49742 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

45 CFR Part 162 

[CMS–0009–P] 

RIN 0938–AM50 

Health Insurance Reform; 

Modifications to the Health Insurance 

Portability and Accountability Act 

(HIPAA) Electronic Transaction 

Standards 

AGENCY: Office of the Secretary, HHS. 

ACTION: Proposed rule. 

SUMMARY: This rule proposes to adopt 

updated versions of the standards for 

electronic transactions originally 

adopted in the regulations entitled, 

‘‘Health Insurance Reform: Standards 

for Electronic Transactions,’’ published 

in the Federal Register on August 17, 

2000, which implemented some of the 

requirements of the Administrative 

Simplification subtitle of the Health 

Insurance Portability and 

Accountability Act of 1996 (HIPAA). 

These standards were modified in our 

rule entitled, ‘‘Health Insurance Reform: 

Modifications to Electronic Data 

Transaction Standards and Code Sets,’’ 

published in the Federal Register on 

February 20, 2003. This rule also 

proposes the adoption of a transaction 

standard for Medicaid Pharmacy 

Subrogation. In addition, this rule 

proposes to adopt two standards for 

billing retail pharmacy supplies and 

professional services, and to clarify who 

the ‘‘senders’’ and ‘‘receivers’’ are in the 

descriptions of certain transactions. 

DATES: To be assured consideration, 

comments must be received at one of 

the addresses provided below, no later 

than 5 p.m. on October 21, 2008. 

ADDRESSES: In commenting, please refer 

to file code CMS–0009–P. Because of 

staff and resource limitations, we cannot 

accept comments by facsimile (FAX) 

transmission. 

You may submit comments in one of 

four ways (please choose only one of the 

ways listed): 

1. Electronically. You may submit 

electronic comments on this regulation 

to http://www.regulations.gov. Follow 

the instructions for ‘‘Comment or 

Submission’’ and enter the file code to 

find the document accepting comments. 

2. By regular mail. You may mail 

written comments (one original and two 

copies) to the following address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–0009– 

P, P.O. Box 8014, Baltimore, MD 21244– 

1850. 

Please allow sufficient time for mailed 

comments to be received before the 

close of the comment period. 

3. By express or overnight mail. You 

may send written comments (one 

original and two copies) to the following 

address ONLY: 

Centers for Medicare & Medicaid 

Services, Department of Health and 

Human Services, Attention: CMS–0009– 

P, Mail Stop C4–26–05, 7500 Security 

Boulevard, Baltimore, MD 21244–1850. 

4. By hand or courier. If you prefer, 

you may deliver (by hand or courier) 

your written comments (one original 

and two copies) before the close of the 

comment period to either of the 

following addresses: 

a. Room 445–G, Hubert H. Humphrey 

Building, 200 Independence Avenue, 

SW., Washington, DC 20201. 

(Because access to the interior of the 

HHH Building is not readily available to 

persons without Federal government 

identification, commenters are 

encouraged to leave their comments in 

the CMS drop slots located in the main 

lobby of the building. A stamp-in clock 

is available for persons wishing to retain 

a proof of filing by stamping in and 

retaining an extra copy of the comments 

being filed.) 

b. 7500 Security Boulevard, 

Baltimore, MD 21244–1850. 

If you intend to deliver your 

comments to the Baltimore address, 

please call telephone number (410) 786– 

9994 in advance to schedule your 

arrival with one of our staff members. 

Comments mailed to the addresses 

indicated as appropriate for hand or 

courier delivery may be delayed and 

received after the comment period. 

FOR FURTHER INFORMATION CONTACT: 

Lorraine Doo (410) 786–6597. 

Gladys Wheeler (410) 786–0273. 

SUPPLEMENTARY INFORMATION: 

Inspection of Public Comments: All 

comments received before the close of 

the comment period will be available for 

viewing by the public, including any 

personally identifiable or confidential 

business information that is included in 

a comment. We post all comments 

received before the close of the 

comment period on the following Web 

site as soon as possible after they have 

been received: http:// 

www.regulations.gov. Follow the search 

instructions on that Web site to view 

public comments. 

Comments received timely will also 

be available for public inspection as 

they are received, generally beginning 

approximately 3 weeks after publication 

of a document, at the headquarters of 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244, Monday 

through Friday of each week from 8:30 

a.m. to 4 p.m. To schedule an 

appointment to view public comments, 

phone 1–800–743–3951. Copies: To 

order copies of the Federal Register 

containing this document, send your 

request to: New Orders, Superintendent 

of Documents, P.O. Box 371954, 

Pittsburgh, PA 15250–7954. Specify the 

date of the issue requested and enclose 

a check or money order payable to the 

Superintendent of Documents, or 

enclose your Visa or Master Card 

number and expiration date. Credit card 

orders can also be placed by calling the 

order desk at (202) 512–1800 (or tollfree at 1–888–293–6498) or by faxing to 

(202) 512–2250. The cost for each copy 

is $9. As an alternative, you may view 

and photocopy the Federal Register 

document at most libraries designated 

as Federal Depository Libraries and at 

many other public and academic 

libraries throughout the country that 

receive the Federal Register. 

This Federal Register document is 

also available from the Federal Register 

online database through GPO Access, a 

service of the U.S. Government Printing 

Office. The web site address is: http:// 

www.gpoaccess.gov/fr/index.html. 

Table of Contents 

I. Background 

A. Legislative Background 

B. Regulatory History 

C. Standards Adoption and Modification 

II. Provisions of the Proposed Rule 

A. Proposed adoption of Accredited 

Standards Committee X12 (ASC X12) 

Version 005010 Technical Reports Type 

3 for HIPAA Transactions 

B. Proposed adoption of the National 

Council for Prescription Drug Programs 

(NCPDP) Telecommunication Standard 

Implementation Guide Version D, 

Release 0 (D.0) and Equivalent Batch 

Standard Batch Implementation Guide, 

Version 1, Release 2 (1.2) for Retail 

Pharmacy Transactions 

C. Proposed adoption of a standard for 

Medicaid Pharmacy Subrogation: NCPDP 

Medicaid Subrogation Standard 

Implementation Guide, Version 3.0 for 

pharmacy claims 

D. Proposal to adopt NCPDP 

Telecommunication Standard D.0 and 

ASC X12 Version 005010 Technical 

Reports Type 3 for billing retail 

pharmacy supplies and services 

E. Proposed Modifications to Descriptions 

of Transactions 

F. Proposed Compliance and Effective 

Dates 

III. Collection of Information Requirements 

IV. Response to Comments 

V. Regulatory Impact Analysis 

I. Background 

The Health Insurance Portability and 

Accountability Act of 1996 (HIPAA) 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49743 

Public Law 104–191, mandated the 

adoption of standards for electronically 

conducting certain health care 

administrative transactions between 

certain entities. In the August 17, 2000 

final rule, the Secretary adopted 

standards for eight electronic health 

care transactions (65 FR 50312). The 

Secretary adopted modifications to 

some of those standards in a February 

20, 2003 final rule (68 FR 8381). Since 

the standards compliance date of 

October 2003, a number of technical 

issues with the standards, including 

issues resulting from new business 

needs have been identified. Industry 

stakeholders submitted hundreds of 

change requests to the standards 

maintenance organizations, with 

recommendations for improvements to 

the standards. These requests were 

considered, and many were accepted, 

resulting in the development and 

approval of newer versions of the 

standards for electronic transactions. 

However, covered entities are not 

permitted to use the newer versions we 

are proposing herein until the Secretary 

of Health and Human Services (HHS) 

adopts them by regulation for covered 

transactions. 

In addition to technical issues and 

business developments necessitating 

consideration of the new versions of the 

standards, there remain a number of 

unresolved issues that had been 

identified by the industry early in the 

implementation period for the first set 

of standards, and those issues were 

never addressed through regulation (for 

example, which is the correct standard 

to use for billing retail pharmacy 

supplies and professional services). This 

proposed rule addresses those 

outstanding issues. 

A. Legislative Background 

The Congress addressed the need for 

a consistent framework for electronic 

transactions and other administrative 

simplification issues in HIPAA, which 

was enacted on August 21, 1996. HIPAA 

requires the adoption and use of 

standards to facilitate the electronic 

transmission of certain health 

information and the conduct of certain 

business transactions. 

Through subtitle F of title II of 

HIPAA, the Congress added to title XI 

of the Social Security Act (the Act) a 

new Part C, entitled ‘‘Administrative 

Simplification.’’ Part C of title XI of the 

Act consists of sections 1171 through 

1179. These sections define various 

terms and impose several requirements 

on HHS, health plans, health care 

clearinghouses, and certain health care 

providers concerning the electronic 

transmission of health information. 

Section 1171 of the Act establishes 

definitions for purposes of Part C of title 

XI for the following terms: code set, 

health care clearinghouse, health care 

provider, health information, health 

plan, individually identifiable health 

information, standard, and standard 

setting organization (SSO). Section 

1172(a) of the Act makes any standard 

adopted under Part C applicable to: (1) 

Health plans; (2) health care 

clearinghouses; and (3) health care 

providers who transmit health 

information in electronic form in 

connection with a transaction for which 

the Secretary has adopted a standard(s). 

Current standards are at 45 CFR part 162 

subparts K through R. 

Section 1172 of the Act requires any 

standard adopted by the Secretary under 

Part C of Title XI to be developed, 

adopted, or modified by a standard 

setting organization, except in the 

special cases where no standard for the 

transaction exists, as identified under 

section 1172(c)(2) of the Act. Section 

1172 of the Act also sets forth 

consultation requirements that must be 

met before the Secretary may adopt 

standards. In the case of a standard that 

has been developed, adopted, or 

modified by an SSO, the SSO must 

consult with the following organizations 

in the course of the development, 

adoption, or modification of the 

standard: the National Uniform Billing 

Committee (NUBC), the National 

Uniform Claim Committee (NUCC), the 

Workgroup for Electronic Data 

Interchange (WEDI) and the American 

Dental Association (ADA). Under 

section 1172(f) of the Act, the Secretary 

must also rely on the recommendations 

of the National Committee on Vital and 

Health Statistics (NCVHS) and shall also 

consult with appropriate Federal and 

State agencies and private organizations. 

Section 1173(a) of the Act requires the 

Secretary to adopt transaction standards 

and data elements for such transactions, 

to enable the electronic exchange of 

health information for specific financial 

and administrative health care 

transactions and other financial and 

administrative transactions as 

determined appropriate by the 

Secretary. Under sections 1173(b) 

through (f) of the Act, the Secretary is 

also required to adopt standards for: 

specified unique health identifiers, code 

sets, security for health information, 

electronic signatures, and the transfer of 

certain information among health plans. 

Section 1174 of the Act requires the 

Secretary to review the adopted 

standards and adopt modifications to 

the standards, including additions to the 

standards, as appropriate, but not more 

frequently than once every 12 months. 

Modifications must be completed in a 

manner that minimizes disruption and 

cost of compliance. The same section 

requires the Secretary to ensure that 

procedures exist for the routine 

maintenance, testing, enhancement, and 

expansion of code sets. Moreover, if a 

code set is modified, the code set that 

is modified must include instructions 

on how data elements that were 

encoded before the modification may be 

converted or translated to preserve the 

information value of the data elements 

that existed before the modification. 

Section 1175(b) of the Act provides 

for a compliance date not later than 24 

months after the date on which an 

initial standard or implementation 

specification is adopted for all covered 

entities except small health plans, 

which must comply not later than 36 

months after such adoption. If the 

Secretary adopts a modification to a 

HIPAA standard or implementation 

specification, the compliance date for 

the modification may not be earlier than 

the 180th day following the date of the 

adoption of the modification. The 

Secretary must consider the time 

needed to comply due to the nature and 

extent of the modification when 

determining compliance dates, and may 

extend the time for compliance for small 

health plans, if the Secretary deems it 

appropriate. 

B. Regulatory History 

On August 17, 2000, we published a 

final rule entitled, ‘‘Health Insurance 

Reform: Standards for Electronic 

Transactions’’ in the Federal Register 

(65 FR 50312) (hereinafter referred to as 

the Transactions and Code Sets rule). 

That rule implemented some of the 

HIPAA Administrative Simplification 

requirements by adopting standards for 

eight electronic transactions and for 

code sets to be used in those 

transactions. Those transactions were: 

health care claims or equivalent 

encounter information; health care 

payment and remittance advice; 

coordination of benefits; eligibility for a 

health plan; health care claim status; 

enrollment and disenrollment in a 

health plan; referral certification and 

authorization; and health plan premium 

payments. We defined these 

transactions and specified the adopted 

standards at 45 CFR part 162, subparts 

I and K through R. 

The standards that we adopted were 

developed by two American National 

Standards Institute (ANSI) accredited 

standard setting organizations 

(commonly and hereinafter referred to 

as Standards Developing Organizations 

(SDO)): the National Council for 

Prescription Drug Programs (NCPDP) 

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49744 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

and the Accredited Standards 

Committee ASC X12, which will 

hereinafter be abbreviated and referred 

to as X12. In our regulations and 

guidance materials to date, we have 

always referred to ‘‘X12N’’ where the 

‘‘N’’ indicates the particular 

subcommittee. However, we have been 

informed by the X12 committee that it 

no longer uses the ‘‘N’’ to indicate the 

subcommittee. Therefore, in keeping 

with the current practice of the X12, we 

will not continue to use the ‘‘N’’ either, 

and we will simply refer to the 

standards of that organization as ‘‘X12’’

standards. We adopted the NCPDP 

Telecommunication Standard version 

5.1 (hereinafter referred to as NCPDP 

5.1) and its equivalent batch standard 

for retail pharmacy drug claims under 

the health care claims or equivalent 

encounter transaction, as well as the 

eligibility for a health plan transaction 

for retail pharmacy drugs, the retail 

pharmacy drug claims remittance advice 

transaction, and the coordination of 

benefits information transaction for 

retail pharmacy drug claims. We 

adopted a number of X12 standards, all 

in Version 4010, for the remaining 

transactions (see § 162.1101 through 

1802). 

On February 20, 2003, we published 

a final rule entitled, ‘‘Health Insurance 

Reform: Modifications to Electronic 

Data Transaction Standards and Code 

Sets,’’ in the Federal Register (68 FR 

8381) (hereinafter referred to as the 

Modifications rule). In that rule, we 

adopted certain modifications to some 

of the standards for the eight electronic 

standard transactions. These 

modifications resulted in part from 

recommendations of the industry 

because the original versions of the X12 

standards had certain requirements (for 

example, requiring information that is 

not available or not needed) that 

impeded implementation. Since the 

industry did not have extensive prior 

experience with the X12 standards, 

implementation problems were 

compounded. It is likely that this lack 

of expertise also contributed to limited 

input during the Version 4010 ballot 

process (to approve the ‘‘original’’

standards). For information about the 

ballot process for any particular SDO, 

interested parties should visit the 

individual Web sites for a full 

explanation of the process and how to 

participate. The result is that the 

standards were not thoroughly analyzed 

to identify problems before Version 

4010 was adopted. The X12 agreed to 

create ‘‘addenda’’ to the original 

versions of the standards, called Version 

4010A, in order to facilitate 

implementation for the industry, and 

the Secretary adopted those addenda 

into regulations in every instance where 

the Secretary had adopted Version 4010. 

(See 68 FR 8381). (Readers will note that 

we have removed the numeral ‘‘1’’ from 

the end of Version 4010/4010A1 for ease 

of reference. Since there is only one 

addendum, we did not feel the need to 

include the number ‘‘1’’ after each 

citation in this proposed rule.) 

In Table 1 below, we summarize the 

full set of transaction standards adopted 

in the Transactions and Code Sets rule 

and as modified in the Modifications 

rule. The table uses abbreviations of the 

standards and the names by which the 

transactions are commonly referred, as a 

point of reference for the readers. The 

official nomenclature and titles of each 

standard and transaction are provided 

later in the narrative of this preamble. 

TABLE 1—ADOPTED STANDARDS FOR HIPAA TRANSACTIONS

Standard Transaction 

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

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

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

ASC X12 837 ....................... Health care claims—Coordination of Benefits. 

ASC X12 270/271 ................ Eligibility for a health plan (request and response). 

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

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

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

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

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

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

C. Standards Adoption and 

Modification 

In addition to adopting the first set of 

transaction standards and code sets, the 

Transactions and Code Sets rule 

adopted procedures for the maintenance 

of existing standards and for adopting 

new standards and modifications to 

existing standards (see § 162.910). 

1. Designated Standards Maintenance 

Organizations (DSMO) 

Section 162.910 sets out the standards 

maintenance process and defines the 

role of SDOs and the DSMO. An SDO is 

an organization accredited by the ANSI 

that develops and maintains standards 

for information transactions or data 

elements. SDOs include the X12, the 

NCPDP, and Health Level Seven (HL7). 

In August 2000, the Secretary 

designated six organizations (see Health 

Insurance Reform: Announcement of 

Designated Standard Maintenance 

Organizations Notice (65 FR 50373)) to 

maintain the health care transaction 

standards adopted by the Secretary, and 

to process requests for modifying an 

adopted standard or for adopting a new 

standard. The six organizations include 

the three SDOs referenced above. The 

other three organizations are the 

National Uniform Billing Committee 

(NUBC), the National Uniform Claim 

Committee (NUCC), and the Dental 

Content Committee (DCC) of the 

American Dental Association. The 

DSMO operate through a coordinating 

committee. For additional information 

about the DSMO process and 

procedures, refer to the Web site at 

http://www.hipaa-dsmo.org/Main.asp. 

2. Process for Adopting Modifications to 

Standards 

In general, HIPAA requires the 

Secretary to adopt standards that have 

been developed by an SDO with certain 

exceptions. In addition to directing the 

Secretary to adopt standards, HIPAA, at 

section 1172(d) of the Act, also requires 

the Secretary to establish specifications 

for implementing each adopted 

standard. 

The process for adopting a new 

standard or modifications to existing 

standards is described in the 

Transactions and Code Sets rule (65 FR 

50312 at 50344) and implemented at 

§ 162.910. Under § 162.910, the 

Secretary considers recommendations 

for proposed modifications to existing 

standards or a proposed new standard, 

only if the recommendations are 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49745 

developed through a process that 

provides for—

• Open public access; 

• Coordination with other SDOs; 

• An appeals process for the 

requestor of the proposal or the DSMO 

that participated in the review and 

analysis if either of the preceding were 

dissatisfied with the decision on the 

request; 

• An expedited process to address 

HIPAA content needs identified within 

the industry; and 

• Submission of the recommendation 

to the NCVHS. 

Any entity may submit change 

requests with a documented business 

case to support the recommendation to 

the DSMO. The role of the DSMO 

committee is to receive and manage 

those change requests. The DSMO 

review the request and notify the SDO 

of the recommendation for approval or 

rejection. If the changes are 

recommended for approval, the DSMO 

also notifies the NCVHS and suggest 

that a recommendation for adoption be 

made to the Secretary of HHS. 

Instructions for the DSMO process and 

access to the submission tools are 

available at http://www.hipaa-dsmo.org. 

All of the modifications and the new 

transaction standard proposed in this 

rule were developed through a process 

that conforms with § 162.910. The 

suggested modifications and new 

standard recommended for approval by 

the DSMO were submitted to NCVHS 

for consideration. In 2007, the NCVHS 

conducted two days of hearings with 

health care providers, health plans, 

clearinghouses, vendors, and interested 

stakeholders on the adoption of the new 

ASC X12 Version 005010 Technical 

Reports Type 3 and the NCPDP 

Telecommunication Standard, Version 

D.0, to replace Versions 4010/4010A 

and the NCPDP Version 5.1. Testimony 

was also presented for the NCPDP 

Medicaid pharmacy subrogation 

standard (Version 3.0). A list of 

organizations that provided testimony to 

the NCVHS is available on the agenda 

for the July 2007 meetings, at http:// 

www.ncvhs.hhs.gov/070730ag.htm. In 

addition to the standards organizations, 

other testifiers included Delaware 

Medicaid, MEDCO, Healthcare Billing 

and Management Association (HBMA), 

BlueCross BlueShield Association 

(BCBSA), Integra Professional Services, 

EDS, LabCorps, the American Dental 

Association, the American Hospital 

Association, the National Community 

Pharmacists Association (NCPA), the 

Medical Group Management 

Association (MGMA), the National 

Association of Chain Drug Stores 

(NACDS), the Workgroup for Electronic 

Data Interchange (WEDI) and Smith 

Premier. In a letter dated September 26, 

2007 (available at http:// 

www.ncvhs.hhs.gov/070926lt.pdf ), the 

NCVHS submitted to the Secretary its 

recommendations to adopt the updated 

versions of standards as well as the 

NCPDP Medicaid pharmacy subrogation 

standard. 

As noted above, and as indicated in 

the letter from NCVHS, HHS consulted 

with other Federal and State agencies 

and private organizations to gain input 

for this proposed rule regarding the 

adoption and implementation of 

standards. We also worked with WEDI 

specifically to conduct industry-focused 

information forums on implementation 

of the modified standards proposed in 

this rule. 

3. Implementation Specifications and 

Technical Reports Type 3 

Each adopted standard has operating 

rules that are documented in an 

implementation specification or guide. 

These implementation specifications or 

guides comprise ‘‘the specific 

instructions for implementing a 

standard’’ (§ 162.103). In addition to 

ensuring that specific data are 

communicated in the same way among 

trading partners, and providing 

instructions to users for implementing 

standards, these implementation 

specifications dictate field size limits 

and provide guidance for the type of 

information to be included in a 

particular field. The specificity that 

results enables health information to be 

exchanged electronically between any 

two entities, using the same instructions 

for format and content without losing 

the integrity of the data. 

In 2003, the X12 initiated the concept 

of the Technical Reports Type 3 to 

promote consistency and coherency 

among information processing systems 

which use X12 standards and encourage 

uniform standards implementation. X12 

Technical Reports are in three formats: 

Type 1 reports are tutorials that describe 

the intent of the authoring 

subcommittee and provide guidance on 

usage of the standard; Type 2 reports 

provide models of business practices 

and data flows to assist users in the 

development of software systems that 

would use the EDI transmissions; and 

Type 3 reports are implementation 

guides that address a specific business 

purpose (for example, a claim), and 

provide comprehensive instructions for 

the use and content of a transaction. The 

Technical Reports Type 3 are the 

updated equivalents of the X12 

Implementation Guides referenced in 

the current HIPAA regulations. We note 

that no format or function differences 

exist between previous implementation 

specifications and Technical Reports 

Type 3. We reference Technical Reports 

Type 3 in the proposed regulation text 

in accordance with the way in which 

the X12 now refers to its 

implementation guides. Documents 

called Type 1 Errata are used to 

supplement published Technical 

Reports Type 3 that solve significant 

problems that prevent achievement of 

the business purpose. 

NCPDP terminology has not changed 

since the adoption of the current HIPAA 

regulations. Therefore, the NCPDP 

standards continue to be referred to as 

implementation guides or 

specifications. 

II. Provisions of the Proposed Rule 

A. Proposed Adoption of X12 Version 

005010 Technical Reports Type 3 for 

HIPAA Transactions 

We propose to revise § 162.1102, 

§ 162.1202, § 162.1302, § 162.1402, 

§ 162.1502, § 162.1602, § 162.1702, and 

§ 162.1802 to adopt the ASC X12 

Technical Reports Type 3, Version 

005010, hereinafter referred to as 

Version 5010, as a modification of the 

current X12 Version 4010 and 4010A1 

standards, hereinafter referred to as 

Version 4010/4010A, for the HIPAA 

transactions listed below. In some cases, 

the Technical Reports Type 3 have been 

modified by Type 1 Errata, and these 

Errata are also included in our proposal. 

Covered entities conducting the 

following HIPAA standards would be 

required to use Version 5010: 

• Health care claims or equivalent 

encounter information (§ 162.1101) 

— Professional health care claims 

— Institutional health care claims 

— Dental health care claims 

• Dental, professional, and 

institutional health care eligibility 

benefit inquiry and response 

(§ 162.1201) 

• Dental, professional, and 

institutional referral certification and 

authorization (§ 162.1301) 

• Health care claim status request and 

response (§ 162.1401) 

• Enrollment and disenrollment in a 

health plan (§ 162.1501) 

• Health care payment and remittance 

advice (§ 162.1601) 

• Health plan premium payments 

(§ 162.1701) 

• Coordination of Benefits 

(§ 162.1801) 

— Dental health care claims 

— Professional health care claims 

— Institutional health care claims 

Following is a brief description of the 

enhancements in the updated version of 

the standards and our rationale in 

support of its adoption. 

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49746 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

Justification for Adopting Version 5010 

TR3 Reports 

Despite the changes made to Version 

4010 that prompted the establishment of 

Version 4010A, which was adopted in 

the Modifications rule, operational and 

technical gaps still exist in Version 

4010A. In addition, it has been more 

than 5 years since implementation of 

the original standards, and business 

needs have evolved during this time. 

While the implementation 

specifications continue to improve with 

each new version, deficiencies in the 

adopted versions continue to cause 

industry-wide issues. These deficiencies 

in the current implementation 

specifications have caused much of the 

industry to rely on ‘‘companion guides’’

created by health plans to address areas 

of Version 4010/4010A that are not 

specific enough or require work-around 

solutions to address business needs. 

These companion guides are unique, 

plan-specific implementation 

instructions for the situational use of 

certain fields and/or data elements that 

are needed to support current business 

operations. We believe that industry 

reliance on companion guides has 

minimized some of the potential 

benefits offered by the standards 

because each guide has a different set of 

requirements, making full 

standardization nearly impossible. 

Furthermore, as the industry worked 

with the standards and became more 

adept at using them, opportunities for 

improvement became apparent and 

were included in subsequent versions of 

the implementation specifications. It 

also became apparent that dependence 

on companion guides could be greatly 

reduced, if not eliminated, if proposed 

modifications were ultimately adopted 

for use by the industry. 

As stated earlier, in the years 

following the compliance deadline, 

hundreds of requests to upgrade the 

standards have been submitted by the 

industry to the DSMO Steering 

committee. These requests have been 

made in accordance with the DSMO 

Change Request process, described in 

the Transactions and Code Sets rule. 

The DSMO Steering committee has 

evaluated approximately five hundred 

requests for changes to Version 4010/ 

4010A. Version 5010 changes 

significantly improve the functionality 

of the transactions and correct problems 

encountered with Version 4010/4010A. 

Change Description Guides detailing the 

specific changes made to each new 

version are available at http://www.wpcedi.com. The Medicare Fee-for-Service 

program is evaluating the impact of 

implementing Version 5010 in the 

future, and has completed a gap analysis 

of the standards. Medicare has prepared 

a comparison of the current X12 HIPAA 

EDI standards (Version 4010/4010A) 

with Version 5010 and the NCPDP EDI 

standards Version 5.1 to D.0, and has 

made these side-by-side comparisons 

available to other covered entities and 

their business associates on the CMS 

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

ElectronicBillingEDITrans/ 

18_5010D0.asp. 

The areas of improvement included in 

Version 5010 can be grouped into four 

main themes. Each theme is discussed 

in detail below: 

Front Matter/Education—Information 

in the front matter (hereinafter referred 

to as the Front Matter section) of 

Version 5010 now provides clearer 

instructions. Ambiguous language has 

been eliminated and the rules for 

required and situational data elements 

are more clearly defined. 

Technical Improvements—Technical 

improvements in Version 5010 include 

new guidelines that use the same data 

representation for the same purposes 

across all of the transactions for which 

Version 5010 is used. This reduces 

ambiguities and reduces the number of 

times that the same data could have 

multiple codes or qualifiers, or from 

appearing in different segments for the 

same purpose. Consistent data 

representation reduces ambiguities that 

result from the same data having 

multiple codes or qualifiers and from 

the same data appearing in different 

segments in different transactions. In 

other words, ambiguous language has 

been eliminated, the rules for required 

and situational data elements are more 

clearly defined, and instructions for 

many business processes have been 

clarified. 

Structural Changes—Modifications to 

the physical components of the 

transaction have been made. New 

segments and new data elements have 

been added and data elements have 

been modified or removed to make the 

data elements longer, shorter, or of a 

different data type to add functionality 

and improve consistency. In some cases, 

new ‘‘composites,’’ defined as a 

collection of related data elements, have 

been added in order to ensure that 

related data is reported and received in 

the same section of the transaction 

instead of spread out in different areas. 

This increases the accuracy of 

processing because programming can be 

consistent for each transaction. 

Data Content—Redundant and 

unnecessary data content requirements 

have been removed to eliminate 

confusion for implementers. Additional 

requirements have been added where 

needed to clarify existing data content 

requirements. 

The following section includes a brief 

summary of changes for each of the 

versions of the implementation guides. 

We note that some of the 

implementation guides had significant 

modifications while others were 

changed only moderately. In the 

following discussions for each 

transaction, we use short-hand for 

referring to the current and modified 

versions of the standard. Instead of 

writing out the full name of the standard 

in each case, we refer to ‘‘Version 4010/ 

4010A’’ and ‘‘Version 5010.’’ The 

Version 4010/4010A and Version 5010 

short-hand refers to the particular 

transaction standard discussed in each 

section below. For example, in the first 

section below, we address the Health 

Care Claims or Equivalent Encounter 

Information transaction for institutional 

health care claims. Rather than refer to 

the ASC X12 837I, Version 4010/4010A 

and the X12 837 Version 5010 Technical 

Report Type 3 for the Health Care 

Claims or Equivalent Encounter 

Information transaction for institutional 

claims, we refer to Version 4010/4010A 

and Version 5010, respectively, with the 

understanding that we are referring to 

those versions in the context of the 

health care claims or equivalent 

encounter information transactions for 

institutional claims. This is true also for 

our discussion of the NCPDP transaction 

standards. Finally, the standards are 

presented in the order we believe best 

represents the level of utilization within 

the industry; in other words, the 

transactions which are used most often 

by the industry, such as claims and 

eligibility verification, are listed before 

lesser used transactions, such as 

enrollment and premium billing. In the 

section below, the order of the 

transactions does not follow the order of 

the regulation text. However, in the 

regulation text section of this proposed 

rule, the standards are represented in 

the same order in which they have been 

published in each of the earlier 

regulations. 

