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Daily Rules, Proposed Rules, and Notices of the Federal Government

DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

RIN 0938-AR01

Administrative Simplification: Adoption of Operating Rules for Health Care Electronic Funds Transfers (EFT) and Remittance Advice Transactions

AGENCY: Office of the Secretary, HHS.
ACTION: Interim final rule with comment period.
SUMMARY: This interim final rule with comment period implements parts of section 1104 of the Affordable Care Act which requires the adoption of operating rules for the health care electronic funds transfers (EFT) and remittance advice transaction.
DATES: Compliance Date:The compliance date for operating rules for the health care electronic funds transfers (EFT) and remittance advice transaction is January 1, 2014.

Comment Date:To be assured consideration, comments must be received at one of the addresses provided in theADDRESSESsection of this interim final rule with comment period on or before October 9, 2012.

ADDRESSES: 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 tohttp://www.regulations.gov.Follow the "Submit a comment" instructions.

2.By regular mail.You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-0028-IFC, P.O. Box 8013, Baltimore, MD 21244-8013.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.By express or overnight mail.You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-0028-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

4.By hand or courier.Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period:

a. For delivery in Washington, DC--Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 20201.

(Because access to the interior of the Hubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A stamp-in clock is available for persons wishing to retain a proof of filing by stamping in and retaining an extra copy of the comments being filed.)

b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid Services, Department of Health and Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

If you intend to deliver your comments to the Baltimore address, call telephone number (410) 786-1066 in advance to schedule your arrival with one of our staff members.

Comments erroneously mailed to the addresses indicated as appropriate for hand or courier delivery may be delayed and received after the comment period.

For information on viewing public comments, see the beginning of theSUPPLEMENTARY INFORMATIONsection.

FOR FURTHER INFORMATION CONTACT:

Matthew Albright (410) 786-2546. Denise Buenning (410) 786-6711.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following Web site as soon as possible after they have been received:http://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.

I. Executive Summary A. Purpose of the Regulatory Action

Health care spending in the United States constitutes nearly 18 percent of the U.S. Gross Domestic Product (GDP) and costs an average of $9,000 per person annually.1 Many factors contribute to the high cost of health care in the United States, but studies point to administrative costs as having a substantial impact on the growth of spending2 and an area of costs that could likely be reduced.3

1Keehan, S.P.; Sisko, A.M.; Truffer, C.J.; Poisal, J.A.; Cuckler, G.A.; Madison, A.J. ; Lizonitz, J.M.; & Smith, S.D.; “National Health Spending Projections Through 2020: Economic Recovery and Reform drive faster Spending Growth,”Health Affairs30,(8): doi:10.1377/hlthaff.2011.0662, 2011.

2“Technological Change and the Growth of Health Care Spending,” A CBO Paper, Congressional Budget Office, January 2008, pg.4,http://www.cbo.gov/ftpdocs/89xx/doc8947/01-31-TechHealth.pdf.

3Morra, D., Nicholson, S., Levinson, W., Gans, D. N., Hammons, T., & Casalino, L.P. “U.S. Physician Practices versus Canadians: Spending Nearly Four Times as Much Money Interacting with Payers,”Health Affairs:30(8):1443-1450, 2011.

Blanchfield, Bonnie B., James L. Hefferman, Bradford Osgood, Rosemary R. Sheehan, and Gregg S. Meyer, “Saving Billions of Dollars—and Physician's Time—by Streamlining Billing Practices,”Health Affairs:29(6):1248-1254, 2010.

One area of administrative burden that can be lessened for health care providers is the time and labor spent interacting with multiple health insurance plans, called billing and insurance related (BIR) tasks. The average physician spends a cumulative total of 3 weeks a year on BIR tasks according to one study,4 and, in a physician's office, two-thirds of a full-time employee per physician is necessary to conduct BIR tasks.5

4Casalino, L.P., Nicholson, S., Gans, D.N., Hammons, T., Morra, D., Karrison, T., & Levinson, W., “What does it cost physician practices to interact with health insurance plans?”Health Affairs:28(4) (2009): w533-w543).

5Sakowski, J.A., Kahn, J.G., Kronick, R.G., Newman, J.M., & Luft, H.S., “Peering into the black box: Billing and insurance activities in a medical group,”Health Affairs:28(4): w544-w554, 2009.

The tasks and costs of activities directly related to collecting payments is a category of BIR tasks. Nearly 40 percent of nonclinical staff time spent on BIR tasks in a physician practice is dedicated to activities directly related to collecting payments.6 According to estimates that are discussed more broadly in the Regulatory Impact Analysis (RIA), most health care providers collect and deposit paperchecks, and manually post and reconcile the health care claim payments in their accounting systems. By automating some of these tasks, time and labor spent on the collection of payments can be decreased. Automation can be achieved through the electronic transfer of information or electronic data interchange (EDI). Through the use of electronic funds transfers (EFT) for health care claim payments and the use of electronic remittance advice (ERA) that describes adjustments to the payments, BIR costs can be decreased.

6Ibid, p. w547.

The benefits of EFT have been realized in many other industries. The benefits include material cost savings, fraud control, and improved cash flow and cash forecasting. The benefits of ERA have also been demonstrated in terms of cost savings in paper and mailings. By receiving remittance advice electronically, providers can use electronic denial management tools that dramatically improve payment recovery and reconciliation. Despite these advantages, an estimated 70 percent of health care claim payments continue to be in paper check form and an estimated 75 percent of remittance advice is sent through the mail in paper form.7

7Estimates for the percentage of EFT are taken from the interim final rule “Administrative Simplification: Adoption of Standards for the Health Care Electronic Funds Transfers (EFT) and Remittance Advice” published in the January 10, 2012Federal Register(77 FR 1556). Estimates for the percentage of ERA are taken from the proposed rule “Administrative Simplification: Adoption of a Standard for a Unique Health Plan Identifier; Addition to the National Provider Identifier Requirements: And a Change to the Compliance Date for ICD-10-CM and ICD-10-PCS Medical Data Code Sets,” published in the April 17, 2012Federal Register(77 FR 22950). The calculations from these two rules are explained in more detail in the Regulatory Impact Analysis of this rule.

