Health Insurance Reform: Standards for Electronic Transactions. Comments and Responses on Proposed Standards for Code Sets and Requirements for Their Use


Proposed Code Sets

a. Version Control

Comment: The majority of commenters stated that we should have a clearer requirement for version control, that is, we should require an electronic transaction to use the version of each applicable code set that is valid at the time the transaction is initiated. A common schedule should be established (for example, calendar year) for conversion to new versions of all standard code sets. A few commenters indicated that there should be an overlap period in which both last year's and this year's codes are accepted to accommodate resubmission or subsequent transfer of claims initiated in the prior year.

Many commenters said that HHS should maintain a consolidated list of the current accepted versions of standard code sets and make this list available to the public, e.g., on the Web. Several commenters indicated that all of the code sets themselves should be available from a single HHS website.

Response: We have included in §162.1000 a clearer statement that the version of the medical data code sets specified in the implementation specifications must be the version that is valid at the time the health care is furnished. Since transactions may have to be resubmitted long after the time health care was provided, health plans must be able to process earlier versions of code sets. The version of the nonmedical data code sets specified in the implementation specifications must be the version that is valid at the time the transaction is initiated.

At this time we are not establishing a common schedule for implementing new versions of all HIPAA medical data code sets, since some of the code sets are updated annually (for example, ICD-9-CM, CPT) and some are updated more frequently. The organizations that maintain medical data code sets will continue to specify their update schedule. Different Federal laws mandate the implementation of annual updates to ICD-9-CM on October 1 and annual updates to the CPT on January 1 of the following year for their use in the Medicare program. Changing either of these dates would require legislative action and would also represent a major change in current practice for many elements of the health care industry.

We agree that a common web site is a viable solution, but it is unclear what the Federal role would be in the development of one. We expect to work with the medical data code set maintainers to explore this option.

b. Proprietary coding systems

Two of the code sets proposed as HIPAA standards, CPT and The Code on Dental Procedures and Nomenclature (referred to as “The Code” and published as CDT), are proprietary products.

Comment: Many commenters stated that the Secretary should not recommend proprietary systems as national standards. They believed that the proposed rule lacked a definitive method to guarantee public access to the proposed standards at low cost, and recommended that the government should develop or maintain the national standards or acquire the rights to the standards of choice. Without ownership and control, the government places itself and the remainder of the health industry at noteworthy risk. One commenter indicated that implementation of the standards should be delayed until proprietary code sets have been moved into the public domain. One commenter said it was illegal for the Secretary to establish the CPT as a national standard. Another argued that the “The Code” should not be named a national standard.

Response: Under HIPAA, the Secretary has the authority to select existing code sets developed by either private or public entities and is not precluded from selecting proprietary code sets. The Secretary is required to ensure that all standard code sets are updated as needed and that there are efficient, low cost mechanisms for distribution (including electronic distribution) of the code sets and their updates. Free distribution of standard code sets is not required by the statute.

The comments we received regarding code sets were overwhelmingly in favor of the selection of currently used code sets as the initial standards. Some of the code sets that are currently used in administrative transactions are proprietary code sets. We have obtained some clarification from the developers of these code sets about the pricing structure and mechanisms for publishing the pricing structure that will be in place when the initial standards are implemented. The existence of efficient, low-cost distribution mechanisms will affect future decisions regarding changes or additions to the code sets designated as standards.

A health care provider who submits X12N transactions can download the implementation specifications free of charge from the Washington Publishing Company website. However, two of the medical codes sets, CPT and the Dental Code require a fee. Royalties for electronic use of the CPT are based on a $10.00 per user standard. Royalties for electronic use of the Dental Code in practice management systems are based on $10.00 per user site. These royalty fees are normally included in the purchase and maintenance costs of the electronic systems that such providers use. The other medical codes sets, HCPCS and ICD-9 CM, may be downloaded free of charge.

For paper manuals, to which most providers that use these code sets already subscribe, the CPT manual is $49.95 and the Dental Code manual is $39.95. In fact, the need for such paper manuals may decrease as more electronic systems are implemented.

A health care provider who submits retail pharmacy transactions who wants a copy of the NCPDP standards can pay an annual fee of $550 for membership in the NCPDP organization, which includes copies of the implementation specifications for the retail pharmacy standard and the data dictionary as well as technical assistance in implementation. As a non-member, the implementations specifications and data dictionary may be purchased separately for $250 each.

Although nothing in this final rule, including the Secretary’s designation of standards, implementation specifications, or code sets is intended to divest any copyright holders of their copyrights in any work referenced in this final rule, future decisions regarding changes or additions to the code sets designated as standards may be affected by the existence of efficient, low-cost distribution mechanisms.

c. Code Sets Proposed

The following code sets were proposed as initial standards:

(a) Diseases, injuries, impairments, other health related problems, their manifestations, and causes of injury, disease, impairment, or other health-related problems.

