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Frequently Asked Questions About Electronic Transaction Standards Adopted Under HIPAA

Publication Date

Why have national standards for electronic health care transactions been adopted and why are they required?

Congress and the health care industry have agreed that standards for the electronic exchange of administrative and financial health care transactions are needed to improve the efficiency and effectiveness of the health care system. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) required the Secretary of Health and Human Services to adopt such standards.

National standards for electronic health care transactions will encourage electronic commerce in the health care industry and ultimately simplify the processes involved. This will result in savings from the reduction in administrative burdens on health care providers and health plans. Today, health care providers and health plans that conduct business electronically must use many different formats for electronic transactions. For example, about 400 different formats exist today for health care claims. With a national standard for electronic claims and other transactions, health care providers will be able to submit the same transaction to any health plan in the United States and the health plan must accept it. Health plans will be able to send standard electronic transactions such as remittance advices and referral authorizations to health care providers. These national standards will make electronic data interchange a viable and preferable alternative to paper processing for providers and health plans alike.

What health care transactions are required to use the standards under this regulation?

As required by HIPAA, the Secretary of Health and Human Services is adopting standards for the following administrative and financial health care transactions:

  1. Health claims and equivalent encounter information.
  2. Enrollment and disenrollment in a health plan.
  3. Eligibility for a health plan.
  4. Health care payment and remittance advice.
  5. Health plan premium payments.
  6. Health claim status.
  7. Referral certification and authorization.
  8. Coordination of benefits.

Standards for the first report of injury and claims attachments (also required by HIPAA) will be adopted at a later date.

Who is required to use the standards?

All private sector health plans (including managed care organizations and ERISA plans, but exlcuding certain small self administered health plans) and government health plans (including Medicare, State Medicaid programs, the Military Health System for active duty and civilian personnel, the Veterans Health Administration, and Indian Health Service programs), all health care clearinghouses, and all health care providers that choose to submit or receive these transactions electronically are required to use these standards. These "covered entities" must use the standards when conducting any of the defined transactions covered under the HIPAA.

A health care clearinghouse may accept nonstandard transactions for the sole purpose of translating them into standard transactions for sending customers and may accept standard transactions and translate them into nonstandard transactions for receiving customers.

If a health plan does not perform a transaction electronically, must it implement the standard?

If the plan performs that business function (whether electronically, on paper, via phone, etc.), it must be able to support the electronic standard for that transaction. It may do this directly or through a clearinghouse.

When will the standards become effective?

All health plans, all health care clearinghouses, and any health care provider that chooses to transmit any of the transactions in electronic form must comply within 24 months after the effective date of the final rule (small health plans have 36 months). The effective date of the rule is 2 months after publication. Therefore, compliance with the final rule is required by October 2002 (October 2003 for small health plans). Entities can begin using these standards earlier than the compliance date.

Where did these standards come from? Did the Federal Government create them?

HIPAA required the Secretary to adopt standards, when possible, that have been developed by private sector standards development organizations (SDOs) accredited by the American National Standards Institute (ANSI). These are not government agencies. All of the transactions adopted by this rule are from such organizations. All are from the Accredited Standards Committee (ASC) X12N except the standards for retail pharmacy transactions, which are from the National Council for Prescription Drug Programs (NCPDP).

What standards were chosen?

ANSI ASC X12N standards, Version 4010, were chosen for all of the transactions except retail pharmacy transactions. The choice for the retail pharmacy transactions was the standard maintained by the NCPDP because it is already in widespread use. The NCPDP Telecommunications Standard Format Version 5.1 and equivalent NCPDP Batch Standard Version 1.0 have been adopted in this rule (health plans will be required to support one of these two NCPDP formats).

Do these standards apply to transactions sent over the Internet?

Internet transactions are being treated the same as other electronic transactions. However, we recognize that there are certain transmission modes in which the format portion of the standard is inappropriate. In these cases, the transaction must conform to the data content portion of the standard. In particular, a "direct data entry" process, where the data are directly keyed by a health care provider into a health plan’s computer using dumb terminals or computer browser screens, would not have to use the format portion of the standard, but the data content must conform. If the data are directly entered into a system that is outside the health plan’s system, to be transmitted later to the health plan, the transaction must be sent using the format and content of the standard.

Do I have to use standard transactions when conducting business inside my corporate boundaries?

The decision on when a standard must be used does not depend on whether the transaction is being sent inside or outside corporate boundaries. Instead, a simple two part test, in question form, can be used to determine whether the standards are required.

Question 1: Is the transaction initiated by a covered entity or its business associate? If no, the standard need not be used.

Question 2: Is the transaction one for which the Secretary had adopted a standard? If yes, the standard must be used. If no, the standard need not be used.

For purposes of question 1, a business associate acting on behalf of a covered entity can only perform those particular functions that the covered entity itself could perform in the transaction. The regulation requires health plans to accept standard transactions from any person.

For purposed of question 2, the definitions of the transactions themselves, as stipulated in Subpart K through Subpart R of the regulation, must be used to determine if the function is a transaction for which the Secretary has adopted a standard.

