Health Insurance Reform: Standards for Electronic Transactions. b. Transaction Standard for Health Care Payment and Remittance Advice


In subpart L, redesignated as subpart P, we proposed ASC X12N 835 - Health Care Claim Payment/Advice, Version 4010, Washington Publishing Company, 004010X091 as the standard for health care payment and remittance advice.

Comments and Responses on the Transaction Standard for Health Care Payment and Remittance Advice

The majority of commenters expressed support of the selected standard.

i. Of those comments we referred to ASC X12N, the work groups determined that 209 comments identified areas where the implementation specification could be improved, and the appropriate changes were made.

ii. Seven comments identified business needs that ASC X12N judged could already be met within the current standard implementation specification. Detailed information on how the current implementation specifications can be used to meet these business needs has been provided by ASC X12N at the Internet site in §162.920.

iii. Fifteen comments alleged technical or editorial errors in the standard implementation specification. A technical review of these issues was conducted by work groups within ASC X12N. The work groups determined that the 15 comments identified areas where the implementation specifications were in fact correct and that no changes were needed. Changes to the implementation specification were not required.

iv. Comment: A number of commenters asked that they be allowed to continue to use proprietary codes, narrative information, and their current alternate uses of selected ASC X12N 835 segments.

Response: We disagree. Permitting the combined use of nonstandard data content would not comply with the intent of the statute. The ASC X12N 835 format is intended to be fully machine readable, so that there can be totally automated posting of transactions to patient and health care provider accounts wherever used, regardless of the health plan.

We encourage health care providers and health plans who have a business need for additional information in the ASC X12N 835 format to provide background to the DSMOs on the need so the ASC X12N 835 implementation specification can be modified for a future version, or so that the DSMOs can advise commenters how their business needs can be met within the current implementation specification. ASC X12N made a number of changes in the 4010 implementation specification as a result of such comments on the proposed rule. In most cases, however, commenters who indicated that current code sets were inadequate did not submit any specific suggestions or requests with respect to the changes they needed. The DSMOs cannot consider an implementation specification modification to meet a need if the need has not been defined. We strongly encourage health plans and health care providers to participate in this process so that their needs are met.

v. Comment: Some commenters questioned why the ASC X12N 835 did not explain the basis for the payment issued.

Response: The ASC X12N 835 is not intended to explain how the amount of payment for a service is determined. A health care payment and remittance advice, as embodied in the ASC X12N 835 format, primarily exists to notify the health care provider of the amount being paid for a set of bills and, if that payment does not equal the amount billed, to briefly explain every adjustment applied to those bills by the health plan. A health care payment and remittance advice is not a vehicle for instructing health care providers on coverage policy, except to briefly refer to that policy when it is the reason for denial or reduction of a billed service. Information on policy type and coverage rules is more appropriately included on a health plan’s membership card and the coverage information shared with the subscriber and/or a health care provider at enrollment or in subsequent newsletters.

vi. Comment: A number of health plans requested that the ASC X12N 835 format be rearranged to more closely parallel the internal flat file they use for their claims systems in order to minimize the programming changes they would need to make in order to comply with version 4010 of the ASC X12N 835. They argued that they did not consider it administratively simpler if they had to make extensive programming changes.

Response: We considered these comments. In some cases, the implementation specification was changed, but for the most part, such requests could not be accommodated. HIPAA requires that United States health plans and certain health care providers, or their clearinghouses, use national health care transaction standards. Health care providers and health plans have flexibility in how they will implement the standards. They may choose to utilize a health care clearinghouse to process their transactions. By definition, a health care clearinghouse is used to translate non-standard format into a standard format, or vice-versa. When a health plan or health care provider uses a health care clearinghouse for those functions, they may be able to minimize programming changes. There are also a wide variety of software vendors from whom they may choose to purchase translation software.

vii. Comment: Some commenters asked for more generic codes in the ASC X12N 835 version 4010 implementation specification so that a health plan can simply report a service as denied or reduced, without the need to furnish more explanation on the reason for the denial or reduction.