The standard code set for these conditions is the International Classification of Diseases, 9th edition, Clinical Modification, (ICD-9-CM), Volumes 1 and 2, as maintained and distributed by the U.S. Department of Health and Human Services. The specific data elements for which the ICD-9-CM is the required code set are enumerated in the implementation specifications for the transaction standards that require its use.

(b) Procedures or other actions taken to prevent, diagnose, treat, or manage diseases, injuries and impairments.

(1) Physician Services

The standard code set for these services is the Current Procedural Terminology (CPT-4) maintained and distributed by the AMA. The specific data elements for which the CPT-4 (including codes and modifiers) is a required code set are enumerated in the implementation specifications for the transaction standards that require its use.

(2) Dental Services

The standard code set for these services is The Code on Dental Procedures and Nomenclature, printed as “The Code” and published as CDT, maintained and distributed by the ADA for a charge. The specific data elements for which the Dental Code is a required code set are enumerated in the implementation specifications for the transaction standards that require its use.

(3) Inpatient Hospital Services

The standard code set for these services is the International Classification of Diseases, 9th edition, Clinical Modification (ICD-9-CM), Volume 3 procedures, maintained and distributed by the U.S. Department of Health and Human Services. The specific data elements for which ICD- 9-CM, Volume 3 procedures, is a required code set are enumerated in the implementation specifications for the transaction standards that require its use.

(c) Other Health-Related Services

The standard code set for other health-related services is the Health Care Financing Administration Common Procedure Coding System (Level II of HCPCS) maintained and distributed by the U.S. Department of Health and Human Services.

(d) Drugs

The proposed standard code set for these entities is the National Drug Codes maintained and distributed by the U.S. Department of Health and Human Services, in collaboration with drug manufacturers. The specific data elements for which the NDC is a required code set are enumerated in the implementation specifications for the transaction standards that require its use.

(e) Other Substances, Equipment, Supplies, or Other Items Used in Health Care Services

The proposed standard code set for these entities is the Health Care Financing Administration Common Procedure Coding System (Level II of HCPCS) as maintained and distributed by the U.S. Department of Health and Human Services.

a. Comment: The great majority of commenters supported the selection of the code sets proposed on the basis that these code sets were already in wide use among hospitals, physician offices, other ambulatory facilities, pharmacies, and similar health care locations. Commenters mentioned that replacement systems could have different formats and number of digits. This could complicate the initial conversion. They also pointed out that replacement systems for the ICD-9-CM are still under development and testing. Many commenters stated that it would be premature to make a decision on replacements for the ICD-9-CM prior to their completion and testing.

Response: We agree that the continued use of the proposed coding systems will be the least disruptive for many entities required to implement HIPAA standards. The fact that replacement systems are still under development and testing further supports this decision.

b. Comment: Two commenters stated that the proposal did not reflect current uses of some code sets. One commenter stated that in addition to being used for inpatient procedural coding, the ICD-9-CM procedure codes are also required by many health plans for the reporting of facility-based outpatient procedures. The second commenter pointed out that in addition to being used by physicians and other health care professionals, the combination of HCPCS level I and CPT-4 is required for reporting ancillary services such as radiology and laboratory services and by some health plans for reporting facility-based procedures. Further, Medicare currently requires HCPCS level II codes for reporting services in skilled nursing facilities.

Response: Health plans must conform to the requirements for code set use set out in this final rule. Therefore, if a health plan currently requires health care providers to use CPT-4 to report inpatient facility-based procedures, they both would be required to convert to ICD-9.

We agree that the proposal did not reflect all current uses of some code sets. For example, we agree that CPT-4 is commonly used to code laboratory tests, yet laboratory tests are not necessarily considered to be physician services. Moreover, the proposed rule implied that laboratory tests are a type of other health care service which are encoded using HCPCS. We believe that the architecture of both coding sets, HCPCS and CPT-4, is such that they are both frequently used for coding physician and other health care services. Both of these medical data code sets are standard medical data code sets and may be used in standard transactions (see §162.1002(e)). Therefore, a health plan using CPT-4 to report outpatient facility-based procedures would not be required to change that practice.

In addition, the proposed rule did not itemize the types of services included in other health care services. These other health care services include the ancillary services, radiology and laboratory which are mentioned in the comment, as well as other medical diagnostic procedures, physical and occupational therapy, hearing and vision services, and transportation services including ambulance. Similarly, other substances, equipment, supplies, or other items used in health care services includes medical supplies, orthotic and prosthetic devices, and durable medical equipment.