Health Care Claims or Equivalent 

Encounter Information Transaction 

(837) 

Institutional Health Care Claims (837I) 

We propose to revise § 162.1102 by 

adding a new paragraph (c)(4) that 

would replace the ASC X12N 837I 

Version 4010/4010A with the Health 

Care Claim: Institutional (837) ASC X12 

Standards for Electronic Data 

Interchange Technical Report Type 3 

and Type 1 Errata to Health Care Claim: 

Institutional for the Health Care Claims 

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or Equivalent Encounter Information 

Transaction for institutional claims. 

Version 4010/4010A does not provide 

a means for identifying an ICD–10 

procedure or diagnosis code on an 

institutional claim. Version 5010 

anticipates the eventual use of ICD–10 

procedure and diagnosis codes and adds 

a qualifier as well as the space needed 

to report the number of characters that 

would permit reporting of ICD–10 

procedure and diagnosis codes on 

institutional health care claims. 

Other significant changes include the 

following: 

• Version 5010 separates diagnosis 

code reporting by principal diagnosis, 

admitting diagnosis, external cause of 

injury and reason for visit, allowing the 

capture of detailed information (for 

example, mortality rates for certain 

illnesses, the success of specific 

treatment options, length of hospital 

stay for certain conditions, and reasons 

for hospital admissions). 

• Version 4010/4010A does not allow 

for the identification of a ‘‘Present on 

Admission’’ indicator (POA) on the 

institutional claim. Present on 

Admission means the condition or 

diagnosis that is present at the time the 

order for inpatient admission occurs—

conditions that develop during an 

outpatient encounter, including 

emergency department, observation, or 

outpatient surgery, are considered as 

present on admission. This information 

is being captured through a workaround 

in Version 4010/4010A by placing this 

information in an unassigned segment. 

This has created confusion for hospitals 

and has limited access to information 

that is critical to identifying hospital 

acquired conditions and the ability to 

track utilization of the POA indicator 

and treatment outcomes as specified by 

section 5001 of the Deficit Reduction 

Act. Version 5010 allows the POA 

indicator to be associated with each 

individual diagnosis code allowing the 

capture of detailed information (for 

example, mortality rates for certain 

illnesses, length of hospital stay for 

certain conditions and reasons for 

hospital admissions). 

• Version 5010 includes clear and 

precise rules that clarify how and when 

the NPI is to be reported. Instructions 

require submitters to report the same 

organizational type NPI in the same 

position for all payers. This improves 

the accuracy of information that is 

needed to conduct coordination of 

benefits by ensuring that the NPI 

information that is submitted to a 

secondary or tertiary payer reflects the 

NPI information that was processed by 

the primary payer. Version 4010/4010A 

does not have clear rules about how an 

NPI should be reported for subparts, or 

how to identify atypical providers (for 

example, taxi services, home and 

vehicle modifications services, and 

respite services that are not required to 

obtain an NPI), resulting in confusion 

among providers about who needs an 

NPI and when an NPI for a subpart or 

an individual provider should be 

reported. 

• Version 5010 provides clear 

definitions and precise rules with 

instructions for consistently reporting 

provider information in the same 

position and with the same meaning 

throughout the transaction. Version 

4010/4010A lacks a clear definition for 

the various types of providers (other 

than attending and operating) who 

participate in providing health care and 

who could be named in the claim 

transaction (for example, ordering 

provider and referring provider). 

Version 5010 makes programming 

more efficient because it uses the same 

structure for all data elements across the 

transactions for which 5010 is used. 

Therefore, the structure for patient 

information in the institutional health 

care claims transaction would be the 

same as that for eligibility for a health 

plan transaction. Version 4010/4010A 

does not structure certain data (for 

example, patient information) 

consistently with the standards for other 

transactions, such as the eligibility for a 

health plan transaction. 

• Professional health care claims 

(837P). 

We propose to revise § 162.1102 by 

adding a new paragraph (c)(3) that 

would replace the ASC X12N 837P 

Version 4010/4010A with the 837 

Health Care Claim: Professional ASC 

X12 Technical Report Type 3 for the 

Health Care Claims or Equivalent 

Encounter Information Transaction for 

professional claims. 

Like the institutional health care 

claim transaction, Version 4010/4010A 

does not provide a means for identifying 

an ICD–10 diagnosis code on a 

professional claim. Version 5010 

anticipates the eventual use of ICD–10 

diagnosis codes and adds a qualifier as 

well as the space needed to report the 

number of characters that would permit 

reporting of ICD–10 diagnosis codes on 

professional claims. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• Version 5010 only allows the 

reporting of minutes for anesthesia time, 

ensuring consistency and clarity across 

transactions. Version 4010/4010A lacks 

consistency in allowing for the reporting 

of anesthesia time, in either units or 

minutes. This inconsistency creates 

confusion among providers and plans, 

and frequently requires electronic or 

manual conversions of units to minutes 

or vice versa, depending on a health 

plan’s requirement, and is especially 

complicated when conducting COB 

transactions with varying requirements 

among secondary or tertiary payers. 

• Version 5010 allows ambulance 

providers to report pick-up information 

for ambulance transport electronically 

and makes it a requirement on all 

ambulance claims. Version 4010/4010A 

does not allow ambulance providers to 

report pick-up information for 

ambulance transport. Plans that need 

this information to adjudicate an 

ambulance claim must request this 

information after the claim is received. 

This means that providers are required 

to submit the information separately or 

on paper, which complicates the claim 

submission substantially. Version 5010 

includes an implementation note that 

states that the provider specialty 

information applies to the entire claim 

unless there are individual services 

where the provider specialty 

information differs. This feature 

eliminates redundant reporting. Version 

4010/4010A contains redundant 

requirements for reporting a referring 

provider’s medical specialty when a 

claim contains more than one service, 

and the referring provider specialty 

information differs for at least one of the 

services. 

• Dental health care claims (837D). 

We propose to revise § 162.1102 by 

adding a new paragraph (c)(2) that 

would replace the ASC X12N 837D 

Version 4010/4010A with the 837 

Health Care Claim: Dental ASC X12 

Technical Report Type 3 and Type 1 

Errata for Health Care Claims or 

Equivalent Encounter Information for 

dental claims. 

Certain services performed by dentists 

are considered to be medical services 

and are covered as medical benefits by 

insurance plans. In Version 4010/ 

4010A, a dental claim cannot be 

processed as a medical claim because 

not all the required or situational 

information for a medical claim is 

included in the dental claim. In Version 

5010 for dental claims, data 

requirements are closely aligned with 

the data requirements for medical 

claims, which supports coordinating 

benefits between dental and medical 

health plans. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• Version 5010 includes a designated 

location for treatment start and stop 

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dates for dental crowns or bridges, 

which health plans need to 

appropriately administer their dental 

benefits. Version 4010/4010A does not 

allow for this information to be 

reported. 

• Version 5010 supports the reporting 

of specific tooth numbers with the 

International Tooth Numbering System 

(ITNS) code. Version 4010/4010A does 

not support this reporting, which makes 

submitting claims for dental services 

that may be covered under a medical 

plan complicated and burdensome. The 

services typically relate to wisdom teeth 

extraction and traumatic dental injuries, 

and are generally provided by oral and 

maxillofacial surgeons. Since these 

services often are covered by a medical 

benefit, they are reported on the 837 

professional claim. Without support for 

the ITNS on the 837 professional claim, 

providers face denials, claim re-works 

and the manual submission of paper 

documentation to provide the tooth 

number information that is needed by 

plans to properly adjudicate claims and 

electronically conduct coordination of 

benefits. Version 5010 eliminates these 

cumbersome processes by providing a 

standardized field for reporting the 

ITNS code on claims that may be 

required to report certain dental services 

on an 837 professional claim, rather 

than the dental version. 

• Version 5010 includes an 

enhancement that supports the 

reporting of an address for the place of 

treatment for dental claims. Version 

4010/4010A does not support the 

recording of this information. The place 

of treatment is typically the dentist’s 

address and it is needed by health plans 

for claims adjudication. The support for 

this information is available in Version 

4010/4010A but only for institutional 

and professional claims. 

• Version 5010 requires a first name 

only when the entity is a person, 

whereas Version 4010/4010A requires a 

first name even in instances when the 

entity is not a person. The deficiency in 

Version 4010/4010A means that, even if 

an organization or company is the 

subscriber for a workers’ compensation 

claim, in which case there would be no 

first name, the submitter is still required 

to provide a first name. 

Health Care Payment and Remittance 

Advice Transaction (835)—For All 

Claim Types 

We propose to revise § 162.1602 by 

adding a new paragraph (c) that would 

replace the ASC X12N 835 Version 

4010/4010A with the 835 Health Care 

Claim Payment/Advice ASC X12 

Technical Report Type 3 for the Health 

Care Payment and Remittance Advice 

transaction. This would apply to all 

claim types, including retail pharmacy 

claims. 

Many of the enhancements in Version 

5010 involve the Front Matter section of 

the Technical Report Type 3, which 

contains expanded instructions for 

accurately processing a compliant 835 

transaction. Version 5010 provides 

refined terminology for using a 

standard, and enhances the data content 

to promote clarity. The benefits of these 

refinements could include more 

accurate use of the standard, reduction 

of manual intervention and could 

motivate vendors and billing services to 

provide a more cost-effective solution 

for the submission and receipt of 

electronic remittance advice 

transactions. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• Version 5010 makes improvements 

to permit better use of remittance advice 

by tightening business rules and 

reducing the number of available code 

value options. Version 4010/4010A for 

remittance advice lacks standard 

definitions and procedures for 

translating remittance information and 

payments from various health plans to 

a provider which makes automatic 

remittance posting difficult. 

• Version 5010 provides instructions 

for certain business situations where 

none had existed before. For example, 

Version 5010 instructs providers on 

how to negate a payment that may be 

incorrect and post a correction. 

• Version 5010 for the 835 transaction 

does not affect the processing of Version 

4010/4010A claim transactions. This 

compatibility with the earlier standard 

would permit implementers to begin 

testing Version 5010 for the 835 

transaction before the compliance date, 

and, at the same time, continue to 

process 837 claims using Version 4010/ 

4010A. This flexibility is important 

because there may be a transition period 

with claims for services rendered before 

the compliance date that will be in the 

older version of the standard because 

data elements required in Version 5010 

might not have been captured at the 

time services were rendered. 

• Version 5010 includes a new 

Medical Policy segment that provides 

more up-to-date information on payer 

policies and helps in detail 

management, appeals, and reduces 

telephone and written inquiries to 

payers. The new segment helps 

providers locate related published 

medical policies that are used to 

determine benefits by virtue of the 

addition of a segment for a payer’s URL 

for easy access to a plan’s medical 

policies. Version 4010/4010A does not 

provide the ability to include 

information or resources for policyrelated payment reductions or 

omissions. 

• Version 5010 eliminates codes 

marked ‘‘Not Advised,’’ but leaves the 

code representing ‘‘debit’’ as situational, 

with instructions on how and when to 

use the code. Version 4010/4010A 

contains codes marked ‘‘Not Advised,’’

which means that the guide 

recommends against using it, but does 

not prohibit its use. For example, in 

Version 4010/4010A, there are codes to 

indicate whether a payment is a debit or 

a credit, and the debit code is marked 

‘‘Not Advised’’ because the transaction 

is a payment, and a credit code is 

expected instead. There is no use for the 

debit code, so the instruction ‘‘Not 

Advised’’ appears for that field. 

• Version 5010 provides clear 

instructions for use of the claim status 

indicator codes. Version 4010/4010A 

includes status codes that indicate a 

primary, secondary, or tertiary claim, 

but no instructions for the use of these 

codes. This creates confusion when a 

claim is partially processed, or when a 

claim is processed but there is no 

payment. 

Enrollment and Disenrollment in a 

Health Plan (834) 

We propose to revise § 162.1502 by 

adding a new paragraph (c) that would 

replace the ASC X12N 834 Version 

4010/4010A with the 834 Benefit 

Enrollment and Maintenance ASC X12 

Technical Report Type 3 for the 

Enrollment and Disenrollment in a 

health plan transaction. 

The most significant differences 

between Version 4010/4010A and 

Version 5010 for the enrollment and 

disenrollment in a health plan 

transaction is the addition of 

functionality in Version 5010 that did 

not exist in Version 4010/4010A. For 

example, Version 5010 can use ICD–10 

diagnosis codes for reporting preexisting conditions and additional ICD–

10 disease classifications. This 

functionality was added in anticipation 

of the adoption of the ICD–10 code sets. 

Other changes in Version 5010 that 

were added in response to requests for 

improvements to Version 4010/4010A 

include: 

• Version 5010 adds the ability to 

designate certain information as 

confidential and restrict access to 

member information. This new function 

provides privacy protection by 

safeguarding confidential information. 

• Version 5010 adds maintenance 

reason codes to explain coverage 

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changes. The new codes reflect changes 

in student status, age limitations, 

additional coverage information, life 

partner changes, termination due to 

non-payment, and other changes. This 

information is important for establishing 

coverage patterns and recording 

accurate information on coverage status. 

• Version 5010 provides the ability to 

report enrollment subtotals by 

employees and dependents or grand 

totals, unlike Version 4010/4010A; 

although not a critical change, this is a 

feature of Version 5010 that facilitates 

use of the 834 transaction. 

• Version 5010 eliminates date range 

confusion by adding fields for a ‘‘start’’

date and an ‘‘end’’ date. Version 4010/ 

4010A lacks definitions and instructions 

for reporting date ranges that indicate 

coverage ‘‘to’’ a certain date, versus 

coverage ‘‘through’’ a certain date, and 

instructions as to when to send the 

dates of effectiveness for coverage 

changes. Without accurate coverage 

effectiveness and coverage change 

information, the administration of 

enrollment and disenrollment in a 

health plan becomes inefficient and 

cumbersome and frequently requires 

manual intervention, negating the 

benefits of electronic data interchange 

(EDI). 

Health Plan Premium Payments (820). 

We propose to revise § 162.1702 by 

adding a new paragraph (c) that would 

replace the ASC X12N 820 Version 

4010/4010A with the 820 Payroll 

Deducted and Other Group Premium 

Payment for Insurance Products, ASC 

X12 Technical Report Type 3 for the 

Health Plan Premium Payments 

Transaction. 

A deficiency in Version 4010/4010A 

is the inability for health plan sponsors 

to report additional deductions from 

payments. The addition of this data 

element is an important improvement in 

Version 5010 because it helps reduce 

confusion for health plans when 

payments are not the amount expected. 

Version 4010/4010A does not have a 

way to indicate the method used to 

deliver the remittance. Version 5010 

includes an indicator for the delivery 

method, and options include file 

transfer, mail, and online. This permits 

trading partners to select and indicate 

the method that best meets their 

business needs. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• Version 5010 permits a health plan 

sponsor to adjust an entire transaction 

for a previous payment without tying it 

to an individual member record. 

Version 4010/4010A requires a health 

plan sponsor to link a transaction 

payment adjustment for a previous 

payment to an individual member 

record, creating extra work and 

additional administrative tasks. 

• To eliminate confusion, Version 

5010 changes the premium remittance 

detail information from ‘‘situational’’ to 

‘‘required,’’ so that all entities must 

provide the specific data regarding 

premiums. In Version 4010/4010A, 

premium remittance detail information 

is situational and only required for 

HIPAA transactions. Plan sponsors 

always use the transaction for premium 

payments to health plans so the 

transaction is always a HIPAA 

transaction and, therefore, premium 

remittance detail information is always 

required. 

Eligibility for a Health Plan (270/271). 

We propose to revise § 162.1202 by 

adding a new paragraph (c)(2) that 

would replace the ASC X12N 270/271 

Version 4010/4010A with the 270/271 

Health Care Eligibility/Benefit Inquiry 

and Information Response ASC X12 

Technical Report Type 3 for the 

Eligibility for a Health Plan Transaction. 

This transaction is used to determine 

eligibility for institutional, professional 

and dental services, and for eligibility 

and benefit inquiries between 

prescribers and Part D Plan Sponsors. (It 

is not used between pharmacies and 

health plans for a pharmacy’s eligibility 

inquiries—that standard is an NCPDP 

standard, and its use is discussed in the 

section on Version D.0 later in this 

preamble.) 

Version 4010/4010A does not require 

health plans to report relevant coverage 

information, for example, coverage 

effectiveness dates—health plans are 

only required to provide a response that 

coverage does exist. Version 5010 

corrects this deficiency by requiring the 

payer to report specific coverage 

information (for example, the name of 

plan coverage, beginning effective date, 

benefit effective dates, and primary care 

provider (if available)). This additional 

information significantly improves the 

value of the transaction to the provider 

community. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• Version 5010 adds nine categories 

of benefits that must be reported if they 

are available to the patient. Some 

examples of those categories are 

pharmacy, vision, and mental health. 

Version 4010/4010A contains no 

requirement to report categories of 

benefits. 

• Version 5010 adds 38 additional 

patient service type codes to the ones 

that are available in Version 4010/ 

4010A. This expands the use of patient 

service type codes available to submit in 

an eligibility inquiry. The use of a more 

specific patient services type code 

enriches the data that is returned in the 

eligibility response, matching the 

information in the eligibility response to 

that in the eligibility inquiry. 

• Version 5010 provides clearer 

instructions for describing subscriber 

and dependent relationships. Health 

plan subscriber and dependent 

relationships are unclear in Version 

4010/4010A, creating ambiguity and 

confusion about when to use 

‘‘subscriber’’ and when to use 

‘‘dependent’’ when one of them is also 

the patient. 

Referral Certification and Authorization 

(278). 

We propose to revise § 162.1302 by 

adding a new paragraph (c)(2) that 

would replace the ASC X12N 278 

Version 4010/4010A with the 278 

Health Care Services Request for Review 

and Response ASC X12 Technical 

Report Type 3 and Type 1 Errata for the 

Referral Certification and Authorization 

transaction. 

This transaction is not commonly 

used in the industry today because of 

the many implementation constraints of 

Version 4010/4010A. These constraints 

include the inability to report specific 

information on patient conditions (for 

example, mental status), functional 

limitations of the patient (for example, 

handicapped), and the specialty 

certifications of a provider. Version 

4010/4010A also does not provide a way 

for the requestor to limit the number of 

occurrences of a service within a 

defined time frame (for example, 

limiting the number of visits to three 

within a ninety-day period). Version 

5010 corrects these deficiencies. 

Version 5010 includes the following 

additional improvements over Version 

4010/4010A: 

• Version 5010 includes rules and 

separate implementation segments for 

key patient conditions, including: 

ambulance certification information; 

chiropractic certification; durable 

medical equipment information; oxygen 

therapy certification information; 

patient functional limitation 

information; activities currently 

permitted for the patient information; 

and patient mental status information. 

Version 4010/4010A lacks 

differentiating rules for various 

conditions, making the standard 

cumbersome to use for both providers 

and health plans. 

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• Version 5010 supports or expands 

support for, a variety of business cases 

deemed important by the industry, 

including: Medical services reservations 

(permitting requesters to reserve a 

certain number of service visits within 

a defined period of time, for example, 

number of physical therapy visits); 

dental service detail (for tooth 

numbering and other dental related 

services); and ambulance transport 

requests to capture multiple address 

locations for multiple trips. 

• Version 5010 supports or expands 

authorization exchanges, including 

requests for drug authorization 

procedure code modifiers and patient 

state of residence, which may be 

important from a coverage 

determination standpoint. Version 

4010/4010A does not support 

authorizations for drugs and certain 

pharmaceuticals, and a number of other 

common authorization exchanges 

between covered entities. 

Health Care Claim Status (276/277) 

We propose to revise § 162.1402 by 

adding a new paragraph (c) that would 

replace the ASC X12N 276/277 Version 

4010/4010A with the Health Care Claim 

Status Request and Response ASC X12 

Technical Report Type 3 and Type 1 

Errata for the Health Care Claim Status 

Transaction, for institutional, 

professional and dental claims. 

One of the deficiencies of the Version 

4010/4010A 276 inquiry is that it does 

not identify prescription numbers and 

the associated 277 response cannot 

identify which prescription numbers are 

paid or not paid at the claim level of the 

transaction. The ability to identify a 

prescription by the prescription number 

is important for pharmacy providers 

when identifying claims data in their 

systems. Version 5010 includes new 

functionality that allows for 

identification of prescription numbers 

and the associated response allows for 

identification of which prescription 

numbers are paid or not paid at the 

claim level. 

Other changes in Version 5010 that 

were added in response to requests for 

improvements to Version 4010/4010A 

include: 

• Version 5010 eliminates a number 

of requirements to report certain data 

elements which are considered sensitive 

personal information specific to a 

patient, and which are not necessary to 

process the transaction. The Version 

4010/4010A requirements for the 

collection and reporting of sensitive 

patient health information have raised 

concerns about privacy and minimum 

necessary issues. For example, the 

Version 4010/4010A standard requires 

the subscriber’s date of birth and 

insurance policy number, which often is 

a social security number. This 

information is not needed to identify the 

subscriber because the policy number 

recorded for the patient already 

uniquely identifies the subscriber. 

• To reduce reliance on companion 

guides, and ensure consistency in the 

use of the Implementation Guides, 

situational rules that were ambiguous in 

Version 4010/4010A are clarified in 

Version 5010. For example, Version 

4010/4010A contains a number of 

situational rules that are unclear and 

open to different interpretations. Based 

on industry requests for changes, the 

DSMO reviewed all of the 4010/4010A 

situational rules and revised each 

standard as appropriate to reduce 

multiple interpretations. For example, 

Version 5010 clarifies the relationships 

between dependents and subscribers, 

and makes a clear distinction between 

the term ‘‘covered status’’ (whether the 

particular service is covered under the 

benefit package) and ‘‘covered 

beneficiary’’ (the individual who is 

eligible for services). Since Version 

4010/4010A does not provide clear rules 

for the interpretation of these terms, 

industry use of the fields is inconsistent, 

and subject to entity-specific 

determinations. An additional example 

of a clarification is the creation of a new 

section in the Version 5010 Referral 

Certification and Authorization 

transaction, where a separate segment 

was created to allow for the entry of 

information to clearly indicate that a 

patient’s medical condition met 

certification requirements for 

ambulance or oxygen therapy. The 

creation of a specific section to capture 

such information eliminates the need to 

request or send that information later. 

• Version 5010 implements 

consistent rules across all TR3s 

regarding the requirement to include 

both patient and subscriber information 

in the transaction. Some current 

implementation guides (Version 4010/ 

4010A) require that subscriber 

information be sent even when the 

patient is a dependent of the subscriber 

and can be uniquely identified with an 

individual identification number, 

whereas other transactions (for example, 

eligibility for a health plan inquiry (270) 

and referral certification and 

authorization request (278)) permit 

sending only the patient dependent 

information if the patient has a unique 

member ID. These standards do not 

require the subscriber ID. The 

requirement to include the subscriber 

information with the dependent 

member information for a uniquely 

identifiable dependent is an 

administrative burden for the provider. 

• Version 5010 provides clear 

instructions for users on how to use the 

transaction in either batch or real time 

mode. Version 4010/4010A does not 

provide any such guidance, which is 

needed by the industry. 

Coordination of Benefits (COB)—(837) 

We propose to revise § 162.1802 by 

adding new paragraphs (c)(2), (c)(3), and 

(c)(4) that would replace the ASC X12N 

837 Version 4010/4010A 

implementation guides for the 

Coordination of Benefits (COB) 

Transaction, with Version 005010 

Technical Report Type 3 and Type 1 

Errata for institutional, professional and 

dental claims. COB is a claim function 

included in each of the individual 

named claim Type 3 Technical Reports 

(837I, 837P and 837D). 

There are a number of deficiencies 

with Version 4010/4010A, including the 

lack of clear instructions for several 

important scenarios, including how to 

create a COB claim when the prior 

payer’s remittance information came to 

the provider in a paper format and how 

a receiver can calculate a prior payer’s 

allowed amount. Additional 

deficiencies that have made 

coordination of benefits transactions 

among payers difficult is the presence of 

statements such as ‘‘if needed by a payer 

for adjudication’’ and similar statements 

that have allowed for varying 

interpretations within the health care 

industry. These obstacles to successfully 

completing an electronic compliant 

COB transaction using Version 4010/ 

4010A, and accepting and adjudicating 

COB transactions among a variety of 

payers, have been removed or 

significantly mitigated in Version 5010. 

Other changes in Version 5010 that 

were added in response to industry 

requests for improvements to Version 

4010/4010A include: 

• A number of sections have been 

added or modified in Version 5010 to 

provide the broad-based instructions 

necessary to ensure a standard 

implementation of COB transactions, 

including instructions for balancing 

dollar amounts on a claim. 

• The Front Matter section of Version 

5010 includes an explanation of the 

destination payer’s specific information 

(for example, claims data and provider 

identifiers that are needed for 

conducting COB). 

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B. Proposed Adoption of NCPDP 

Telecommunication Standard 

Implementation Guide Version D 

Release O (D.0) and Equivalent Batch 

Standard Batch Implementation Guide, 

Version 1, Release 2 (1.2) for Retail 

Pharmacy Transactions 

We propose to revise § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802 

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

of those sections to adopt the NCPDP 

Telecommunication Standard 

Implementation Guide, Version D, 

Release 0 (Version D.0) and equivalent 

NCPDP Batch Standard Implementation 

Guide, Version 1, Release 2 (Version 

1.2) (hereinafter collectively referred to 

as Version D.0) in place of the NCPDP 

Telecommunication Standard 

Implementation Guide, Version 5, 

Release 1 and equivalent NCPDP Batch 

Standard Batch Implementation Guide, 

Version 1, Release 1 (hereinafter 

collectively referred to as Version 5.1), 

for the following retail pharmacy drug 

transactions: Health care claims or 

equivalent encounter information; 

eligibility for a health plan; referral 

certification and authorization; and 

coordination of benefits. 

Since the adoption of Version 5.1 as 

a transaction standard in the 

Transactions and Code Sets rule, the 

industry has submitted requests to 

NCPDP for modifications to Version 5.1. 

These modification requests were for 

similar reasons as those for the X12 

standards—changing business needs, 

many necessitated by the requirements 

of the Medicare Prescription Drug 

Improvement and Modernization Act of 

2003 (MMA). 

In NCVHS hearings held in July 2007, 

industry stakeholders cited business 

needs that would be addressed by the 

increased functionality in Version D.0 to 

include: 

• Enhanced guidance for 

Coordination of Benefits (COB). In 

Version D.0, extensive clarification is 

made to the implementation guide for 

coordination of benefits processing. 

New data elements, for example, patient 

responsibility and benefit stage were 

added, along with a refined use of the 

Other Coverage Code field. 

• Processing of Medicare Part D 

claims. Changes in Version D.0 include 

the addition of three new data elements 

and rejection codes. 

• Enhanced eligibility checking. 

Version D.0 provides more complete 

eligibility information for Medicare Part 

D and other insurances. 

• Specific COB for Medicare Part D. 

Version D.0 includes identification of 

patient responsibility, benefit stage, and 

coverage gaps on secondary claims. 

• Streamlined claims processing for 

compounded drugs. In Version D.0, the 

compound segment has been modified 

to allow for the billing of multiple 

ingredients. To standardize this process, 

the two alternative ways of billing 

compounded claims have been 

removed. 

As a result of the hearings, the 

NCVHS Subcommittee on Standards 

and Security determined that the 

business needs identified by the 

industry would be met by Version D.0. 

The NCVHS expressed its support for 

Version D.0, and recommended that it 

be proposed for adoption as a HIPAA 

transaction standard through 

rulemaking. Based on the comments 

from industry stakeholders (as 

discussed above), the NCVHS 

specifically referenced several of the 

improvements in Version D.0, 

including: The modified field and 

segment defined situations; resolution 

of the situational versus optional data 

requirements to accommodate the 

HIPAA privacy regulations; and 

segment usage matrices that clarify 

which segments and fields are sent for 

each transaction type, and segments and 

fields within each transaction type. It 

also cited the enhancements made to 

accommodate Medicare Part D, which 

include the addition of a ‘‘facilitator’’

entity and eligibility transaction to 

provide coded patient eligibility 

information for Medicare Part D and 

enhancements to identify and process 

Medicare Part D long term care claims. 

Enhancements with respect to Medicare 

Part B claims include additional 

segments for processing Medicare 

certificates of medical necessity, new 

data elements for processing those 

transactions, and assistance in the 

crossover of claims from Medicare to 

Medicaid. Finally, the NCVHS stated 

that Version D.0 also supports the 

following: COB and collection of rebates 

for compounded claims; clarification for 

pricing guidelines; the addition of new 

data elements that give more specificity 

to the COB process; a new section on 

prior authorization added to the 

implementation guide; a prescription/ 

service reference number increase to 12 

digits; and transaction codes for service 

billings. 

Because we believe Version D.0 

would better support the business needs 

of the industry, for the reasons cited by 

the NCVHS, we propose to adopt 

Version D.0. We solicit comments 

regarding the proposed adoption of 

Version D.0 as the HIPAA standard, set 

forth in proposed revisions to 

§ 162.1102, § 162.1202, § 162.1302, and 

§ 162.1802. 

C. Proposed Adoption of a Standard for 

Medicaid Pharmacy Subrogation: 

NCPDP Medicaid Subrogation 

Implementation Guide, Version 3.0 for 

Pharmacy Claims 

We propose to add a new subpart S 

to 45 CFR part 162 to adopt a standard 

for the subrogation of pharmacy claims 

paid by Medicaid. The transaction 

would be the Medicaid Pharmacy 

Subrogation transaction, defined at 

proposed § 162.1901, and the new 

standard would be the NCPDP Batch 

Standard Medicaid Subrogation 

Implementation Guide, Version 3, 

Release 0 (Version 3.0), July 2007 

(hereinafter referred to as Version 3.0) at 

proposed § 162.1902. The standard 

would be applicable to Medicaid 

agencies in their role as health plans, 

but not to providers or health care 

clearinghouses because this transaction 

is not utilized by them. As a condition 

of Medicaid eligibility, an individual 

must assign to the State Medicaid 

agency his or her rights to payments for 

medical services from other liable third 

parties. This allows the Medicaid 

agency the right to stand in the place of 

the Medicaid recipient for the purpose 

of collecting reimbursement from liable 

third parties wherever the Medicaid 

agency has paid claims on behalf of a 

Medicaid recipient. This is referred to as 

‘‘Medicaid subrogation.’’