Response: Health care providers need to have adequate details on the ASC X12N 835 transaction that they receive in order to enable them to not only post accounts, but to decide whether an appeal should be filed, or further action taken in response to the health plan’s decision on a claim. A failure to supply adequate reasons for denial or reduction would undermine the effectiveness of an ASC X12N 835 transaction.

viii. Comment: A few commenters asked for a code to indicate that a health plan was knowingly issuing an ASC X12N 835 transaction that did not balance. It was reasoned that not all health plans might be able to issue an ASC X12N 835 transaction that balances when the transaction becomes effective as a national health care standard.

Response: This request can not be accommodated. As explained in the implementation specification, an ASC X12N 835 transaction must balance at the line, claim and provider levels. To be in balance, the amount billed, less the amount of any adjustments, must equal the amount paid. An out of balance ASC X12N 835 would not be in compliance with the version 4010 implementation specification. Health plans are responsible for making all changes as needed to issue complete and compliant ASC X12N 835 version 4010 transactions. An out of balance ASC X12N 835 is of little to no value to a health care provider, raises more questions that it settles, and consumes the resources of health care providers and health plans who must explain why it does not balance.

ix. Comment: A health care clearinghouse asked if it would share any liability for non- compliance if it forwarded out of balance remittance data from a health plan to a health care provider.

Response: Liability issues will be discussed in a later enforcement regulation.

x. Comment: One commenter asked that all new codes or changes to codes considered for inclusion in an ASC X12N 835 implementation specification be circulated to all health plans for review and comment prior to inclusion.

Response: This is not practical at this time. There is not yet a central registry of health plans and, even if there were, the cost of such distribution and analysis of responses would be a significant financial burden on the code set maintainers. Such a process would also greatly extend the clearance time for such changes, preventing maintainers from meeting immediate business needs. Affected health plans can comment on code additions and changes included in or referred to in a later implementation specification through the maintenance and modification process set out at §162.910. Affected health plans are also encouraged to increase their involvement with the organizations responsible for code set maintenance. Health plans are encouraged to submit any new data requests to the DSMOs.

xi. Comment: A few State Medicaid agencies requested that they be permitted to use the ASC X12N 835 format, rather than the ASC X12N 820, to pay premiums to managed care companies under contract to provide care to Medicaid beneficiaries.

Response: Although the ASC X12N 835 can accommodate claims and capitation payments to health care providers, including managed care companies, the payments described in these comments are considered health plan premium payments, rather than payment for direct patient care. As discussed below under “Comments and Responses on the Transaction Standard for Health Plan Premium Payments,” all health plan premium payments must be transmitted with the ASC X12N 820 standard for consistency. Also, the ASC X12N 820 Payroll Deducted and Other Group Premium Payment for Insurance Products implementation specification includes some data elements not contained in the ASC X12N 835, because it was designed specifically for premium payment, rather than claim payment.

xii. Comment: A number of commenters questioned whether they would be prohibited from use of the automated clearinghouse (ACH) transaction for electronic funds transfer (EFT) of health care payments once the ASC X12N 835 is effective as a HIPAA transaction standard.

Response: The ACH is an acceptable mode of EFT under both the ASC X12N 835 and 820 transactions. The implementation specifications for the ASC X12N 835 and 820 transactions contain two parts, a mechanism for the transfer of dollars and one for the transfer of information about the payment, and allow these two parts to be transmitted separately. Consistent with the implementation specifications, actual payment may be sent in a number of different, equally acceptable ways, including check and several varieties of electronic funds transfer. When the transfer of funds is part of paying a health care premium or a health care claim, the ACH transaction may continue to be used as a valid part of an ASC X12N 835 or 820 transaction where the other part of the transaction is sent to the health plan or health care provider, directly or indirectly (through a clearinghouse or financial institution). Although these standard transactions allow transmission of one or both parts through a financial institution, they do not require both parts to be sent to the financial institution and the financial institution is not required by this regulation to accept or forward such transactions.

Health plans may continue to use the ACH transaction alone to authorize the transfer of funds (electronic funds transfer) when such transfer is not part of paying a health care premium or a health care claim for an individual, because such a transaction would not be a transaction covered under this part. The Department of the Treasury has confirmed that this standard does not conflict with their requirements for disbursements.

xiii. Comment: One commenter criticized the ASC X12N 835 format as inadequate to explain benefit payments to subscribers. The commenter was under the impression that ASC X12N 835 transactions would be issued electronically to patients as well as health care providers or their clearinghouses.