In the final rule, we clarify the description of physician and other health care services and we recognize that two code sets (CPT-4 and HCPCS) are used to specify these services. In the proposed rule, we used the term “health-related services” to help describe these services. We believe that use of the term “health-related services” might suggest that these services are not health care. In an effort to prevent this confusion, and because the codes in this category are used to enumerate services meeting the definition of health care, we are using what we believe is the more appropriate term (“health care services”) to describe these services. We note that the substance of the category remains the same. The final rule has been revised to indicate that the combination of HCPCS and CPT-4 will be used for physician services and other health care services. The use of ICD-9-CM procedure codes is restricted to the reporting of inpatient procedures by hospitals.

In § 162.1002 we clarify the use of medical code sets. The standard code sets are the following:

(a) ICD-9-CM, Volumes 1 and 2 (including The Official ICD-9-CM Guidelines for Coding and Reporting), is the required code set for diseases, injuries, impairments, other health problems and their manifestations, and causes of injury, disease, impairment, or other health problems.

(b) ICD-9-CM Volume 3 Procedures (including The Official ICD-9-CM Guidelines for Coding and Reporting) is the required code set for the following procedures or other actions taken for diseases, injuries, and impairments on hospital inpatients reported by hospitals: prevention, diagnosis, treatment, and management.

(c) NDC is the required code set for drugs and biologics.

(d) Code on Dental Procedures and Nomenclature is the code set for dental services.

(e) The combination of HCPCS and CPT-4 is the required code set for physician services and other health care services.

(f) HCPCS is the required code set for other substances, equipment, supplies, and other items used in health care services.

c. Comment: Although there was wide support for the code sets that were proposed, a number of commenters pointed out that additional code sets were needed to cover some health services recorded in administrative health transactions. One commenter mentioned that the code sets proposed as standards lacked coverage of alternative health care procedures and recommended that the Alternative Link coding system also be designated as a standard code set. Commenters also indicated that none of the proposed standard code sets covered home infusion procedures; they recommended that the Home Infusion EDI Coalition Coding System (HIEC) be selected as a HIPAA standard. HIEC is currently used by some non-governmental health plans. One commenter recommended that dental diagnostic codes (SNODENT) developed by the ADA be used as a national standard. This commenter stated that the ICD-9-CM codes were inadequate for dentistry.

Response: No single code set in use today meets all of the business requirements related to the full range of health care services and conditions. Adopting multiple standards is a way to address code set inadequacies, but can also introduce complexities due to code set overlaps. We acknowledge that the coding systems proposed as initial standards may not address all business needs, especially in the areas of alternative health care procedures, home infusion procedures, and dental diagnoses. Specific shortcomings should be brought to the attention of the code set maintainers. The adoption of additional standards may be an appropriate way to fill gaps in coding coverage in these areas. Additional code sets must be analyzed by the DSMOs that will make recommendations to the National Committee on Vital and Health Statistics. In order to request changes, we recommend working through the processes described in §§162.910 and 162.940. In the interim, segments exist in the standard transactions which allow for manual processing of services for which codes have not been adopted.

d. Comment: While agreeing in general with the code sets proposed as standards, some commenters indicated that they lacked sufficient specificity to code data elements in several areas: functional status and other data elements necessary for studying persons with mental illness; behavioral health; chronic conditions and functional assessments covered by long term care insurance; and mental health services.

Response: We agree the code sets proposed as HIPAA standards may not cover functional status, mental and behavioral health, chronic conditions, and mental health services to the extent required by the legitimate business needs of some health care providers and health plans. We are unaware of any viable alternative code sets which cover these areas more completely. Maintainers of code sets seeking to be named as standards must pursue recognition through the processes set out at §§162.910 and 162.940.

e. Comment: One commenter, who supported the proposed code sets for their intended purposes, felt that they lacked the detail necessary to document a complete clinical encounter. The commenter stated that a comprehensive health information system requires the use of a controlled reference terminology to document care, retrieve data to perform studies, and assess patient outcomes. The commenter stated that as the implementation of HIPAA progresses towards the adoption of standards for a complete computer based patient record, the current coding systems will be inadequate. The commenter stated that the system developed by Systematized Nomenclature of Human and Veterinary Medicine International (SNOMED) could be used as a future standard.

Response: We agree that more detailed clinical terminologies are likely to be needed in complete computer-based patient records. SNOMED is one of the clinical terminologies being examined by the Work Group on Computer-Based Patient Records of the National Committee on Vital and Health Statistics’ Subcommittee on Standards and Security. The Work Group is responsible for studying the issues related to the adoption of uniform data standards for patient medical record information and the electronic exchange of such information.

f. Comment: One commenter expressed problems with the use of the ICD-9-CM and the ICD-10-CM for the collection of both reimbursement and research related data. It was stated that the data collected in claims’ transactions clog up the reimbursement data system with a large amount of extraneous material. The commenter also felt that the data were of dubious quality. The commenter estimated that as much as 50% of the information gathered within the transactions’ systems was for research purposes only. The commenter felt it was unfair to force the private sector to subsidize research costs through subterfuge. The commenter suggested that the issue be resolved by limiting the initial scope of the ICD-10-CM to collecting only information used or needed for reimbursement.

