HIPAA final standards for Electronic Transactions and Code Sets were issued on August 17, 2000. The goal of the regulations is to streamline the healthcare system and reduce costs by standardizing the content, data elements, codes, and formats to be used when healthcare administrative and financial transactions are conducted through electronic data interchange (EDI).

The original deadline for compliance with the Electronic Transaction and Code Set standards was October 16, 2002. However, on December 27, 2001, President Bush signed into law the ability for providers to obtain a one-year extension for compliance (to October 16, 2003) by submitting a compliance plan to HHS prior to October 16, 2002.
  

Background

A considerable portion of every healthcare dollar is spent on administrative overhead. For healthcare providers, this overhead includes significant costs for such tasks as:

• Verifying insurance eligibility
• Requesting authorization for services
• Filing claims for payment
• Responding to requests for additional information to support claims

Today, these processes involve numerous paper forms, telephone calls, and incompatible computer applications. Long delays and breakdowns in communicating information and processing transactions are routine.

To address these problems, HIPAA required the Department of Health and Human Services (HHS) to adopt standards to improve the way in which healthcare data are exchanged electronically. HIPAA seeks to simplify and encourage the electronic transfer of information by replacing hundreds of nonstandard formats with a single set of standards for electronic transactions to be used throughout the healthcare industry.
  

Requirements

The general HIPAA rule can be simply stated: If a covered entity conducts a covered transaction using electronic media, the transaction must be conducted as a standard transaction. (Italicized terms are discussed below.)

The regulations, as originally drafted, did not require healthcare providers to transmit transactions electronically. However, the new law allowing a one-year extension for compliance also added a requirement that, as of October 16, 2003 (with limited exceptions for small providers), Medicare claims must be submitted electronically.
  

Covered Entities

As with all of the HIPAA regulations, the Electronic Transaction and Code Set standards apply to the following Covered Entities:

• Health plans
• Healthcare clearinghouses
• Healthcare providers that transmit covered transactions in electronic form (or who use another entity to transmit transactions electronically on their behalf)
    

Covered Transactions

HHS has adopted standardized formats and data content for the following transactions:

• Health claims or equivalent encounter information
• Enrollment and disenrollment in a health plan
• Eligibility for a health plan
• Healthcare payment and remittance advice
• Health plan premium payments
• Health claim status
• Referral certification and authorization
• Coordination of benefits

Standards for first report of injury in workers' compensation cases and claims attachments are yet to be adopted. HHS may also regulate additional transactions in the future.
  

Electronic Media

"Electronic media" refers to the mode of electronic transmission. It includes:

• The Internet
• Extranets (using Internet technology to link a business with information only accessible to collaborating parties)
• Leased lines
• Dial-up lines
• Private networks
• Transmissions that are physically moved from one location to another using magnetic tape, disk, or compact disk media
    

Transaction Standards Adopted

HHS worked closely with the healthcare industry to determine which standards to adopt for electronic transactions. They selected standards developed by the Accredited Standards Committee ("ASC") of the American National Standards Institute ("ANSI"). The standards of most relevance to physicians and hospitals are:

		Insurance eligibility inquiry	ASC X12N 270, version 4010
		Healthcare claims or equivalent encounter information	ASC X12N 837, version 4010
		Referral certification and authorization	ASC X12N 278, version 4010
		Healthcare claim status inquiry	ASC X12N 276, version 4010
		Healthcare claim status response	ASC X12N 277, version 4010
		Healthcare payment and remittance advice	ASC X12N 835, version 4010

Implementation specifications for each of these transactions are found in Implementation Guides. The Guides are available from:

Washington Publishing Company
PMB 161
5284 Randolph Road
Rockville, MD 20852-2116
Phone: (301) 949-9740
Fax: (301) 949-9742
http://www.wpc-edi.com

Although they must be familiar with the general requirements, most providers will have no need to learn the details of these standards. Instead, they will rely heavily on the vendors of their practice management systems to ensure that their systems will be capable of processing HIPAA-compliant transactions.
  

Code Sets

Two types of code sets are required for data elements in the HIPAA transaction standards.

1. Large code sets for medical data, including:
   
   • Diseases, injuries, impairments, other health-related problems, and their manifestations
   • Causes of injury, disease, impairment, or other health-related problems
   • Actions taken to prevent, diagnose, treat, or manage diseases, injuries, and impairments and any substances, equipment, supplies, or other items used to perform these actions
     
2. Smaller sets of codes for other data elements such as:
   
   • Type of facility
   • Type of unit

The code sets adopted under HIPAA are already in use by most providers, health plans, and healthcare clearinghouses. They are:

ICD-9-CM - The International Classification of Diseases, Ninth Revision, Clinical Modification (ICD-9-CM), classifies both diagnoses (Volumes 1 & 2) and procedures (Volume 3). Hospitals and ambulatory care settings use this classification to capture diagnoses for administrative transactions. The ICD-9-CM procedure system is used for inpatient procedure coding.

CPT-4 - Physician Current Procedural Terminology (CPT) is used by physicians to code their services. CPT-4 is level one of the Health Care Financing Administration Procedure Coding System (HCPCS).

Alpha numeric HCPCS - Alpha-numeric Health Care Financing Administration Procedure Coding System (HCPCS) contains codes for medical equipment, injectable drugs, transportation services, and other services not found in CPT-4. Alpha-numeric codes are level two of HCPCS. They are used in ambulatory settings.

CDT-2 - Current Dental Terminology is used for reporting dental services.

NDC - National Drug Codes (NDC) are currently used for reporting prescription drugs in retail pharmacy transactions and some claims by healthcare professionals. Although the initially issued regulations adopted NDC for all pharmacy claims, HHS has indicated that the requirement that providers use the NDC will be amended.

HIPAA will require all health plans to receive and process all standard codes, but it does not affect reimbursement or coverage policies. Plans are not required to cover all services for which there are codes.

Compliance Plan

In order to qualify for the one-year extension for compliance with the Transaction and Code Set standards, providers must submit to HHS, by October 16, 2002, a plan demonstrating how they will meet the new deadline of October 16, 2003. The plan must include a summary of:

• An analysis reflecting the extent to which, and the reasons why, the person is not in compliance.
• A budget, schedule, work plan, and implementation strategy for achieving compliance.
• Whether the person plans to use or might use a contractor or other vendor to assist the person in achieving compliance.
• A timeframe for testing that begins not later than April 16, 2003.

HHS has issued a model form for submission of compliance plans; however, alternative formats are acceptable and can be submitted anytime prior to October 16, 2002.

If providers fail to submit compliance plans on time, they are not eligible for the deadline extension and must be in compliance with the Transaction and Code Set Standards by the original deadline of October 16, 2002. If a provider fails to submit a plan and is also not in compliance by October 16, 2002, the provider may be excluded from Medicare participation.
  

Impact

The HIPAA Transaction and Code Set requirements will have a significant impact. The broad scope of the regulations may necessitate major system modifications for some providers, depending on the age and architecture of their individual systems and applications. However, the adoption of standard codes will greatly simplify claims submission for healthcare providers who deal with multiple health plans. In addition, overall cost savings and improved data quality from standardized transactions will benefit the entire healthcare industry.

Revised: March 2004