Health Insurance Reform: Standards for Electronic Transactions. 6. Exception for Transmissions within Corporate Entities

10/16/2000

Proposal Summary: Transmissions within a corporate entity would not be required to comply with the standards (63 FR 25276).

Comment: We received many comments regarding excepting transmissions within corporate boundaries and the examples we provided. The comments can be summarized by three questions: (1) What constitutes a “corporate entity” and “internal” communications; (2) can the “internal umbrella” cover the transactions among “corporate” entities; and (3) why should Government agencies be excepted from meeting the standards?

Some commenters attempted to determine the circumstances under which compliance with the standards can be avoided. Generally, these commenters indicated a desire for a very broad definition of “corporate entity.” Some commenters reflected a desire to severely restrict the boundaries or eliminate them altogether. Other commenters asked if particular kinds of data or transactions are required in particular situations.

Response: We proposed to create an exception for transactions within a corporate entity to minimize burden. However, after considering public comment, and further analyzing the implications of the proposed exception, we have decided not to create an exception for standard transactions within a “corporate entity.” First, we have not been able to define “corporate entity” so that the exception would not defeat the rule. The rapid pace of mergers, acquisitions, and dissolutions in the corporate health care world would make such an exception extremely difficult to implement. Equally important, the proposed exception would not have promoted the use of the standard transactions at the health care provider and health plan level. Each health care provider that is owned by or under contract to one or more health plans could be required to use the “in-house” or “non-standard” transactions favored by each health plan, thus negating the benefits of the use of the standards. Finally, our decision to not adopt a corporate entity exception does not impose an additional burden on health plans, because health plans already are required to have the capacity to accept standard transactions from any person. Thus, the fundamental policy is that covered entities must use a standard transaction when transmitting a transaction covered by this part with another covered entity (or within the same covered entity) electronically, regardless of whether the transmission is inside or outside the entity.

We have decided to clarify the description of each transaction to help covered entities determine when the standards must be used. A transaction is now defined in §160.103 as the exchange of data for one of the enumerated specific purposes. In subparts K through R of part 162, we describe each transaction in specific, functional terms. For example, one type of health care claims or equivalent encounter information transaction is the exchange of information between a health care provider and a health plan about services provided to a patient to obtain payment; one type of eligibility for a health plan transaction is the exchange of information between a health provider and a health plan to determine whether a patient is eligible for services under that health plan. Data submissions or exchanges for purposes other than those designated in this regulation are not transactions and therefore do not require use of the standards.

Transactions may be used by both covered entities and other entities. For example, the enrollment and disenrollment in a health plan transaction is most commonly sent by employers or unions, which are not covered entities, to health plans, which are covered entities. The employer may choose to send the transaction electronically in either standard or non-standard format. The health plan, however, must conduct the transaction as a standard transaction when conducting the transaction electronically with another covered entity, with another part of itself, or when requested to do so by any other entity. Moreover, if an employer or other non-covered entity desires to send a transaction as a standard transaction, the health plan may not delay or adversely affect either the sender or the transaction. It is expected that this provision will encourage non- covered entities that conduct the designated transactions with more than one health plan to conduct these transactions as standard transactions.

In general, if a covered entity conducts, using electronic media, a transaction adopted under this part with another covered entity (or within the same covered entity), it must conduct the transaction as a standard transaction. If any entity (covered or not covered) requests a health plan to conduct a transaction as a standard transaction, the health plan must comply. We have provided examples below to assist in determining when a transaction must be conducted as a standard transaction.

Example 1: Corporation K operates a health plan that is a covered entity under these rules. Corporation K owns a hospital which provides care to patients with coverage under Corporation K’s health plan and also provides care to patients with coverage under other health plans. Corporate rules require the hospital to send encounter information electronically to Corporation K identifying the patients covered by the corporate plan and served by the hospital.

A) Must the transmission of encounter data comply with the standards? Both the health plan and the hospital are covered entities. The hospital is a covered entity because it is conducting covered transactions electronically in compliance with its corporate rules. The electronic submission of encounter data satisfies the definition of the health care claims or equivalent encounter information transaction designated as a standard transaction (see §162.1101(b)). Therefore, the submission of this encounter data therefore must be a standard transaction.