Response: The adopted coding systems support the collection of a wide variety of data that can be used for many purposes. However, we disagree with the commenter that standard health care claims or equivalent encounter information transactions collect data primarily for research purposes. The content of the health care claims or equivalent encounter information transaction was developed on a consensus basis by health care providers, health plans, and other industry representatives as necessary for the conduct of administrative transactions.

d. Coordination among Code Sets

Comment: Several commenters recommend that a very tight process be put in place to control overlap of HCPCS Level II “D” codes (The Code on Dental Procedures and Nomenclature, printed as “The Code” and published as CDT) and the CPT-4 codes. It was questioned whether there will be a review process in place for dental codes. Since there is some duplication of dental codes and the CPT-4 codes presently, a review process is needed to avoid duplication. One commenter stated that to attain and maintain coding consistency and avoid duplicate codes, the American Dental Association should be a member of a federal HCPCS committee.

Response: We agree that a mutual exchange of information is necessary to attain and maintain coding consistency. Panel member(s) from HCPCS Level II “D” Codes (The Code on Dental Procedures and Nomenclature), CPT-4, and Alpha-Numeric HCPCS will participate or act as consultants on the other coding panels in order to attain and maintain coding consistency and avoid duplicate codes.

e. Proposed changes to Dental Codes

Proposal: In HCPCS, the first digit “0" in the American Dental Association’s The Code on Dental Procedures and Nomenclature is replaced by a ``D'' to eliminate confusion and overlap with certain CPT-4 codes. The ADA has agreed to make this change an official part of the dental codes they distribute and to replace their first digit “0" with a “D.” Consequently, dental codes will no longer be issued within HCPCS as of the year 2000. The ADA will be the sole source of the authoritative version of “The Code.”

Comment: There were several specific comments about the proposal to change the initial digit in the ADA’s version of The Code on Dental Procedures and Nomenclature from “0” to “D.” Comments in favor of the change agreed that it would avoid potential overlap and confusion. One commenter indicated that this was particularly true for those claims that would continue to be submitted manually since the ASC X12N 837 and 835 transactions contain a code qualifier that clearly indicates which procedure code is being used. One commenter stated that as the ADA replaces the leading “0” with the letter “D,” some of the resulting codes will coincide with existing HCPCS Level II “D” codes, but will have totally different meanings. This could create great confusion at adjudication time. Dealing with a coding system that contains an alphabetic character would also cause problems for many systems. One commenter believed that it is the responsibility of both the ADA and the Department to specify clear and unambiguous rules that will affect this transition between coding systems, so the resulting confusion is minimized. The commenter suggested the following options: (1) replace the codes nationwide on a certain date; (2) choose a letter other than “D” for “The Code,” so there is no overlap; or (3) retain the leading zero in “The Code” and assure that there continues to be no conflict or overlap with the CPT-4 anesthesia codes, as currently they do not overlap.

There were no comments about the proposal that “The Code” be removed from HCPCS and that the ADA become the sole source of the definitive version of these codes.

Response: The ADA will change the leading “0” to a “D” as proposed. Many organizations are already using the “D” Codes, which contains the leading “D,” without difficulty, and we expect others to make this transition without difficulty. Although we did not receive comments that specifically addressed the removal of the dental codes from the HCPCS, general comments about the desirability of more consolidated access to all HIPAA code sets have led us to revise our position on the inclusion of “The Code” in the HCPCS. Thus, the dental codes will be available from two sources: the ADA, and through a licensing agreement between HCFA and the ADA.

f. Other Dental Code Issues

a. Comment: One commenter (a major health plan) emphasized the critical importance of federal oversight and monitoring of dental coding maintenance and revision to ensure that dental data sets do not incorporate fragmented or unbundled procedures that are integral parts of a single dental service. For example, in “The Code-1," the procedure code 04910, periodontal prophylaxis/periodontal recall, included the examination as part of this single dental service; in “The Code-2," the examination is unbundled and is listed as a separate procedure. The import of this unbundling is the potential for increasing cost of care, without otherwise increasing the services provided. At the very least, to control the impact that unbundling might potentially have on the cost of care, it was recommended that once a particular standard code is established, it may not be deleted and any changes or modifications to the code or descriptor be included as a new code.