There is evidence that the use of operating rules for specific electronic health care transactions results in higher use of EDI by health care providers.8 We expect usage of EFT and ERA by the health care industry will increase and administrative savings will be realized when industry implements the operating rules for those transactions.

8“CAQH CORE Phase I Measures of Success Final Report, July 7, 2009,” PowerPoint presentation; and “CORE Certification and testing: A Step-by-Step Overview,” February 17, 2011, CAQH and Edifecs Webinar.

B. Legal Authority for the Regulatory Action

The legal authority for the adoption of operating rules rests in section 1173(g) of the Social Security Act (the Act). Section 1173(g) of the Act was added by section 1104(b)(2) of the Patient Protection and Affordable Care Act (Pub L. 111-148), enacted on March 23, 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), enacted on March 30, 2010 (collectively known as and hereinafter referred to as the Affordable Care Act).

C. Summary of the Major Provisions of the Regulatory Action

In this interim final rule with comment period (IFC), we are adopting the Phase III Council for Affordable Quality Healthcare (CAQH) Committee on Operating Rules for Information Exchange (CORE) EFT & ERA Operating Rule Set, including the CORE v5010 Master Companion Guide Template, for the health care EFT and remittance advice transaction (hereinafter referred to as the EFT & ERA Operating Rule Set), with one exception: We are not adopting Requirement 4.2, titled “Health Care Claim Payment/Advice Batch Acknowledgement Requirements,” of the Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule because that requirement requires the use of the Accredited Standards Committee (ASC) X12 999 acknowledgement standard, and the Secretary has not adopted standards for acknowledgements.

Covered entities must be in compliance with the EFT & ERA Operating Rule Set by January 1, 2014.

D. Costs and Benefits

Both costs and benefits are analyzed by examining the costs and cost savings of implementing and using the EFT & ERA Operating Rule Set adopted in this IFC in the following four areas of administrative tasks—

• Provider enrollment in EFT and ERA;

• Implementing infrastructure and communication networks between trading partners;

• Reassociation of the payment information with the remittance information; and

• Posting payment adjustments and claim denials.

To a large extent, the costs of implementing the EFT & ERA Operating Rule Set will be borne by the health plans, with much of the benefits accruing to providers. Many health plans actively participated in the development of these rules, and the requirements they put on themselves were carefully deliberated. In the RIA of this IFC, we estimate that the cost to implement the EFT & ERA Operating Rule Set is $1.2 to $2.7 billion for government and commercial health plans, including third party administrators (TPAs), hospitals, and physician offices. The savings from and cost benefit of using the EFT & ERA Operating Rule Set is $3 to $4.5 billion for government and commercial health plans, hospitals, and physician offices. The net savings derived from using the EFT & ERA Operating Rule Set over 10 years ranges from approximately $300 million to $3.3 billion.

II. Background A. Statutory and Regulatory Background 1. The Health Insurance Portability and Accountability Act of 1996 (HIPAA)

Congress addressed the need for a consistent framework for electronic health care transactions and other administrative simplification issues through the Health Insurance Portability and Accountability Act of 1996 (HIPAA), (Pub.L. 104-191), enacted on August 21, 1996. HIPAA amended the Act by adding Part C—Administrative Simplification—to Title XI of the Act, requiring the Secretary of the Department of Health and Human Services (HHS) (the Secretary) to adopt standards for certain transactions to enable health information to be exchanged more efficiently and to achieve greater uniformity in the transmission of health information.

In the August 17, 2000Federal Register(65 FR 50312), we published a final rule titled “Health Insurance Reform: Standards for Electronic Transactions” (hereinafter referred to as the Transactions and Code Sets final rule). That rule implemented some of the HIPAA Administrative Simplification requirements by adopting standards for electronic health care transactions developed by standard setting organizations (SSOs) and medical data code sets to be used in those transactions. We adopted the ASC X12 Version 4010 standards and the National Council for Prescription Drug Programs (NCPDP) Telecommunication Version 5.1 standard.

Section 1172(a) of the Act states that—

Any standard adopted under [HIPAA] shall apply, in whole or in part, to * * *

(1) A health plan.

(2) A health care clearinghouse.

(3) A health care provider who transmits any health information in electronic form in connection with a [HIPAA transaction].

These entities are referred to as covered entities.

In the January 16, 2009Federal Register(74 FR 3296), we published a final rule titled, “Health Insurance Reform; Modifications to the Health Insurance Portability and Accountability Act (HIPAA) Electronic Transaction Standards” (hereinafter referred to as the Modifications final rule). Among other things, theModifications final rule adopted updated versions of the standards, ASC X12 Version 5010 (hereinafter referred to as Version 5010) and NCPDP Telecommunication Standard Implementation Guide Version D.0 (hereinafter referred to as Version D.0) and equivalent Batch Standard Implementation Guide, Version 1, Release 2 (hereinafter referred to as Version 1.2) for the electronic health care transactions, which are specified at 45 CFR part 162, Subparts I through R. Covered entities were required to comply with Version 5010 and Version D.0 on January 1, 2012. We also adopted a standard for the Medicaid pharmacy subrogation standard, NCPDP Version 3.0, in the Modifications final rule, specified at 45 CFR part 162, Subpart S, with which covered entities were required to comply on January 1, 2012, except small health plans, which have until January 1, 2013.