Federal law requires, with some 

exceptions, that Medicaid be the payer 

of last resort. Health plans that are 

legally required to pay for health care 

services received by Medicaid recipients 

are to pay for services primary to 

Medicaid. However, Medicaid agencies 

sometimes pay claims for which a third 

party may be legally responsible. This 

can occur when the Medicaid agency is 

not aware of the existence of other 

coverage. There are also specific 

circumstances for which States are 

required by Federal law to pay claims 

and then seek reimbursement afterward. 

Whenever Medicaid pays claims for 

which another party is legally 

responsible, the State is required to seek 

recovery. 

For the purpose of adopting a HIPAA 

standard, we propose to define a 

Medicaid pharmacy subrogation 

transaction as the transmission of a 

claim from a Medicaid agency to a payer 

for the purpose of seeking 

reimbursement from the responsible 

health plan for a pharmacy claim the 

State has paid on behalf of a Medicaid 

recipient. 

A majority of health plans use a 

pharmacy benefit manager (PBM) to 

manage prescription drug coverage and 

handle claims processing. Some health 

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plans administer the prescription 

coverage in-house, but contract with a 

claims processor to handle claims 

adjudication. A few of the large health 

plans perform their own claims 

processing. When PBMs process claims 

on behalf of health plans, they are 

considered to be business associates of 

the health plans. Section 162.923(c) 

requires a covered entity that chooses to 

use a business associate to conduct all 

or part of a transaction on behalf of the 

covered entity, to require the business 

associate to comply with all applicable 

requirements of the HIPAA regulations. 

Therefore, while entities such as PBMs 

and claims processors do not 

necessarily have ultimate financial 

liability, to the extent they are required 

by contract or otherwise to process 

claims on behalf of health plans, they 

will need to be able to receive the 

Medicaid pharmacy subrogation 

transaction in the standard format. 

There are many different formats 

utilized for submitting Medicaid 

pharmacy subrogation claims. To meet 

the many different requirements of the 

third party payers, States must maintain 

and utilize a variety of pharmacy billing 

formats. This is because different third 

party payers require different pieces of 

information. According to a study 

conducted by the Office of the Inspector 

General (OIG) entitled, ‘‘Medicaid 

Recovery of Pharmacy Payments from 

Liable Third Parties’’ (OEI–3–00–00030, 

August 2001, available at http:// 

oig.hhs.gov/oei/reports/oei-03-00- 

00030.pdf), 29 States indicated that the 

lack of universal formatting and data 

elements on pharmacy claims leads to 

the denial of Medicaid claims, 

contributing to millions of dollars of lost 

revenue to Medicaid. States have had to 

work through numerous changes and 

challenges to submit claims that are 

correctly formatted for various health 

plans. When States’ claims are denied 

for formatting or missing data, and have 

to be reworked and resubmitted; there is 

additional administrative and financial 

burden on States and third parties. 

According to the OIG study, some PBMs 

have reimbursed claims at a lower rate 

as a penalty for the claim being in the 

wrong format. In order to recover 

Medicaid funds, some States have found 

it necessary to recoup from the 

pharmacies and it is left up to the 

pharmacies to seek reimbursement from 

the third party payers. 

In 1999, representatives from CMS 

and the Medicaid agencies began 

working closely with NCPDP to develop 

a standard electronic format that could 

be used to facilitate electronic 

transmission of pharmacy subrogation 

claims from Medicaid agencies to other 

payers. The standard combines a subset 

of elements from the NCPDP Version 5.1 

drug claim standard with additional 

elements that Medicaid specifically 

needs to conduct subrogation, such as 

the Medicaid paid amount and the 

Medicaid agency identification number. 

The additional Medicaid-specific 

elements had to be placed in other 

NCPDP fields that were not discretely 

defined in Version 5.1. In June 2000, as 

a result of these collaborative efforts, 

NCPDP issued the Medicaid 

Subrogation Implementation Guide 

Version 2.0 for the Batch Standard. 

At least two-thirds of the States utilize 

Version 2.0 voluntarily, many through 

the use of a business associate that bills 

pharmacy claims on the State’s behalf. 

The States, or their business associates, 

use the NCPDP format with some 

modifications to accommodate the 

various other health plan requirements. 

There are at least ten major third party 

payers that have entered into an 

agreement with States and/or their 

business associates to accept the NCPDP 

format. However, the absence of full 

standardization now presents challenges 

for States, which must continue to 

maintain and use many billing formats. 

We did not adopt a standard for 

Medicaid pharmacy subrogation at the 

time the first set of HIPAA transaction 

standards were adopted because it was 

not one of the specified transactions 

mandated in the law. However, we 

believe that, in light of the challenges 

noted above, deriving from the lack of 

full standardization, it is now 

appropriate to propose a standard for 

the Medicaid pharmacy subrogation 

transaction. Section 1173(a)(1)(B) of the 

Act authorizes the Secretary to adopt 

standards for any other financial and 

administrative transactions as deemed 

appropriate, consistent with the goals of 

improving the operation of the health 

care system and reducing administrative 

costs. We believe that adopting a 

standard for Medicaid pharmacy 

subrogation would facilitate electronic 

data interchange; thereby reducing 

administrative costs and improving the 

operations of the health care system by 

eliminating multiple formats and 

methods of performing this transaction. 

We solicit comments regarding the 

proposed adoption of the NCPDP Batch 

Standard Medicaid Subrogation 

Implementation Guide, Version 3.0 as 

the HIPAA standard for the Medicaid 

pharmacy subrogation transaction, and 

the proposed dates for compliance with 

the standard addressed in proposed 

§ 162.1902. 

D. Proposed adoption of the National 

Council for Prescription Drug Programs 

(NCPDP) Telecommunication Standard 

D.0 and the Health Care Claim: 

Professional ASC X12 Technical Report 

Type 3 for Billing Retail Pharmacy 

Supplies and Services 

We propose to revise § 162.1102 to 

adopt both Version D.0 and the 837 

Health Care Claim: Professional ASC 

X12 Technical Report Type 3 for billing 

retail pharmacy supplies and 

professional services. The use of either 

standard would be determined by 

trading partner agreements. 

The Transactions and Code Sets rule 

adopted two transaction standards 

relating to the billing of retail pharmacy 

claims. Version 5.1 is required for the 

transmission of retail pharmacy drug 

claims, and the X12 837 for professional 

services and supplies. (§ 162.1102). The 

final rule, however, does not define 

what or who constitutes ‘‘retail 

pharmacies’’ and further, what a ‘‘retail 

pharmacy drug claim’’ is in the context 

of the NCPDP, Version 5.1 standard. The 

regulations also do not specify, define, 

or describe the items or services that are 

to be billed on the X12N 837P standard, 

only that the services are ‘‘health care 

services.’’ As a result, different 

interpretations of the regulations exist 

as to whether a ‘‘retail pharmacy drug 

claim,’’ which is to be billed using 

Version 5.1, includes claims only for 

drug products, for drug products and 

associated pharmacy services and 

supplies, or for drug products and any 

retail pharmacy services or supplies. 

CMS has interpreted the regulation as 

requiring that Version 5.1 be used only 

for drug products and that the X12N 

837P be used for retail pharmacy 

services and supplies other than drug 

products. 

Since publication of the Transactions 

and Code Sets rule, there has been 

ongoing debate in the industry about 

which is the appropriate standard for 

billing retail pharmacy supplies and 

professional services. Retail pharmacy 

supplies and professional services 

include syringes, applicators, inhalers 

and nebulizers, and home infusion IV 

supplies. These are often tied to a retail 

pharmacy claim for a prescription, such 

as insulin, ointments, and inhaler 

solutions. For example, a patient could 

get a prescription and/or refill for 

insulin and the syringes. Under the 

current rule, pharmacies are expected to 

submit the insulin claim in real-time, 

using the NCPDP standard, and get 

immediate benefit coverage and co-pay 

insurance information. However, they 

must bill the prescription for the 

syringes with the X12 standard, which 

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is typically a batch billing process so the 

pharmacist would not get immediate 

notification of coverage and co-pay 

insurance information. The transaction 

could be further complicated if the 

patient is prescribed consultation or 

Medication Therapy Management 

(MTM) services for the use and dosage 

of the insulin with the syringes. The 

issue of MTM is discussed later in this 

section. 

At the time the Transactions and Code 

Sets rule was published, HHS’ opinion 

that the NCPDP standard should be used 

for retail pharmacy and the X12 

standard should be used for professional 

pharmacy claims was based on the 

inability of NCPDP to accommodate 

HCPCS codes that could be used to 

identify pharmacy procedures and 

services. The code set has since 

expanded, and Version 5.1 is now 

capable of accommodating the National 

Drug Codes (NDC) and the HCPCS codes 

to identify pharmacy procedures and 

services more accurately. In the 

Modifications rule (68 FR 8387), there 

was additional discussion regarding the 

complications of not allowing the use of 

NCPDP for pharmacy supplies and 

services, and there is significant 

discussion in that rule that supports the 

industry need to be able to use the 

NCPDP standard in place of the Version 

4010 standard for these claims. Since 

publication of the Transactions and 

Code Sets rule and the Modifications 

rule, we have responded to substantial 

correspondence and provided guidance 

in a Frequently Asked Question (FAQ) 

clarifying that the NCPDP standard is to 

be used for billing retail pharmacy drug 

claims and that the X12 837 standard is 

to be used for billing retail pharmacy 

supplies and professional services. 

Nonetheless, there continues to be a 

lack of consensus in the industry 

regarding which standard to use for 

billing retail pharmacy supplies and 

professional services because of the 

disagreement as to what is a retail 

pharmacy drug claim. Some segments of 

the pharmacy industry interpret a retail 

pharmacy drug claim as one that could 

include pharmacy supplies and 

professional services, and therefore 

would permit the use of the NCPDP 

standard. Others believe that retail 

pharmacy drug claims do not include 

retail pharmacy supplies and 

professional services and, therefore, 

permit the X12 standard to be used. 

There are also entities that believe it is 

appropriate to use one or the other 

standard depending on whether the 

insurance benefit is medical, in which 

case X12 is used for retail pharmacy 

supplies and professional services, or 

whether it is a pharmacy benefit, in 

which case the NCPDP standard should 

be used. Whether the benefit is covered 

under medical or pharmacy is typically 

determined by the design of an 

employer’s or health plan’s benefit 

package. We also continue to receive 

input from the industry that it is 

common practice for pharmacies to use 

the NCPDP standard instead of the X12 

standard because of the convenience 

and accuracy NCPDP provides for these 

services and claim types. 

In 2006, the debate escalated due to 

implementation of the Medicare Part D 

Program under the Medicare 

Prescription Drug, Improvement, and 

Modernization Act (MMA). The MMA 

provides coverage for certain 

professional pharmacy services, referred 

to as Medication Therapy Management 

(MTM) services. MTM services are a 

distinct service or group of services that 

optimize therapeutic outcomes for 

individual patients. MTM services are 

independent of, but can occur in 

conjunction with, the provision of a 

medication product. MTM encompasses 

a broad range of professional activities 

and responsibilities within the licensed 

pharmacist’s, or other qualified health 

care provider’s, scope of practice. Some 

pharmacies believe it is appropriate to 

use the NCPDP standard for MTM 

services because the service is part of a 

prescription. Other segments, notably 

the small independent pharmacies, 

believe it is appropriate to use the X12 

standard because they interpret 

‘‘professional services’’ to mean that a 

‘‘professional’’ (837P) claim is required 

and their vendor software offers that 

capability. 

The industry acknowledges 

advantages and disadvantages for use of 

both standards, and has provided 

evidence that both standards should be 

considered compliant and that the use 

of either would be appropriate under 

HIPAA. In August 2007, a national 

organization sent a letter to CMS in 

support of using the NCPDP for both 

retail pharmacy service and supply type 

claims. The letter explained that chain 

drug stores feel strongly that they 

should be able to bill using NCPDP 5.1. 

Entities supporting the use of NCPDP 

5.1 make the argument that NCPDP 5.1 

offers real-time adjudication of claims, 

whereas the X12 837P is a batch 

process. According to the National 

Association of Chain Drug Stores, 

pharmacies are not coding for the X12 

837 transaction because it is too 

cumbersome. Instead, when forced to 

use this transaction, pharmacies must 

use an outside vendor or clearinghouse, 

even though it is an added expense 

because they already have the capability 

to exchange the same information in 

real time with NCPDP 5.1. On the other 

side of the discussion, the independent 

pharmacies argue that X12 837 is the 

appropriate standard for ‘‘supplies and 

professional services’’ as evidenced by 

the fact that they have purchased 

software from their national association 

to accommodate this standard. Further, 

they believe that the X12 837 is more 

robust in its support of the data 

elements needed to bill for MTM 

services. 

After discussions with representatives 

of national organizations as well as the 

NCPDP, CMS posted an addendum to its 

Frequently Asked Question (FAQ) on 

the CMS website in October 2007. This 

FAQ now also includes the following: 

‘‘While CMS adheres to its foregoing 

interpretation of the regulations 

requiring that MTM retail pharmacy 

services be reported using the X12 837P 

standard, we recognize that a reasonable 

argument could be advanced in 

response to the Department seeking to 

enforce this regulation, contending that 

the regulations could be read to instead 

direct the use of the NCPDP, Version 5.1 

standard for such services. We further 

realize that notice and comment 

rulemaking, which the Department 

anticipates initiating in the near future 

will resolve the apparent ambiguity of 

these regulatory provisions. In light of 

the foregoing planned rulemaking and 

the uncertain outcome of any 

enforcement action, we elect not to take 

enforcement action against those 

covered entities that continue to use the 

NCPDP, Version 5.1 standard for this 

transaction.’’

The implementation guides for both 

adopted standards accommodate the 

transaction, including the use of the 

appropriate code sets, and neither guide 

states clearly which standard applies for 

billing retail pharmacy services and 

supplies. This is a unique situation—no 

other HIPAA transactions can be 

adequately supported by two 

implementation guides. Based upon the 

input we have received from the 

industry on the use of these standards, 

we believe that allowing for the use of 

either the NCPDP or ASC X12 standards 

would accommodate prevailing 

business practices, ensure efficiency, 

and prevent redundant costs. For 

example, a pharmacy provider would no 

longer need to bill two separate claims 

(that is, one for a drug, and a separate 

claim for the supplies associated with 

the drug’s administration). Health plans 

already accept both transaction types, 

and have the systems in place to 

adjudicate the retail and professional 

claims using either transaction. 

Therefore we do not believe this will be 

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an additional burden to plans. We do 

not believe that the proposed approach 

would be disruptive to current industry 

practice, as we have stated, and we do 

not believe that there will be any 

negative impact on providers or 

consumers in accommodating this 

existing business process. Rather, we 

believe our proposed approach would 

be the least disruptive to the industry 

because it accommodates prevailing 

business practices and permits entities 

to use the standard that is most 

appropriate, efficient and accurate for 

processing certain kinds of pharmacy 

transactions. Furthermore, the NCPDP 

standard accommodates the billing of 

supplies and services as well, if not 

more effectively than the X12 standard, 

because it was designed by the industry, 

with a specific focus on the full set of 

requirements for all types of pharmacy 

transactions. Both Version D.0 and 

Version 5010 accommodate the billing 

of supplies and services. This is also 

consistent with NCVHS 

recommendations dated June 17, 2004. 

We solicit comments on the proposal 

to adopt both the NCPDP standard and 

the X12 standard for billing retail 

pharmacy supplies and professional 

services. 

E. Modifications to the Descriptions of 

Standards 

We propose to revise the descriptions 

of the transactions at § 162.1301, 

§ 162.1401, and § 162.1501 to more 

clearly specify the senders and receivers 

of those transactions. 

In the Transactions and Code Sets 

rule, we identified eight health care 

transactions and adopted standards for 

each of them. Included in most of the 

descriptions of those transactions is a 

specification of ‘‘to whom’’ and ‘‘from 

whom’’ the transaction is transmitted. 

This specification enables covered 

entities to be able to determine more 

easily when they may be conducting 

transactions for which a HIPAA 

standard is adopted and, therefore, 

when they need to comply with the 

transaction standard. However, 

descriptions for three of the transactions 

do not specify the ‘‘to’’ and ‘‘from’’

criteria—that is, the sender and receiver 

are not identified. This lack of 

specificity creates confusion and 

uncertainty in the industry about when 

a particular electronic transmission 

meets the definition of a transaction. In 

addition, in 2003 the Secretary’s 

Advisory Committee on Regulatory 

Reform recommended that we adopt 

‘‘to’’ and ‘‘from’’ data submission 

requirements for all of the standard 

transactions. We wish to make our 

existing policies as clear as possible, 

and we use this proposed rule as the 

opportunity to do so. 

In this proposed rule, we would 

revise descriptions for three of the 

standard transactions to ensure that ‘‘to’’

and ‘‘from’’ requirements are specified. 

1. Enrollment and Disenrollment in a 

Health Plan Transaction 

In § 162.1501, the text does not 

specify the sender of the transmission. 

We propose to clarify, by revising the 

regulation text, that the enrollment and 

disenrollment in a health plan 

transaction is the transmission of 

subscriber enrollment information from 

the sponsor of the insurance coverage, 

benefits or policy to a health plan, to 

establish or terminate insurance 

coverage. The Version 5010 

Implementation Guide also defines the 

transaction this way: ‘‘The 834 is used 

to transfer enrollment information from 

the sponsor of the insurance coverage, 

benefits, or policy to a payer.’’

We note that when enrollment and 

disenrollment information is currently 

sent electronically from a sponsor to a 

health plan, a sponsor that is not 

otherwise a covered entity is not 

required to use the transaction standard 

because, as a non-covered entity, HIPAA 

does not apply to it. A sponsor is an 

employer that provides benefits to its 

employees, members or beneficiaries 

through contracted services. Numerous 

entity types act as sponsors in providing 

benefits, including, for example, unions, 

government agencies, and associations. 

While it is not mandatory for plan 

sponsors that are not covered entities to 

use the transaction standard, such an 

entity may nevertheless voluntarily use 

the standard or may contract with a 

health care clearinghouse to translate 

nonstandard data into a standard 

transaction on its behalf in order to take 

advantage of available efficiencies and 

cost saving opportunities through EDI. 

2. Referral Certification and 

Authorization Transaction 

In § 162.1301, the text does not 

indicate who the senders and receivers 

of the referral certification and 

authorization transactions are—it 

simply states that the transmission is a 

request or response. We therefore 

propose to clarify the senders and 

receivers by stating that the referral and 

certification authorization transaction is 

any of the following transmissions: 

• A request from a health care 

provider to a health plan for the review 

of health care to obtain an authorization 

for the health care. 

• A request from a health care 

provider to a health plan to obtain 

authorization for referring an individual 

to another health care provider. 

• A response from a health plan to a 

health care provider to a request 

described in the first or second bullet 

above. 

3. Health Care Claim Status Transaction 

In § 162.1401, the text does not 

indicate who the senders and receivers 

of the health care claim status 

transaction are—it simply states that the 

transmission is an inquiry or response. 

We therefore propose to clarify the 

parties to this transaction by stating that 

the health care claim status transaction 

is the transmission of either of the 

following: 

• An inquiry from a health care 

provider to a health plan to determine 

the status of a health care claim, or 

• A response from a health plan to a 

health care provider about the status of 

a health care claim. 

F. Proposed Compliance and Effective 

Dates 

We propose to revise § 162.900 to 

reflect that, for the Medicaid pharmacy 

subrogation transaction, all covered 

entities, except for small health plans, 

would be required to be in compliance 

no later than 24 months after the 

effective date of the final rule. Small 

health plans would have an additional 

12 months for compliance. Willing 

trading partners would be able to agree 

to use the Medicaid subrogation 

standard voluntarily at any time after 

the effective date and before the 

compliance date. For example, covered 

entities that implement Version D.0 may 

choose to implement the Medicaid 

subrogation standard at the same time 

because such an action can be 

accommodated in the work flow. 

CMS recognizes that transactions 

often require the participation of two 

covered entities, and when one covered 

entity is under a different set of 

compliance requirements, the second 

covered entity may be put in a difficult 

position. For the Medicaid subrogation 

of pharmacy claims transaction, small 

health plans would have an extra year 

to comply with the regulation. 

Therefore, if a Medicaid agency 

attempted to transmit Version 3.0 to a 

small health plan before the small 

health plan was required to be 

compliant, the small health plan could 

reject the transaction. This would 

require the Medicaid agency to use two 

versions of the transaction, or to use one 

compliant version, and one proprietary 

version, depending on the trading 

partner agreement with the small health 

plan for this interim period. We propose 

to resolve this problem of different 

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compliance dates by revising the 

language in § 162.923. Section 162.923, 

entitled ‘‘Requirements for covered 

entities’’ currently states, ‘‘(a) General 

rule. 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.’’ We propose to 

revise § 162.923 by making paragraph 

(a) applicable only to a covered entity 

that conducts transactions with another 

entity that is required to comply with 

the transaction standards. We believe 

that such a change would result in a less 

disruptive process by recognizing and 

resolving the difficult position covered 

entities may face when conducting 

transactions with trading partners who 

have different compliance deadlines. 

Accordingly, we would revise § 162.923 

as follows: ‘‘(a) General rule. Except as 

otherwise provided in this part, if a 

covered entity conducts with another 

covered entity that is required to 

comply with a transaction standard 

adopted under this part (or within the 

same covered entity), using electronic 

media, a transaction for which the 

Secretary has adopted a standard under 

this part, the covered entity must 

conduct the transaction as a standard 

transaction.’’ If we change § 162.923(a) 

in this way, a Medicaid agency, which 

would have a different compliance date 

than a small health plan with whom it 

is conducting the subrogation 

transaction, would not be required to 

conduct the transaction in the standard 

format until the date by which the small 

health plan must be in compliance with 

the standard. 

We invite comments regarding the 

proposed compliance dates for our 

proposal to adopt the Medicaid 

pharmacy subrogation transaction 

standard. We further propose to revise 

section § 162.900 to remove the 

provisions related to the Administrative 

Simplification Compliance Act of 2001 

(ASCA) Public Law 107–105. 

The revised transactions descriptions 

would be effective on the effective date 

of the final rule. 

NCVHS noted that, according to 

testimony, there were no expected 

implementation issues with Version 

D.0, but that implementation of Version 

5010 would likely prove slightly more 

challenging because of the number of 

standards and the diversity of trading 

partners. However, because most 

covered entities will need to program 

for both Version 5010 and Version D.0, 

we believe that it is most practical to 

propose the same compliance dates for 

both. We propose that for Versions 5010 

and D.0, health plans, including small 

health plans, health care clearinghouses 

and covered health care providers, be 

required to be compliant on and after 

April 1, 2010. We do not propose a 2- 

year time frame for compliance, as 

recommended by NCVHS, because we 

believe the industry has sufficient 

experience with implementation issues 

associated with the HIPAA standards to 

enable them to conduct their design/ 

build activities, and schedule and 

perform testing within a 12-month 

period. Furthermore, the ability to 

implement and use the ICD–10 code set 

is contingent upon implementation of 

Version 5010. Since we anticipate 

timely publication of regulations to 

adopt the ICD–10 code set, we wish to 

give the industry sufficient time in 

which to effectively plan and 

implement the Version 5010 transaction 

standards. We anticipate the compliance 

date for ICD–10 to be in 2011. 

Presuming that, given this anticipated 

schedule, and in order to give the 

industry at least eighteen months of 

experience with Version 5010, the 

compliance date for those standards 

must be April 2010. We have not 

surveyed the industry broadly, other 

than the interviews conducted for the 

impact analysis, and while we 

acknowledge the logistical and 

implementation issues associated with 

the transition to Version 5010 and 

Version D.0, we maintain that the 

industry is capable of planning and 

designing the technical and operational 

infrastructure requirements in time for 

the proposed deadline. We believe that 

the benefits of the new versions, the 

potential for mitigating existing 

inefficient work arounds, and 

streamlining business processes will 

outweigh any benefits to be derived 

from a two-year compliance time frame 

recommended by the NCVHS. We 

specifically ask for industry comment 

on the timing and the costs of this 

proposed implementation schedule. 

We also do not propose an additional 

year for small health plans to comply 

because we believe this allowance is 

unnecessary. Small health plans have 

had sufficient time to be compliant with 

the HIPAA transaction standards as well 

as the NPI, and to have made the 

appropriate investments in technology 

and infrastructure, as have their larger 

counterparts. The system and business 

process changes to accommodate 

Version 5010 and Version D.0 are not 

significant enough to warrant an 

additional year for those organizations 

that should now have sufficient 

experience with the standards. 

We did consider, as an alternative, a 

proposal in which all health plans and 

all health care clearinghouses would be 

required to be compliant one year after 

the effective date, and covered health 

care providers would be required to be 

compliant 12 months later. In this way, 

providers would have ample time to test 

with their trading partners, and 

problems would be identified and 

resolved timely. We are not proposing 

the staggered compliance date option. 

Our discussion of the issues follows. 

NCVHS testimony and subsequent 

industry input clearly support the 

adoption of Version 5010 for the 

affected X12 transactions and Version 

D.0 for the NCPDP transactions, but also 

confirm that it would be a significant 

undertaking for the industry, 

particularly in light of other potential 

Health IT initiatives such as migrating 

from the ICD–9 to ICD–10 code sets and 

implementing the new standards for 

claims attachments after that final rule 

is published. 

The difficulties associated with 

implementation of the first set of HIPAA 

transaction standards and the National 

Provider Identifier (NPI) standard 

highlights the criticality of testing to 

ensure that transactions can be 

successfully exchanged between trading 

partners before the compliance date. 

The testing process is complex and 

time-consuming, especially for health 

plans and health care clearinghouses, 

which must test with very large 

numbers of trading partners. 

Historically, industry testing of the 

HIPAA standards has been concentrated 

at the very end of the compliance 

period, often resulting in insufficient 

time to identify and resolve all of the 

problems soon enough; this 

compression of the testing process has 

led to late identification of problems 

and has necessitated relief in the form 

of a flexible enforcement approach and 

contingency plans to avoid widespread 

noncompliance and cash flow 

disruption. 

The July 2007 NCVHS letter, 

referenced earlier in this document, also 

recommended moving to a staggered 

compliance schedule for most of the 

standards proposed in this rule, which 

would require health plans and health 

care clearinghouses to be prepared for 

trading partner testing at the end of the 

first year of the implementation period, 

and to allow the second year to be used 

for testing. According to the NCVHS, 

this schedule would ensure that covered 

entities have ample time for 

communication, outreach, internal and 

external testing, corrective action, and 

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implementation. The NCVHS also 

recommended that CMS adopt certain 

levels of compliance for the standards. 

For example, Level 1 compliance would 

mean that the covered entity could 

demonstrate that it could create and 

receive compliant transactions. Level 2 

compliance would demonstrate that 

covered entities had completed end-toend testing with all of their partners. 

Testing appears to be the key to 

successful timely implementation of 

standards. In fact, the NCVHS letter 

noted that testifiers emphasized that 

there was a need to test Version 5010 in 

real-life settings to ensure its 

interoperability and ability to support 

the transactions. Three types of testing 

needs were identified: (1) Testing of the 

standards for workability; (2) 

conformance testing of products and 

applications that send and/or receive 

the transactions; and (3) end-to-end 

testing to ensure interoperability among 

trading partners. NCVHS observed that, 

with the previous HIPAA transaction 

standards implementation, these three 

types of testing occurred unevenly, 

resulting in delays that could be 

minimized or avoided by staggering the 

various types of testing. 

To accommodate an effective testing 

schedule, a variety of options for 

staggering the implementation of the 

Version 5010 and D.0 modifications 

were offered by testifiers to the NCVHS. 

There was a proposal to NCVHS that the 

compliance date for plans and 

clearinghouses could be a year before 

the date for providers in order to 

facilitate end-to-end testing. 

Alternatively, different compliance 

dates could be assigned to different 

transactions (for example, implement 

the claim and related transactions first). 

Testifiers at the July 30, 2007 hearings 

also attested to the importance of 

allowing dual processing (old plus new 

versions) for a sufficient period to allow 

end-to-end testing to occur. 

Because of the importance of testing 

in achieving a smooth transition to the 

updated standards, we did consider 

proposing two different compliance 

dates for covered entities—a strategy in 

which health plans and health care 

clearinghouses would have to be 

compliant 1 year before covered health 

care providers to allow for adequate 

testing. However, such a proposal 

would shorten the overall 

implementation period for the entire 

industry and we believe it would 

present a number of other potential 

challenges to the industry. 

First, a staggered implementation 

schedule would require all entities to 

use dual systems for the duration of the 

testing period, which could add to the 

cost of implementation, in part because 

plans and clearinghouses would have to 

implement a robust trading partner 

tracking system to know which 

providers were testing Version 5010, 

which were using Version 4010, and 

then, which successfully completed 

testing and had fully converted to 

Version 5010. Providers would have 

additional operational costs to manage 

their own testing and implementation 

schedule with plans and clearinghouses. 

The logistics could be complex, costly, 

and disruptive. Second, staggered 

compliance dates could impact plan-toplan COB transactions because plans 

and providers would be implementing 

Version 5010 at different times. In order 

to conduct compliant Version 5010 

transactions, all plans would have to be 

compliant at the same time, and all 

providers would have to be using 

Version 5010 as well, to take advantage 

of plan-to-plan COB. In addition, 

compliance in the case of a staggered 

implementation schedule would mean 

that, on the compliance date for plans 

and clearinghouses, those entities 

would have to be able to send and 

receive compliant transactions. 

However, it would be inappropriate to 

require plans and clearinghouses to 

reject noncompliant transactions 

received from providers during the one 

year period before providers would be 

required to be compliant, since the 

providers would not be required under 

this proposal to be able to conduct 

compliant transactions until the end of 

that period. 

We believe we have the authority 

under the statute to propose different 

compliance dates for different entity 

groups, and we believe that exercising 

that authority could be in the interest of 

the industry to facilitate an orderly and 

effective transition to the use of the 

standards. However, for the reasons 

noted above, we are not proposing this 

approach. We are, however, interested 

in comments on the advantages and 

disadvantages of a staggered 

implementation schedule, specifically 

with respect to its effect on the testing 

process. 