Response: The American Dental Association (ADA) will be responsible for maintaining an appropriate open process for updating “The Code.” Interested public and private sector organizations and groups will have the opportunity for substantive input, as they will for all HIPAA standards. The Department will continue to review the process of code modification to ensure that the code sets continue to meet the business needs of the industry.

b. Comment: One commenter questioned whether the addition of a specific procedure to the dental codes adopted as a HIPAA standard meant that a health plan had to cover the procedure or whether it meant the health plan only had to be able to receive and process the standard code for the procedure.

Response: The establishment of a code in any of the code sets adopted as HIPAA standards does not require that a health plan cover the coded procedure. However, health plans must be able to receive and process all codes in HIPAA standard code sets. In other words, transactions containing standard codes may be returned with a message that the procedure is not covered by the health plan to whom they have been submitted. Transactions may not be rejected because the health plan’s system does not recognize valid standard codes.

g. Future Consideration of ICD-10 Code Sets

Proposal Summary: Although the exact timing and precise nature of changes in the code sets designated as standards for medical data are not yet known, it is inevitable that there will be changes to coding and classification standards after the year 2000. For example, the ICD-10-CM for diagnosis may replace the ICD-9-CM as the standard for diagnosis data. When any of the standard code sets proposed in this rule are replaced by wholly new or substantially revised systems, the new standards may have different code lengths and formats.

a. Comment: Several commenters felt that the ICD-10-CM should be considered as a future national standard after the year 2000. The commenters stated that the proposed initial standard, ICD-9-CM, should be selected since it was currently in use. They pointed out that the ICD-10-CM was still under development. Several commenters suggested that the system be tested and evaluated as a future national standard when the final draft is completed. One commenter was supportive of the system and suggested that factors such as code length be considered as part of the testing and evaluation of the ICD-10-CM system. Several commenters felt that the current draft of the ICD-10-CM showed significant improvements over the ICD-9- CM. Another commenter stated that the system would allow for more accurate reporting by health care providers. One commenter stated that the use of the ICD-10-CM will require considerable training.

Response: We agree with the commenters that the ICD-10-CM has great potential as a replacement for the ICD-9-CM. We also agree that a final evaluation of the system should await the completion of the final draft and testing.

b. Comment: Several commenters stated the ICD-10-PCS (which is under development for use in the United States as a replacement for the procedure coding section of ICD-9-CM) should be considered as a future national standard. Most commenters recommended that the decision to use or not use the ICD-10-PCS should await final development and testing. The majority of commenters stated that future systems, such as the ICD-10-PCS, should not be implemented until after the year 2000. However, several commenters supported the future migration to the ICD-10-PCS because it was felt to offer significant improvements over the ICD- 9-CM. One commenter stated that the ICD-10-PCS development project has made valuable contributions to many issues relating to coding and terminology. Another commenter expressed concern about the level of detail in the ICD-10-PCS and recommended that further studies and trials should be performed in order to establish the relative costs and benefits of the system. This commenter was particularly concerned about the pathology section and felt it needed more work. Others praised the increased level of detail in the system and felt the added clinical information would be useful.

Response: We believe the ICD-10-PCS has great promise as a future replacement of the ICD-9-CM, volume 3. However, we also believe the system needs additional testing and revision prior to making a decision about its use as a national standard. The system is dramatically different from the ICD-9-CM containing more digits, greater detail, and a more organized approach. With any new system, many factors must be weighed prior to making a recommendation about national use. Changing a coding system will have a great impact on national data and would be evaluated carefully by the Designated Standard Maintenance Organizations and the NCVHS, with opportunity for public input.

h. Universal Product Number (UPN)

Proposal: The Universal Product Number (UPN) identifies medical equipment and supplies. It was not recommended as an initial standard for the following reasons: the existence of two different sets of UPN codes; incomplete coverage - approximately 30 percent of the health care products do not have a UPN assigned to them; and lack of experience with UPNs for reimbursement. However, the proposal asked for comments regarding UPNs and when it might be appropriate to designate one or more UPN systems as HIPAA standards.

a. Comment: Several commenters stated that the HCPCS level II codes that we recommended to identify medical equipment and supplies are currently not specific enough for accurate claims processing, proper financial controls, or proper tracking of utilization. Health care providers use many different kinds of supplies and equipment not found in the HCPCS level II codes. It was argued that establishing UPNs as a national coding system for identifying health care supplies and equipment will provide the following advantages over the HCPCS level II codes:

  • The UPN system would allow for more accurate billing and better fraud and abuse detection than the use of a non-specific coding system such as the HCPCS level II.
  • UPNs would improve administrative efficiency and effectiveness.
  • The product specificity that UPNs provide in identifying the actual specifications of manufacturer’s products and packaging sizes is essential to managing health industry transactions and determining accurate payment amounts.
  • The UPN mechanism is already in place and has been proven in use.

Several commenters agreed that we should not include the UPNs in the initial list of standards. A cautious approach and considerable further study is necessary to determine if the objectives of administrative simplification and reduced costs within the health care system will be achieved by using the UPNs as a national coding system for health care products.