As January 1, 2012 approached, we became aware that there were still a number of outstanding issues and challenges impeding full implementation of Version 5010 and Version D.0. Therefore, we announced two consecutive 90-day periods during which we would not initiate enforcement action against any covered entity through June 30, 2012.

Table 1 summarizes the full set of transaction standards adopted in the Transactions and Code Sets final rule and as modified in the Modifications final rule.

Table 1—Current Adopted Standards for HIPAA Transactions Transaction Standard Health care claims or equivalent encounter information—Dental ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Dental (837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care Claim: Dental (837), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X224A1. Health care claims or equivalent encounter information—Professional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Professional (837), May 2006, ASC X12N/005010X222. Health care claims or equivalent encounter information—Institutional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Institutional (837), May 2006, ASC X12/N005010X223, and Type 1 Errata to Health Care Claim: Institutional (837), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X223A1. Health care claims or equivalent encounter information—Retail pharmacy 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. Health care claims or equivalent encounter information—Retail pharmacy supplies and professional services Telecommunication Standard, Implementation Guide Version 5, Release 1, September 1999; 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; and ASC X12 Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Professional (837), May 2006, ASC X12N/005010X222. Coordination of Benefits—Retail pharmacy drugs 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. Coordination of Benefits—Dental ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Dental (837), May 2006, ASC X12N/005010X224, and Type 1 Errata to Health Care Claim: Dental (837), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X224A1. Coordination of Benefits—Professional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Professional (837), May 2006, ASC X12, 005010X222. Coordination of Benefits—Institutional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim: Institutional (837), May 2006, ASC X12/N005010X223, and Type 1 Errata to Health Care Claim: Institutional (837), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, October 2007, ASC X12N/005010X223A1. Eligibility for a health plan (request and response)—Dental, professional, and institutional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Eligibility Benefit Inquiry and Response (270/271), April 2008, ASC X12N/005010X279. Eligibility for a health plan (request and response)—Retail pharmacy drugs 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. Health care claim status (request and response) ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim Status Request and Response (276/277), August 2006, ASC X12N/005010X212, and Errata to Health Care Claim Status Request and Response (276/277), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, April 2008, ASC X12N/005010X212E1. Enrollment and disenrollment in a health plan ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Benefit Enrollment and Maintenance (834), August 2006, ASC X12N/005010X220. Health care payment and remittance advice ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Claim Payment/Advice (835), April 2006, ASC X12N/005010X221. Health plan premium payments ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Payroll Deducted and Other Group Premium Payment for Insurance Products (820), February 2007, ASC X12N/005010X218. Referral certification and authorization (request and response)—Dental, professional, and institutional ASC X12Standards for Electronic Data Interchange Technical Report Type 3—Health Care Services Review—Request for Review and Response (278), May 2006, ASC X12N/005010X217, and Errata to Health Care Services Review—Request for Review and Response (278), ASC X12 Standards for Electronic Data Interchange Technical Report Type 3, April 2008, ASC X12N/005010X217E1. Referral certification and authorization (request and response)—Retail pharmacy drugs 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. Medicaid pharmacy subrogation Batch Standard Medicaid Subrogation Implementation Guide, Version 3, Release 0 (Version 3.0), July 2007, National Council for Prescription Drug Programs.

In general, the HIPAA transaction standards enable electronic data interchange using a common interchange structure, thus minimizing the industry's reliance on multiple data transmission formats. According to a recent report to Congress by the National Committee on Vital and Health Statistics (NCVHS), “[t]he HIPAA electronic data requirements for standardized formats and content were intended to move the health care industry from a manual to an electronic system to improve security, lower costs, and lower the error rate.”9

9“The Tenth Report to Congress on the Implementation of the Administrative Simplification Provisions of the Health Insurance Portability and Accountability Act (HIPAA) of 1996 (As Required by the Health Insurance Portability and Accountability Act, Public Law 104-191, Section 263),” submitted to the Senate Committee on Finance and Committee on Health, Education, Labor and Pensions, House Committee on Ways and Means, Committee on Education and Labor and Committee on Energy and Commerce by the National Committee on Vital and Health Statistics, December, 2011, p. 1.

However, according to the NCVHS report, “the speed of adoption [of electronic transactions] across industry has been disappointing.”10 The NCVHS report continues, “The achievement of the vision of seamless electronic flow of information in a confidential and secure manner has been slow.”11

10Ibid, p. 1.

11Ibid, p. 2.

2. The Introduction of Operating Rules in the Affordable Care Act

The use of operating rules is widespread and varied among other industries. For example, uniform operating rules for the exchange of Automated Clearing House (ACH) EFT payments among financial institutions are used in accordance with U.S. Federal Reserve regulations (12 CFR Part 370) and maintained by the Federal Reserve and NACHA—The Electronic Payments Association (known as NACHA). Additionally, credit card issuers employ detailed operating rules (for example, Cirrus Worldwide Operating Rules) describing things such as types of members, their responsibilities and obligations, and licensing and display of service marks.

Before the passage of the Affordable Care Act, States enacted various laws that were analogous to operating rules, in that they established business rules directed toward more efficient and effective transmission of electronic health care transactions. Similarly, the CAQH Committee on Operating Rules for Information Exchange (CORE), a nonprofit alliance of health care stakeholders, developed voluntary operating rules for the health care industry. CAQH CORE's operating rules include business rules that require common platform standards, establish companion guide formats, define the rights and responsibilities of all parties in a transaction, establish response times and error resolution, require specific acknowledgement standards and data content, remove optionality from specific data content, and establish business rules directed at efficient and effective business practices. Voluntary agreements among health care industry stakeholders to use operating rules were shown to reduce costs and administrative complexities.12

12“CAQH CORE Phase I Measures of Success Final Report,,”(presentation), July 7, 2009.

