There has been a steady increase in use of EDI in the health care market since 1993, and we predict that there would be some continued growth, even without national standards. However, we believe the upward trend in EDI health care transactions will be enhanced by having national standards in place. Because national standards are not in place today, there continues to be a proliferation of proprietary formats in the health care industry. Proprietary formats are those that are unique to an individual business. Due to proprietary formats, business partners that wish to exchange information via EDI must agree on which formats to use. Since most health care providers do business with a number of plans, they must produce EDI transactions in many different formats. For small health care providers, this is a significant disincentive for converting to EDI.
National standards would allow for common formats and translations of electronic information that would be understandable to both the sender and receiver. If national standards were in place, there would be no need to determine what format a trading partner was using. Standards also reduce software development and maintenance costs that are required for converting proprietary formats. The basic costs of maintaining unique formats are the human resources spent converting data or in personally contacting entities to gather the data because of incompatible formats. These costs are reflected in increased office overhead, and a reliance on paper and third party vendors as well as communication delays and general administrative hassle. Health care transaction standards will improve the efficiency of the EDI market and will help further persuade reluctant industry partners to choose EDI over traditional mail services.
The statute directs the Secretary to establish standards and sets out the timetable for doing so. The Secretary must designate a standard for each of the specified transactions and identifiers but does have the discretion to designate alternate standards (for example, both a flat file and X12N format for a particular transaction). We have chosen to designate a single standard for each identifier and transaction. On the surface, allowing alternate standards would seem to be a more flexible approach, permitting health care providers and health plans to choose which standard best fits their business needs. In reality, health plans and health care providers generally conduct EDI with multiple partners. Since the choice of a standard transaction format is a bilateral decision between the sender and receiver, most health plans and health care providers would need to support all of the designated standards for the transaction in order to meet the needs of all of their trading partners. Single standards will maximize net benefits and minimize ongoing confusion.
Health care providers and health plans have a great deal of flexibility in how and when they will implement standards. The statute specifies dates by which health plans will have adopted standards, but within that time period health plans can determine when and in which order they will implement standards. Health care providers have the flexibility to determine when it is cost- effective for them to convert to EDI. Health plans and health care providers have a wide range of vendors and technologies from which to choose in implementing standards and can choose to utilize a health care clearinghouse to produce standard transactions. Implementation options for transactions will be the subject of more detailed analysis in a subsequent regulation.