Response: We agree that additional information regarding the utility of the UPNs for claims processing needs to be obtained before a decision is made to require their use. Specifically, more information is needed concerning the costs and benefits that can be expected from using the UPNs and the extent to which their use would promote administrative simplification. Also, information is needed regarding the standards that would have to be established to ensure that the UPNs could be used effectively by third party payers. Another issue that needs to be studied is the amount and type of information that an insurer would have to obtain from manufacturers in order to adequately identify the products represented by approximately three to five million UPNs. Only detailed information concerning the products that are represented by the UPNs, provided in a consistent manner, will allow comparisons to determine if products from different manufacturers are functionally equivalent.

b. Comment: Several commenters expressed concern that the health care industry may continue to use two different types of UPN systems rather than a single system. They asserted that this is the best time to choose between the two coding councils, the Health Care Uniform Code Council (UCC) and the Health Industry Business Communications Council (HIBCC), because there has not been a substantial investment in either system.

Response: We believe that neither UPN system should be selected at this time, based on the reasons outlined above. We look to the industry to resolve the issue of whether the two systems should continue.

Before requiring the use of UPNs, we need to obtain more information regarding the costs and benefits of implementing the UPN, the adaptability of the UPN system for making coverage and payment determinations, and for combating fraud and abuse. We will be monitoring demonstrations being conducted by California Medicaid to determine the cost and feasibility of using UPNs in the health care industry. The entity proposing such a demonstration must request an exception from the standards following the procedures in § 162.940.

i. NDC

a. Comment: Commenters generally agreed with our recommendation to eliminate Level II HCPCS codes for drugs by the year 2000 and to use NDC for all drugs. However, some commenters disagreed with applying this requirement to non-pharmacy claims and recommended that the NDC be used only for retail pharmacy claims until sufficient benefits and overhead costs of exclusively implementing the NDC codes can be further researched. It was mentioned that the NDC numbers notate a vial size and physician injections often results in a single vial being used for multiple patients. They alleged that current Level II HCPCS codes allow for this identification. Several commenters also recommended that those durable medical equipment (DME) that do not have Level II HCPCS codes should use NDC codes.

It was noted that Medicaid agencies must reimburse health care providers for supplying the drug products of any company in the Federal Rebate Program as long as the drug reimbursement rates are within the Federal Upper Payment Limit. Because many companies produce the same drug, there are often many NDCs that correspond to the same drug with the same Level II HCPCS code. It was stated that Medicaid uses the Level II HCPCS codes to indicate which of these many products is reimbursable for health care provider submitted drug transactions.

One commenter suggested moving the NDC codes to the HCPCS codes. The commenter stated using two different coding systems (NDC and HCPCS) is counter to the overall goal of administrative simplification.

Response: We continue to believe that use of NDC to identify drugs is the most appropriate and efficient coding system available. While commenters gave various reasons in support of their objection to requiring use of NDC for non-pharmacy claims, most of these reasons were based upon a misunderstanding of the proposal. For example, contrary to one comment, the Medicaid drug rebate program requires the NDC, not the generalized Level II HCPCS code for the rebate program.

In response to the commenter who stated that the NDC does not always allow identification of partial vials (that is, when a single vial is used among multiple patients), we note that although this may be true with certain NDC codes, the transaction standards allow the reporting of dosage units for the NDC. In addition, although certain commenters requested a crossover period during which both nonstandard and standard codes may be used for processing, we believe that it is more reasonable to require all of the systems’ changes that we can at one time, rather than addressing the changes in a piecemeal fashion. The two years after the effective date allowed before compliance is required will allow for a smooth transition period. Both non- standard electronic formats and the new standard transactions may be used during this transition period.

With respect to DME claims, HCPCS Level II is the proposed standard for DME. DME do not receive NDC as NDC are national drug codes. We are not moving the NDC codes to the HCPCS since each are separate coding systems for different purposes. Commenters generally supported this recommendation.

b. Comment: One commenter recommended to either revise the existing NDC or create a new coding system so the codes are distinctive in their format. The commenter stated that the coding system should serve the inventory and distribution industries as well as assist with the billing and inventory management of outpatient and hospital settings. Moreover, the commenter wanted the system to have the capacity to last 50 to 100 years or longer.

One commenter stated the NDC system was designed for health care providers who manufacture drug products or pay for drug therapy. The commenter said the design is completely inappropriate for the needs of most health care providers who prescribe drug therapies, dispense drug products, or administer medications to patients. The NDC identifies drug products at a level of detail (the package) that is much too granular to be of any practical use for most health care providers. The commenter recommended to select either MediSource Lexicon or the HL7 Vocabulary Special Interest Group Drug Model and Listing as the standard code set for drugs.