Through the Affordable Care Act, Congress sought to promote implementation of electronic transactions and achieve cost reduction and efficiency improvements by creating more uniformity in the implementation of standard transactions. This was done by mandating the adoption of a set of operating rules for each of the HIPAA transactions. Section 1173(g)(1) of the Act, as added by section 1104(b)(2)(C) of the Affordable Care Act, requires the Secretary to “adopt a single set of operating rules for each transaction * * * with the goal of creating as much uniformity in the implementation of the electronic standards as possible.” The Affordable Care Act defines operating rules and specifies the role of operating rules in relation to the standards. Operating rules are defined by section 1171(9) of the Act (as added by section 1104(b)(1) of the Affordable Care Act) as “the necessary business rules and guidelines for the electronic exchange of information that are not defined by a standard or its implementation specifications as adopted for purposes of this part.” Additionally, section 1173(a)(4)(A) of the Act (as added by section 1104(b)(2)(B) of the Affordable Care Act) requires that—

The standards and associated operating rules adopted by the Secretary shall—

(i) To the extent feasible and appropriate, enable determination of an individual's eligibility and financial responsibility for specific services prior to or at the point of care;

(ii) Be comprehensive, requiring minimal augmentation by paper or other communications;

(iii) Provide for timely acknowledgment, response, and status reporting that supports a transparent claims and denial management process (including adjudication and appeals); and

(iv) Describe all data elements (including reason and remark codes) in unambiguous terms, require that such data elements be required or conditioned upon set values in other fields, and prohibit additional conditions (except where necessary to implement State or Federal law, or to protect against fraud and abuse).

Further, section 1104(b)(2) of the Affordable Care Act amended section 1173 of the Act by adding new subsection (a)(4)(B), which states that “[i]n adopting standards and operating rules for the transactions * * *, the Secretary shall seek to reduce the number and complexity of forms (including paper and electronic forms) and data entry required by patients and providers.”

Section 1104(b)(2) of the Affordable Care Act added section 1173(g)(1) to the Act, which states that “[s]uch operating rules shall be consensus-based and reflect the necessary business rules affecting health plans and health care providers and the manner in which they operate pursuant to standards issued under Health Insurance Portability and Accountability Act of 1996.”

New sections 1173(g)(2)(D), (g)(3)(C), and (g)(3)(D) of the Act also clarify the scope of operating rules. They provide that—

(2) Operating Rules Development.— In adopting operating rules under this subsection, the Secretary shall consider recommendations for operating rules developed by a qualified nonprofit entity that meets the following requirements * * *

(D) The entity builds on the transactions standards issued under Health Insurance Portability and Accountability Act of 1996. * * *

(3) Review and recommendations.— The National Committee on Vital and Health Statistics shall * * *

(C) Determine whether such operating rules represent a consensus view of the health care stakeholders and are consistent with and do not conflict with other existing standards;

(D) Evaluate whether such operating rules are consistent with electronic standards adopted for health information technology.

3. Adoption of Operating Rules for Eligibility for a Health Plan and Health Care Claim Status Transactions

In the July 8, 2011Federal Register(76 FR 40458), we published an IFC titled, “Administrative Simplification: Adoption of Operating Rules for Eligibility for a Health Plan and Health Care Claim Status Transactions” (hereinafter referred to as the Eligibility and Claim Status Operating Rules IFC). That rule adopted operating rules for two HIPAA transactions: (1) Eligibility for a health plan; and (2) health care claim status. The Eligibility and Claim Status Operating Rules IFC also added the definition of operating rules to 45 CFR 162.103 and describes their relationship to standards. For details on operating rules and their relationship to standards, please see the Eligibility and Claim Status Operating Rules IFC (76 FR 40458).

4. Affordable Care Act: Standards and Operating Rules for Electronic Funds Transfers (EFT) and Remittance Advice Transactions

Section 1104(b)(2)(A) of the Affordable Care Act amended section 1173(a)(2) of the Act by adding the EFT transaction to the list of electronic health care transactions for which the Secretary must adopt a standard under HIPAA. Section 1104(c)(2) of the Affordable Care Act required the Secretary to promulgate a final rule to establish an EFT standard, and authorized the Secretary to do so by an interim final rule. That section further required the standard to be adopted by January 1, 2012, in a manner ensuring that it is effective by January 1, 2014.

Section 1104(b)(2)(C) of the Affordable Care Act also added a requirement, at section 1173(g)(4)(B)(ii) of the Act, for the Secretary to adopt a set of operating rules for electronic funds transfers (EFT) transactions and health care payment and remittance advice transactions that shall “(I) allow for automated reconciliation of the electronic payment with the remittance advice; and (II) be adopted not later than July 1, 2012, in a manner ensuring that such operating rules are effective not later than January 1, 2014.”

Section 1104(b)(2)(C) of the Affordable Care Act also amended section 1173 of the Act by adding section 1173(g)(4)(C) of the Act, which provides that “[t]he Secretary shall promulgate an interim final rule applying any standard or operating rule recommended by the [NCVHS] pursuant to paragraph (3). The Secretary shall accept and consider public comments on any interim final rule published under this subparagraph for 60 days after the date of such publication.”

To better explain the context in which a standard for EFT was adopted, we review below how the health care electronic funds transfers (EFT) and remittance advice transaction is used to transmit health care claim payments.

