department of Health and Human 

Services; and the Internal Revenue 

Code, which is within the jurisdiction of 

the Department of the Treasury. These 

‘‘shared provisions’’ set forth Federal 

requirements relating to portability of 

and access to group health plan 

coverage, as well as group health 

insurance coverage provided by issuers. 

The shared provisions contain rules 

limiting the use of preexisting condition 

exclusion periods, and prohibiting 

discrimination against participants and 

beneficiaries based on health status. 

Section 104 of Title I of HIPAA 

requires that the Secretaries of the three 

Departments ensure through an 

interagency Memorandum of 

Understanding (MOU) that regulations, 

rulings, and interpretations issued by 

each of the Departments relating to the 

same matter over which two or more 

departments have jurisdiction, are 

administered so as to have the same 

effect at all times. Under section 104, 

the Departments, through the MOU, are 

to provide for coordination of policies 

relating to enforcement of the same 

requirements in order to have a 

coordinated enforcement strategy that 

avoids duplication of enforcement 

efforts and assigns priorities in 

enforcement. The Secretaries of the 

three departments signed and published 

the MOU in 1999 (64 FR 70164). 

HIPAA also added certain provisions 

governing insurance in the group and 

individual markets, and with respect to 

non-Federal governmental plans, which 

are contained only in the Public Health 

Service Act and are not within the 

regulatory jurisdiction of the 

Department of Labor or the Department 

of the Treasury. 

Under section 101(b) of HIPAA the 

Department of Labor is not authorized to 

enforce any of the portability 

requirements of part 7 of ERISA (the 

‘‘shared’’ provisions) against a health 

insurance issuer offering health