Response: In general, the Act requires the Secretary to adopt existing code sets developed by private or public entities, unless code sets for the data elements have not been developed by such entities. When new code sets are developed or existing ones revised, they need to be evaluated. Demonstrations need to be performed in order to determine the cost and feasibility of such codes sets in the health care industry. MediSource and HL7 are not currently used within the transaction system for administrative and reimbursement purposes for retail pharmacy claims. The majority of commenters supported the adoption of the NDC coding system for pharmacy claims and did not support one commenter’s opinion regarding difficulties perceived. The NDC was originally developed as a 10-digit identifier made up of three subcodes: the manufacturer code, the product code, and the package size code. Each subcode is variable in length. Some subcodes are reported with leading zeroes and some truncate the leading zero. This leads to variable sizes, such as: 5-4-1, 5-3-2, and 4-4-2. Originally, the subcodes were separated by hyphens. However, when used in computer systems, it is customary to display each subcode using its largest valid size, yielding an 11-digit number: 5-4-2. We are adopting the 11-digit NDC in order that the format is distinctive and will be in place until the Secretary decides to adopt a new code system. Since it will be in a standard format, inventory systems, as well as other systems, should realize benefits. As the nation moves beyond the adoption of initial standards, there may be a need to evaluate other coding systems that have the potential of being adopted as a standard in the future.

c. Comment: Several commenters said the FDA needs to improve its oversight of NDC before adoption. It was stated that the FDA shifted responsibilities for the maintenance of the system to manufacturers and drug packagers who assigned their own codes. As a result, the FDA does not possess a current, accurate, or complete NDC list. It was stated that the 11-digit NDC code identifies drugs, and these codes are assigned on a continuous basis throughout the year as new drug products are issued.

Response: The Food and Drug Administration's Center for Drug Evaluation and Research provides daily updates to the New and Generic Prescription Drug Approval List. They provide weekly updates to the FDA Drug Approval List. This list includes additions and deletions to prescription and over the counter (OTC) drug products. This list must be used in conjunction with the most current publication of the Approved Drug Products with Therapeutic Equivalence Evaluations (a.k.a. Orange Book) which is updated on a monthly basis. The NDC Directory is updated on a quarterly basis. These lists are available via the Internet at:

j. Training Requirements

Comment: A medical association stated that there will be a significant increase in the workload required in order to adequately comply with the standardized transaction code sets. There is a tremendous need for training for health care providers as well as information systems modifications. For example, the code sets for anesthesia, dental, and procedure codes will require a large amount of time and effort for State Medicaid Management Information Systems (MMIS) to comply with using the standardized code sets.

Response: We agree that educational activities must occur. Health plans should inform their health care providers of the impending changes as soon as possible and arrange for appropriate educational opportunities in 2000. It is also anticipated that health care clearinghouses and other commercial entities will offer training.

k. Local Codes

Proposal Summary: The Health Care Financing Administration Procedural Coding System (HCPCS) contains three levels. Level I (CPT-4), is developed and maintained by the AMA and captures physician services. Level II of HCPCS contains codes for products, supplies, and services not included in CPT-4. Level III, local codes, include codes established by insurers and agencies to fulfill local claim processing needs. One of the intentions of this rule is to eliminate local codes.

Comment: We received comments from a diverse group of organizations, ranging from data management corporations, health insurance organizations, State agencies, etc. A little less than half of the commenters did not favor the elimination of local codes. There was a general concern expressed by both public and private insurers that very specific and unique codes are necessary for processing and paying claims efficiently. Many commenters, particularly ones from State Medicaid agencies and from other insurance health plans, commented on the need for local codes to describe a wide variety of health care services. For example, several commenters described specific needs for local codes for physician services, such as digital rectal exam, that are not delineated in CPT-4 or HCPCS. Other commenters opposed the elimination of local codes because they argued that it would be difficult to get a national code approved in a timely fashion to process claims for new technologies that come onto the market and are coverable. The main concern of these commenters was that the needs of some health plans’ programs are so specific that a more general code would not meet their needs. Furthermore, eliminating both local codes and the process to standardize codes would take away some of a State’s authority to administer its programs. There was great concern that if the translation of local codes to national codes is not done expeditiously it would create a high number of “not otherwise classified codes,” which in turn create processing delays. There was a great deal of concern expressed by health plans that eliminating local codes would disrupt data reporting, claims payment, and data systems design for a considerable amount of time and would be very expensive.

Many commenters said that the proposed process was not well defined in the proposed rule. They felt that given the timetable specified in the proposed rule there would not be enough time to develop and implement an effective standardization process.