5. Payment of Health Care Claims via EFT and ERA

In the January 10, 2012Federal Register(77 FR 1556), we published an IFC titled, “Administrative Simplification: Adoption of Standards for the Health Care Electronic Funds Transfers (EFT) and Remittance Advice” (hereinafter referred to as the Health Care EFT Standards IFC). In the Health Care EFT Standards IFC, we defined the health care electronic funds transfers (EFT) and remittance advice transaction, found in 45 CFR 162.1601, as the transmission of either of the following for health care:

• The transmission of any of the following from a health plan to a health care provider:

++ Payment.

++ Information about the transfer of funds.

++ Payment processing information.

• The transmission of either of the following from a health plan to a health care provider:

++ Explanation of benefits.

++ Remittance advice.

The transmission described in § 162.1601(a), hereinafter referred to as a health care EFT, is primarily a financial transmission, and the data content is payment information. Traditionally, health care payments were in the form of paper checks sent through the mail, and use of EFT for health care claim payments remains low. When an EFT is used, the payment is generally transmitted through the ACH Network, the same network that transmits salary payments via Direct Deposit, though there are instances when other networks are used, such as Fedwire.

The transmission described in § 162.1601(b) is the ERA. A health plan rarely pays a provider the exact amount a provider bills the health plan for health care claims. A health plan adjusts the claim charges based on contract agreements, secondary payers, benefit coverage, expected copays and co-insurance, and other factors. These adjustments are described in the ERA through the use of four codes: Claim Adjustment Reason Codes (CARCs), Remittance Advice Remark Codes (RARCs), Claim Adjustment Group Codes (CAGCs), and NCPDP External Code List Reject Codes (NCPDP Reject Codes).

CARCs identify reasons why the claim or services are not being paid as charged. For instance, “163” means “attached references on the claim was not received.” RARCs provide additional information about the adjustment. For instance, “M30” means “missing pathology report.” CAGCs categorize CARCs by financial liability. For instance, “PR” means “patient responsibility.” NCPDP Reject Codes identify reasons why a retail pharmacy claim was rejected. For instance, “73” means “refills are not covered.”

With few exceptions, the ERA and the health care EFT are sent in different electronic formats through different networks, contain different data that have different business uses, and are often received by the health care provider at different times. The health care EFT is transmitted from the health plan's treasury system. It is then processed by financial institutions, and ultimately entered into the health care provider's treasury system. The path of the health care EFT through the ACH Network from health plan to provider is represented in Illustration A by the solid arrow.

In contrast, the ERA is traditionally sent from the health plan's claims processing system and processed through the provider's billing and collections system. The path of the ERA from health plan to provider is represented in Illustration A by the arrow with dashes.

When both the health care EFT and the ERA to which it corresponds arrive at the health care provider (often at different times), the two transmissions must be matched back together or “reassociated” by the provider; that is, the provider must associate the ERA with the payment that it describes. This process is referred to as “reassociation.”

Providers receive many payments from different health plans, often separated from the ERA or paper remittance advice by days or even weeks. This makes reassociation of the payment with the remittance advice a slow burdensome task, especially whenthe two cannot be associated by matching identical data elements. In order to realize the greatest level of time- and cost-savings, reassociation of the ERA with the health care EFT should be automated through the provider's practice management system. Reassociation can only be automated if there are data elements in the ERA that can be matched with data elements in the EFT.

ER10AU12.000 6. Adoption of Standards for the Health Care Electronic Funds Transfers (EFT) and Remittance Advice Transaction

The Health Care EFT Standards IFC adopted standards for the format and the data content for the electronic transmission that a health plan sends to its financial institution in order to initiate a health care claim payment to a health care provider via the ACH Network.

One of the goals of the Health Care EFT Standards IFC was to adopt standards for the format and data content of the health care EFT that would ensure that the provider could reassociate the health care EFT with the ERA by matching identical data elements between the two. The Health Care EFT Standards IFC requires that a specific ACH file format be used with specific data content when health plans originate a health care EFT with their financial institutions to transmit through the ACH Network.

Specifically, the Health Care EFT Standards IFC adopts the ACH Network format known as the Corporate Credit or Deposit Entry (CCD) with Addenda Record (CCD+Addenda) as the standard that health plans must use to originate an EFT for health care payments made through the ACH Network. The data content of the Addenda Record is also standardized by the Health Care EFT Standards IFC: Health plans must include the TRN Segment, an ASC X12 data segment the implementation specifications of which are found in the ASC X12 835 TR3 (hereinafter referred to as the X12 835 TR3) in the Addenda Record of the CCD+Addenda. No protected health information (PHI) is to be included in the health care EFT transaction according to the standards adopted in the Health Care EFT Standards IFC. For a comprehensive description of the EFT transmission through the ACH Network, please see the Health Care EFT Standards IFC (77 FR 1556).

The standard for the ERA is the X12 835 TR3, adopted in the Transactions and Code Sets final rule. An updated version of the X12 835 TR3, Version 5010, was adopted in the Modifications final rule.

By requiring health plans to use the same format to originate a health care EFT as that used by financial institutions to transmit an EFT through the ACH Network, there will be one less step in formatting/translating the data in the overall transaction and, therefore, a decrease in the risk that an error or omission will be made in that translation. Consistent format and data elements in the file format used by health plans to originate an EFT through the ACH Network will make it more likely that the provider will be able to reassociate the health care EFT with the ERA because of identical data elements contained in both.

B. The National Committee on Vital and Health Statistics (NCVHS) December 2010 Hearings on EFT

The NCVHS was established by Congress to serve as an advisory body to the Secretary on health data, statistics, and national health information policy, and has been assigned a significant role in the Secretary's adoption of standards, code sets, and operating rules under HIPAA.