Although we are not proposing a 

staggered compliance schedule, we 

strongly encourage health plans and 

clearinghouses to begin to get their 

systems ready as early as possible, and 

providers to work with their trading 

partners to schedule testing timely as 

well. We also encourage clearinghouses 

and vendors to take advantage of the 

market opportunity to develop leading 

edge tools for implementing Version 

5010, and support early testing for their 

provider clients. We note that NCVHS 

recognized the widespread use of 

compliance testing services, which 

allow entities to test products and 

applications to ensure they can create 

and accept compliant transactions. We 

agree that such services could simplify 

end-to-end testing by ensuring that 

individual products are compliant in 

advance. While HHS does not recognize 

or promote any specific organizations or 

tools for such services, we do support 

the use of such testing services for 

software and/or applications that would 

demonstrate a covered entity’s ability to 

create, send, and receive compliant 

transactions. 

We anticipate that upon publication 

of this proposed rule in the Federal 

Register, the industry will actively 

initiate and/or complete planning for 

implementation of Version 5010. While 

not included under the auspices of this 

proposed rule, we also acknowledge the 

impact of the implementation of the 

ICD–10 code set on the Version 5010 

and Version D.0 implementation 

timelines. Once the Version 5010/ 

Version D.0 and ICD–10 final rules are 

published, we estimate that the industry 

will begin documenting the 

requirements for the necessary system 

changes for each standard, initiate and/ 

or complete any gap analyses, and then 

undertake design and system changes. 

The Version 5010/Version D.0 rule 

implementation would progress first, 

based on the need to have those updated 

standards in place prior to ICD–10 

implementation in order to 

accommodate the increase in the size of 

the fields for the ICD–10 code sets. In 

the case of Version 5010 and Version 

D.0, system testing could commence 

approximately 8 months prior to a 

Version 5010 compliance date. We 

anticipate that ICD–10 testing could 

start shortly after the Version 5010 

compliance date, and approximately 

one year prior to the October 2011 

compliance date. Upon publication of 

these proposed rules for both Version 

5010/Version D.0 and ICD–10 in the 

Federal Register, HHS, through CMS, 

plans on proactively conducting 

outreach and education activities, as 

well as engaging industry leaders and 

other stakeholder organizations to 

provide a variety of educational and 

communication programs to their 

respective constituencies. These 

activities would include roundtable 

conference calls with the industry, 

including Medicare contractors, fiscal 

intermediaries and carriers; health 

plans, clearinghouses, hospitals; 

physicians; pharmacies, other providers; 

and other stakeholders. CMS will also 

develop and make available ‘‘Frequently 

Asked Questions’’ on the website, fact 

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sheets, and other supporting education 

and outreach materials for partner 

dissemination. Other potential activities 

will be identified and developed based 

on stakeholder input. 

The draft proposed timeline shown 

below is for preliminary planning 

purposes only, and represents our best 

estimate, given our current knowledge, 

of what an implementation timetable 

might look like. It is subject to revision 

as updated information becomes 

available. 

DRAFT PROPOSED TIMELINE FOR ICD–10 AND VERSIONS 5010/D.0 IMPLEMENTATION

ICD–10 Version 5010/D.0 

8/08: Publish proposed rule ..................................................................... 8/08: Publish proposed rule. 

9/08: Industry begins requirements documentation for systems 

changes; CMS and industry initiate education and outreach. 

12/08: CMS and industry begin ongoing education and outreach.

4/09: Industry builds and tests systems changes (internal and external 

testing). 

06/09: Industry begins design documentation.

12/09: Industry builds and internally tests systems changes.

4/10: Compliance date for all covered entities. 

07/10–10/11: Conduct testing with trading partners.

10/11: ICD–10 compliance date for all covered entities.

We solicit industry and other 

stakeholder comments on our timeline 

assumptions and our proposed 

education and outreach strategy. 

In sum, the challenges and difficulties 

encountered with previous standards 

implementation have informed the 

industry, which we believe now more 

meaningfully appreciates the benefits of 

collaboration, communication, and 

coordinated testing in making a 

substantial difference in successful 

implementation. Furthermore, we 

believe the industry is eager to move 

forward with Versions 5010 and D.0, 

and an aggressive timetable will be the 

right incentive to move the industry to 

proactive action and collaboration. We 

invite public comment on our proposed 

compliance dates. 

III. Collection of Information 

Requirements 

The burden associated with the 

information collection requirements 

contained in § 162.1102, § 162.1202, 

§ 162.1301, § 162.1302, § 162.1401, 

§ 162.1402, § 162.1501, § 162.1502, 

§ 162.1602, § 162.1702, and § 162.1802 

of this document are subject to the PRA; 

however, these information collection 

requirements are currently approved 

under OMB control number 0938–0866. 

This package will be revised to 

incorporate any proposed additional 

transaction standards and proposed 

modifications to transaction standards 

not currently captured in the PRA 

package associated with OMB approval 

number 0938–0866. 

IV. Response to Comments 

Because of the large number of public 

comments we normally receive on 

Federal Register documents, we are not 

able to acknowledge or respond to them 

individually. We will consider all 

comments we receive by the date and 

time specified in the DATES section of 

this preamble, and, when we proceed 

with a subsequent document, we will 

respond to the comments in the 

preamble to that document. 

V. Regulatory Impact Analysis 

A. Overall Impact 

We have examined the proposed 

impacts of this rule as required by 

Executive Order 12866 (September 

1993, Regulatory Planning and Review), 

as amended by Executive Order 13258 

(February 26, 2002) and further 

amended by Executive Order 13422 

(January 18, 2007), the Regulatory 

Flexibility Act (RFA) (September 19, 

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

the Social Security Act, the Unfunded 

Mandates Reform Act of 1995 (Pub. L. 

104–4), Executive Order 13132 on 

Federalism, and the Congressional 

Review Act (5 U.S.C. 804(2)). 

Executive Order 12866 (as further 

amended) directs agencies to assess all 

costs and benefits of available regulatory 

alternatives and, if regulation is 

necessary, to select regulatory 

approaches that maximize net benefits 

(including potential economic, 

environmental, public health and safety 

effects, distributive impacts, and 

equity). A regulatory impact analysis 

(RIA) must be prepared for major rules 

with economically significant effects 

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

This proposed rule is anticipated to 

have an annual benefit on the economy 

of $100 million or more, and would 

have economically significant effects, 

making it a major rule under the 

Executive Order and the Congressional 

Review Act. We believe that covered 

entities have already largely invested in 

the hardware, software and connectivity 

necessary to conduct the new version of 

the standards, and the new standard 

proposed. We anticipate that the 

adoption of these new versions and the 

new standard would result in costs that 

would be outweighed by the benefits. 

Accordingly, we have prepared a 

Regulatory Impact Analysis that to the 

best of our ability presents the costs and 

benefits of the proposed rulemaking. 

B. Regulatory Flexibility Analysis 

The Regulatory Flexibility Act (RFA) 

of 1980, Public Law 96–354, requires 

agencies to describe and analyze the 

impact of the proposed rule on small 

entities unless the Secretary can certify 

that the regulation will not have a 

significant impact on a substantial 

number of small entities. In the health 

care sector, a small entity is one with 

between $6.5 million and $31.5 million 

in annual revenues or is a nonprofit 

organization. For the purposes of this 

analysis (pursuant to the RFA), 

nonprofit organizations are considered 

small entities; however, individuals and 

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States are not included in the definition 

of a small entity. We have attempted to 

estimate the number of small entities 

and provide a general discussion of the 

effects of the proposed regulation, and 

where we had difficulty, or were unable 

to find information, we solicit industry 

comment. We believe that the 

conversion to Versions 5010 and D.0 

would have an impact on virtually every 

health care entity, since at least some 

personnel in every covered entity would 

have to adjust to certain new business 

rules and procedures to accommodate 

the improvements in the data available 

from the transactions. 

In our analysis, we combine Versions 

5010 and D.0 because these two 

standards would be implemented at the 

same time, and in some cases are 

dependent on each other. For example, 

a health plan may use Version 5010 to 

send a remittance advice notification to 

a pharmacy, even though the pharmacy 

has used Version D.0 to submit its 

claim. This means that both the health 

plan and the pharmacy will have to 

implement both Version 5010 and 

Version D.0 in order to effectively 

exchange transactions. Similarly, a 

pharmacy may use Version 5010 to bill 

for supplies (for example, syringes), yet 

use Version D.0 for the retail pharmacy 

service of the insulin. The pharmacy 

will have to implement both Versions 

5010 and D.0. 

Table 27a in the impact analysis 

presents the implementation costs of 

Versions 5010, D.0 and 3.0 on all 

entities we anticipate would be affected 

by the rule. The data in that table are 

used in this analysis to provide cost 

information. 

Because most health care providers 

are either nonprofit or meet the SBA’s 

size standard for small business, we 

treat all health care providers as small 

entities. For providers, the changes may 

be minimal involving no more than a 

software upgrade for practice 

management and billing systems. Thus, 

we expect that the vast majority of 

physicians and practitioners will need 

to make relatively small changes in their 

systems and in their processes. We 

include pharmacies in this analysis, and 

consider some of them to be small 

businesses, and they are thus 

represented in our tables and the 

accompanying narrative. A number of 

health plans are considered small 

businesses, but we were unable to 

identify data for these entities, and 

therefore solicit industry feedback to 

complete this analysis for the final rule. 

We address clearinghouses and 

Pharmacy Benefit Managers (PBMs) in 

our discussion, but we do not believe 

that there are a significant number of 

clearinghouses that would be 

considered small entities because of the 

consolidation that has been occurring in 

the marketplace over the past 5 years. 

This was confirmed by a number of 

associations, including the Maryland 

Commission for Health Care. PBMs are 

excluded from the analysis because we 

have no data to indicate that they would 

qualify as a small entity. For example, 

as of 2006, the top four PBMs in the 

country accounted for about 75 percent 

of the prescription market, and of the 

top 10 PBMs, the largest showed 

revenues of more than $35 billion, with 

the smallest having revenues of $75 

million (http://www.managedcaremag.

com/archives/0609/0609.pbms.html). 

We invite comment and data from the 

industry regarding our assumptions. 

State Medicaid agencies are excluded 

from this analysis because they have 

annual estimated revenues that exceed 

the small entity threshold of $31.5 

million under the regulatory flexibility 

analysis guidelines. Furthermore, States 

are not considered small entities in any 

Regulatory Flexibility Analysis. 

Initial Regulatory Flexibility Analysis 

(IRFA) 

1. Number of Small Entities 

In total, we estimate that there are 

more than 300,000 health care 

organizations that may be considered 

small entities either because of their 

nonprofit status or because of their 

revenues. On the provider side, 

practices of doctors of osteopathy, 

podiatry, chiropractors, mental health 

independent practitioners with annual 

receipts of less than $6.5 million are 

considered to be small entities. Solo and 

group physicians’ offices with annual 

receipts of less than $9 million (97 

percent of all physician practices) are 

also considered small entities, as are 

clinics. Approximately 92 percent of 

medical laboratories, 100 percent of 

dental laboratories and 90 percent of 

durable medical equipment suppliers 

are assumed to be small entities as well. 

The American Medical Billing 

Association (AMBA) (http:// 

www.ambanet.net/AMBA.htm) lists 97 

billing companies on its web site. It 

notes that these are only ones with Web 

sites. 

The Business Census data shows that 

there are 4,786 firms considered as 

health plans and/or payers (NAICS code 

5415) responsible for conducting 

transactions with health care providers. 

In the proposed rule’s impact analysis, 

we use a smaller figure based on a 

report from AHIP. But for purposes of 

the RFA, we did not identify a subset of 

small plans, and instead solicit industry 

comment as to the percentage of plans 

that would be considered small entities. 

We identified the top 78 

clearinghouses/vendors in the Faulkner 

and Gray health data directory from 

2000—the last year this document was 

produced. Health care clearinghouses 

provide transaction processing and 

translation services to both providers 

and health plans. 

We identified nearly 60,000 

pharmacies, using the National 

Association of Chain Drug Stores 

Industry Profile (2007, http:// 

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

the initial regulatory flexibility analysis 

we are proposing to treat all 

independent pharmacies reported in the 

Industry Profile as ‘‘small entities.’’ The 

number of independent pharmacies 

reported for 2006 is approximately 

17,000 entities. We specifically invite 

comments on the number of small 

pharmacies. 

Based on Figure 2 of the Industry 

Profile, independent pharmacy 

prescription drug sales account for 17.4 

percent of total pharmacy drug sales of 

$249 billion sales for 2006. Allocating 

the 5010 and D.0 costs based on the 

share of prescription drug revenues to 

independent pharmacies (the small 

businesses), implementation costs are 

expected to range between $7.06 and 

$13.7 or 0.00 and 0.03 percent of 

revenues. These figures indicate that 

there is minimal impact, and the affect 

falls well below the HHS threshold, 

referred to at the beginning of this 

section. 

2. Costs for Small Entities 

To determine the impact on health 

care providers we used Business Census 

data on the number establishments for 

hospitals and firms for the classes of 

providers and revenue data reported in 

the Survey of Annual Services for each 

NAICS code. Because each hospital 

maintains its own financial records and 

reports separately to payment plans, we 

decided to report the number of 

establishments rather than firms. For 

other providers, we assumed that the 

costs to implement the 5010 would be 

accounted for at the level of firms rather 

than at the individual establishments. 

Therefore, we reported the number of 

firms for all other providers. 

Since we are treating all health care 

providers as small entities for the 

purpose of the initial regulatory 

flexibility analysis, we allocated 100 

percent of the implementation costs 

reported in the impact analysis for 

provider type. Table 1 shows the impact 

of the Version 5010 implementation 

costs as a percent of the provider 

revenues. For example, dentists, with 

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reported 2005 revenues of $87.4 billion 

and costs ranging from $299 million to 

$598 million have the largest impact on 

their revenues of between $0.19 percent 

and 0.39 percent. We are soliciting 

comments specifically on the number of 

providers affected by the proposed rule 

and information that will help us in our 

analysis of the burden on providers. 

We do not include an analysis of the 

impact on small health plans here, 

because we were not able to determine 

the number of plans that meet the SBA 

size standard of $6.5 million in annual 

receipts. 

In evaluating whether there were any 

clearinghouses that could be considered 

small entities, we consulted with three 

national associations (EHNAC, HIMSS 

and the Cooperative Exchange), as well 

as the Maryland Commission for Health 

Care, and determined that the number of 

clearinghouses that would be 

considered small entities was negligible. 

Revenues cited on the Cooperative 

Exchange Web site (www.cooperative

exchange.org/faq.html) divided 

clearinghouses into three revenue 

categories—small ($10 million); 

medium ($10 million to $50 million) 

and large ($50 million or greater). We 

identified the top 78 clearinghouses, 

and determined that they are typically 

part of large electronic health networks, 

such as Siemens, RxHub, Availity, GE 

Healthcare etc., none of which fit into 

the category of small entity. Finally, we 

contacted industry experts who have 

also been trying to gather revenue data 

from the industry without success. As 

referenced earlier, in a report by 

Faulkner and Gray in 2000, the top 51 

entities were listed, and the range of 

monthly transactions was 2,500 to 4 

million, with transaction fees of $0.25 

per transaction to $2.50 per transaction. 

We determined that even based on this 

data, few of the entities would fall into 

the small entity category, and we do not 

count them in this analysis. 

With respect to Version 3.0, we point 

out that while we do not know how 

many health plans/payers will exchange 

the subrogation standard with Medicaid 

agencies, those entities would be 

counted in the health plan category and 

addressed under the analysis for 

Version 5010 and D.0. We do not 

provide a separate analysis here. 

In sum, we assumed that the financial 

burden would be equal to or less than 

three percent of revenues. HHS policy 

states that if a rule imposes a burden 

equal to or greater than three percent of 

a firm’s revenues, it is significant (see: 

‘‘Guidance on Proper Consideration of 

Small Entities in Rulemakings of the 

U.S. Department of Health and Human 

Services’’ at http://www.hhs.gov/ 

execsec/smallbus.html). Based on the 

results of this analysis, we are 

reasonably confident that the rule will 

not have a significant impact on a 

substantial number of small entities. 

Nevertheless, we are specifically 

requesting comments on our analysis 

and asking for any data that will help us 

determine the number and sizes of firms 

implementing the standards proposed in 

this notice. 

Table 2 below summarizes the impact 

of the rule on the health care industry. 

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

ENTITIES

NAICS Entities 

Total 

Number of 

entities 

Small 

entities 

Revenue or Receipts 

($ millions) 

Small entity 

receipts of 

total 

receipts 

(in percent) 

Version 5010/ 

D.0 annual 

costs 

(in millions) 

Small 

entity share of 

version 5010/ 

D.0 

Costs 

(in millions $) 

Implementation cost 

revenuereceipts 

(in percent) 

6221 ......... General Acute Care Hospitals (establishments).5,386 5,386 612,245 100 $536–$1,072 ........................ 0.09–0.18 

6211 ......... Physicians (firms) .......................................... 189,562 189,562 330,889 100 250–501 ........................ 0.08–0.15 

6212 ......... Dentists (firms) .............................................. 118,163 118,163 87,405 100 172–344 ........................ 0.19–0.39 

44611 ....... Pharmacies (includes 5010 and D.0) ........... 56,946 17,482 249,000 17 .4 49–96 7.1–13.7 0.02–0.03 

In column 1 we display the NAICS 

code for class of entity. Column 2 shows 

the number of entities that are reported 

in the Business Census for 2006 or 

‘‘Chain Pharmacy Industry Profile.’’

Column 3 shows the number of small 

entities that were computed based the 

Business Census and Survey of Annual 

Service when the data was available. All 

health care providers were assumed to 

be small. We assumed that all 

independent pharmacies reported in 

Table 2 of the Industry profile are small 

entities. 

Column 4 shows revenues that were 

reported for 2005 in the Survey of 

Annual Services, or in the case of 

pharmacies, in Figure 2 of the Industry 

profile. In the case of health plans and 

third party administrators, we used the 

consumer payments reported for private 

health insurance in 2006 in the National 

Health Expenditure accounts. 

Column 5 shows the percent of small 

entity revenues. 

Column 6 shows the implementation 

costs for Version 5010, D.0 and 3.0 

taken from Table 27a of the impact 

analysis. 

Column 7 shows the costs allocated to 

the small entities based on the percent 

of small entity revenues to total 

revenues. 

Column 8 presents the percent of the 

small entity share of implementation 

costs as a percent of the small entity 

revenues. As stated in the guidance 

cited earlier in this section, HHS has 

established a baseline threshold of 3 

percent of revenues that would be 

considered a significant economic 

impact on affected entities. None of the 

entities exceeded or came close to this 

threshold. 

We note that the impact in our 

scenarios is consistently under the 

estimated impact of 3 percent for all of 

the entities listed above, which is below 

the threshold the Department considers 

as a significant economic impact. As 

expressed in the Department guidance 

on conducting regulatory flexibility 

analyses, the threshold for an economic 

impact to be considered significant is 3 

percent to 5 percent of either receipts or 

costs. As is clear from the analysis, the 

impact does not come close to the 

threshold. Thus based on the foregoing 

analysis, we conclude that some health 

care providers may encounter 

significant burdens in the course of 

converting to the modified Versions 

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

opinion that, for most providers, health 

plans, and clearinghouses the costs will 

not be significant. 

3. Alternatives Considered 

As stated in section V.D of this 

proposed rule, we considered various 

policy alternatives to adopting Versions 

5010, D.0 and 3.0. For Version 5010, one 

alternative considered was that we not 

adopt the modifications, but allow the 

industry to continue using the current 

versions. This would not have been an 

appropriate solution because it does 

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nothing to address the existing 

shortcomings of the current versions, 

such as issues with inconsistent 

instructions, situational rules that 

preclude the full benefits of 

standardization for the industry, limited 

eligibility and secondary payer 

information, and continued reliance on 

companion guides from health plans. 

The existing shortcomings of the 

currently adopted standards continue to 

impact the industries’ ability to meet 

evolving business needs and advanced 

technology. 

We considered a number of options 

for implementing a staggered transition 

to Version 5010—phasing in the 

implementation of the new standards by 

covered entity type. For example, 

clearinghouses and health plans would 

modify their systems first, followed by 

providers. We rejected this option as 

being too costly and too burdensome. 

This option would require 

clearinghouses and health plans, which 

are largely national, covering multiple 

states, to maintain and operate both 

Version 4010/4010A and Version 5010. 

Programmers would have to 

accommodate the new standards, but 

maintain programs for the older version. 

This could increase the likelihood of 

errors in payments and incorrect 

eligibility information, and could create 

confusion and uncertainty for providers. 

It is likely that there would be delays in 

claims processing. We believe the cost 

of maintaining two systems 

concurrently would impose a very 

significant burden on health plans, 

providers, and clearinghouses. 

Another alternative considered and 

rejected was to delay implementation 

for small entities. However, because we 

treat all health care providers as small 

entities, we did not see any benefit to be 

gained from delaying implementation of 

Version 5010 beyond the 18 month 

implementation period being proposed 

in the rule, and therefore rejected this 

alternative. 

A final alternative considered was 

waiting and adopting later versions of 

the X12 standards. In large part, this is 

not a feasible option since the adoption 

of Version 5010 is critical to the use of 

ICD–10. Given our expectation that use 

of the ICD–10 code set will be mandated 

in the next few years, the industry must 

have experience using Version 5010 in 

order to effectively implement ICD–10. 

We recognize that other relevant Federal 

Rules, current or future, may overlap 

and/or affect this proposed rule. We do 

not believe that this proposed rule 

conflicts with the expected ICD–10 rule, 

but rather supports the industry’s ability 

to implement that code set in a more 

timely fashion. 

We considered various alternatives to 

adopting NCPDP Version D.0. One 

alternative that was considered but not 

proposed was to do nothing and keep 

the current Version 5.1 as a HIPAA 

transaction standard. This option, 

however, would not support the health 

care industry’s needs for better and 

enhanced claims information. If the 

Department continues to require 

Version 5.1, the enhancements that were 

made in Version D.0 to improve Part D 

eligibility and claims processing would 

put those who rely on this information 

at a disadvantage. 

Another alternative we considered 

was to stagger the implementation dates 

for the Version D.0 among the entities 

that utilize the affected NCPC 

transaction. This alternative is not 

feasible since pharmacies, PBMs, and 

health plans all rely on the information 

transmitted though the NCPDP 

transaction. If any one of these three 

entities is not using the same NCPDP 

version at the same time, the 

information needed to process claims 

and check eligibility would be deficient. 

Pharmacies need the most current 

eligibility data from the plans to 

determine correct coverage and payment 

information. Plans and PBMs would 

suffer because they would not have the 

most current information reflected 

though the claims data to maintain the 

beneficiaries’ most current benefits. 

We considered a number of 

alternatives to proposing the adoption of 

the NCPDP 3.0 Medicaid pharmacy 

subrogation standard. We considered 

not adopting the standard, which would 

allow the industry to continue using 

Version 2.0 or other proprietary 

electronic and paper formats. This 

option would mean that the Medicaid 

plans would have to continue to support 

multiple formats in order to bill 

pharmacy claims to third party payers. 

The current multiplicity of claim 

formats creates a significant barrier to 

Medicaid agencies being able to comply 

with Federal law in ensuring that 

Medicaid is the payer of last resort. 

We also considered adopting the 

Version 2.0 standard which would 

require a number of workarounds to be 

compatible with Version D.0 or other 

NCPDP claim standards (except for 

NCPDP, Version 5.1). The NCPDP 

testified to the NCVHS in January 2008 

that adopting Version 3.0 for Medicaid 

subrogation is a cost-saving tool and 

will improve the efficiency of those 

already using Version 2.0. The NCPDP 

testified that adopting Version 3.0 will 

make it more feasible for states and 

payers to invest in system upgrades to 

accommodate one specific standard. 

The NCVHS did not recommend any 

viable alternatives to Version 3.0 for 

handling Medicaid subrogation 

transactions because it believes that 

Version 3.0 adequately addresses the 

business needs of Medicaid agencies 

and industry partners. 

4. Conclusion 

As stated in the HHS guidance cited 

earlier in this section, HHS uses a 

baseline threshold of 3 percent of 

revenues to determine if a rule would 

have a significant economic impact on 

affected entities. None of the entities 

exceeded or came close to this 

threshold. Based on the foregoing 

analysis, we could certify that this 

proposed regulation would not have a 

significant economic impact on a 

substantial number of small entities. 

However, because of the relative 

uncertainty in the data, the lack of 

consistent industry data, and our 

general assumptions, we invite public 

comments on the analysis and request 

any additional data that would help us 

determine more accurately the impact 

on the various categories of entities 

affected by the proposed rule. 

In addition, section 1102(b) of the Act 

requires us to prepare a regulatory 

impact analysis if a rule would have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. This analysis must conform to 

the provisions of section 603 of the 

RFA. For purposes of section 1102(b) of 

the Act, we define a small rural hospital 

as a hospital that is located outside of 

a metropolitan statistical area and has 

fewer than 100 beds. This proposed rule 

would affect the operations of a 

substantial number of small rural 

hospitals because they are considered 

covered entities under HIPAA and must 

comply with the regulations; however, 

we do not believe the rule would have 

a significant impact on those entities, 

for the reasons stated above in reference 

to small businesses. Therefore, the 

Secretary has determined that this 

proposed rule would not have a 

significant impact on the operations of 

a substantial number of small rural 

hospitals. 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

also requires that agencies assess 

anticipated costs and benefits before 

issuing any rule whose mandates would 

require spending in any 1 year $100 

million in 1995 dollars, updated 

annually for inflation. In 2008, that 

threshold is approximately $130 

million. This proposed rule contains 

proposed mandates that would impose 

spending costs on State, local, or tribal 

governments in the aggregate, or by the 

private sector, in excess of the current 

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threshold. This impact analysis 

addresses these impacts both 

qualitatively and quantitatively. In 

general, each State Medicaid Agency 

and other government entity that is 

considered a covered entity would be 

required to invest in software, testing 

and training to accommodate the 

adoption of the modified versions of the 

standards, and the new standard. UMRA 

does not address the total cost of a rule. 

Rather, it focuses on certain categories 

of cost, mainly those ‘‘Federal mandate’’

costs resulting from (A) imposing 

enforceable duties on State, local, or 

tribal governments, or on the private 

sector, or (B) increasing the stringency 

of conditions in, or decreasing the 

funding of, State, local, or tribal 

governments under entitlement 

programs. 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

requirement costs on State and local 

governments, preempts State law, or 

otherwise has Federalism implications. 

This proposed rule would have a 

substantial direct effect on State or local 

governments, could preempt State law, 

or otherwise have a Federalism 

implication because even though State 

Medicaid agencies would be converting 

to a modified version of an existing 

standard (Version 4010/4010A to 

Version 5010 and NCPCP 5.1 to NCPDP 

D.0) with which they are already 

familiar, there are expenses for 

implementation and wide-scale testing. 

State Medicaid agencies are currently 

required to conduct pharmacy 

subrogation, and in accordance with 

this proposed rule, would be able to use 

either the new Medicaid pharmacy 

subrogation standard or contract with 

trading partners and/or contractors who 

specialize in this field to fulfill its 

subrogation requirement, but there 

would still be some level of 

implementation costs to bear. With 

respect to subrogation for pharmacy 

claims, we note that this proposed rule 

would not add a new business 

requirement for States, but rather would 

mandate a standard to use for this 

purpose which would be used 

consistently by all States. There will 

also be expenditures for States as they 

convert from Version 5.1 to D.0 for other 

pharmacy transactions, and this 

transition will have implementation and 

testing costs as well, meaning there will 

be additional fiscal impacts on States 

based on this rule. 

C. Anticipated Effects 

The objective of this regulatory 

impact analysis is to summarize the 

costs and benefits of the following 

proposals: 

• Migrating from Version 4010/4010A 

to Version 5010 in the context of the 

current health care environment; 

• Migrating from Version 5.1 to 

Version D.0; and 

• Adopting a new standard for the 

Medicaid subrogation transaction. 

We assume for purposes of this 

analysis that maintaining existing 

practices with respect to claims 

submissions for retail pharmacy 

supplies and services (as discussed in 

section II.D above) would have no 

impact on the industry. 

The remainder of this section 

provides details supporting the cost 

benefit analysis for each of the three 

above-referenced proposals. 

1. Adoption of Version 5010 

This portion of the analysis is based 

on industry research conducted for us 

by Gartner, Incorporated (Gartner) to 

assess the costs and benefits associated 

with the adoption of Version 5010. As 

part of this endeavor, Gartner worked 

with us to establish a segmentation 

strategy to identify the individual 

segments across the full spectrum of 

health care that would be affected by the 

proposed migration to Version 5010. 

These segments were identified: 

Providers 

• Hospitals 

• Physicians 

• Dentists 

• Pharmacies 

Health Plans 

• Commercial Health Plans and Blue 

Cross/Blue Shield Plans 

• Government Plans: Medicare and 

Medicaid 

Clearinghouses and Vendors 

• Clearinghouses 

• Vendors 

Based on this segmentation, Gartner 

identified and interviewed select 

credible individuals with representative 

perspectives. These individuals 

addressed both the business and 

technical areas for their respective 

organizations or associations, and were 

capable of understanding and 

articulating the potential cost-benefit of 

changes to their existing systems and 

processes. In addition to these 

interviews, Gartner conducted research 

to complement the existing data on the 

current state of HIPAA transactions. 

This research included dialog and data 

collection from leading associations and 

other stakeholder constituencies that 

represented one or more of the segments 

identified. We note that we did not 

interview any ‘‘non-hospital’’

institutions, but made the assumption 

that skilled nursing facilities (SNFs) and 

other types of organizations may be 

affiliated with some of the larger 

hospital systems, which were included 

in the analysis. Furthermore, we have 

not broken the data out to reflect any 

particular sub-segment of the industry, 

other than hospitals, physicians, 

dentists and pharmacies. The benefits 

were based on the total number of all 

claims throughout the health care 

system, including non-hospital 

institutions. We believe that while not 

all possible organization types were 

interviewed, the assumptions and 

findings can be extrapolated to provide 

fair insight into the financial impacts 

across the industry. This applies to any 

federal agency that must comply with 

the rule; these entities will have similar 

costs and benefits to their private sector 

cohorts. We invite public comment and 

cost or benefit data to support any 

concerns about the accuracy or 

consistency in our assumptions and 

estimates, particularly related to nonhospital institutions. 

