Health Insurance Reform: Standards for Electronic Transactions. K. Regulatory Flexibility Analysis


The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, requires the Department to prepare a regulatory flexibility analysis if the Secretary certifies that a proposed regulation will have a significant economic impact on a substantial number of small entities. In the health care sector, a small entity is one with less than $5 million in annual revenues. For the purposes of this analysis (pursuant to the RFA), nonprofit organizations are considered small entities; however, individuals and States are not included in the definition of a small entity. We have attempted to estimate the number of small entities and provide a general discussion of the effects of the statute.

For the purpose of this analysis, all 31 nonprofit Blue Cross-Blue Shield Health Plans are considered small entities. 28% of HMOs are considered small entities because of their nonprofit status. Doctors of osteopathy, dentistry, podiatry, as well as chiropractors, and solo and group physicians’ offices with fewer than three physicians, are considered small entities. Forty percent of group practices with 3 or more physicians and 100 percent of optometrist practices are considered small entities. Seventy-two percent of all pharmacies, 88% of medical laboratories, 100% of dental laboratories and 90% of durable medical equipment suppliers are assumed to be small entities as well.

We found the best source for information about the health data information industry is Faulkner & Gray’s Health Data Directory. This publication is the most comprehensive data dictionary of its kind that we could find. The information in this directory is gathered by Faulkner & Gray editors and researchers who called all of the more than 3,000 organizations that are listed in the book in order to elicit information about their operations. It is important to note that some businesses are listed as more than one type of business entity; this is because in reporting the information, companies could list themselves as many as three different types of entities. For example, some businesses listed themselves as both practice management vendors and claims software vendors because their practice management software was “EDI enabled.”

All the statistics referencing Faulkner & Gray’s come from the 2000 edition of its Health Data Directory. It lists 78 claims clearinghouses, which are entities under contract that take electronic and paper health care claims data from health care providers and billing companies that prepare bills on a health care provider’s behalf. The claims clearinghouse acts as a conduit for health plans; it batches claims and routes transactions to the appropriate health plan in a form that expedites payment.

Of the 78 claims clearinghouses listed in this publication, eight processed more that 20 million electronic transactions per month. Another 15 handled 2 million or more transactions per month and another 4 handled over a million electronic transactions per month. The remaining 39 entities listed in the data dictionary processed less than a million electronic transactions per month. Almost all of these entities have annual revenues of under $5 million and would therefore be considered small entities.

Another entity that is involved in the electronic transmission of health care transactions is materials management/supply ordering software companies (value added networks). They are involved in the electronic transmission of data over telecommunication lines. Faulkner & Gray list 21 materials management/supply ordering software vendors that handle health care transactions. We believe that almost all of these companies meet the definition of a small business.1

A billing company is another entity involved in the electronic routing of health care transactions. It works primarily with physicians in office and hospital-based settings. Billing companies, in effect, take over the office administrative functions for a physician; they take information such as copies of medical notes and records and prepare claim forms that are then forwarded to an insurer for payment. Billing companies may also handle the receipt of payments, including posting payment to the patient’s record on behalf of the health care provider. They can be located within or outside of the physician’s practice setting.

In the proposed rule we stated that The International Billing Association, a trade association representing billing companies, estimated that there were 4500 billing companies in business in the United States. The International Billing Association’s estimates are based on the number of names and addresses of actual billing companies on its mailing list. Since we were unable to find more recent information about these entities, we are assuming that the number of billing companies has not changed significantly and that all of the 4500 billing companies continue to have revenues under $5 million annually.

Software system vendors provide computer software applications support to health care clearinghouses, billing companies, and health care providers. In particular, they work with health care providers’ practice management and health information systems. These businesses provide integrated software applications for such services as accounts receivable management, electronic claims submission (patient billing), record keeping, patient charting, practice analysis and patient scheduling. Some software vendors are also involved in providing applications for translating paper and nonstandard computer documents into standardized formats that are acceptable to health plans.

Faulkner & Gray list 78 physician practice management vendors and suppliers, 76 hospital information systems vendors and suppliers, 140 software vendors and suppliers for claims-related transactions, and 20 translation vendors (now known as Interface Engines/ Integration Tools). We were unable to determine the number of these entities with revenues over $5 million, but we assume most of these businesses would be considered small entities.

As discussed earlier in this analysis, the cost of implementing the standards specified in the statute are primarily one-time or short-term costs related to conversion. They were characterized as follows: software conversion; cost of automation; training; implementation problems; and cost of documentation and implementation specifications. Rather than repeat that information here, we refer you to the beginning of this impact analysis.