Commenters made a number of recommendations regarding the standardization process. Included among them were the following: conduct monthly meetings of the HCPCS panel; have each State establish its own HCPCS committee with health plan and health care provider representatives deciding which local codes to eliminate and which to submit to the national panel for standardization; open the HCPCS panel meetings to the public and include participation of stakeholders such as state beneficiary representatives and data maintenance organizations; add the AMA, ADA and BC/BS Association as voting members; and establish both state and regional level committees to make decisions on standardization of codes.

The main concern was that the proposed elimination of local codes would create an enormous backlog of codes for the HCPCS panel to review and this would result in the delay of the implementation of national codes. There was a general recommendation that any process that is established to standardize local codes should also have a mechanism in place to assign national codes for use within a very short time frame.

Several commenters stated they were unclear about whether all local codes could be translated into equivalent national codes within the next two years. They considered the timetable presented as difficult to achieve, and suggested that all codes developed and approved by HCFA should have a standard publication timetable. They said that any process for standardizing local codes must have the ability to assign codes within a very short time frame to assure that claims can be processed timely. Some commenters proposed that local codes should be eliminated when the ICD-10 codes sets and transactions are implemented. Others suggested delaying the elimination of local codes to allow for an orderly transition.

Response: We understand commenters’ concern about eliminating local codes and moving to a national process for reviewing and approving codes that are needed by public and private insurers. We remain committed in our effort to work with the industry to facilitate the standardization process. We will be monitoring the process of code revision to ensure that the code sets continue to meet the needs of the industry. Moreover, although the standardization of local codes will be challenging, we believe it is an achievable undertaking as health plans and health care providers have two years to eliminate local codes and transition to national codes (small health plans have three years before they are required by statute to be compliant with the HIPAA standards).

We would like to clarify that covered entities may not use local codes in standard transactions after compliance with this regulation is required. Nor may a covered entity require the use of local codes in standard transactions after compliance with this regulation is required.

We believe that the prohibition on the use of local codes in standard transactions will likely require health insurers to review their local codes and eliminate those codes that duplicate elements in the national codes. During this review process, we expect that covered entities will find that there are instances when they use a particular local code in fewer than 50 claims submissions per year. In those instances when a covered entity discovers that it uses a local code in fewer than 50 claims submissions per year, the covered entity should not make a modification request to the maintainer of the relevant medical code set for a unique national code for the item or service. Rather than having the maintainer of the relevant code set issue a unique national code for a service or item for which there are fewer than 50 claim submissions per year, a covered entity should use the national Not Otherwise Specified (NOS) code (use of the NOS code is voluntary before the compliance date of this regulation, but use of the NOS code becomes mandatory after the compliance date of the regulation). We believe that not only will NOS codes continue to serve as the national code for claim submissions for an item or service that are submitted fewer than 50 times per year, they will continue to serve as the national code for new services or items that have not yet been assigned a unique national code by the maintainer of the relevant medical code set.

Also, we anticipate that insurers will need to work with other similarly situated health plans to review local codes used for professional services, procedures, health care products and supplies which are not described by the current code sets. Finally, in situations where, after careful review, no national code currently exists to replace a local code, health plans may request the establishment of a national code. Health plans should bear in mind the criteria for the establishment of a national code. Specifically, national codes are only designed to identify an item or service; additional codes are not established to carry health plan specific information such as units or health care provider identification for products or procedures which have been given a national code. Such information must be used elsewhere and cannot be imbedded in the national codes.

Health plans should submit individual code requests for the establishment of national codes, along with supporting documentation, to the appropriate standard code set maintenance group. For example, in order to provide a better understanding of the HCPCS process, a Web site has been set up to provide public access to the list of items submitted for the HCPCS National Panel for review. An e-mail link is available for questions and comments related to the HCPCS process. The Internet site is

For information on changes and updates to the procedure part of ICD-9-CM (Volume 3) see the following Internet site:

For information on changes and updates to the diagnosis part of ICD-9-CM (Volumes 1 & 2) see the following Internet site:

The Internet site for requesting a change or an addition to the code(s) in the Code on Dental Procedures and Nomenclature is:

To request a change or an addition to the code(s) in the Current Procedural Terminology, Fourth Edition (CPT-4) you can write:

American Medical Association

Department of Coding and Nomenclature

515 North State Street

Chicago, Illinois, 60610.

The Internet site for the American Medical Association is

For the list of codes found in the National Drug Codes, see the following Internet site:

For information about submitting a request to modify the National Drug Codes, see the following Internet site:

In addition, some commenters have stated that they use codes within their operating systems that are internally generated. These internal operating codes are used solely within the organization for administrative purposes. We understand that these codes are sometimes called local codes. Furthermore, commenters are concerned that this regulation will require the elimination of those internal operating codes. We clarify that this regulation will not require the elimination of the use of these internal operating codes when not part of a transaction for which a standard has been adopted under this part.