Throughout this process, Gartner 

constructed a cost-benefit model that 

synthesized the findings from the 

interviews as well as the inputs from the 

secondary research. This model was 

developed to estimate the net impact of 

implementing Version 5010 across the 

entire health care spectrum inclusive of 

all of the individual segments. When the 

model was completed, Gartner 

conducted a series of internal quality 

assurance steps, a sensitivity analysis, 

and peer review to properly validate the 

results. 

Affected Entities 

All HIPAA covered entities would be 

affected by this proposed rule. Covered 

entities include all health plans, all 

health care clearinghouses, and health 

care providers that transmit health 

information in electronic form in 

connection with a transaction for which 

the Secretary has adopted a standard. 

We note that health care providers may 

choose not to conduct transactions 

electronically. Therefore, they would be 

required to use these standards only for 

transactions that they conduct 

electronically. See the Transactions and 

Code Sets rule for a discussion of 

affected entities (65 FR 50361). 

Covered entities would incur a 

number of one-time costs to implement 

Version 5010. These costs would 

include analysis of business flow 

changes, software procurement or 

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customized software development, 

integration of new software into existing 

provider/vendor systems, staff training, 

collection of new data, testing, and 

transition processes. Systems 

implementation costs would account for 

most of the costs, with system testing 

alone accounting for 60 to 70 percent of 

costs for all covered entities. Ongoing 

operational costs are expected to 

initially grow as transmissions increase, 

but would result in lower costs per 

transaction as higher volumes are 

handled. The costs would be offset by 

the benefits of increased Electronic Data 

Interchange (EDI) and operational 

savings. 

Through the interview process, 

Gartner estimated the cost of 

implementing Version 5010 by 

establishing an estimated baseline cost 

for implementing Version 4010/4010A 

for each individual entity. 

Subsequently, it determined the 

comparative costs for Version 5010 as a 

percentage of the total estimated 

Version 4010/4010A costs. Since the 

costs of implementing Version 4010/ 

4010A are now more quantifiable, this 

methodology provided the most reliable 

means of estimating the Version 5010 

costs. Most sources agreed that Version 

5010 costs would represent 20 to 40 

percent of the total cost of implementing 

Version 4010/4010A. This is because 

the Version 4010/4010A 

implementation represented a shift to 

completely new standards, while 

Version 5010 is a less complex move 

from one version of a standard to 

another. Most start up investments, such 

as hardware procurement made during 

the Version 4010/4010A 

implementation, would not need to be 

repeated for Version 5010. The 

estimated total cost for implementing 

Version 4010/4010A during its 2 year 

implementation period for each segment 

is: $4,661 million for hospitals; $2,175 

million for physicians; $1,493 million 

for dentists; $336 million for 

pharmacies; $18,021 million for private 

plans/health plans: $1,202 million for 

government plans and $125 million for 

clearinghouses. In calculating the 

minimum and maximum costs for 

implementing Version 5010, the 20 and 

40 percent ranges have been applied to 

each of the minimum and maximum 

estimates for implementing Version 

4010/4010A, except for pharmacies. In 

analyzing cost projections for the 

pharmacy industry, we use an estimate 

of 20 percent because, as will be 

explained below, some portion of the 

implementation costs would be 

addressed by the pharmacy efforts to 

comply with Version D.0. 

The current limitations of Version 

4010/4010A and anticipated benefits of 

Version 5010 are discussed in detail in 

Section II.A. This cost benefit analysis 

considers those anticipated benefits in 

analyzing how affected entities would 

convert to key financial and business 

advantages, including: 

• Lower transaction costs resulting 

from movement from paper to electronic 

transactions and; 

• Reduction in staff resource time 

resulting from a decrease in phone calls 

to check eligibility and claim status and 

obtain referral authorizations via 

electronic transactions that provide the 

same information; 

Gartner estimated the benefits of 

implementing Version 5010 by 

identifying three specific categories of 

savings: (1) Savings due to better 

standards for electronic claims 

transactions; (2) cost savings due to an 

increase in use of the electronic claims 

transactions by more covered entities; 

and (3) operational savings due to 

increased use of electronic auxiliary 

transactions by more covered entities. 

We refer to auxiliary transactions as 

those non-claims electronic transactions 

such as eligibility and referral requests 

and responses. The savings categories 

are further described as follows: 

• Savings due to better standards—

increased use of the electronic claims 

transactions resulting in a decreased 

need for manual intervention 

• Cost Savings—increased use of 

claims related electronic transactions by 

entities that had not used them before 

(remittance advice, claims status) 

• Operational Savings—increased use 

of auxiliary, non-claims electronic 

transactions by entities that had not 

used them before (eligibility requests 

and responses). 

Each savings category is explained in 

more detail in the assumptions section 

below and we encourage readers to refer 

back to this assumptions section during 

the review of the cost benefit analysis. 

All financial analysis is calculated 

over a 10-year planning horizon, 

including an assumption that there 

would be a 2-year implementation 

period. System implementation costs 

are assumed to be incurred over that 2- 

year implementation period and are 

distributed evenly in our analysis. 

Benefits are assumed not to be realized 

until post-implementation, in 3 to 10 

years. 

Assumptions for Version 5010 Impact 

Analysis 

In calculating the costs and benefits, 

Gartner made a number of assumptions, 

based on interview data and secondary 

research. The interviews provided 

information that was used to reflect the 

size of the industry segments, the 

segment implementation costs, and the 

application of benefits and savings. We 

provide those assumptions and 

estimates here for reference throughout 

this portion of the impact analysis. We 

are specifically soliciting comments on 

the assumptions related to costs and 

benefits, as they are presented in this 

section of the proposed rule. 

In Table 2 below, we show the 

projected annual claims volumes for 

providers over a ten-year period. 

Gartner projected the annual increase in 

the number of claims at four percent, 

and used the base from the estimates 

that were identified in the Claims 

Attachments proposed rule. These 

figures are used as a base to calculate 

the provider benefits. 

TABLE 2—ANNUAL CLAIM VOLUME PROJECTIONS (IN MILLIONS) 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

Physician (low) ............................. 3,186 3,313 3,446 3,583 3,727 3,876 4,031 4,192 4,360 4,534 

Physician (high) ............................ 4,142 4,307 4,480 4,659 4,845 5,039 5,241 5,450 5,668 5,895 

Hospital (low) ............................... 796 828 861 896 932 969 1,008 1,048 1,090 1,134 

Hospital (high) .............................. 1,036 1,077 1,121 1,165 1,212 1,260 1,311 1,363 1,418 1,475 

Dentist (low) ................................. 540 561 584 607 631 657 683 710 738 768 

Dentist (high) ................................ 660 686 713 742 772 802 834 868 903 939 

Total claims (low) .................. 4,552 4,702 4,891 5,086 5,290 5,501 5,721 5,950 2,264 6,607 

Total claims (high) ................ 5,837 6,071 6,314 6,566 6,829 7,102 7,386 7,681 7,989 8,309 

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Table 3 below reflects the estimated 

current adoption rate for each of the 

HIPAA standards, and the projected rate 

of adoption for each of the modified 

versions of the standards over the 10- 

year planning horizon. For the 

enrollment (834) and payroll deducted 

and other group premium payment 

(820) standards, we assume utilization 

would apply only to health plans since 

providers do not use either of these two 

standards. We assume that acceptance 

rates would gradually increase in the 

first 5 years after implementation, 

through 2016, and after that time would 

remain level. 

TABLE 3—CURRENT AND PROJECTED RATES OF USE FOR HIPAA STANDARDS ACROSS ALL COVERED ENTITIES—OVER

10 YEARS [IN PERCENT] 

Standard Current 

Acceptance 

Increase 

(minimum) 

Increase 

(maximum) 

837—claims ............................................................................................................................................. 75 2 5 

835—remittance advice ........................................................................................................................... 60 5 10 

278—referral request & response ........................................................................................................... **0 10 20 

276/277—claims status request & response ........................................................................................... 10 10 20 

270/271—eligibility request and response .............................................................................................. 10 10 20 

834—enrollment/disenrollment ................................................................................................................ 3 0 0 

820—premium ......................................................................................................................................... 2 0 0 

Source: Gartner interviews and secondary research. 

** Minimal use—while there is not quite zero percent uptake, the use of this transaction is so minimal, it does not register on any scale; therefore, we state its current acceptance rate as negligible. 

General Assumptions for the CostBenefit Analysis for Providers and 

Health Plans 

For the cost benefit analysis for each 

of the provider segments—hospitals, 

physicians, pharmacies, and dentists as 

well as the health plans, we apply the 

following set of assumptions, which are 

listed below. (These assumptions will 

not be repeated in each individual 

section of the impact analysis to follow.) 

Benefits that would accrue to each 

provider segment include: 

• All providers currently using 835/ 

837 messages would accrue benefits in 

the way of savings (for example, through 

reduced phone calls). 

• Physicians that have not yet 

implemented 835/837 would accrue 

future savings through lower transaction 

costs for these electronic exchanges. 

• An expected uptake of between 2–

5 percent in the first five years following 

implementation, for all providers 

implementing 837 transactions (for 

example, 75 percent in 2010; 77 percent 

in 2015). 

• An expected uptake of between 5–

10 percent over ten years for all 

providers for 835 transactions. 

• Costs and benefits for the 

Coordination of Benefit transaction 

(COB) are included in the estimates for 

the 837 claim standard transaction and 

are not broken out separately. 

• Providers would benefit from fewer 

phone calls to health plans to check 

eligibility or claims status for auxiliary 

transactions (270/271, 276/277, 278). 

• An expected increase in the usage 

of auxiliary transactions across the 

entire provider community and new 

adopters would see net benefits that 

would compound the aforementioned 

benefits as adopters utilize EDI more 

often. 

The operational savings would result 

from reductions in manual efforts, 

particularly phone calls that must be 

made to resolve issues with a 

transaction that is manual today, such 

as a claim status or eligibility check. 

Each phone call avoided for a claim 

transaction is estimated to save 10 

minutes of time for a provider’s staff 

member, and each required manual 

intervention avoided is estimated to 

save 5 minutes of time. The following 

are estimates of the potential volume of 

avoided phone calls for providers: 

• 835—A reduction in phone calls 

between 1.45 percent and 2.90 percent 

as a percentage of pended claims. This 

would equate to millions of phone calls 

for providers in the first year with 

increasing amounts in subsequent years 

as claim volumes increase. 

• 837—A reduction in phone calls 

between 0.28 percent and 0.70 as a 

percentage of pended claims. This also 

would equate to millions fewer phone 

calls for all providers. 

• For all other transactions, the 

current call volume would be reduced 

proportional to their total transaction 

volume. Because of the smaller volumes 

for these transactions, the additional 

savings was deemed to be too small for 

inclusion into the overall model. 

Cost savings from reduced phone calls 

were estimated based on annual loaded 

compensation for plan or provider staff 

members (customer service, claims or 

billing) at $40,000 and billing/claims 

resources at $60,000 which equates to 

$0.32 per minute and $0.48 per minute 

respectively. 

As a corollary to the operational and 

uptake benefits identified for the 

providers, health plans would expect 

corresponding benefits including: 

• For 835/837 messages, plans would 

receive benefits in the way of savings 

through reduced phone calls related to 

ambiguity in the current messages. 

• As uptake of the 835/837 

transactions increase between trading 

partners, there would be savings 

through lower transaction costs; in other 

words, unit costs would decrease. 

• For auxiliary transactions (270/271, 

276/277, 278), plans would receive 

benefit in the way of operational savings 

through reduced phone calls. 

Since we would expect an increase in 

the market for auxiliary transactions 

within the physician community as new 

uptake occurs with trading partners, 

plans would receive some cost savings 

through lower transaction costs. 

Explanation of Cost Calculations 

To determine the costs for each subsegment (that is, hospitals, physicians, 

and dentists), we established an 

estimate for what the total approximate 

Version 4010/4010A costs were for an 

individual entity within that subsegment (based on the interviews and 

other data available through research) 

and then applied an estimated range of 

20 to 40 percent of those costs to come 

up with estimated minimum and 

maximum costs for Version 5010. The 

range was accepted as a realistic proxy 

by all providers and plans who 

participated in the interviews. Through 

the course of the interviews, we 

identified more granular cost categories 

and reviewed these with the 

participants to help analyze and 

validate overall cost estimates by entity. 

Table 4 below shows Gartner’s 

estimates of costs for Version 4010/ 

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4010A implementation, which again, 

were calculated based on estimates of 

implementation for each individual 

entity within a segment, and 

multiplying that estimate by the number 

of entities. 

TABLE 4—GARTNER ESTIMATED TOTAL

COST FOR IMPLEMENTATION OF

VERSION 4010/4010A 

Segment Costs 

(in millions) 

Hospitals* .............................. $4,661 

Physicians ............................. 2,175 

Dentists ................................. 1,493 

Pharmacy .............................. 336 

Private Plans ........................ 18,021 

Government Plans ................ 1,202 

Clearinghouses ..................... 125 

Source: Gartner interviews and secondary 

research. 

* Includes some long term care and skilled 

nursing facilities when connected to a hospital 

or hospital system. 

Table 5 reflects our assumptions 

regarding the percent of the total costs 

allocated to each cost category (for 

example, testing and training) for the 

provider and plan segments. 

Specifically, we estimated that 60 

percent of all implementation costs 

would go towards testing for providers, 

and 70 percent for plans. We invite 

comment from the industry on these 

assumptions and estimates, particularly 

on the assumption that there would be 

no new hardware costs for 

implementing Version 5010, since the 

interviews did not yield information on 

providers who do not currently have 

electronic capability. 

TABLE 5—PERCENTAGE AND TOTAL

AMOUNTS FOR COST ITEMS USED

FOR VERSION 5010 CALCULATIONS—PROVIDERS AND HEALTH

PLANS

Cost item 

Percent of total costs 

Providers Health 

plans 

Hardware Procurement .................. 0 0 

Software Costs ..... 15 10 

Transmission 

Costs ................. 0 0 

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

Customized Software Development .................. 5 2.5 

Testing Cost ......... 60 70 

Training Costs ...... 5 2.5 

Transition Costs .... 15 15 

TABLE 5—PERCENTAGE AND TOTAL

AMOUNTS FOR COST ITEMS USED

FOR VERSION 5010 CALCULATIONS—PROVIDERS AND HEALTH

PLANS—Continued 

Cost item 

Percent of total costs 

Providers Health 

plans 

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

Source: Gartner interviews and secondary 

research. 

Transition costs, which we assume 

will occur in the third year of 

implementation, are defined as the postimplementation costs for monitoring, 

maintaining, and adjusting the upgraded 

systems and related processes with 

trading partners until all parties reach a 

‘‘steady state.’’ An example of this type 

of cost might be additional bug fixes and 

the associated testing required on the 

Version 5010 platform after the system 

has been fully cut over. In addition, 

some interviewees expected there to be 

some laggards in implementing Version 

5010 after the regulation timeline and 

expected to incur additional costs 

during this transition period as a result 

of late entrants. We note that we do not 

include hardware costs even for 

providers who might move from a 

paper-based system to an EDI system 

because we do not believe that the 

number of providers who have no 

electronic capability is very high. We do 

believe that providers who move away 

from a paper-based system are likely to 

have software and/or vendor costs, and 

we account for this. We invite 

stakeholder comment on these 

assumptions, and welcome any data 

regarding the number of providers who 

do not have any hardware to support 

electronic transactions. 

Explanation of Benefits and Savings 

Calculations 

In our analysis, we assume that 

benefits would accrue in three 

categories which arise from: (1) Better 

standards—improvements in the claims 

standards which would increase their 

usability and reduce manual 

intervention; (2) an increase in the 

adoption and use of the electronic claim 

transactions themselves, which would 

result in financial savings through an 

increased use of EDI; and (3) an increase 

in use of the auxiliary transactions, such 

as eligibility, claims status, and referral, 

which would reduce manual 

intervention (personnel involvement) 

and increase efficiencies and cash flow. 

For ease of understanding, we label the 

three savings categories as Better 

Standards, Cost Savings and 

Operational Savings, though all three 

represent savings to the entities. We 

further explain each category again here, 

and include the ‘‘titles’’ we have given 

them: 

(1) Better standards or savings due to 

improved claims standards: The 

improvements in Version 5010 that 

would reduce manual intervention to 

resolve issues related to the claim or 

remittance advice, due to ambiguity in 

the standards; 

(2) Cost savings or savings due to new 

users of claims standards: Increased use 

of electronic transactions for claims and 

remittance advice that would accrue to 

parties who had previously avoided the 

electronic transactions because of their 

deficits and shortcomings; and 

(3) Operational savings or savings due 

to increased auxiliary standards usage: 

Increase use of auxiliary transactions 

through EDI that would result from a 

decrease in manual intervention to 

resolve issues with the data (handled 

through phone calls or correspondence). 

To calculate the savings in the ‘‘better 

standards’’ savings category, which is 

specific to the increased use of 

electronic transactions for claims and 

remittance advice, we use data from a 

2007 report compiled by America’s 

Health Insurance Plans (AHIP) which 

indicated that savings due to EDI were 

in the range of $.73 per transaction. 

Using the $.73 as the baseline, Gartner 

used the interviews to refine this 

estimate for both providers and plans. 

We apportion the amount between 

providers and plans, and based on the 

interviews, anticipate that providers 

would receive at least $.55 in savings for 

moving transactions from paper to EDI 

and plans would benefit by at least $.18. 

All of the operational benefits were 

based on reduced phone calls and 

manual intervention as a percentage of 

total claims. Because we do not have 

any concrete numbers for how many 

claims the private plans process versus 

the government plans, we used the 

percentage of covered lives as stated in 

the Harvard/JFK School of Public Policy 

study as the best way to approximate 

how much of the benefits would go to 

private plans versus government plans 

(82 percent covered lives in private 

plans versus 16 percent for government 

plans) (Harvard JFK School of Public 

Policy—‘‘Health care delivery covered 

lives—Summary of Findings—2007’’) 

We further assumed that there are no 

material differences in the number of 

claims handled with the governmentcovered lives versus private-covered 

lives. 

Table 6 details the business activities 

such as manual interventions and phone 

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calls that make up the calculations for 

the other two categories of projected 

savings: Cost and operational savings 

related to an increase in users of the 

electronic transactions for claims, and 

an increase in use of the auxiliary 

transaction standards by all covered 

entities. Where we speak of ‘‘manual 

intervention,’’ we mean that a human 

resource must take some action related 

to a particular claim or inquiry because 

the transaction has been delayed, 

pended or rejected. 

Calculations are based on the number 

of interventions and the amount of time 

spent per intervention, multiplied by 

the average cost per intervention (based 

on average salaries for certain full-time 

employees). Affected entities can use 

the categories and calculations shown 

here to compare against their own 

operations, in order to evaluate the 

proposed impact to their own 

organization. 

Based on industry interviews, we 

identified the average annual 

compensation packages, amount of time 

for certain business activities (manual 

interventions) related to claims and 

other transactions, and determined the 

cost per minute for these activities. 

According to Gartner’s interviews, and 

for purposes of this analysis, we 

estimate the average annual 

compensation package (salary plus 

benefits) for a health plan or plan 

service representative to be $40,000 and 

for a provider billing specialist to be 

$60,000. The cost per minute for a 

service representative is $0.32 ($40,000/ 

(2080*60)) and for a provider 

representative is $0.48. We invite 

industry comment on these estimates. 

TABLE 6—PHONE CALLS AND MANUAL INTERVENTIONS REQUIRED BY PROVIDERS AND HEALTH PLANS DUE TO LACK OF

EDI OR NON USE OF EDI 

Industry segment Amount of time 

Providers: 

Time taken by a provider billing agent to process manual intervention 

for a pended claim.

10 minutes. 

Example: 10 minutes × .48 = $4.80 per call 

Time taken by a provider billing agent to process non Auto adjudicated 

claims.

6 minutes. 

Time taken by a provider’s office staff member to find out Eligibility information.5 minutes. 

Time taken by a provider billing agent to find out the status of the claim 12 minutes. 

Time taken by a provider’s office staff member to find out the status of 

a referral.

10 minutes. 

Health Plans: 

Time taken by a plan claims processor to process manual intervention 

for a pended claim.

5 minutes. 

Time taken by a plan claims processor to process non Auto adjudicated claims.5 minutes. 

Time taken by a plan customer service representative to give eligibility 

information.

5 minutes. 

Time taken by a plan customer service representative to give status of 

the claim pended claim.

8 minutes. 

Time taken by a plan Utilization Review representative to give status of 

a referral.

8 minutes. 

Source: Gartner interviews and secondary data. 

The formulas for the three savings 

categories are as follows: 

(1) Better standards: Number of 

estimated claims transactions (835/837) 

requiring a phone call times the number 

of minutes per call, times the average 

cost per minute (for example: 1,000 

claims × 10 minutes × $0.48 = $4,800) 

(2) Cost savings (new use of EDI for 

835/837): Number of transactions 

converted from paper to EDI (estimated 

to have a range of 2 to 5 percent over 

10 years) times estimated cost savings 

per transaction (total savings of $0.73, 

where the provider benefit is $0.55 and 

the plan benefit is $0.18). 

(3) Operational savings for increased 

use of EDI for auxiliary transactions: 

Number of estimated transactions (for 

the 270/271, 276/277, 278) requiring a 

phone call times the number of minutes 

per call times the average cost per 

minute. For example: 1,000 transactions 

× 10 minutes × 0.48 = 4,800. 

Other data points of relevance to this 

analysis include the number of health 

care claims exchanged between covered 

entities. Based on its research, Gartner 

assumed a low estimate of 4,522 million 

and a high estimate of 5,837 million 

claims annually, beginning in 2010. 

Table 7 depicts the percent of 

transactions that are electronic, and 

their disposition. Gartner also assumes 

that 14 percent of all claims annually 

are pended, meaning that they are not 

paid upon receipt, and may be held for 

additional information. 

TABLE 7—DISPOSITION OF CLAIMS TRANSACTIONS

Percent 

Electronic Claims ...................................................................................... 75 percent. 

Auto Adjudication of electronic claims ..................................................... 71 percent. 

Pended claims .......................................................................................... 14% (of all claims). 

Cost savings from electronic transactions ............................................... $0.73 ($0.55 for providers; $0.18 for plans). 

Source: AHIP Report: ‘‘An Updated Survey of Health Care Claims Receipt and Processing Times,’’ May 2006. 

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1. Health Care Providers 

As discussed above, providers are 

covered entities under HIPAA if they 

transmit health information in 

electronic form in connection with a 

HIPAA transaction. Providers are not 

required by HIPAA to conduct 

transactions electronically, but if they 

do, they must use the HIPAA standards 

adopted by the Secretary. However, 

Medicare providers, with a few limited 

exceptions, are required to submit 

Medicare claims electronically under 

the Administrative Simplification 

Compliance Act of 2001 (ASCA) Public 

Law 107–105. Providers may conduct 

the following transactions: Health care 

claims or equivalent encounter 

information, health care payment and 

remittance advice, eligibility for a health 

plan, referral certification and 

authorization, and health care claim 

status. They do not conduct the 

enrollment and disenrollment in a 

health plan or health plan premium 

payment transactions. Many providers 

submit claim transactions electronically, 

and somewhat fewer accept electronic 

remittance advices. Usage of the 

auxiliary transactions (eligibility, claim 

status, and referral/authorization) is 

much lower than the claims 

transactions. 

Providers that conduct a transaction 

electronically would be required to 

implement Version 5010 of that 

transaction. As stated, we assume that 

the improvements in Version 5010 

would result in more providers 

conducting those transactions 

electronically. Use of the claims 

transaction (837) is already high for 

providers and would be moderately 

affected by improvements in Version 

5010. While the 835 remittance advice 

is also used, there are a number of 

technical issues that have hampered its 

wide-scale deployment. These issues 

were discussed in the preamble of this 

proposed rule. Utilization overall would 

increase due to the technical 

improvements in Version 5010. More 

providers will use any or all of the nonclaims electronic transactions because 

the improvements will make them more 

useful. The auxiliary transactions for 

eligibility, claims status and referrals 

currently have relatively low utilization 

under Version 4010/4010A because of 

the perceived lack of business value. We 

believe adopting these modifications 

will change that trend. For example, the 

Version 4010/4010A eligibility 

transaction only requires that minimum 

data about an individual patient and 

his/her coverage be returned on the 

response, and that minimum data set is 

not useful to providers. Thus, very few 

providers or health plans have 

implemented this transaction, preferring 

instead to use existing voice and 

interactive voice response (IVR) 

systems. Improvements in the Front 

Matter section and instructions for 

Version 5010 would yield a modest 

increase in use, which would have a 

positive financial impact on providers 

and health plans. Our assumptions 

regarding the providers’ current 

acceptance of the transactions and the 

projected adoption rate are shown in 

Table 2 in the assumptions section. In 

the remainder of this section, we 

discuss the costs and benefits of 

implementing Version 5010 for each 

segment of the provider industry, 

including hospitals, physicians, 

pharmacies and dentists. 

a. Hospitals 

For purposes of this cost/benefit 

analysis, hospitals were divided into 

three categories based on bed-size (See 

table 8 below). 

TABLE 8—HOSPITAL BREAKDOWN

Hospital size Number of 

hospitals 

400+ Bed Hospitals .............. 521 

100–400 Bed Hospitals ........ 2,486 

Fewer than 100 bed hospitals .................................. 2,757 

Total ............................... 5,764 

Source: AHA Hospital Statistics 2007 

edition. 

Hospitals have pursued various 

implementation models of the HIPAA 

standards, including Direct Data Entry 

(DDE), internally managed EDI, use of 

clearinghouses or billing vendors, and a 

variety of hybrids of these models. All 

of these implementation models were 

considered in this analysis. Larger 

hospitals typically have pursued hybrid 

models but favor the use of 

clearinghouses and internally managed 

EDI where possible. Smaller hospitals 

typically rely more heavily on direct 

data entry, clearinghouses, and/or 

billing vendors to manage their EDI 

operations. 

A subset of hospitals have reached a 

level of maturity with Version 4010/ 

4010A transactions and believe that 

many of the benefits that would be 

attained by converting to Version 5010 

have been mostly achieved. In other 

words, some hospitals have already 

taken extensive advantage of EDI, and of 

the auto adjudication opportunities 

afforded by Version 4010/4010A, so 

there may be only incremental benefits 

for that group, through adoption of 

Version 5010. These hospitals typically 

have implemented the full set of 

transactions (including the eligibility 

and claim status transactions). Based on 

the Gartner research, hospitals falling 

into this category include the 521 

hospitals with 400+ beds as well as 20 

percent of the mid-sized hospitals with 

100–400+ beds and 10 percent of the 

hospitals with less than 100 beds. These 

hospitals have consistently deployed an 

internally managed EDI system and/or a 

hybrid solution and have invested in 

substantial development efforts to create 

workarounds to any problem segments 

within Version 4010/4010A that were 

particularly important to their 

organization. For this subset, the 

transition to Version 5010 may be more 

streamlined than for the smaller or less 

advanced entities because there would 

be fewer new system and business 

changes, and more expertise available to 

resolve implementation issues. 

However, the benefits would also be less 

pronounced because those hospitals that 

have implemented the full suite of 

transactions with the majority of their 

partners have already realized the 

benefits associated with moving from 

paper, phone or fax transactions to 

electronic transactions. 

Some hospitals (mid-sized and small) 

have not yet taken full advantage of 

technical solutions to maximize the use 

or benefits of the HIPAA standards, and 

continue to depend on a variety of 

manual efforts to conduct the various 

business functions. The transition to 

Version 5010 would provide significant 

benefits with respect to a reduction in 

these manual procedures, resulting in 

decreased costs and increased 

efficiencies. 

We anticipate the total cost for all 

hospitals to implement Version 5010 

would be within a range of $932 million 

to $1,864 million. This estimated cost 

was calculated by applying a 20 percent 

(minimum) and 40 percent (maximum) 

factor to the estimated cost of 

implementing Version 4010/4010A. We 

provided the cost estimates for Version 

4010/4010A for each industry segment 

in the assumptions section above. While 

the average costs by hospital would vary 

based on size and complexity of the 

hospital system, they would fall within 

the 20–40 percent range compared to 

the investments made for implementing 

Version 4010/4010A. Smaller hospitals 

typically rely on a billing vendor and/ 

or a clearinghouse for a large majority of 

their electronic claims exchanges. We 

assume that these hospitals 

implemented the 837 transactions only. 

We assume these hospitals are subject to 

vendor release schedules and would be 

dependent on these partners to upgrade 

their current transactions to the Version 

5010 standards. Furthermore, these 

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smaller hospitals may have to absorb 

some costs for testing, as testing would 

represent a significant portion of the 

overall costs for implementation. 

Nonetheless, we assume that these costs 

would be lower for this group than for 

the larger entities. We assume that many 

of these hospitals have regulatory 

compliance clauses in their vendor 

contracts, which would result in many 

costs largely being absorbed by their 

vendors. Our assumptions are based on 

industry interviews which indicate that 

small organizations will rely on their 

vendors for most of the heavy lifting for 

testing. We believe the impact on the 

individual entity will be minimal, 

comparatively. However, we welcome 

comments and data from the industry 

and other stakeholders on this matter. 

Hospitals would enjoy savings and 

benefits in the same three categories we 

identified earlier in the assumptions 

section of this analysis. Savings due to 

better standards are estimated to be a 

minimum of $403 million. Cost savings, 

due to an increase in use of the 

electronic claims transactions (837 and 

835) are estimated to be a minimum of 

$67 million. (This figure is derived by 

multiplying the number of claims times 

the savings of $.55 per claim (from the 

AHIP report).) The operational savings 

for use of the auxiliary transactions 

(270/271, 276/277, 278) are projected to 

be a minimum of $1,313 million. (This 

figure is calculated by taking the 

number of calls that would be avoided, 

times the time each of those calls would 

take times the cost per call.) The 

benefits related to increased use of the 

auxiliary transactions would be realized 

in a reduction in the amount of time 

that manual intervention would be 

needed to address the same ‘‘issues’’

that can be handled by a transaction. In 

other words, use of electronic eligibility 

transactions would save a provider’s 

employee 10 minutes of time per 

avoided manual intervention or phone 

call to verify eligibility. 

