Health Insurance Reform: Standards for Electronic Transactions. E. Implementation Costs


The costs of implementing the standards specified in the statute are primarily one-time or short-term costs related to conversion. They can be characterized as follows:

  1. System Conversion/Upgrade -- Health care providers and health plans will incur costs to convert existing software to utilize the standards. Health plans and large health care providers generally have their own information systems, which they maintain with in-house or contract support. Small health care providers are more likely to use off-the-shelf software developed and maintained by a vendor. Examples of software changes include the ability to generate and accept transactions using the standard (for example, claims, remittance advices) and converting or cross walking medical code sets to chosen standards. However, health care providers have considerable flexibility in determining how and when to accomplish these changes. One alternative to a complete system redesign would be to purchase a translator that reformats existing system outputs into standard transaction formats. A health plan or health care provider could also decide to implement two or more related standards at once or to implement one or more standards during a software upgrade. Each health care provider’s and health plan’s situation will differ, and each will select a cost-effective implementation scheme. Many health care providers use billing associates or health care clearinghouses to facilitate EDI. (Although we discuss billing associates and health care clearinghouses as separate entities in this impact analysis, billing associates are considered to be the same as health care clearinghouses for purposes of administrative simplification if they meet the definition of a health care clearinghouse). Those entities would also have to reprogram to accommodate standards.
  2. Start-up Cost of Automation -- The statute does not require health care providers to conduct transactions electronically. To benefit from EDI, health care providers who choose to conduct electronic transactions but do not currently have electronic capabilities would have to purchase and install computer hardware and software as well as train their staffs to use the technology. However, this conversion is likely to be less costly once standards are in place because there will be more vendors providing support services. Furthermore, providers without electronic capabilities are more likely to conclude that the benefits of conducting transactions electronically justify a capital investment in EDI technology.
  3. Training -- Health care provider and health plan personnel will require training on the use of the various standard identifiers, formats, and code sets. For the most part, training will be directed toward administrative personnel, though clinical staff will also need training on the new code sets. With standardization, however, vendors are more likely to offer assistance in training as a means of increasing sales, thereby reducing the per unit cost of training.
  4. Implementation Problems -- The implementation of any industry-wide standards will inevitably create additional complexity in regard to how health plans and health care providers conduct business. Health plans and health care providers will need to work on re-establishing communication with their trading partners, and process transactions using the new formats, identifiers, and code sets. This is likely to result in a temporary increase in rejected transactions, manual exception processing, payment delays, and requests for additional information.

While the majority of costs are one-time costs related to implementation, there are also on-going costs associated with administrative simplification, such as subscribing to or purchasing documentation and implementation specifications related to code sets and standard formats and obtaining current health plan and health care provider identifier directories or data files. Because covered entities are already incurring most of these costs, the costs under HIPAA will be marginal. These small ongoing costs are included in the estimate of the system conversion and upgrade costs.

In addition, EDI could affect cash flow throughout the health insurance industry. Electronic claims reach the health plan faster and can be processed faster. This has the potential to improve health care providers’ cash flow situations while decreasing health plans’ earnings on cash reserves. However, improved cash flow is generally considered a benefit, particularly for small businesses.