B) Must the payments and remittance advices sent from Corporation K’s health plan to the hospital be conducted as standard transactions? Corporation K’s health plan is covered by the definition of “health plan,” the hospital is a covered entity, and the transmission of health care payments and remittance advices is within the scope of the designated transactions (see §162.1601). The health care payments and remittance advices must be sent as standard transactions.

Example 2: A large multi-state employer provides health benefits on a self-insured basis, thereby establishing a health plan. The health plan contracts with insurance companies in seven states to function as third party administrators to process its employees’ health claims in each of those states. The employer’s health plan contracts with a data service company to hold the health eligibility information on all its employees. Each of the insurance companies sends eligibility inquiries to the data service company to verify the eligibility of specific employees upon receipt of claims for services provided to those employees or their dependents.

A) Are these eligibility inquiries activities that must be conducted as standard transactions? In this case, each insurance company is not a covered entity in its own right because it is functioning as a third party administrator, which is not a covered entity. However, as a third party administrator (TPA), it is the business associate of a covered entity (the health plan) performing a function for that entity; therefore, assuming that the covered entity is in compliance, the TPA would be required to follow the same rules that are applicable to the covered entity if the covered entity performed the functions itself. The definition for the eligibility for a health plan transaction is an inquiry from a health care provider to a health plan, or from one health plan to another health plan, to determine the eligibility, coverage, or benefits associated with a health plan for a subscriber. In this case, the inquiry is from one business associate of that health plan to another business associate of that same health plan. Therefore, the inquiry does not meet the definition of an eligibility for a health plan transaction, and is not required to be conducted as a standard transaction.

B) Is an electronic eligibility inquiry from a health care provider to the data service company, to determine whether an employee-patient may receive a particular service, required to be a standard transaction? The health care provider is a covered entity, because it conducts covered electronic transactions. The data service company is the business associate of the employer health plan performing a plan function. Therefore, the activity meets the definition of the eligibility for a health plan transaction, and both the inquiry and the response must be standard transactions.

Example 3: A pharmacy (a health care provider) contracts with a pharmacy benefits manager (PBM) to forward its claims electronically to health plan Z. Under the contract, the PBM also receives health care payment and remittance advice from health plan Z and forwards them to the pharmacy.

A) Must the submission of claims be standard transactions? The pharmacy is a covered entity electronically submitting, to covered entity health plan Z, health care claims or equivalent encounter information, which are designated transactions (see §162.1101), through a business associate, the PBM. The claims must be submitted as standard transactions.

B) Must the explanation of benefits and remittance advice information be sent as a standard transaction? Health plan Z and the health care provider are covered entities conducting one of the designated transactions (see §162.1601). This transaction, therefore, must be conducted as a standard transaction.

Example 4: A State Medicaid plan enters into a contract with a managed care organization (MCO) to provide services to Medicaid recipients. That organization in turn contracts with different health care providers to render the services.

A) When a health care provider submits a claim or encounter information electronically to the MCO, is this activity required to be a standard transaction? The entity submitting the information is a health care provider, covered by this rule, and the MCO meets our definition of health plan. The activity is a health care claims or equivalent encounter information transaction designated in this regulation. The transaction must be a standard transaction.

B) The managed care organization then submits a bill to the State Medicaid agency for payment for all the care given to all the persons covered by that MCO for that month under a capitation agreement. Is this a standard transaction? The MCO is a health plan under the definition of “health plan” in§160.103. The State Medicaid agency is also a covered entity as a health plan. The activity, however, does not meet the definition of a health care claims or equivalent encounter information transaction. It does not need to be a standard transaction.

However, note that the health plan premium payment transaction from the State Medicaid agency to the health plan would have to be conducted as a standard transaction because the State Medicaid agency is a covered entity sending the transaction to another covered entity (the health plan), and the transaction meets the definition of health plan premium payment.