We specifically solicit industry 

comments on the assumptions made 

here relative to the costs and benefits for 

hospitals for the implementation of 

Version 5010. Table 9b below shows the 

costs and benefits for all hospitals. 

TABLE 9—VERSION 5010 COST BENEFIT SUMMARY FOR HOSPITALS

[In millions] 

Minimum Maximum 

Costs: 

System Implementation .................... $792 $1,584 

Transition .......................................... 140 280 

Total costs ........................................ 932 1,864 

Benefits: Formula: 

Operational Savings—better standards.403 1,096 Number of estimated transactions (835/837) requiring a phone call × 

number of minutes per call × $ average cost per minute. 

Cost Savings—increase in electronic 

claims transactions.

66 219 Number of transactions converted from paper to EDI × estimated cost 

savings per transaction ($.55). 

Operational Savings—increase in 

use of auxiliary transactions.

1,314 3,414 Number of estimated transactions (270/271, 276/277, 278) requiring a 

phone call × number of minutes per call x $ average cost per minute. 

Total benefits .................................... 1,783 4,729 

Net Benefits ...................................... 851 2,865 

b. Physicians and Other Providers 

Physicians have also pursued a 

variety of implementation models for 

the HIPAA transactions. They are 

largely dependent on the requirements 

of their trading partners (the health 

plans with whom they conduct 

transactions) and the services of their 

vendors and clearinghouses, who 

provide a range of support and 

technology, to process the transactions. 

A full range of implementation methods 

were considered in this analysis. Larger 

physician practices have pursued direct 

transmission with health plans, but 

many mid-sized practices and small 

physician practices are dependent on 

the use of clearinghouses and rely on 

billing vendors to manage their EDI 

operations. 

For purposes of this cost benefit 

analysis, Gartner divided physicians 

practices into four size-based categories, 

as shown in table 10 below: 

TABLE 10—PHYSICIAN BREAKDOWN BY

PRACTICE SIZE

Practice size Number of 

practices 

100+ Physicians ....................... 393 

50–100 Physicians ................... 590 

3–49 Physicians ....................... 38,961 

1–2 Physicians ......................... 194,278 

Total ................................... 234,222 

Source: AMA. 

Within these four types of practices, 

a distinction can be drawn between the 

groups with more than 50 physicians 

(large practices) and those that are less 

than 50 physicians (small practices). 

For the large physician practices, as in 

large hospitals, there are greater levels 

of acceptance as well as more 

diversified implementations of the 

Version 4010/4010A standards. 

Therefore, the bulk of the costs 

associated with the implementation of 

Version 5010 for large practices would 

be in the category of testing, which we 

estimate at 60 percent of costs, as 

explained in the general assumptions 

section earlier in this document. 

The majority of the small physician 

practices currently utilize vendor 

supplied practice management software, 

billing vendors, and/or clearinghouses 

to handle their HIPAA EDI transactions. 

For small providers that are PC-based or 

have client-server systems that rely on 

vendor-supplied software, we do not 

believe the provider would bear any 

immediate costs for the software 

upgrades. Based on Gartner’s interviews 

and our own experience with the 

industry, most software maintenance 

contracts offer free upgrades to 

accommodate regulatory changes, and 

we believe that most contracts have 

clauses that require vendors to be 

compliant with mandatory standards. 

However, as with each provider 

category in which we identified 

dependence on vendors, there are still 

testing costs that must be addressed. 

The impact on those providers that have 

such contracts would be postponed 

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until the contract is renewed, and 

would be mitigated by market factors. 

We anticipate that the total 

conversion cost for physicians would be 

in the range of $435 million and $870 

million. (This was calculated by taking 

the base of $2,175 million (for 

implementing Version 4010/4010A), 

and multiplying that number by version 

5010 implementation factor of 20 

percent (minimum) and 40 percent 

(maximum)). 

As with hospitals, physicians are 

positioned to receive the same benefits 

of using Version 5010, including the 

previously mentioned savings, through 

reduced phone calls and reduced 

manual intervention. Physicians would 

experience savings and benefits in the 

three categories as follows: Savings due 

to better standards is estimated to be 

$1,613 million. Cost savings, due to an 

increase in use of the electronic claims 

transactions (837 and 835) is estimated 

to be $269 million. (This figure is 

derived by multiplying the number of 

claims times the savings of $.55 per 

claim, as noted in the AHIP study.) The 

operational savings for use of the 

auxiliary transactions (270/271, 276/ 

277, 278) is projected to be $5,250 

million. (The narrative for these 

calculations has been provided 

elsewhere, and the formulas appear in 

the cost benefit table for hospitals.) 

Again, we invite public comment on 

these figures and assumptions, 

particularly on the assumption that 

there would be no new hardware costs 

for implementing Version 5010, since 

the interviews did not yield information 

on providers who do not currently have 

electronic capability. Table 11 below 

summarizes the cost-benefits for 

physicians: 

TABLE 11—VERSION 5010 COST BENEFIT SUMMARY FOR PHYSICIANS—IN MILLIONS

Minimum Maximum 

Costs: 

System Implementation .................................................................................................................................... $370 $740 

Transition .......................................................................................................................................................... 65 131 

Total Costs ................................................................................................................................................ 435 870 

Benefits: 

Operational Savings—better standards ........................................................................................................... 1,612 4,378 

Cost Savings—increase in electronic claims transactions ............................................................................... 270 874 

Operational Savings—increase in use of auxiliary transactions ...................................................................... 5,251 13,562 

Total Benefits ............................................................................................................................................ 7,133 18,814 

Net Benefits ............................................................................................................................................... 6,698 17,944 

c. Dentists 

There are an estimated 175,000 

dentists currently covered under 

HIPAA. However, the dental community 

has not yet widely adopted the HIPAA 

standards, in large part because the 

standards did not meet their practical 

business needs, particularly for claims 

and remittance advice. The 

improvements in Version 5010 would 

increase the potential value of the 

HIPAA standards for dentists, and 

should increase utilization. Currently, 

the typical dental practice relies on 

vendor solutions and clearinghouses to 

handle their Version 4010/4010A 

HIPAA transactions, and, therefore, the 

costs for implementing Version 5010 

would largely fall on vendors as a cost 

of doing business. The majority of the 

dental costs would stem from testing 

and other related services not covered 

by any pre-negotiated upgrades with 

their vendors. Implementation costs for 

Version 5010 are anticipated to be in the 

range of $299 million (20 percent) to 

$598 million (40 percent) based on 

using the same implementation factor of 

the Version 4010/4010A 

implementation costs of $1,493 million. 

The benefits derived from 

implementing Version 5010 for dentists 

would be the same as those for the other 

provider segments, as described in the 

assumptions section of this analysis. For 

example, based on improvements in 

Version 5010, we anticipate that for 

dental practices, there would be an 

increase in the adoption rate of 2 to 5 

percent in the 837 transactions, and 5 to 

10 percent in 835 transactions, over a 

ten-year period. 

Increased utilization of the standards 

would occur because of improvements 

that specifically affect dental practices. 

For example, increased utilization of the 

837 would occur because the standard 

now accommodates certain dental 

terminology to differentiate dental 

services from medical services. Version 

4010/4010A does not allow for reporting 

diagnoses codes that are required for 

some specialty claims such as oral and 

maxillofacial surgery. This has resulted 

in challenges for this segment of the 

industry because many of these services 

are billed using the professional claim, 

but the professional claim does not have 

a way to provide tooth numbers or other 

tooth-related information. These claims 

often had to be submitted on paper. The 

ability to report those codes in Version 

5010, with the tooth numbers, would 

provide a standard means for these 

claims to be submitted electronically. 

The 835 would be more widely adopted 

for its ability to post receivables 

automatically. 

In general, we believe dentists would 

achieve these benefits from operational 

savings, which would result in: 

• Reduced time to determine 

eligibility 

• Reduced manual effort to prepare 

claims 

• Reduced burden to complete 

account posting 

• Greater visibility into claims status 

We also expect that dental practices 

would derive similar benefits as 

physicians, in the way of savings 

through reduced phone calls for claims 

transactions as well as for auxiliary 

transactions (270/271 and 276/277). For 

dentists that have not yet implemented 

835/837, there would be savings 

through increased use of EDI. Dentists 

would experience savings and benefits 

in the three categories as follows: 

Minimum savings due to better 

standards is estimated to be $274 

million; minimum cost savings due to 

an increase in use of the electronic 

claims transactions (837 and 835) are 

estimated to be $45 million. (Again, this 

figure is derived by multiplying the 

number of claims times the savings of 

$.55 per claim, as noted in the AHIP 

study.) The operational savings for use 

of the auxiliary transactions (270/271, 

276/277, and 278) is projected to be a 

minimum of $889 million. (The 

narrative for these calculations has been 

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provided in the assumptions section.) Table 12 below shows the cost benefit 

summary for the dental industry. 

TABLE 12—VERSION 5010 COST BENEFIT SUMMARY FOR DENTISTS—IN MILLIONS

Minimum Maximum 

Costs: 

System Implementation .................................................................................................................................... $254 $508 

Transition .......................................................................................................................................................... 45 90 

Total Costs ................................................................................................................................................ 299 598 

Benefits: 

Operational Savings—better standards ........................................................................................................... 274 699 

Cost Savings—increase in electronic claims transactions ............................................................................... 45 56 

Operational Savings—increase in use of auxiliary transactions ...................................................................... 889 2,173 

Total Benefits ............................................................................................................................................ 1,208 2,928 

Net Benefits ............................................................................................................................................... 909 2,330 

d. Pharmacies 

Pharmacies are currently using 

Version 4010/4010A of the 835 and 837 

transactions in their current business 

practices, most often for the remittance 

advice (835) and pharmacy supplies and 

services (837). Pharmacies would 

transition to the use of Version 5010 

when the final rule becomes effective, in 

particular for the 835 transaction. For 

retail pharmacy claims, pharmacies 

primarily use Version 5.1. Since we are 

proposing to replace Version 5.1 with 

Version D.0 in this regulation, and many 

of the system changes, costs and 

benefits for implementing both Version 

5010 and Version D.0 would result from 

related efforts, we have combined the 

impact analysis for Version 5010 and 

Version D.0. That analysis is detailed 

later in Section 3 of this analysis. 

e. Health Plans 

According to estimates provided by 

Gartner, there are nearly 4,000 health 

plans in the United States. For the 

purposes of this analysis, we divided 

plans into four categories based on their 

size: National and Super Regional 

Private Plans; Large Private Plans; MidSized Private Plans, and Small Private 

Plans, as shown in table 13 below. 

TABLE 13—HEALTH PLAN BREAKDOWN

Plan size Number 

of plans 

National and Super Regional ....... 12 

Large ............................................. 75 

Mid-sized ...................................... 325 

Small ............................................. 3,537 

Total ....................................... 3,949 

Within these four types of private 

plans (as described above), there are two 

distinct scenarios that emerged: Small/ 

Midsized Plans and Large/National/ 

Super-Regional Plans. 

The large plans could be 

characterized as having implemented 

the full set of 4010/4010A transactions 

but often did not have trading partners 

for certain auxiliary transactions. They 

have already developed workarounds 

for many of the problems that were 

identified as being solved in Version 

5010. Furthermore, their maturity in 

working with the Version 4010/4010A 

transaction set was at a point where 

they had extracted most of the value 

from the standards in place. 

Small plans resembled the larger 

plans in that they had implemented the 

full set of transactions. However, the 

smaller plans had not developed as 

many workarounds for Version 4010/ 

4010A limitations as their larger peers. 

As a result, Version 5010 may serve to 

provide this segment more benefit on 

average than their larger peers. In order 

to calculate health plan implementation 

costs, we calculated the costs within a 

factor of 20 to 40 percent of the costs for 

implementing Version 4010/4010A. 

Overall, private health plans recognize 

the importance of continuing to 

maintain and upgrade the national 

standards and perceive there to be 

qualitative benefits that warrant 

considerations beyond just the 

quantifiable net benefit from the change. 

The benefit for all private plans falls 

between $5,780 and $15,114 million. 

Private plans would experience savings 

and benefits in the three categories as 

follows: savings due to better standards 

is estimated to be in a range of $1,283 

million to $3,430 million; cost savings, 

due to an increase in use of the 

electronic claims transactions (837 and 

835) is estimated to be in a range of 

$111 million and $278 million. (This 

time, the estimate is derived by 

multiplying the total number of all 

claims (physician, hospital, and dental) 

times the savings of $.18 per claim for 

plans, as noted in the AHIP study.); the 

operational savings for use of the 

auxiliary transactions (270/271, 276/ 

277, and 278) is projected to be in a 

range of $4,386 million to $11,406 

million. (The narrative for these 

calculations has been provided earlier.) 

Table 14 depicts total plan cost benefits 

summary. 

TABLE 14—VERSION 5010 COST BENEFIT SUMMARY FOR PRIVATE HEALTH PLANS—IN MILLIONS

Minimum Maximum 

Costs: 

System Implementation .................................................................................................................................... $3,064 $6,128 

Transition .......................................................................................................................................................... 541 1,081 

Total Costs ................................................................................................................................................ 3,604 7,209 

Benefits: 

Operational Savings—better standards ........................................................................................................... 1,283 3,430 

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TABLE 14—VERSION 5010 COST BENEFIT SUMMARY FOR PRIVATE HEALTH PLANS—IN MILLIONS—Continued 

Minimum Maximum 

Cost Savings—increase in electronic claims transactions ............................................................................... 111 276 

Operational Savings—increase in use of auxiliary transactions ...................................................................... 4,386 11,406 

Total Benefits ............................................................................................................................................ 5,780 15,112 

Net Benefits ............................................................................................................................................... 2,175 7,903 

Government Plans 

To prepare the cost benefit analysis 

for government plans, we obtained 

input from Medicare and from several 

subject matter experts from Medicaid 

plans across the country. Other 

government entities, like the Veteran’s 

Health Administration, were assumed to 

have similar cost/benefit structure as the 

Large Private plans and were estimated 

as such. One of the key findings from 

the interviews was that even in the case 

of government plans that have 

implemented the full set of transactions, 

there is still a very limited exchange of 

the auxiliary transactions at this time. 

Government systems costs are 

expected to occur across a number of 

Federal and state agencies and include 

transition costs. For Medicare, since its 

cost structure is different from private 

plans, total Medicare costs include 

those that would be expended by the 

MACs, DME MACs, carriers, 

intermediaries and other contractors. 

The costs are high, but the net benefit 

to Medicare relative to the private plans 

is slightly more positive. Overall, costs 

for government plans were similar in 

nature to private plans, and included 

analysis, translator/software 

customization, testing, and training. The 

cost to government systems in 

transitioning to Version 5010 is 

estimated to be within a range of $252 

million to $481 million over 10 years. 

This figure was derived by applying a 

20 percent and 40 percent factor onto 

the cost to implement Version 4010/ 

4010A, which was $1,203 million. The 

examples in this impact analysis are 

only illustrative in nature and are based 

on limited analysis. They are presented 

to illustrate the potential administrative 

costs to the Federal government. 

Derived benefits accrued for 

implementing Version 5010 to 

government plans would be similar to 

those of private plans. Savings would be 

acquired from reduced phone calls 

because current ambiguity in the 

transactions (such as situational versus 

required information for some of the key 

data elements) would be reduced. As 

with all other affected entities, as more 

uptake of 835/837 messages occur with 

trading partners, there would be cost 

savings through lower transaction costs. 

The same estimates for increased 

adoption of the 837 transactions of 

between 2 and 5 percent and between 5 

and 10 percent for the 835 transactions 

would apply to government plans, and 

we project similar increases in the use 

of the auxiliary transactions. Since we 

projected an increase in the market for 

the auxiliary transactions within the 

physician community as new uptake 

occurs with the trading partners (for 

example, health plans), the government 

plans would benefit from cost savings as 

well, as follows: Minimum savings due 

to better standards are estimated to be 

$279 million. Minimum cost savings, 

due to an increase in use of the 

electronic claims transactions (837 and 

835) are estimated to be $24 million. 

(Again, this figure is derived by 

multiplying the number of claims times 

the savings of $.18 per claim, as noted 

in the AHIP study.) The minimum 

operational savings for use of the 

auxiliary transactions (270/271, 276/ 

277, 278) is projected to be $953 

million. (The narrative for these 

calculations has been provided 

elsewhere.) Table 15 shows the cost 

benefit summary for government plans. 

TABLE 15—VERSION 5010 COST BENEFIT SUMMARY FOR GOVERNMENT HEALTH PLANS—IN MILLIONS

Minimum Maximum 

Costs: 

System Implementation .................................................................................................................................... $214 $409 

Transition .......................................................................................................................................................... 38 72 

Total Costs ................................................................................................................................................ 252 481 

Benefits: 

Operational Savings—better standards ........................................................................................................... 279 746 

Cost Savings—increase in electronic claims transactions ............................................................................... 24 60 

Operational Savings—increase in use of auxiliary transactions ...................................................................... 953 2,480 

Total Benefits ............................................................................................................................................ 1,256 3,286 

Net Benefits ............................................................................................................................................... 1,004 2,805 

f. Clearinghouses and Vendors 

Gartner estimates that there are 162 

clearinghouses, which includes claimsrelated transaction vendors. This 

segment of the HIPAA universe 

provides a critical service in today’s 

environment. For the purposes of this 

study, however, any related costs 

expected to be incurred by these 

vendors was considered to be a ‘‘cost of 

doing business’’ and were not included 

in the overall Cost/Benefit impact. Costs 

were, however, collected from the 

clearinghouses/vendors and analyzed as 

best as could be with the information 

available. 

While many providers who use 

vendor-supplied software may be able to 

defer the costs of software upgrades, the 

vendor industry may have to bear, at 

least initially, the costs of such 

upgrades. Vendors have not provided 

data on their costs, and this regulation 

does not address the costs on the vendor 

industry, but welcomes input as to the 

estimated costs and benefits from this 

industry, for inclusion in the final rule. 

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For though vendors are not covered 

entities under HIPAA, their role is 

significant with respect to the services 

they provide to health plans and to 

covered health care provider clients. We estimate the range of 

clearinghouse costs to be between $37 

million and $45 million for the Version 

5010 upgrade over the 3-year 

implementation period—two years for 

implementation and a third year for 

transition. Estimates were determined in 

the same fashion as the providers and 

plans. Clearinghouses were estimated to 

have total Version 4010/4010A costs of 

approximately $125 million. We do not estimate that there would 

be a positive payback related to the 

Version 5010 upgrade for 

clearinghouses or vendors, however, 

there are some discrete benefits that 

would be realized through this 

transition including: • Higher transaction volumes • Lower service and operational costs 

(reduced phone calls) • Operational efficiencies (Lower 

percent as measured against total costs) • Increased market size 

Because these benefits are predicated 

on several dependencies and market 

circumstances beyond our ability to 

predict with complete accuracy, neither 

HHS nor Gartner attempted to quantify 

those in dollar figures. Table 16 below 

summarizes the clearinghouse costs. 

TABLE 16—VERSION 5010 COST BENEFIT SUMMARY FOR CLEARINGHOUSES IN MILLIONS

Costs Maximum Minimum 

System Implementation ........................ $33 $41 

Transition .................. 3 4 

Total Costs ........ 37 45 

Qualitative Benefits 

With few exceptions, sources 

expressed their belief that the 

advancement of the HIPAA standards 

was the right thing to do across the 

industry. Some participants 

acknowledged that the advancement to 

Version 5010 would not benefit their 

organization directly, but they were still 

in support of the modifications to the 

standards. 

There were a number of benefits that 

were articulated but not quantified by 

the participating subject matter and 

industry experts that may warrant 

further discussion with the industry. 

Among the qualitative benefits that were 

consistently mentioned by interviewees 

were the following: • Improved accuracy resulting from 

simplified messaging. 

• A new field specifically to capture 

certain hospital acquired condition 

indicators that are so critical to the 

industry. • A new field to capture ‘‘Present on 

Admission’’ indicators as directed by 

the Deficit Reduction Act. • Resultant quality through greater 

reliability of clean message exchange. • Collaborative benefits stemming 

from the ability to share more 

information. 

It is also important to note that 

Version 5010 is considered a key 

dependency to move towards adopting 

the ICD–10 CM code set for HIPAA 

transactions. While there is 

disagreement in the industry about the 

benefits of adopting ICD–10 in the next 

few years, such a transition is viewed as 

positive over the long-term, and is 

acknowledged as an option that is not 

available today. In summary, sources 

agree that all of the qualitative benefits 

lead to the delivery of an improved 

quality of care and allow the providers 

and plans to focus more of their time on 

patients and less of their time on 

administration. 

3. Version D.0 (and Version 5010 for 

Pharmacies) 

The objective of this portion of the 

regulatory impact analysis is to 

summarize the cost and benefits of 

implementing Version D.0. 

Affected Entities 

Almost all pharmacies, health care 

providers, and plans/PBMs already use 

Version 5.1, as it is the claim format 

most widely adopted by providers who 

submit retail pharmacy claims, and 

health plans that process retail 

pharmacy claims. These entities 

currently use the Version 5.1 standard 

to transmit retail pharmacy claim 

information between provider and 

plans/PBMs, and between pharmacies 

and plans/PBMs. This is accomplished 

in one of two ways, either through 

interactive on-line transmission or 

transmission through batch mode. Retail pharmacies use Version 5.1 to 

submit claims to health plans/PBMs 

when they dispense a prescription 

medication to a patient who has 

prescription drug benefits through his/ 

her health insurance coverage. The 

National Association of Chain Drug 

Stores (NACDS) estimates that there are 

more than 38,000 retail pharmacies 

owned and operated by both national 

and regional pharmacy chains that 

process more than 2.3 billion 

prescriptions annually. Independent 

community pharmacies, according to 

the National Community Pharmacist 

Association (NCPA) represent an 

additional 18,000 independent retail 

community pharmacies across the 

United States, and process 1.4 billion 

prescriptions annually. 

There are approximately 3,950 health 

plans according to the America’s Health 

Insurance Plans (AHIP) and Gartner 

research. With regard to PBMs, there are 

four national pharmacy benefit 

management companies that process 

about 75 percent of the more than 3 

billion prescriptions dispensed annually 

in the United States. The remainder are 

specialized PBMs. 

Some health care providers who 

dispense medications directly to their 

patients, known as dispensing 

physicians, may use the Version 5.1 to 

submit these prescription drug claims 

on behalf of their patients to the PBMs 

and/or plans, depending on the patient’s 

health insurance coverage. However, we 

do not estimate this practice to be 

widespread and therefore, do not 

account for it in this impact analysis. 

We invite comment regarding the 

number of pharmacy benefit 

management companies and their 

respective market share. 

Costs 

a. Chain Pharmacies 

The retail pharmacy industry would 

be the most impacted by the transition 

from Version 5.1. to Version D.0. 

According to the NACDS, there are 

nearly 200 chain pharmacy companies 

in the United States. The programming 

changes to incorporate the new fields 

that constitute the Version D.0 are 

performed at systems located at the 

corporate level, and then these system 

updates are pushed out to the 

individual pharmacies within the 

pharmacy chain. One large national 

pharmacy chain has estimated that it 

spent approximately $10 million when 

it converted to Version 5.1. In 

comparison, it anticipates that 

corporate-wide costs for the conversion 

to Version D.0, including programming, 

system testing and personnel training, 

would be around $2 million. Another 

large national pharmacy chain estimates 

its migration costs from Version 5.1 to 

Version D.0 at $1.5 million. Chain 

pharmacy cost estimates for 

programming these systems, testing to 

ensure that systems work with Version 

D.0, and training of personnel are 

dependent on the size of the pharmacy 

chain, its respective proprietary 

systems, and number of employees that 

would require training. Overall, 

industry estimates for conversion to 

Version D.0 range from $100,000 for a 

small pharmacy chain to $1 million for 

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large national pharmacy chains. We 

assume that these costs would be 

incurred in the first year of the 

implementation of Version D.0, in 2010. 

We assume that there are 20 large 

national pharmacy chains and the 

remaining 180 chains are small chains. 

Therefore, we estimate costs for the 

migration from Version 5.1 to Version 

D.0 to be $20 million for large national 

pharmacy chains, and $18 million for 

the remaining 180 small chains, for a 

total of $38 million. We estimate that 

these costs would be incurred during 

the first two years of implementation. 

TABLE 17—CHAIN PHARMACY COSTS

FOR CONVERSION TO VERSION D.0 

Category Cost 

Large pharmacy chains (20 × 

$1,000,000) ....................... $20,000,000 

Small pharmacy chains (180 

× $100,000) ....................... 18,000,000 

b. Independent Pharmacies 

Independent pharmacies would also 

incur costs, the majority of which would 

result from upgrading their software 

systems to Version D.0. These costs are 

harder to estimate. Independent 

pharmacies use software dispensing 

packages purchased from pharmacy 

dispensing software system vendors, 

and usually pay a monthly maintenance 

fee and a per-claim cost of anywhere 

from 4 cents to 10 cents per claim. 

Maintenance fees are negotiated 

between the software vendor and the 

pharmacies, and may take the form of a 

flat fee, or a fee based on a sliding scale. 

These maintenance fees would likely 

increase slightly, as vendors pass along 

their cost of the upgrade to the 

pharmacy. We assume this would take 

place not during the course of an 

existing contract, but when the 

pharmacy’s contract with the vendor 

comes up for renewal, likely within two 

years, in this case 2010 and 2011, the 

first two years of Version D.0 

implementation. Based on industry 

feedback, we estimate that the average 

monthly maintenance contract between 

a pharmacy and a vendor amounts to a 

range of $400 to $800 per month per 

pharmacy, with the average industry 

estimate being about $500. We estimate 

a range of between .50 and 1 percent 

maintenance fee increase attributable to 

the conversion to Version D.0, or an 

additional $2.50 to $5.00 per month per 

pharmacy, or $540,000 to $1,080,000 

based on 18,000 independent 

pharmacies ($500 × 0 .50 percent/1 

percent × 12 months × 18,000 

pharmacies). We solicit industry and 

stakeholder comment on our cost 

assumptions. 

TABLE 18—INCREASE IN INDEPENDENT PHARMACY MONTHLY MAINTENANCE FEES FOR CONVERSION TO VERSION D.0 

Percentage of increase to maintenance fees 

Category .50% 1% 

Number of Independent Pharmacies ....................................................................................................................... 18,000 18,000 

Average monthly maintenance fee .......................................................................................................................... $500 $500 

Average annual maintenance fee increase ............................................................................................................. $540,000 $1,080,000 

With respect to costs for 

implementing Version 5010, we use the 

same pharmacy categories of chains and 

independents. As stated above, the retail 

pharmacy industry would be impacted 

by the transition from Version 4010/ 

4010A to Version 5010 for billing 

supplies and services, and receiving the 

remittance advice (835). Similar to the 

programming changes to accommodate 

D.0, the upgrade to Version 5010 would 

be performed at the corporate level, and 

the system updates would be pushed 

out to the individual pharmacies within 

the pharmacy chain. Estimates from the 

large national pharmacy chains 

regarding costs for implementation of 

Versions 5010 and 5.1 are outlined 

above. These same entities stated that 

they anticipate corporate-wide costs for 

the conversion to Version 5010, 

including programming, system testing 

and personnel training, would be 

around 20 percent of the Version 4010/ 

4010A costs. This is consistent with the 

overall industry estimate that 

implementation of Version 5010 would 

represent approximately 20 to 40 

percent of the cost of implementing 

Version 4010/4010A. As with Version 

D.0, chain pharmacy cost estimates for 

programming, testing, and training are 

dependent on the size of the pharmacy 

chain, their respective proprietary 

systems, and the number of employees 

that would require training. We assume 

that these costs would be incurred in 

the first 2 years of the implementation 

of Version 5010, as we do with the other 

HIPAA standards and other industry 

segments. Independent pharmacies would also 

incur costs, the majority of which would 

result from upgrading software systems 

to Version 5010 and Version D.0, as has 

been discussed. Independent 

pharmacies use software dispensing 

packages, and usually pay a monthly 

maintenance fee and a per-claim cost. 

We assume that these types of costs for 

implementing Version 5010 would be 

incorporated into the costs for 

implementing Version D.0, and 

therefore do not add additional costs. 

Thus, using the same estimates for the 

number of chain and independent 

pharmacies, and applying a rate of 20 

percent to Version 4010/4010A 

implementation costs, we estimate costs 

specific to the migration from Version 

4010/4010A to Version 5010 to be a 

range of $58 million to $114 for system 

implementation and $10 million to $20 

million for transition costs, for a total 

range of $67 million to $134 million. We 

assume that these costs would 

implicitly include testing, as this 

activity would be executed jointly for 

Version D.0 and Version 5010. We 

invite the industry to comment on our 

assumptions and projected cost 

estimates, and to provide current data to 

support alternative theories or view 

points, as the comparison between 

Version 4010/4010A costs and Version 

5010 implementation costs could be 

overstated. 

We described the benefits for all 

providers, including pharmacy 

providers, in the assumptions section of 

this analysis (for example, better 

standards and decreased manual effort). 

We identified the largest benefits for 

pharmacies in the content requirements 

in the 835 standard (required fields 

versus situational or optional fields, and 

improvements in the specificity of the 

business rules which will minimize 

multiple interpretations of the guides). 

These enhancements would help to 

reduce manual interventions needed to 

resolve transaction issues. For example, 

Version 4010/4010A does not provide 

instructions for reconciling payments. 

The new Front Matter section in Version 

5010 explicitly details how this 

information is to be reported in the 

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summary section of the remittance 

advice. Thus, benefits and savings 

would accrue through better standards. 