Response: We clarify that the ASC X12N 835 will be sent from a health plan to health care providers and/or health care clearinghouses. We are not regulating the explanations of benefits (EOBs) that health plans send to their subscribers. We believe subscribers will still receive an adequate explanation of benefits.

xiv. Comment: A health plan asked if it would be prohibited from sending paper EOBs to a health care provider who was sent an ASC X12N 835 transaction for the same claims. The health plan currently issues electronic remittance advice but includes appeal information only on the corresponding paper remittance advice. The health plan was concerned about how it could distribute appeal information for denied or reduced claims.

Response: A health plan can choose to continue to send paper remittance advice notices to health care providers that are issued ASC X12N 835 transactions. However, all information in the paper notice that could have been expressed in the X12N 835 must be included in the X12N 835 transaction. If a health plan has a need to send data that is not on the X12N 835, it needs to work with the DSMOs to submit a request to modify the standard. It is anticipated, however, that with expanded acceptance of electronic transactions by health care providers, and increases in automated coordination of benefits among health plans, there may be less of a need for paper remittance advice notices. At some point, health plans may be able to reduce or eliminate most paper remittance notices to health care providers capable of receiving of the electronic notices.

Also, the ASC X12N 835 transaction may be used to notify a health care provider of appeal rights by using the “remark codes” segment. Please see the remark code menu item at for a listing of currently approved remark codes and instructions on how to request additional remark codes to meet your business needs.

xv. Comment: One commenter was confused as to whether the NCPDP standard for real time remittance information could continue to be used once version 4010 of the ASC X12N 835 became the national Health Care Payment and Remittance Advice standard.

Response: Yes, the NCPDP Telecommunications Standard Format may continue to be used for real time pharmacy transactions because it is designed to apply to such transactions. The ASC X12N 835 is the standard transaction for dental, professional, and institutional health care payment and remittance advice. The NCPDP standard was not originally proposed due to an oversight on our part regarding the functionality of the standard. The NCPDP standard is used for both claim and health care payment and remittance advice and is being adopted as the standard transaction for retail pharmacy.

xvi. Comment: A few commenters asked for guidance as to when version 4010 of the ASC X12N 835 might sunset in favor of a later version or a replacement format. They also asked whether version 4010 and a replacement version/format could be operated concurrently for 90 days or more to allow for an orderly conversion of health plans and health care providers between versions/formats.

Response: These issues will be addressed when the Secretary announces any successor version/format to version 4010 of the ASC X12N 835. Under HIPAA, however, as a general rule, new versions or formats cannot be required more than once every 12 months and health care providers must be allowed a minimum of 180 days advance notice to enable them to comply with the change. We do anticipate a need for a crossover period of at least 90 days to convert between versions/formats during which both the old and new versions/formats will need to be supported.

xvii. Comment: It was suggested that the ASC X12N 997 format be expanded or new format developed and recognized as a HIPAA standard to allow health care providers or health care clearinghouses to notify a health plan of some problem with the format or content of an ASC X12N 835 transaction.

Response: This issue has been referred to X12N. There is no implementation specification for a transaction of this type at present, but such a transaction can be considered for addition to the published HIPAA standards if and when it is developed, and the implementation specification is written.

xviii. Comment: One commenter was concerned that patient privacy could be violated if a full ASC X12N 835 transaction is sent to a health care provider’s bank. The commenter asked what will be done to secure that data.

Response: A separate enforcement rule will address the penalties for violating the HIPAA rules. Separate privacy and security regulations are being prepared that will address privacy and security restrictions for health information.

xix. Comment: Several commenters recommended that we include the NCPDP telecommunications Standard 3.2 for the submission of remittance advice for the pharmacy service sector. Another commenter said that they use the NCPDP telecommunications Standard 3.2 for the claim and remittance transactions. Several commenters said the NCPDP meets their business needs and there is no business need to move to the ASC X12N 835 transaction for remittance advice inquiries.

Response: We agree with the commenter that remittance information is integral to the NCPDP Telecommunications Standard named in the proposed rule for retail pharmacy claims. As discussed previously, we are naming the NCPDP Telecommunications Standard 5.1 and NCPDP Batch Standard as the standard for health care payment and remittance advice within the retail pharmacy sector. We have added this requirement to §162.1602.