Per the Affordable Care Act, the Health Care EFT Standards IFC was based on recommendations from the NCVHS after a hearing the NCVHS Subcommittee on Standards held on December 3, 2010 on standards and operating rules for the health care payment and remittance advice transaction. During the December 2010 hearing titled “Administrative Simplification under the Patient Protection and Affordable Care Act Standards and Operating Rules for Electronic Funds Transfer (EFT) and Remittance Advice (RA),”13 the NCVHS subcommittee conducted a comprehensive review of potential standards and operating rules for the health care electronic funds transfers (EFT) and remittance advice transaction.The December 2010 hearing also included a review of standard setting organizations and operating rule authoring entities, for purposes of making a recommendation to the Secretary as to whether such standards and operating rules should be adopted. The NCVHS hearing consisted of a full day of public testimony with participation by stakeholders representing a cross-section of the health care industry, including health plans, health care provider organizations, health care clearinghouses, retail pharmacy industry representatives, standards developers, professional associations, representatives of Federal and State health plans, the Workgroup for Electronic Data Interchange (WEDI), the banking industry, and potential standard setting organizations (also known as standards development organizations or SDOs) for EFT standards and authoring entities for operating rules, including CAQH CORE, ASC X12, the NACHA, and the NCPDP.

13For agenda and testimony, seehttp://www.ncvhs.hhs.gov.

The testimony, both written and verbal, described many aspects and issues of the health care electronic funds transfers (EFT) and remittance advice transaction. Testifiers described the advantages to using EFT to pay health care claims. The savings in time and money for health plans and health care providers that EFT affords was paramount amongst these advantages. Testifiers presented a number of case studies to illustrate these benefits as well as a number of obstacles to greater EFT use in health care. We refer the reader to the testimonies posted to the NCVHS Web site athttp://www.ncvhs.hhs.govfor a more comprehensive discussion of the issues.

During the December 2010 NCVHS hearing, it became evident that no operating rules for the heath care electronic funds transfers (EFT) and remittance advice transaction had yet been written by any entity. On February 17, 2011, following the December 2010 NCVHS Subcommittee on Standards hearing, the NCVHS sent a letter to the Secretary stating that “NCVHS has formally requested potential operating rules authoring entities to develop and present their applications to be authoring entities for operating rules for the health care EFT standard and ERA standard. These will be reviewed by NCVHS after they are received, and further recommendations will be considered.”14

14February 17, 2011 Letter to Kathleen Sebelius, Secretary, Department of Health and Human Services, from the National Committee on Vital and Health Statistics (NCVHS), p. 6.

After the February 17, 2011 letter was sent, three entities applied to be the authoring entity for the EFT and ERA operating rules: ASC X12 (for nonpharmacy ERA transactions); NCPDP (for pharmacy ERA transactions); and CAQH CORE (for all EFT and ERA transactions). The NCVHS evaluated the applications from the three potential authoring entities. Each application was evaluated based on the statutory requirements including: (1) Focus on administrative simplification; (2) having a multistakeholder and consensus-based process for development of operating rules; (3) building on the transaction standards issued under HIPAA; and (4) plans to develop operating rules that meet the functional requirements defined in the statute.

On March 23, 2011 the NCVHS sent a letter to the Secretary recommending that CAQH CORE, in collaboration with NACHA-The Electronic Payments Association, be named as the “candidate authoring entity for operating rules for all health care EFT and ERA transactions, with the provision that this entity submit to NCVHS fully vetted operating rules for consideration by the committee, by August 1, 2011.”15 The letter noted that the proposed operating rules would be reviewed by NCVHS and further recommendations would be considered, including that the operating rules submitted may or may not be deemed acceptable for a recommendation for adoption.

15March 23, 2011 letter to Kathleen Sebelius, Secretary of the Department of Health and Human Services, from Justine M. Carr, Chairperson, National Committee on Vital and Health Statistics, Affordable Care Act (ACA), Administrative Simplification: Recommendation for entity to submit proposed operating rules to support the Standards for Health Care Electronic Funds Transfers and Health Care Payment and Remittance Advice, pp. 4-5,http://www.ncvhs.hhs.gov/110323lt.pdf.

C. CAQH CORE Operating Rules for the Health Care Electronic Funds Transfers (EFT) and Remittance Advice Transaction

Between March and August 2011, CAQH CORE held more than 30 open calls and over 15 straw polls with industry and government representatives to discuss, debate, and develop operating rules for EFT and ERA. Over 80 health care entities, including health plans, clearinghouses, providers, and financial institutions, were represented at weekly meetings and spent hundreds of hours of analyzing, reviewing, and consensus-building on the operating rules.16

16August 1, 2011 letter to Walter Suarez and Judith Warren, Co-Chairs of the National Committee on Vital Health Statistics (NCVHS) Subcommittee on Standards from Gwendolyn Lohse, Deputy Director CAQH and Managing Director of CORE and Janet Estep, President and CEO, NACHA (p. 2).

CAQH CORE collaborated with the medical, pharmacy, and financial services industries in the following ways in order to draft the operating rules:

• Conducted research, for example, reviewed over 100 EFT and ERA enrollment forms to identify gaps in data collection.

• Held open calls and shared draft documentation with a wide range of constituents, many of which in turn forwarded copies of the drafts to their affiliates.

• Vetted the complete draft CAQH CORE operating rules through the weekly call process, open update calls, surveys, and straw polls, and shared updates on the CAQH CORE and NACHA Web sites.

On August 1, 2011 CAQH CORE and NACHA-The Electronic Payments Association, submitted five separate draft EFT and ERA operating rules to the NCVHS for consideration17 :

17August 1, 2011 letter to Walter Suarez and Judith Warren, Co-Chairs of the National Committee on Vital Health Statistics (NCVHS) Subcommittee on Standards from Gwendolyn Lohse, Deputy Director CAQH and Managing Director of CORE and Janet Estep, President and CEO, NACHA (pgp. 1).