For this savings calculation, we use the 

same formula as for other provider cost 

savings—multiplying the number of 

claims that would not require manual 

intervention, times the cost per call and 

the number of minutes estimated for 

each call. Savings due to better 

standards (837 and 835) are estimated to 

be in the range of $20 million to $27 

million. 

c. Health Plans and PBMs 

Health plans should see minimal 

changes in their operations and 

workflows between Version 5.1 and 

Version D.0. Version D.0 does not 

require any substantial or additional 

data reporting to enhance the eligibility 

or subrogation/secondary plan aspects 

of the transaction. Most of that work 

would be performed by the pharmacy 

benefit managers (PBMs) that service the 

plans. Plans would likely continue to 

provide data to the PBMs weekly via flat 

file transmission. However, PBMs 

would have to reprogram their systems 

to be able to process claims in Version 

D.0. As with the large pharmacy chains, 

we estimate the cost for large PBMs to 

migrate to Version D.0 to be 

approximately $1 million to $1.5 

million per large national PBMs, and 

approximately $100,000 for specialty 

PBMs. Due to mergers and acquisitions 

over the past 4 years, the number of 

PBMs has dropped from approximately 

100 to about 40 total PBMs in the U.S. 

Of those, we estimate that four are 

considered large PBMs and would 

therefore incur approximately $4 

million to $6 million in conversion 

costs to Version D.0, and the remainder 

would incur $100,000 or $3,600,000 in 

the aggregate, for a total cost ranging 

between $8.6 and $10.6 million. We do 

not estimate any additional costs to 

health plans for implementing Version 

5010 for pharmacies, as all efforts are 

included in the overall budget towards 

compliance. We solicit industry 

comment on these cost assumptions, 

and additional information regarding 

how PBM costs affect health plans, and 

how these costs are passed on to the 

plans. We also invite comment as to 

how the change to Version D.0 would 

affect core systems, and what the costs 

might be to health plans, particularly 

large plans with broad operations. 

TABLE 19—PBM COSTS OF

CONVERSION TO VERSION D.0 

Category Cost 

Large PBMs (4 × 

$1,000,000/ 

$1,500,000).

$4,000,000/ 

$6,000,000 

Specialty PBMs (36 × 

$100,000).

$3,600,000 

d. Vendors 

Software vendors have commitments 

to their software clients to maintain 

compliance with the latest adopted 

e-prescribing standards. They must 

incorporate these standards into their 

software systems, otherwise they would 

not be able to sell their products 

competitively in the marketplace. These 

systems cannot properly function using 

outdated standards and/or missing key 

functionalities which the industry has 

identified as essential to their business 

operations. We expect that upgrades to 

these standards are anticipated by 

vendors, and the cost of programming 

and/or updating the software is 

incorporated into the vendor’s routine 

cost of doing business. We further 

assume they would pass along costs to 

customers through increases in the cost 

of licensing and/or monthly 

maintenance fees, which we previously 

discussed and estimated to be about 

0.50 to 1 percent based on industry 

interviews. We solicit industry and 

stakeholder comment on the assumption 

that vendor costs will be passed on to 

the customer over time, and solicit 

feedback on actual costs for vendor 

software upgrades and impact on 

covered entities, including the 

conversion of historical data. 

Benefits 

a. Pharmacies 

Pharmacies need Version D.0 to 

process Medicare Part D claims. 

Currently, there are many workarounds 

in pharmacy systems due to the 

shortcomings of Version 5.1 in 

processing ‘‘coordination of benefits’’

claims. Pharmacies would benefit from 

the use of the NCPDP D.0 standard 

because it provides better guidance than 

Version 5.1 in Medicare Part D 

coordination of benefits situations, and 

now identifies ‘‘patient responsibility’’

and ‘‘benefit stage’’ to help identify 

coverage gaps on secondary claims. By 

processing the claim correctly the first 

time—sending the right fields, with the 

right details, and additional fields with 

detailed pricing segments—the result 

could be that pharmacies are paid 

correctly, and patients pay correct copays, and there could be fewer 

pharmacy audits and recoupments. 

A recoupment is a request for refund 

when a pharmacy is erroneously 

overpaid by a plan. A common reason 

for a recoupment is that the plan was 

not aware of a patient’s other health 

insurance coverage, information that 

can be provided through use of the 

Version D.0 standard. Currently, there 

are issues with Version 5.1’s 

misinterpretation of ‘‘coordination of 

benefits.’’ There are extensive customer 

service issues with many of these claims 

due to the charging of incorrect co-pays, 

as the correct values do not exist in 

Version 5.1. Version D.0 redefines the 

‘‘other coverage codes’’ and provides 

claim examples in coordination of 

benefits situations to eliminate future 

confusion. Extra information, which 

would be available in the E1—Eligibility 

Verification transaction (this transaction 

resides on the NCPDP Telecom 5.0 

standard and provides information on a 

patient’s benefit eligibility at the time of 

prescription dispensing) would be 

beneficial to pharmacies as well, but it 

is the coordination of benefits and more 

precise pricing fields that would save 

pharmacies time and money. One 

industry group estimated that large 

pharmacy chains could save upwards of 

$1 million a year due to avoided audits 

and incorrect payments. For smaller 

chains, the industry estimates savings 

would be approximately $100,000 per 

chain. This does not include the time 

that pharmacists and pharmacy 

technician staff spend on these claims 

trying to process them at the pharmacy 

level. We assume an annual benefit of 

$38 million for large and small 

pharmacy chains in avoided audits and 

incorrect payments, and a total 10-year 

benefit of $380 million, and 

conservatively estimate benefits at 50 

percent, or $190 million. We invite 

industry and stakeholder comments on 

this assumption. 

Table 20 below shows the amount of 

savings as a result of avoided audits and 

incorrect payments based on 

implementation of Version D.0. 

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[Large and small chain pharmacy avoided audit and incorrect payment savings resulting from Version D.0 (millions)] 

Benefit type 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

Large Pharmacy chains (20 × $1M) ...................... $20 $20 $20 $20 $20 $20 $20 $20 $20 $20 $200 

Small Pharmacy Chains (20 × $1M) ...................... 18 18 18 18 18 18 18 18 18 18 180 

Total (maximum) .................................................... 38 38 38 38 38 38 38 38 38 38 380 

50% (minimum) ...................................................... 19 19 19 19 19 19 19 19 19 19 190 

Based on a study funded by the 

National Association of Chain Drug 

Stores (NACDS), ‘‘Pharmacy Activity 

Cost and Productivity Study’’ (http:// 

www.nacds.org/user-assets/PDF_files/ 

arthur_andersen.PDF), the average 

pharmacist spends 1.1 percent of his or 

her time dealing with third party plan 

issues. According to NACDS, there are 

136,773 pharmacists employed by chain 

pharmacies, and 94,000 full-time 

community pharmacists. In 2010, the 

first year of the migration from Version 

5.1 to Version D.0, that number is 

expected to increase to 244,829, or 

approximately 7,028 per year based on 

industry trend information. For these 

244,829 full-time pharmacists, 1.1 

percent of 2,080 working hours annually 

equals 22.88 hours per year that a 

pharmacist spends on third party plan 

issues, times the study’s estimated 

average pharmacist hourly wage of $60, 

which equals $1,373 per pharmacist, 

$1,373 × 244,829 full-time pharmacists 

equals $336,101,251 in potential 

productivity savings to be realized by 

the use of Version D.0 in the first benefit 

year. However, we recognize that all call 

backs and inquiries would not be 

entirely eliminated. Therefore, we 

conservatively estimate that 25 to 50 

percent of the pharmacist’s time spent 

on third party plan questions could be 

eliminated, for a total first year savings 

of $84 million to $168 million. Over the 

next 9 years, we estimate that, based on 

Department statistics (http:// 

www.hhs.gov/pharmacy/phpharm/ 

howmany.html) the number of 

pharmacists will increase by 1.3 percent 

per year. We estimate 10-year 

productivity savings at $1,134 million to 

$2,268 million. We did not estimate 

hourly wage increases for the other job 

types discussed elsewhere in this 

regulation, and therefore savings 

calculated for other entities do not 

include the additional dollar values. 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49775 

TABLE 21

—

PHARMACIST

PRODUCTIVITY

SAVINGS

FROM

VERSION D.0 

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

No. of Pharmacists ..... 244,829 248,012 251,236 254,502 257,811 261,162 264,557 267,996 271,480 275,010 2,596,595 Incremental Pharmacists .................... 3,183 3,224 3,266 3,309 3,352 3,395 3,439 3,484 3,529 30,181 Pharmacist Hourly 

Wages ..................... $60.00 $63.18 $66.52 $70.04 $73.75 $76.65 $80.76 $85.04 $89.54 $94.28 

Hours × Wages × 

Pharmacists ............. $336,101,251 $358,515,508 $382,375,458 $407,843,319 $435,029,477 $458,013,485 $488,845,770 $521,444,688 $556,175,087 $593,230,486 $4,537,574,528 

Total (25%) .......... $84,025,313 $89,628,877 $95,593,864 $101,960,830 $108,757,369 $114,503,371 $122,211,442 $130,361,172 $139,043,772 $148,307,621 $1,134,393,632 Total (50%) .......... $168,050,626 $179,257,754 $191,187,729 $203,921,659 $217,514,738 $229,006,742 $244,422,885 $260,722,344 $278,087,544 $296,615,243 $2,268,787,264 

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49776 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

According to the same NACDS study, 

pharmacy staffs spend 0.9 percent of 

their time dealing with third party plan 

issues. Although there are usually 

multiple pharmacy technicians on 

premises at a given time, for purposes 

of this analysis we assume that one and 

one-half pharmacy staff persons per 

pharmacy are addressing these third 

party plan issues. 

In projecting the growth in the 

number of pharmacies over the next 9 

years, we used data from the NACDS, 

‘‘Community Retail Pharmacy Outlets 

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

www.nacds.org/user-seets/pdfs/facts_

resources/2006/Retail_Outlets2006.pdf), 

which showed that while there were 2 

years of negative growth, the average 

percentage increase in the number of 

pharmacies was .835 percent per year. 

We applied this percentage growth 

factor to our analysis, and calculated 

benefits based only on the incremental 

growth in the number of pharmacies, 

assuming that existing pharmacies 

would have already accounted for their 

technician hours. We also assume that 

the salaries of pharmacy technician staff 

would rise approximately $.50 cents an 

hour each year, based on industry data 

(http://flahec.org/hlthcarers/

pharmtec.htm and http:// 

www.nacds.org/wmspage.cfm?

parm1=507) showing that their median 

hourly earnings rose from $11.73 in 

2005, to $12.74 in 2007. Starting our 

analysis in the year 2010, we project 

there would be 56,946 pharmacies. We 

assume that one and one-half full-time 

pharmacy staff persons per pharmacy 

would spend 28.08 hours per year on 

third party plan issues (0.9 percent × 

3,140). The hourly wage for one and 

one-half persons is $21.36 based on a 

per-technician hourly wage projected at 

$14.24 (1.5 × $14.24=$21.36) for the 

year 2010. This 2010 hourly wage is 

based upon the current average hourly 

wage of $12.74, increased 0.50 cents per 

year according to industry trend 

information. We calculated the 2010 

hourly technician wage of $21.36 times 

the number of hours spent on third 

party plan issues, 28.08, times the 

number of pharmacies, 56,946 for a total 

of $34,155,573 ($21.36 × 28.08 × 

56,946). Once again, we recognize that 

all call backs and inquiries would not be 

entirely eliminated. Therefore, we 

conservatively estimate that 25 percent 

of the pharmacy staff’s time spent on 

third party plan questions could be 

eliminated, for a total 10 year 

productivity savings of $98 million to 

$196 million. 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49777 

TABLE 22

—

PHARMACY

TECHNICIAN

STAFF

PRODUCTIVITY

SAVINGS

FROM

VERSION D.0 

Year 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 

No. of Pharmacies .......... 56,946 57,421 57,900 58,383 58,870 59,361 59,856 60,355 60,858 61,366 ........................Incremental No. of Pharmacies ......................... ........................ 475 479 483 487 491 495 499 503 508 ........................Technician Hourly Wage 

( ×1.5 techs.) ............... $21.36 $21.86 $22.36 $22.86 $23.36 $23.86 $24.36 $24.86 $25.36 $25.86 ........................

Hours (28.080) × Wages 

× No. of Pharmacies ... $34,155,573 $35,246,664 $36,353,604 $37,476,561 $38,615,706 $39,771,205 $40,943,228 $42,131,942 $43,337,517 $44,560,847 $392,592,847 

Total (25%) .............. $8,538,893 $8,811,666 $9,088,401 $9,369,140 $9,653,926 $9,942,801 $10,235,807 $10,532,986 $10,834,379 $11,140,212 $98,148,212 Total (50%) .............. $17,077,787 $17,623,332 $18,176,802 $18,738,281 $19,307,853 $19,885,603 $20,471,614 $21,065,971 $21,668,759 $22,280,424 $196,296,424 

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49778 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

Health Plans and PBMs 

We assume that if pharmacists and 

technicians realize productivity savings 

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

then conversely, health plans and PBMs 

would realize commensurate savings 

though a reduction in pharmacist and 

technician calls to customer service 

representatives at health care plans and 

PBMs. 

Using the previous assumptions, we 

again estimate the annual salary of a 

typical plan/PBM customer service 

representative at $40,000, or 

approximately $19.23 per hour. If 

pharmacists spend a total of 22.88 hours 

per year on the phone making third 

party payer inquiries, we estimate that 

a customer service representative would 

spend the same amount of time on the 

phone answering the pharmacists’ third 

party inquiries. At $19.23 an hour, that 

would equate to savings of $440 per 

customer service representative. 

Additionally, if pharmacy technicians 

each spend 28.08 hours each year on the 

phone making third party payer 

inquiries, this would equate to $540 per 

customer service representative, for a 

total savings of $980 per customer 

service representative. If we apply a 

conservative benefit assumption of 25 

percent, this would equate to 

productivity savings of $245 per 

customer service representative. 

We have no knowledge of the number 

of customer service representatives 

employed by plans and PBMs, and 

therefore cannot draw any quantitative 

conclusions from the above analysis. We 

assume that, even taking a conservative 

approach by estimating the benefit at 25 

percent as we did for the pharmacists 

and technicians, plans and PBMs would 

greatly benefit from productivity savings 

among their customer service 

representatives in avoided calls from 

pharmacists and technicians regarding 

third party payer issues. 

We also assume that if pharmacies are 

realizing savings through avoided audits 

and returned payments, plans are also 

receiving a commensurate benefit, but 

we have no data from industry to 

support this assumption. We solicit 

industry and interested stakeholder 

comments on these benefit assumptions. 

With respect to benefits related to 

implementing Version 5010, we 

described the benefits for all providers, 

including pharmacy providers, in the 

assumptions section of this analysis 

(better standards and decreased manual 

effort). We identified the largest benefits 

for pharmacies in the content 

requirements in the 835 standard 

(required fields versus situational or 

optional fields) and improvements in 

the specificity of the business rules 

which will minimize multiple 

interpretations of the guides. These 

enhancements will help to reduce 

manual interventions needed to resolve 

transaction issues. For example, Version 

4010/4010A does not provide 

instructions for reconciling payments. 

The new Front Matter section in Version 

5010 explicitly details how this 

information is to be reported in the 

summary section of the remittance 

advice. Thus, benefits and savings 

would accrue through better standards. 

For this savings calculation, we use the 

same formula as for other provider cost 

savings—multiplying the savings from 

reduced manual intervention by the 

number of claims and remittance advice 

transactions that would be affected by 

the improvements. Savings due to better 

standards (837 and 835) is estimated to 

be in the range of $20 million to $27 

million. 

TABLE 23—COST SAVINGS FOR PHARMACIES DUE TO BETTER STANDARDS FOR VERSION 5010 

[In millions] 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

Decrease in phone calls ........................................ .......... .......... .77 .80 .83 .86 .90 .93 .97 1.01 ..........

Time to process call—6 minutes ........................... 0 0 $2 $2 $2 $2 $3 $3 $3 $3 $20 

Cost per call—$.48/minute ..................................... 0 0 $3 $3 $3 $3 $3 $4 $4 $4 $27 

Summary of Version D.0 and Version 

5010 for Pharmacy Costs and Benefits 

Costs would be incurred by pharmacy 

chains, independent pharmacies and 

PBMs in the migration from Version 5.1 

to Version D.0. Benefits resulting from 

avoided audits and incorrect payments, 

and pharmacist and pharmacy 

technician productivity savings would 

accrue to pharmacy chains and 

independent pharmacies. 

TABLE 24—COST BENEFIT SUMMARY FOR PHARMACIES IN MILLIONS FOR VERSION D.0 AND VERSION 5010 

Minimum Maximum 

Costs (Chains and independents): 

D.0 Pharmacy Chains Systems Implementation ....................................................................................... $18 $38 

D.0 Independent Pharmacies Maintenance Fees ..................................................................................... 540 1,080 

D.0 PBM Programming .............................................................................................................................. 8 .6 10 .6 

5010 System Implementation ....................................................................................................................... 58 114 

5010 Transition ............................................................................................................................................. 10 20 

Total Costs ............................................................................................................................................ 95 .14 183 .6 

Benefits: 

D.0 Pharmacist Productivity Savings ......................................................................................................... 1,134 2,268 

D.0 Pharmacy Technician Productivity Savings ........................................................................................ 98 196 

D.0 Avoided Audits and Accurate Payments ............................................................................................. 190 380 

5010 Operational Savings—better standards .............................................................................................. 20 27 

Total Benefits ........................................................................................................................................ 1,442 2,871 

Net Benefits ........................................................................................................................................... 1,346 2,870 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49779 

3. Version 3.0 

A. Introduction 

All State Medicaid programs or their 

business associates that conduct 

Medicaid pharmacy subrogation 

transactions for pharmacy claims would 

be required to use the NCPDP Medicaid 

Subrogation Standard, Version 3.0 when 

billing third party payers that may be 

legally responsible for payment. 

Based upon industry analysis and 

current usage, we have determined that 

adopting a standard for the subrogation 

transaction would result in one-time 

conversion costs for Medicaid State 

agencies, or their business associates, as 

well as the third party payers of 

Medicaid claims. This includes 

primarily pharmacy benefit managers 

(PBMs) and claims processors as well as 

medical health plans that process their 

claims in house. Some third party 

payers would incur system upgrade 

costs directly and others would incur 

them in the form of a fee paid to a 

contractor. We project that the accrued 

savings that would result from the 

administrative simplification of 

adopting a HIPAA standard for 

Medicaid pharmacy subrogation would 

be ongoing and offset any immediate 

expenditures. 

B. Current Medicaid Claims Processing 

Environment 

Approximately 37 States are currently 

billing a major portion of their Medicaid 

pharmacy subrogation claims 

electronically. At the time of this impact 

analysis, 33 of the 37 States were using 

a contingency fee contractor to bill their 

claims. This means that these States 

have hired a contractor to seek 

reimbursement from third parties and 

the contractor keeps a portion of the 

recoveries. The other four States were 

billing electronically without the use of 

a contractor. The remaining 14 States 

were billing primarily all of their 

Medicaid pharmacy subrogation claims 

on paper. 

It is important to note that since some 

payers currently require the use of their 

own unique billing format, States and 

contractors with electronic billing 

capability have found it necessary to bill 

a substantial amount of subrogation 

claims on paper. 

In addition, due to the current 

challenges of having to use various 

formats to meet the needs of different 

payers, some States, on occasion, recoup 

the subrogation monies directly from 

pharmacy providers, and the providers 

are responsible for billing the payers. 

The impact on pharmacy providers for 

implementing the NCPDP subrogation 

format is discussed in section D of this 

proposed rule. 

C. Impact Analysis on State Medicaid 

Programs 

The current Version 2.0 for standard 

Medicaid pharmacy subrogation, with 

some modifications to accommodate 

various third party payers, is being 

widely used. Therefore, some of the 

costs referenced in this impact analysis 

have already been absorbed. 

The costs for States that currently bill 

electronically to upgrade their systems 

to Version 3.0 for Medicaid subrogation 

transactions, and to transition from 

paper Medicaid subrogation claims to 

electronic Version 3.0, would be 

outweighed by the benefits accrued to 

States. The following sections provide 

details to support this conclusion. We 

invite public comments on this 

conclusion. 

1. Impact on States That Use a 

Contingency Fee Contractor 

For the 33 States that contract out 

their Medicaid pharmacy subrogation 

billing processes, there would be no 

direct costs. Contingency fee contractors 

generally keep a percentage, from 6 

percent to 15 percent, of the monies 

they recover from third parties. It is 

expected that these contractors would 

absorb the upfront costs. If the standard 

is adopted, we project that 

reimbursement to States would increase 

proportionally to a projected increase in 

volume of electronic claims, and as a 

result, the contractors would recover 

their cost on the back-end, as they 

would be recouping additional 

contingency fees based on the volumes. 

Our estimates are based on the 

assumption that virtually all paper 

subrogation claims would be converted 

to electronic transactions because 

currently, some States only conduct 

subrogation on paper. With the adoption 

of Version 3.0 as a HIPAA standard, all 

States (or their contractors) will be 

required to utilize Version 3.0 when 

transmitting Medicaid subrogation 

claims to plans or payers. 

2. Impact on States Converting From 

Paper 

The total costs and benefits to the 

Federal government and State Medicaid 

programs are arrayed in Tables 24a and 

24b at the end of this section. 

a. Cost of Development 

The typical steps to be taken in the 

implementation of the Version 3.0 

include: 

• Completing an analysis to identify 

gaps and weaknesses in existing 

process. 

• Participating in internal meetings 

for project management and control. 

• Completing documentation 

requirements necessary for project 

management. 

• Providing translator training to 

development staff. 

• Completing new translator maps for 

both the outgoing NCPDP claim and the 

returning NCPDP response files. 

• Completing legacy system changes 

to accommodate the NCPDP 

transactions. 

• Completing acceptance testing. 

Since States have already made the 

necessary investments in developing 

electronic transaction capabilities to 

meet HIPAA mandates and they 

anticipate upgrading their systems in 

order to adopt the NCPDP D.0 standard 

for processing claims, we expect that 

additional infrastructure costs would be 

relatively small. Costs would be 

significantly reduced because the 

Medicaid subrogation standard Version 

3.0 utilizes the data elements in, and 

operates in conjunction with, the 

version D.0 claim standard. 

We captured data from the State of 

Illinois, which recently adopted Version 

2.0 for pharmacy subrogation as a standalone systems upgrade. The cost for 

development was estimated at $220,000 

for staff and mainframe systems. This 

figure does not include costs on the 

Local Area Network (LAN) where the 

translator development and testing 

occurred, or connectivity setup costs 

performed by another agency. Illinois is 

the only state that has recently 

converted to Version 2.0 and was able 

to provide cost data. Alabama is in the 

process of converting to Version 2.0, but 

its implementation is being done in 

conjunction with other system 

upgrades, and the costs specific to 

Medicaid subrogation could not be 

isolated. 

Since we believe it is unlikely that a 

State would choose to use the Medicaid 

pharmacy subrogation standard as a 

stand-alone upgrade, but instead would 

implement it in conjunction with 

Version D.0, we project the cost to be 

lower. Therefore, we would expect the 

cost of adopting the Medicaid 

subrogation standard in conjunction 

with adopting the Version D.0 to range 

from $50,000 to $150,000 per State. The 

State would be responsible for 10 

percent of the $50,000 to $150,000 per 

State, and the Federal government 

would reimburse the State 90 percent of 

the design, development, and 

installation costs related to changes in 

their Medicaid Management Information 

Systems (MMIS). 

Of the 14 States that bill paper, we 

project that seven would incur 

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development costs in order to conduct 

their own billing and the other seven 

would hire a contingency fee contractor 

to conduct their billing. 

However, since we have received a 

limited amount of data, we solicit 

comments from States. 

b. Costs of Adopting and Implementing 

Trading Partner Agreements (TPAs) 

With Third Party Payers 

Once a State has a system in place to 

process pharmacy claims using the 

Medicaid subrogation standard, the 

State typically enters into ‘‘Trading 

Partner Agreements’’ with other payers 

in order to conduct subrogation 

electronically. This involves—

• Outreach activities. 

• Meetings to assure that the strategy 

developed will accomplish a successful 

implementation. 

• Connectivity for file transfers and to 

mitigate the values in various fields in 

outgoing NCPDP claim transactions and 

the returning NCPDP response 

transaction. 

• Modifications to accommodate the 

needs in the translator maps and legacy 

systems. 

• Acceptance testing and deployment 

scheduling. 

According to the AHIP, there are four 

national PBMs that process about 75 

percent of all prescriptions dispensed 

annually, and there are a small handful 

of specialized PBMs. Based on 

information provided by States and 

business associates, we expect that 

approximately forty (40) third party 

payers, primarily PBMs and claims 

processors as well as a few large health 

plans that process claims in-house, 

would be affected. 

Based on estimates from some at least 

two States (Illinois and Alabama) that 

have recently, or are in the process of, 

billing electronically, the cost to adopt 

and implement their first trading 

partner agreements are estimated to 

range from $14,000 to $20,000. We 

believe that as States and payers gain 

experience in negotiating these 

agreements and the number of these 

agreements increases, the cost would be 

significantly reduced. Therefore, we 

estimate the cost for a State to establish 

and implement trading partner 

agreements with payers to range from 

$5,000 to $15,000 for each trading 

partner agreement. It is projected that 

each State would enter into a trading 

partner agreement with an average of 15 

payers. The anticipated costs per State 

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

Since we believe that one half of the 14 

States would hire a contractor, the costs 

for the other seven States to adopt a 

trading partner agreement with 15 plans 

would range from $525,000 to $1.6 

million. The State would be responsible 

for 50 percent of the cost since the 

Federal government reimburses States 

50 percent of their administrative costs, 

related to the proper and efficient 

administration of the Medicaid program. 

3. Impact on States That Bill 

Electronically (Without the Use of a 

Contingency Fee Contractor) 

a. Cost of Development 

For the four States that are currently 

conducting pharmacy subrogation 

transactions electronically, the changes 

would be minimal and the cost impact 

would be much less than for the States 

that currently bill paper to convert to 

Version 3.0. 

b. Costs of Adopting and Implementing 

Trading Partner Agreements With Third 

Party Payers 

The cost to adopt and implement a 

trading partner agreement would be the 

same: $5,000 to $15,000, for these States 

as it would be for the States that are 

converting from paper to electronic 

billing. The only difference is that these 

States would have already established 

trading partner agreements with some 

payers and would be setting up trading 

partner agreements with additional 

payers. We would estimate that these 

four States would each establish trading 

partner agreements with an additional 

12 payers for a total cost ranging from 

$20,000 to $60,000. 

4. Medicaid Savings 

We have determined that the accrued 

savings to States would outweigh the 

costs based on the fact that after 

implementation, Medicaid agencies 

would no longer have to keep track of 

and use various electronic formats for 

different payers. This would simplify 

their billing systems and processes and 

reduce administrative expenses. 

Based on our data, we estimate the 

total number of paper Medicaid 

pharmacy subrogation claims to be 

between 2.5 and 3.4 million annually. 

We are seeing a trend where States that 

have historically ‘‘paid and chased’’

pharmacy claims are implementing cost 

avoidance systems. By doing so, States 

are requiring pharmacy providers to bill 

third party payers before billing 

Medicaid, thereby reducing the need for 

Medicaid subrogation. We expect this 

trend to continue. 

According to a study by Milliman in 

2006, and referenced by the American 

Medical Association (AMA) on their 

Web site, electronic claims can save an 

average of $3.73 per clean claim filed. 

Based on this study, the Medicaid 

program stands to save an estimated 

$12.7 million annually once Version 3.0 

is fully implemented, beginning in the 

third year of implementation. For the 

third and fourth year when Version 3.0 

is fully implemented, the administrative 

savings will be distributed equally 

between the States and the Federal 

government. The total savings over the 

10 year period is estimated to be $17.6 

million. After the fourth year, savings 

will essentially cease as States transition 

to routine use of the standard. 

Rather than using the assumptions 

that the AHIP study referenced earlier in 

this analysis for Version 5010, we use 

the study referenced by the AMA 

because it identifies savings for the 

entity that generates the claim, which, 

in the case of subrogation, is the 

Medicaid agency. We believe that this 

$3.73 savings estimate represents the 

savings potential of overhead, labor, and 

other indirect benefits applicable to 

Medicaid. The AMA report referencing 

the study can be found at: http:// 

www.ama-assn.org/ama/pub/category/ 

18185.html. Select ‘‘Follow the Claim’’

to be taken to the report. The study itself 

can be found at http:// 

transact.webmd.com/ 

milliman_study.pdf. 

The savings represents both State 

agencies and the Federal government, as 

the Federal government would share 50 

percent of any administrative savings. 

We did not receive specific data from 

Medicaid agencies on subrogation 

savings, and therefore welcome industry 

input and data to validate or enhance 

these assumptions during the public 

comment period. 

In addition to the administrative 

savings, we anticipate that Medicaid 

would realize programmatic savings 

resulting from an increase in claims 

paid due to increased efficiency in 

electronic claims processing using 

Version 3.0. We do not have sufficient 

data to accurately project the actual 

savings; therefore, we solicit public 

comments. 

We do not anticipate a significant 

change in volume in subrogation claims 

in future years. Even though the trend 

shows an increase in prescriptions 

overall, States are becoming more 

efficient in avoiding payment on the 

front-end which results in fewer 

subrogation claims on the backend. 

D. Impact on Medicaid Pharmacy 

Providers 

In situations where Medicaid has 

been unable to successfully bill third 

parties, due to the current challenges of 

having to use various formats to meet 

the needs of different payers, States 

sometimes recoup the subrogation 

monies from pharmacy providers and it 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49781 

is left up to the providers to bill the 

appropriate third party payers. Use of a 

standard format should enable States to 

bill third parties successfully and 

therefore help to alleviate this 

administrative burden on providers. We 

do not estimate this practice to be 

widespread and therefore do not 

account for it in this impact analysis. 

E. Impact on Third Party Payers 

(Includes Plan Sponsors, Pharmacy 

Benefit Managers (PBMs), Prescription 

Drug Plans (PDPs) and Claims 

Processors) 

Insurers, employers and managed care 

plans are sometimes referred to as plan 

sponsors. A majority of plan sponsors 

use a PBM to manage prescription drug 

coverage and handle claims processing. 