• Draft Phase III CORE ERA Infrastructure (835) Rule

• Draft Phase III CORE EFT Enrollment Data Rule

• Draft Phase III CORE ERA Enrollment Data Rule

• Draft Phase III CORE EFT & ERA Reassociation (CCD+/835) Rule

• Draft Phase III CORE Uniform Use of CARCs and RARCs (835) Rule; includes Draft CORE-required Code Combinations for CORE-defined Business Scenarios.

In its August 1, 2011 letter to the NCVHS, CAQH CORE urged the NCVHS to consider the rules as draft: “Further vetting is underway to finalize the rules per the CAQH CORE process or to identify further dialogue that should occur within the industry.”18

18August 1, 2011 letter to Walter Suarez and Judith Warren, Co-Chairs of the National Committee on Vital Health Statistics (NCVHS) Subcommittee on Standards from Gwendolyn Lohse, Deputy Director CAQH and Managing Director of CORE and Janet Estep, President and CEO, NACHA (p. 1).

On October 10, 2011, CORE produced another draft of the EFT & ERA Operating Rule Set in which the five rules were packaged as a set, titled: “Draft Phase III CORE EFT & ERA Operating Rule Set.” Hereinafter, we will refer to the complete set of Draft Phase III CORE EFT & ERA Operating Rules as of October 10, 2011 as the EFT & ERA Draft Operating Rule Set.

D. The December 2011 NCVHS Recommendation to the Secretary

On December 7, 2011, the NCVHS sent a letter to the Secretary recommending that the EFT & ERA Draft Operating Rule Set be adopted, conditional on the authoring entities making certain revisions to the proposed operating rules (recommendations 1.1 and 1.2), including the following:

• All references to the CORE certification requirement are removed from any documents that are adopted as mandatory by HHS, and that the CAQH CORE Web site be similarly updated and amended. The NCVHS noted that one of the items specifically excluded in the Eligibility and Claim Status Operating Rules IFC is the requirement that all entities (providers, health plans and clearinghouses) using the operating rules be CORE certified, and stated that the “language in the operating rules that requires CORE certification specifically can be misleading.”19

19December 7, 2011 letter to Kathleen Sebelius, Secretary, Department of Health and Human Services, “Re: Affordable Care Act (ACA), Administrative Simplification: Recommenation to adopt operating rules to support the Standards for Health Care Electronic Funds Transfers and Health Care Payment and Remittance Advice,” from Justine M. Carr, Chairperson, National Committee on Vital and Health Statistics, pp. 5.

• “The Secretary worked with CAQH CORE to develop a naming convention that consistently and easily identifies the transaction to which the rule applies.”20 CORE currently names its operating rules using the term “Phase” in each one. The NCVHS letter observed that certain operating rules were common to all operating rules (“technical rules”) while other operating rules applied only to the specific transactions (“business rules”). The NCVHS suggested that the technical rules could be more appropriately maintained in a separate set of “base infrastructure” operating rules. Industry users could apply the technical rules across all transactions and use separate documents for individual transactions to implement the business rules for that specific transaction.

20Ibid, pp. 5-6.

Subsequent to the December 7, 2011 NCVHS letter, CORE edited the Draft EFT & ERA Operating Rule Set per the NCVHS recommendation that references to the CORE certification be removed. The final version, published by CAQH CORE on June 27, 2012, is titled the Phase III CORE EFT & ERA Operating Rule Set (June 27, 2012).

Discussions are underway between the Secretary and CORE as to NCVHS' second recommendation that a different naming convention be developed for operating rules. However, it was not possible to develop a new naming convention in the period between the December, 2011 recommendation from NCVHS and the publication of this IFC.

III. Provisions of the Interim Final Rule with Comment Period A. Adoption of Phase III CORE EFT & ERA Operating Rule Set (§ 162.1603)

In 45 CFR 162.1603, we adopt CAQH CORE Phase III CORE EFT & ERA Operating Rule Set (Approved June 2012), hereinafter referred to as the EFT & ERA Operating Rule Set, for the health care EFT and remittance advice transaction, with one exception noted later in this section of the IFC. In § 162.920, we list the EFT & ERA Operating Rule Set as being incorporated by reference.

The EFT & ERA Operating Rule Set includes the following rules: (1) Phase III CORE 380 EFT Enrollment Data Rule; (2) Phase III CORE 382 ERA Enrollment Data Rule; (3) Phase III Core 360 Uniform Use of Claim Adjustment Reason Codes and Remittance Advice Remark Codes (835) Rule; (4) CORE-required Code Combinations for CORE-defined Business Scenarios for the Phase III Core Uniform Use of Claim Adjustment Reason Codes and Remittance Advice Remark Codes (835) Rule; (5) Phase III CORE 370 EFT & ERA Reassociation (CCD+/835) Rule; and (6) Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule.

The Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule includes a requirement, at 4.4.1, that entities' companion guides must follow the format/flow as defined in the CORE v 5010 Master Companion Guide Template, so we are also adopting the CORE v 5010 Master Companion Guide Template.

We exclude the Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule Requirement 4.2 in § 162.1603(a)(6). We are not adopting the Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule Requirement 4.2, titled “Health Care Claim Payment/Advice Batch Acknowledgement Requirements” because that requirement requires the use of the ASC X12 999 acknowledgement standard, and the Secretary has not adopted standards for acknowledgement transactions.

Table 2 summarizes the high level requirements of the EFT & ERA Operating Rule Set. Table 2 does not include all aspects of the EFT & ERA Operating Rule Set, and readers are advised to refer to the EFT & ERA Operating Rule Set itself.