Some plan sponsors administer the 

prescription coverage in-house, but 

contract with a claims processor just to 

handle claims adjudication. A few of the 

larger plan sponsors perform their own 

claims processing. The total costs and 

benefits to third party payers are arrayed 

in Table 25a and Table 25b at the end 

of this section. 

1. Impact on Plan Sponsors That Use a 

PBM or Claim Processor 

As mentioned earlier, there are four 

PBMs that handle about 75 percent of 

all prescription orders dispensed 

annually in the United States, and a 

handful of specialized PBMs. These 

PBMs have contracts with hundreds of 

plan sponsors. We estimate that about 

10 PBMs and processors are already 

accepting the Version 2.0 subrogation 

standard from States or their 

contractors. 

For the majority of plan sponsors that 

contract out their claims adjudication to 

PBMs or claims processors, the costs of 

implementing Version 3.0 and 

establishing trading partner agreements 

would be minimal. The PBMs and 

claims processors would likely absorb 

the upfront cost and recover their 

expenses from their hundreds of plan 

sponsors on the back-end. This could be 

done by charging a flat fee or by 

increasing the amount of the transaction 

fees that are charged to plans sponsors 

for processing Medicaid claims. These 

fees would be offset for plan sponsors 

since they would no longer be paying 

higher fees for processing paper claims. 

2. Impact on Plan Sponsors That Do Not 

Use a PBM or Claim Processor 

There may be a few large payers, 

primarily insurers and managed care 

organizations that administer their own 

claims adjudication. These payers 

would have already made the necessary 

investments in developing electronic 

capabilities to meet HIPAA mandates. 

We anticipate that the payers would 

upgrade their systems in order to adopt 

the Version D.0 for processing claims 

from providers. Version 3.0 utilizes a 

number of the data elements found in 

Version D.0. Therefore, we expect that 

additional infrastructure costs would be 

relatively small. 

a. Costs of Development 

We estimate the development costs to 

individual payers that would need to 

implement Version 3.0 for the Medicaid 

pharmacy subrogation standard, Version 

3.0 to be similar to the cost for State 

Medicaid programs which would be in 

the $50,000 to $150,000 range. We 

estimate that there are about 20 payers 

that do not contract with a PBM and 

they would need to upgrade their 

systems at a total cost of $1 to $3 

million. However, since we do not have 

sufficient data to accurately project 

actual costs, we solicit comments from 

third party payers. 

b. Costs of Adopting and Implementing 

Trading Partner Agreements With States 

We estimate the plan sponsor’s costs 

of adopting and implementing a trading 

partner agreement with a State would be 

similar to the cost estimated for State 

Medicaid programs, which would range 

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

We anticipate that approximately 40 

States would utilize a contingency fee 

contractor, therefore, the process for 

setting up trading partner agreements 

with a contractor versus 40 individual 

States would be streamlined and much 

less costly. We estimate the cost per 

plan sponsor for establishing 

agreements to include all of the States 

to range from $60,000 to $180,000. 

However, since we do not have 

sufficient data, we solicit comments 

from plan sponsors. 

In addition to the administrative 

costs, we anticipate that the increased 

efficiency in claims processing would 

result in payers paying out more for 

Medicaid subrogation claims that would 

have otherwise been denied. We do not 

have sufficient data to estimate the 

potential costs. We invite public 

comments on the costs for the increase 

in Medicaid subrogation adjudicated 

claims. 

3. Savings Impact 

Savings from the application of 

electronically conducting subrogation 

may vary, but even small savings per 

claim can have a large impact on 

administrative costs when dealing with 

large claim volumes. 

According to a survey conducted by 

AHIP in May 2006, electronic claims are 

roughly half the cost of paper claims. 

The average cost of processing a clean 

electronic claim was 85 cents, nearly 

half the $1.58 cost of processing a clean 

paper claim. Pended claims requiring 

manual or other review cost $2.05 on 

average per claim to process. 

We do not have data for the States to 

distinguish the proportion of clean 

claims versus those that require manual 

review. Using the assumption that 50 

percent of claims require manual 

review, the savings of converting 3.4 

million paper claims to electronic 

transmission would be $3.3 million. Use 

of the standard would provide a source 

of ongoing savings for the industry. 

We do not anticipate a significant 

change in volume in subrogation claims 

in future years. Even though the trend 

shows an increase in prescriptions 

overall, States are becoming more 

efficient in avoiding payment on the 

front end which results in fewer 

subrogation claims on the backend. The 

following tables (Table 25a/b and 26a/ 

b) show the estimated State, Federal and 

payer costs and benefits for 

implementing Version 3.0. 

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TABLE 25a

—

ESTIMATED

STATE AND

FEDERAL

COSTS IN

MILLIONS

—FOR

YEARS 2010

–2019 FOR IMPLEMENTATION OF

VERSION 3.0 

Cost type Government plans 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

Development .............................................. Federal

—Minimum .... $.158 $.158 0 0 0 0 0 0 0 0 $.316 

Federal

—Maximum ... .472 .472 0 0 0 0 0 0 0 0 .944 

State

—Minimum ........ .018 .018 0 0 0 0 0 0 0 0 .036 

State

—Maximum ....... .052 .052 0 0 0 0 0 0 0 0 .104 

Trading Partner Agreements ..................... Federal

—Minimum .... .191 .191 0 0 0 0 0 0 0 0 .382 

Federal

—Maximum ... .580 .580 0 0 0 0 0 0 0 0 1.160 

State

—Minimum ........ .191 .191 0 0 0 0 0 0 0 0 .382 

State

—Maximum ....... .580 .580 0 0 0 0 0 0 0 0 1.160 

TABLE 25b

—

ESTIMATED

STATE AND

FEDERAL

BENEFITS

—IN MILLIONS

—FOR

YEARS 2010

–2019 FOR IMPLEMENTATION OF

VERSION 3.0 

Benefit type Government plans 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

General Benefit ........................................ Federal

—Minimum .... $1.16 $2.33 $4.7 $4.7 $0 $0 $0 $0 $0 $0 $12 .9 

Federal

—Maximum ... 1.59 3.17 6.4 6.4 0 0 0 0 0 0 17 .59 

State

—Minimum ........ 1.16 2.33 4.7 4.7 0 0 0 0 0 0 12 .9 

State

—Maximum ....... 1.59 3.17 6.4 6.4 0 0 0 0 0 0 17 .59 

TABLE 26a

—

ESTIMATED

PAYER

COSTS

—IN

MILLIONS

—FOR

YEARS 2010

–2019

—FOR IMPLEMENTATION OF

VERSION 3.0 

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

Costs: 

Development .................................. Payer

—Minimum ..... $ .500 $ .500 $0 $0 $0 $0 $0 $0 $0 $0 $1 

Payer

—Maximum .... 1 .5 1 .5 0 0 0 0 0 0 0 0 3 

Trading Partner Agreements .......... Payer

—Minimum ..... 1 .2 1 .2 0 0 0 0 0 0 0 0 2 .4 

Payer

—Maximum .... 3 .6 3 .6 0 0 0 0 0 0 0 0 7 .2 

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TABLE 26b—ESTIMATED PAYER BENEFITS—IN MILLIONS—FOR YEARS 2010–2019—FROM IMPLEMENTATION OF VERSION

3.0 

General Savings 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Total 

Payer—Minimum ...................... $.600 $1.24 $2 .475 $2 .475 $0 $0 $0 $0 $0 $0 $6.79 

Payer—Maximum ..................... .800 1.65 3 .3 3 .3 0 0 0 0 0 0 9.05 

D. Alternatives Considered 

We considered a number of 

alternatives for each of the proposals 

and eliminated each of them in favor of 

the recommendations in this proposed 

rule. 

For each of the three sections of this 

proposed rule, one alternative 

considered was to make no changes to 

the status quo. That would mean that 

the current versions of X12N (Version 

4010/4010A) and NCPDP (Version 5.1) 

would continue to be the adopted 

standards for HIPAA transactions, and 

that a standard would not be adopted 

for Medicaid subrogation transactions. 

In each case we rejected this alternative 

because such a decision would not only 

continue to hamper adoption of EDI for 

all covered entities, it would potentially 

preclude the industry from 

implementing the ICD–10 code set for 

the HIPAA administrative transactions. 

We note that Version 4010/4010A 

cannot accommodate ICD–10 codes, 

while Version 5010 can. Keeping 

version 4010/4010A as the standard 

would result in impeding the expansion 

of EDI. 

Moreover, if we continue to use 

Version 4010/4010A, the industry 

would continue to use a number of 

workarounds to be able to use the 

standards and would continue the 

reliance on companion guides, which is 

counter to the concept of 

standardization. The NCPDP testified to 

the NCVHS in July 2007 that adopting 

Version 5010 is a cost-saving measure 

that would improve the efficiency of 

those already using Version 4010/ 

4010A, and encourage others to adopt 

and use more of the standards. 

For Version D.0, we considered not 

adopting this modification and leaving 

intact the requirement to use Version 

5.1. However, we rejected this 

alternative because we believe Version 

5.1 has become outdated and is not 

efficient or effective in processing 

Medicare Part D prescription drug 

benefit program claims. We also 

considered waiting to adopt Version D.0 

at a later date, but felt it was important 

to advance the use of Version D.0 to 

encourage standards adoption by the 

industry and enable the industry to reap 

the improved benefits of the standard as 

soon as possible. 

For Medicaid subrogation 

transactions, we considered allowing 

the industry to continue using the 

proprietary formats currently in use. 

However, this would not have the 

desired effect of increasing the use of 

EDI, or of moving the industry towards 

a uniform standard. 

With respect to the proposed adoption 

of the Version 3.0 Medicaid subrogation 

standard, we considered the following 

alternatives: 

• Not adopt Version 3.0 and permit 

the industry to continue using Version 

2.0 proprietary electronic and paper 

formats. This would require the 

Medicaid agencies to support multiple 

formats in order to bill pharmacy claims 

to third party payers. The current 

multiplicity of claim formats creates a 

significant barrier to Medicaid agencies 

being able to comply with Federal law 

in ensuring that Medicaid is the payer 

of last resort. Using the Version 2.0 

standard would require a number of 

workarounds to be compatible with 

version D.0 or other NCPDP claim 

standards except for Version 5.1. 

• The NCPDP testified to the NCVHS 

in January 2008 that adopting Version 

3.0 for Medicaid subrogation is a costsaving tool and would improve the 

efficiency of those already using Version 

2.0. It also would make it more feasible 

for other states and payers to invest in 

system upgrades to accommodate one 

specific standard. The NCVHS did not 

recommend any viable alternatives to 

Version 3.0 for handling Medicaid 

subrogation transactions because they 

purported that Version 3.0 adequately 

addresses the business need for 

Medicaid agencies and industry 

partners. 

Summary of Costs and Benefits for This 

Proposed Rule 

The final tables, 27a and 27b, are the 

compilation of the minimum and 

maximum costs and benefits for all of 

the standards being proposed in this 

NPRM. 

BILLING CODE 4120–01–P 

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BILLING CODE 4120–01–C 

E. Accounting Statement and Table 

Whenever a rule is considered a 

significant rule under Executive Order 

12866, we are required to develop an 

Accounting Statement. This statement 

must state that we have prepared an 

accounting statement showing the 

classification of the expenditures 

associated with the provisions of this 

proposed rule. Monetary annualized 

Benefits and non-budgetary costs are 

presented as discounted flows using 

three percent and seven percent factors. 

TABLE 28—ACCOUNTING STATEMENT

[Accounting Statement: Classification of Estimated Expenditures, from FY 2010 to FY 2019 (in millions)] 

Category Primary estimate 

(millions) 

Minimum estimate 

(millions) 

Maximum estimate 

(millions) 

Source 

citation 

(RIA, preamble, 

etc.) 

Benefits 

Annualized Monetized benefits: 

7% Discount .................................. $2,930 .................................................. $1,647 ................... $4,214 ................... RIA. 

3% Discount .................................. $3,151 .................................................. $1,769 ................... $4,532 ................... RIA. 

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

decrease in use of companion 

guides; increased productivity due 

to decrease in manual intervention 

requirements.

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

Costs 

Annualized Monetized costs: 

7% Discount .................................. $1,073 .................................................. $718 ...................... $1,428 ................... RIA. 

3% Discount .................................. $942 ..................................................... $630 ...................... $1,254 ................... RIA. 

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

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

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

Transfers 

Annualized monetized transfers: ‘‘on 

budget’’.

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

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

Annualized monetized transfers: ‘‘offbudget’’.N/A ....................................................... N/A ........................ N/A. 

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


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49790 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

In accordance with the provisions of 

Executive Order 12866, as amended, 

this regulation was reviewed by the 

Office of Management and Budget. 

List of Subjects in 45 CFR Part 162 

Administrative practice and 

procedure, Electronic transactions, 

Health facilities, Health insurance, 

Hospitals, Incorporation by reference, 

Medicare, Medicaid, Reporting and 

recordkeeping requirements. 

For the reasons set forth in the 

preamble, the Department of Health and 

Human Services proposes to amend 45 

CFR subtitle A, subchapter C as set forth 

below: 

PART 162—ADMINISTRATIVE 

REQUIREMENTS 

1. The authority citation for part 162 

continues to read as follows: 

Authority: Secs. 1171 through 1179 of the 

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

8), as added by sec. 262 of Public Law 104–

191, 110 Stat. 2021–2031, and sec. 264 of 

Public Law 104–191, 110 Stat. 2033–2034 (42 

U.S.C. 1320d–2 (note)). 

Subpart I—General Provision for 

Transactions 

2. Revise § 162.900 to read as follows: 

§ 162.900 Compliance dates for 

transaction standards and code sets. 

(a) Small health plans. (1) All small 

health plans must comply with the 

applicable requirements of Subparts I 

through R of this part no later than 

October 16, 2003. 

(2) All small health plans must 

comply with the applicable 

requirements of Subpart S of this part 

no later than [date 36 months after the 

effective date of the final rule]. 

(b) Covered entities other than small 

health plans. 

(1) All covered entities other than 

small health plans must comply with 

the applicable requirements of Subparts 

I through R of this part no later than 

October 16, 2003. 

(2) All covered entities other than 

small health plans must comply with 

the applicable requirements of Subpart 

S of this part no later than [date 24 

months after the effective date of the 

final rule]. 

3. Amend § 162.920 as follows: 

A. Revise the introductory text and 

paragraph (a) introductory text. 

B. Add paragraphs (a)(10) through 

(a)(18). 

C. Revise paragraph (b) introductory 

text. 

D. Add paragraphs (b)(4) through 

(b)(6). 

The revisions and additions read as 

follows: 

§ 162.920 Availability of implementation 

specifications. 

A person or an organization may 

directly request copies of the 

implementation specifications and the 

Technical Reports Type 3 described in 

subparts I through S of this part from 

the publishers listed in this section. The 

Director of the Federal Register 

approves the implementation 

specifications, which include the 

Technical Reports Type 3 described in 

this section for incorporation by 

reference in subparts I through S of this 

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

and 1 CFR part 51. The implementation 

specifications and Technical Reports 

Type 3 described in this section are also 

available for inspection by the public at 

the Centers for Medicare & Medicaid 

Services, 7500 Security Boulevard, 

Baltimore, Maryland 21244 or at the 

National Archives and Records 

Administration (NARA). For 

information on the availability of this 

material at NARA, call 202–714–6030, 

or go to: http://www.archives.gov/

federal_register/code_of_federal_

regulations/i br_locations.html. 

(a) ASC X12N specifications and the 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3. 

The implementation specifications for 

the ASC X12N and the ASC X12 

Standards for Electronic Data 

Interchange Technical Report Type 3 

(and accompanying Type 1 Errata) may 

be obtained from the Washington 

Publishing Company, 747 177th Lane, 

NE., Bellevue, WA, 98008; Telephone 

(425) 562–2245; and FAX (775) 

239–2061. They are also available 

through the Internet at http://www.wpcedi.com/. All ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3 adopted for use under 

HIPAA and any corresponding addenda 

are available in three configurations: 

downloadable PDFs, PDFs shipped on 

CD, and bound books. A fee is charged 

for all implementation specifications, 

including Technical Reports. Charging 

for such publications is consistent with 

the policies of other publishers of 

standards. The transaction 

implementation specifications are as 

follows: 

* * * * * 

(10) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Dental (837), May 2006, Washington 

Publishing Company, 005010X224, and 

Type 1 Errata to Health Care Claim: 

Dental (837), ASC X12 Standards for 

Electronic Date Interchange Technical 

Report Type 3, October 2007, 

Washington Publishing Company, 

005010X224A1, as referenced in 

§ 162.1102 and § 162.1802. 

(11) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, 

Washington Publishing Company, 

005010X222, as referenced in 

§ 162.1102 and § 162.1802. 

(12) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Institutional (837), May 2006, 

Washington Publishing Company, 

005010X223, and Type 1 Errata to 

Health Care Claim: Institutional (837), 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, Washington Publishing 

Company, 005010X223A1, as referenced 

in § 162.1102 and § 162.1802. 

(13) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Payment/Advice (835), April 2006, 

Washington Publishing Company, 

005010X221, as referenced in 

§ 162.1602. 

(14) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, 

Washington Publishing Company, 

005010X220, as referenced in 

§ 162.1502. 

(15) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Payroll Deducted and 

Other Group Premium Payment for 

Insurance Products (820), February 

2007, Washington Publishing Company, 

005010X218, as referenced in 

§ 162.1702. 

(16) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Services 

Review—Request for Review and 

Response (278), May 2006, Washington 

Publishing Company, 005010X217, and 

Type 1 Errata to Health Care Services 

Review—Request for Review and 

Response (278), ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3, April 2008, Washington 

Publishing Company, 005010X217E1, as 

referenced in § 162.1302. 

(17) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Status Request and Response (276/277), 

August 2006, Washington Publishing 

Company, 005010X212, and Type 1 

Errata to Health Care Claim Status 

Request and Response (276/277), ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

April 2008, Washington Publishing 

Company (005010X212E1), as 

referenced in § 162.1402. 

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(18) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Eligibility 

Benefit Inquiry and Response (270/271), 

April 2008, Washington Publishing 

Company, 005010X279, as referenced in 

§ 162.1202. 

(b) Retail pharmacy specifications 

and Medicaid subrogation 

implementation guides. The 

implementation specifications for the 

retail pharmacy standards and the 

implementation specifications for the 

batch standard for Medicaid subrogation 

transactions may be obtained from the 

National Council for Prescription Drug 

Programs, 9240 East Raintree Drive, 

Scottsdale, AZ 85260. Telephone (480) 

477–1000; FAX (480) 767–1042. They 

are also available through the internet at 

http://www.ncpdp.org. A fee is charged 

for all NCPDP Implementation Guides. 

Charging for such publications is 

consistent with the policies of other 

publishers of standards. The transaction 

implementation specifications are as 

follows: 

* * * * * 

(4) The Telecommunication Standard 

Implementation Guide Version D, 

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

National Council for Prescription Drug 

Programs, as referenced in § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802. 

(5) The Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), January 2006, 

National Council for Prescription Drug 

Programs, as referenced in § 162.1102, 

§ 162.1202, § 162.1302, and § 162.1802. 

(6) The Batch Standard Medicaid 

Subrogation Implementation Guide, 

Version 3, Release 0 (Version 3.0), July 

2007, National Council for Prescription 

Drug Programs, as referenced in 

§ 162.1902. 

4. Revise § 162.923 paragraph (a) to 

read as follows: 

§ 162.923 Requirements for covered 

entities. 

(a) General rule. Except as otherwise 

provided in this part, if a covered entity 

conducts with another covered entity 

that is required to comply with a 

transaction standard adopted under this 

part (or within the same covered entity), 

using electronic media, a transaction for 

which the Secretary has adopted a 

standard under this part, the covered 

entity must conduct the transaction as a 

standard transaction. 

* * * * * 

Subpart K—Health Care Claims or 

Equivalent Encounter Information 

5. Section 162.1102 is amended as 

follows: 

A. Revise the introductory text to 

paragraph (b). 

B. Add a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 162.1102 Standards for health care 

claims or equivalent encounter information 

transaction. 

* * * * * 

(b) For the period from October 16, 

2003 through March 31, 2010: 

* * * * * 

(c) For the period on and after April 

1, 2010: 

(1) Retail pharmacy drug claims. The 

Telecommunication Standard 

Implementation Guide Version D, 

Release 0 (Version D.0), August 2007 

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920). 

(2) Dental health care claims. The 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3—

Health Care Claim: Dental (837), May 

2006, Washington Publishing Company, 

005010X224, and Type 1 Errata to 

Health Care Claim: Dental (837) ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, Washington Publishing 

Company, 005010X224A1. 

(Incorporated by reference in § 162.920). 

(3) Professional health care claims. 

The ASC X12 Standards for Electronic 

Data Interchange Technical Report Type 

3—Health Care Claim: Professional 

(837), May 2006, Washington Publishing 

Company, 005010X222. (Incorporated 

by reference in § 162.920). 

(4) Institutional health care claims. 

The ASC X12 Standards for Electronic 

Data Interchange Technical Report Type 

3—Health Care Claim: Institutional 

(837), May 2006, Washington Publishing 

Company, 005010X223, and Type 1 

Errata to Health Care Claim: 

Institutional (837) ASC X12 Standards 

for Electronic Data Interchange 

Technical Report Type 3, October 2007, 

Washington Publishing Company, 

005010X223A1. (Incorporated by 

reference in § 162.920). 

(5) Retail pharmacy supplies and 

professional services claims. (i) The 

Telecommunication Standard 

Implementation Guide Version D, 

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

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs 

(Incorporated by reference in § 162.920); 

and 

(ii) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, 

Washington Publishing Company, 

005010X222. (Incorporated by reference 

in § 162.920). 

Subpart L—Eligibility for a Health Plan 

6. Section 162.1202 is amended by—

A. Revising the introductory text to 

paragraph (b). 

B. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 162.1202 Standards for eligibility for a 

health plan transaction. 

* * * * * 

(b) For the period from October 16, 

2003 through March 31, 2010: 

* * * * * 

(c) For the period on and after April 

1, 2010: 

(1) Retail pharmacy drugs. The 

Telecommunication Standard 

Implementation Guide Version D, 

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

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920). 

(2) Dental, professional, and 

institutional health care eligibility 

benefit inquiry and response. The ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3—

Health Care Eligibility Benefit Inquiry 

and Response (270/271), April 2008, 

Washington Publishing Company, 

005010X279. (Incorporated by reference 

in § 162.920). 

Subpart M—Referral Certification and 

Authorization 

7. Revise § 162.1301 to read as 

follows: 

§ 162.1301 Referral certification and 

authorization transaction. 

The referral certification and 

authorization transaction is any of the 

following transmissions: 

(a) A request from a health care 

provider to a health plan for the review 

of health care to obtain an authorization 

for the health care. 

(b) A request from a health care 

provider to a health plan to obtain 

authorization for referring an individual 

to another health care provider. 

(c) A response from a health plan to 

a health care provider to a request 

described in paragraph (a) or paragraph 

(b) of this section. 

8. Section 162.1302 is amended by—

A. Revising the introductory text to 

paragraph (b). 

B. Adding a new paragraph (c). 

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The revisions and additions read as 

follows: 

§ 162.1302 Standards for referral 

certification and authorization transaction. 

* * * * * 

(b) For the period from October 16, 

2003 through March 31, 2010: 

* * * * * 

(c) For the period on and after April 

1, 2010: 

(1) Retail pharmacy drugs. The 

Telecommunication Standard 

Implementation Guide Version D, 

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

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs 

(Incorporated by reference in § 162.920). 

(2) Dental, professional, and 

institutional request for review and 

response. The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Services 

Review—Request for Review and 

Response (278), May 2006, Washington 

Publishing Company (005010X217), and 

Type 1 Errata to Health Care Services 

Review—Request for Review and 

Response (278), ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3, April 2008, Washington 

Publishing Company, 005010X217E1. 

(Incorporated by reference in § 162.920). 

Subpart N—Health Care Claim Status 

9. Revise § 162.1401 to read as 

follows: 

§ 162.1401 Health care claim status 

transaction. 

The health care claim status 

transaction is the transmission of either 

of the following: 

(a) An inquiry from a health care 

provider to a health plan to determine 

the status of a health care claim. 

(b) A response from a health plan to 

a health care provider about the status 

of a health care claim. 

10. Section 162.1402 is amended by—

A. Removing ‘‘on and after October 

16, 2003’’ and adding in its place ‘‘from 

October 16, 2003 through March 31, 

2010’’ in the introductory text in 

paragraph (b). 

B. Adding a new paragraph (c). 

The additions read as follows: 

§ 162.1402 Standards for health care claim 

status transaction. 

* * * * * 

(c) For the period on and after April 

1, 2010: The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Status Request and Response (276/277), 

August 2006, Washington Publishing 

Company, 005010X212, and Type 1 

Errata to Health Care Claim Status 

Request and Response (276/277), ASC 

X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

April 2008, Washington Publishing 

Company, 005010X212E1. (Incorporated 

by reference in § 162.920). 

Subpart O—Enrollment and 

Disenrollment in a Health Plan 

11. Revise § 162.1501 to read as 

follows: 

§ 162.1501 Enrollment and disenrollment 

in a health plan transaction. 

The enrollment and disenrollment in 

a health plan transaction is the 

transmission of subscriber enrollment 

information from the sponsor of the 

insurance coverage, benefits, or policy, 

to a health plan to establish or terminate 

insurance coverage. 

12. Section 162.1502 is amended by—

A. Removing ‘‘on and after October 

16, 2003’’ and adding in its place ‘‘from 

October 16, 2003 through March 31, 

2010’’ in the introductory text of 

paragraph (b). 

B. Adding a new paragraph (c). 

The additions read as follows: 

§ 162.1502 Standards for enrollment and 

disenrollment in a health plan transaction. 

* * * * * 

(c) For the period on and after April 

1, 2010: The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Benefit Enrollment and 

Maintenance (834), August 2006, 

Washington Publishing Company, 

005010X220 (Incorporated by reference 

in § 162.920). 

Subpart P—Health Care Payment and 

Remittance Advice 

13. Section 162.1602 is amended by—

A. Removing ‘‘on and after October 

16, 2003’’ and adding in its place ‘‘from 

October 16, 2003 through March 31, 

2010’’ in the introductory text of 

paragraph (b). 

B. Adding a new paragraph (c). 

The additions read as follows: 

§ 162.1602 Standards for health care 

payment and remittance advice transaction. 

* * * * * 

(c) For the period on and after April 

1, 2010: The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim 

Payment/Advice (835), April 2006, 

Washington Publishing Company, 

005010X221. (Incorporated by reference 

in § 162.920). 

Subpart Q—Health Plan Premium 

Payments 

14. Section 162.1702 is amended by—

A. Removing ‘‘on and after October 

16, 2003’’ and adding in its place ‘‘from 

October 16, 2003 through March 31, 

2010’’ in the introductory text of 

paragraph (b). 

B. Adding a new paragraph (c). 

The additions read as follows: 

§ 162.1702 Standards for health plan 

premium payments transaction. 

* * * * * 

(c) For the period on and after April 

1, 2010: The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Payroll Deducted and 

Other Group Premium Payment for 

Insurance Products (820), February 

2007, Washington Publishing Company, 

005010X218. (Incorporated by reference 

in § 162.920). 

Subpart R—Coordination of Benefits 

15. Section 162.1802 is amended by—

A. Revising the introductory text of 

paragraph (b). 

B. Adding a new paragraph (c). 

The revisions and additions read as 

follows: 

§ 162.1802 Standards for coordination of 

benefits information transaction. 

* * * * * 

(b) For the period from October 16, 

2003 through March 31, 2010: 

* * * * * 

(c) For the period on and after April 

1, 2010: 

(1) Retail pharmacy drug claims. The 

Telecommunication Standard 

Implementation Guide Version D, 

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

and equivalent Batch Standard 

Implementation Guide, Version 1, 

Release 2 (Version 1.2), National 

Council for Prescription Drug Programs. 

(Incorporated by reference in § 162.920). 

(2) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Dental (837), May 2006, Washington 

Publishing Company, 005010X224, and 

Type 1 Errata to Health Care Claim: 

Dental (837), ASC X12 Standards for 

Electronic Date Interchange Technical 

Report Type 3, October 2007, 

Washington Publishing Company, 

005010X224A1. (Incorporated by 

reference in § 162.920). 

(3) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Professional (837), May 2006, 

Washington Publishing Company, 

005010X222. (Incorporated by reference 

in § 162.920). 

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Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49793 

(4) The ASC X12 Standards for 

Electronic Data Interchange Technical 

Report Type 3—Health Care Claim: 

Institutional (837), May 2006, 

Washington Publishing Company, 

005010X223, and Type 1 Errata to 

Health Care Claim: Institutional (837), 

ASC X12 Standards for Electronic Data 

Interchange Technical Report Type 3, 

October 2007, Washington Publishing 

Company, 005010X223A1. 

(Incorporated by reference in § 162.920). 

16. Add a new Subpart S to read as 

follows: 

Subpart S—Medicaid Pharmacy 

Subrogation 

Sec. 

162.1901 Medicaid pharmacy subrogation 

transaction. 

162.1902 Standard for Medicaid pharmacy 

subrogation. 

§ 162.1901 Medicaid pharmacy 

subrogation transaction. 

The Medicaid pharmacy subrogation 

transaction is the transmission of a 

claim from a Medicaid agency to a payer 

for the purpose of seeking 

reimbursement from the responsible 

health plan for a pharmacy claim the 

State has paid on behalf of a Medicaid 

recipient. 

§ 162.1902 Standard for Medicaid 

pharmacy subrogation. 

The Secretary adopts the Batch 

Standard Medicaid Subrogation 

Implementation Guide, Version 3, 

Release 0 (Version 3.0), July 2007, 

National Council for Prescription Drug 

Programs, as referenced in § 162.1902. 

(Incorporated by reference at § 162.920). 

(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: April 23, 2008. 

Kerry Weems, 

Acting Administrator, Centers for Medicare 

& Medicaid Services. 

Approved: May 14, 2008. 

Michael O. Leavitt, 

Secretary. 

Editorial Note: This document was 

received at the Office of the Federal Register 

on August 15, 2008. 

[FR Doc. E8–19296 Filed 8–15–08; 3:55 pm] 

BILLING CODE 4120–01–P 

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