Table 2—Summary of the Phase III Core EFT & ERA Operating Rule Set Adopted in this IFC Rule High level requirements Phase III CORE 380 EFT Enrollment Data Rule 1. Requirement 4.2: Identifies a maximum set of standard data elements that health plans can request from providers for enrollment to receive EFT. 2. Requirement 4.2: Applies a “controlled vocabulary”—predefined and authorized terms—for health plans to use when referring to the same data element. For instance, “Financial Institution Routing Number” is to be used instead of, for example, “Routing Number” or “Bank Routing Number.” 3. Requirements 4.3.1 and 4.3.2: Require standard data elements to appear on paper enrollment forms in a standard format and flow, using Master Templates for paper-based and electronic enrollment. 4. Requirement 4.3.1: Requires health plans to give specific information or instruction to providers to assist in manual paper-based EFT enrollment. For instance, for paper-based enrollment, health plans are required to inform the provider that it must contact its financial institution to arrange for the delivery of the data elements in the EFT required for reassociation of the payment and the ERA. 5. Requirement 4.4: Requires that a health plan offer electronic EFT enrollment. (It does not require health plans to discontinue manual or paper-based methods of enrollment, but that electronic EFT enrollment be made available by a health plan if requested by a trading partner.) 6. Requirement 4.5: Requires health plans to convert all their paper-based enrollment forms to comply with this rule no later than six months after the compliance date specified in this IFC. Phase III CORE 382 ERA Enrollment Data Rule 1. Requirement 4.2: Identifies a maximum set of standard data elements that health plans can request from providers for enrollment to receive ERA. 2. Requirement 4.2: Applies a “controlled vocabulary”—predefined and authorized terms—for health plans to use when referring to the same data element. For instance, “Provider Name” is to be used instead of “Provider” or “Name.” 3. Requirements 4.3.1 and 4.3.2: Require standard data elements to appear on paper enrollment forms in a standard format and flow, using Master Templates for paper-based and electronic enrollment. 4. Requirement 4.3.1: Requires health plans to give specific information or instruction to providers to assist in manual paper-based ERA enrollment. For instance, for paper-based enrollment, health plans are required to provide specific information regarding the enrollment form, a fax number and/or address to send it to, and contact information for provider questions. 5. Requirement 4.4: Requires that a health plan offer electronic ERA enrollment. (It does not require health plans to discontinue manual or paper-based methods of enrollment, but that electronic ERA enrollment be made available by a health plan if requested by a trading partner.) 6. Requirement 4.5: Requires health plans to convert all their paper-based enrollment forms to comply with this rule no later than six months after the compliance date specified in this IFC. Phase III CORE 360 Uniform Use of CARCs and RARCs (835) Rule, including CORE-required Code Combinations for CORE-defined Business Scenarios Requirements 4.1.1 and 4.1.3: Identify four business scenarios with a maximum set of CARCs/RARCs/CAGCs/NCPDP Reject Codes combinations that can be applied to convey details of the claim denial or payment adjustment to the provider. Health plans can only use the CARC/RARC/CAGC/NCPDP Reject Code combinations specified in the “CORE-required Code Combinations for CORE-defined Business Scenarios” document except that new or adjusted combinations can be used if the code committees responsible for maintaining the codes create a new code or adjust an existing code. The four business scenarios are the minimum set of business scenarios; health plans may develop additional ones. The four business scenarios include: 1. Additional Information Required—Missing/Invalid/Incomplete Documentation. 2. Additional Information Required—Missing/Invalid/Incomplete Data from Submitted Claim. 3. Billed Service Not Covered by Health Plan. 4. Benefit for Billed Service Not Separately Payable. Phase III CORE 370 EFT& ERA Reassociation (CCD+/835) Rule 1. Requirement 4.1: Requires that providers must proactively contact their financial institutions to arrange for the delivery of the CORE-required Minimum CCD+ Data Elements necessary for successful reassociation of the EFT with the ERA. The five (plus one situational) CORE-required Minimum CCD+ Data Elements are: a. Effective Entry Date. b. Amount. c. Trace Type Code. d. Reference Identification (EFT Trace Number). e. Originating Company Identifier (Payer Identifier). f. Reference Identification (Originating Company Supplemental Code), which is only required in some situations. 2. Requirements 4.2: Requires health plans to transmit the EFT within three days of the transmission of the ERA. 3. Requirement 4.2.1 For retail pharmacy, the health plan may release the ERA anytime before the EFT is released, but must release the ERA within three days after the EFT is released. 4. Requirement 4.3: Outlines requirements for resolving late or missing EFT and ERA transmissions. Phase III CORE 350 Health Care Claim Payment/Advice (835) Infrastructure Rule 1. Requirement 4.1: Requires covered entities to implement HTTP/S Version 1.1 over the public Internet as a transport method for the health care electronic funds transfers (EFT) and remittance advice transaction. The requirements are designed to provide a “safe harbor” that application vendors, providers, and health plans (or other information sources) can be assured will be supported by all covered entities. The rule does not require that all CORE trading partners remove existing connections that do not match the rule, nor is it intended to require that covered entities must use this method for all new connections. The connectivity safe harbor also includes requirements for a minimum set of metadata outside the ASC x12 payload and aspects of connectivity/security such as response times, acknowledgements and errors. As part of this, two envelope standards are to be used. 2. Requirement 4.3: Requires health plans that issue proprietary paper claim remittance advices to continue to offer paper remittance advice for a minimum of 31 days from the implementation of ERA. 3. Requirement 4.4.1: Requires the use of the CORE Master Companion Guide Template for the flow and format of companion guides. This is the same CORE Master Companion Guide Template that was adopted in the Eligibility and Claim Status Operating Rules IFC. B. Summary of Reasons for Adopting th