What is the effect on State law?

Section 1178 of the Social Security Act provides that standards for the transactions will supercede any State law that is contrary to them, but allows for an exception process. This process is currently under development and will be issued in the final rule for Privacy Standards.

Are any exceptions allowed?

In addition to the exceptions for conflicting State laws, an exception may be allowed for the testing of proposed modifications to the standards. An entity wishing to test a different standard may apply for an exception to test the new standard. Instructions for applications are published in the final rule. In this way, we hope to encourage the development of new technologies.

What does the law require of state Medicaid programs?

Section 1171(5)(E) of the Social Security Act, as enacted by HIPAA, identifies the State Medicaid programs as health plans, which therefore must be capable of receiving, processing, and sending standard transactions electronically. There is no requirement that internal information systems maintain data in accordance with the standards. However, Medicaid programs will need the capacity to process standard claim, encounter, enrollment, eligibility, remittance advice, and other transactions. In addition, as health plans, the State Medicaid programs will be required to comply with other HIPAA standards two years after adoption of the standards.

The standards should benefit Medicaid programs in multiple areas. Here are a few examples:

  • A national standard for encounter transactions will provide a much-needed method for collecting encounter data on Medicaid beneficiaries enrolled in managed care. Because of the standards, it will be possible to combine encounter data from managed care with similar claims data from fee-for-service, thus enhancing the ability to monitor utilization, costs, and quality of care in managed care and to compare managed care with fee-for-service.
  • The standard transactions will include methods for electronic exchange of enrollment information between the Medicaid program and private managed care plans enrolling Medicaid beneficiaries. This will reduce administrative costs of exchanging such information and enhance the reliability of such information.
  • The conversion to national standards provides an opportunity for Medicaid programs to shift to commercial software or clearinghouses and to stop the expensive maintenance of old, customized transaction systems.

How will the standards be enforced?

The law gives the Secretary the authority to impose monetary penalties for failure to comply with a standard. The Secretary is required by statute to impose penalties of not more than $100 per violation on any person or entity who fails to comply with a standard except that the total amount imposed on any one person in each calendar year may not exceed $25,000 for violations of one requirement. Enforcement procedures will be published in a future regulation.

How were the standards chosen?

First, the Department developed a set of guiding principles to serve as the basis for evaluating alternative standards for each transaction. These guiding principles, designed to be consistent with the intent of HIPAA, are published in the regulation. Second, an inventory of standards was developed by the ANSI Health Informatics Standards Board, a private sector organization. Third, teams composed of representatives from several government agencies evaluated the available standards against the guiding principles to determine which standards best met the principles. Extensive outreach and consultation, including public meetings, with all facets of the health care industry continued throughout this process.

As required by HIPAA, the Secretary also consulted with the National Uniform Claim Committee (NUCC), the National Uniform Billing Committee (NUBC), the American Dental Association (ADA), and the Workgroup for Electronic Data Interchange (WEDI). The Secretary also considered advice from the National Committee on Vital and Health Statistics (NCVHS) and representatives of the health care industry who testified before the NCVHS Subcommittee on Health Data Needs, Standards, and Security.

Data dictionaries are available for an additional fee.

Where can I obtain implementation guides for the standards?

The implementation guides for the ASC X12N standards may be obtained from the Washington Publishing Company, 806 W. Diamond Ave., Suite 400, Gaithersburg, MD, 20878; telephone: 301-949-9740; FAX: 301-949-9742. These guides are also available at no cost through the Washington Publishing Company on the Internet at

The implementation guide for retail pharmacy standards is available from the National Council for Prescription Drug Programs, 4201 North 24th Street, Suite 365, Phoenix, AZ, 85016; telephone: 602-957-9105; FAX: 602-955-0749. It is also available from the NCPDP’s website at

How can the standards be changed?

The Secretary has designated six organizations that have agreed to serve as Designated Standards Maintenance Organizations (DSMOs). The DSMOs are:

  1. Accredited Standards Committee X12
  2. The Dental Content Committee
  3. Health Level Seven
  4. National Council for Prescription Drug Programs
  5. National Uniform Billing Committee
  6. National Uniform Claim Committee

These organizations will work together to accept and evaluate requests for changes to the standards and suggest changes to the standards for the Secretary’s consideration. Further information about the change request process can be found on the Internet at: .

The Secretary may modify a standard or its implementation guide specification one year after the standard or implementation specification has been adopted, but not more frequently than once every 12 months. If the Secretary modifies a standard or implementation specification, the implementation date of the modified standard or implementation specification may be no earlier than 180 days following the adoption of the modification. The Department of Health and Human Services (HHS) will determine the actual date, taking into account the time needed to comply given the nature and extent of the modification. HHS may extend the time for compliance for small health plans. Standards modifications will be published as regulations in the Federal Register.

Does the law require physicians to buy computers?

No, there is no such requirement. However, more physicians may want to use computers for submitting and receiving transactions (such as health care claims and remittances/payments) electronically, once the standard way of doing things goes into effect.

The Administrative Simplification provisions of the HIPAA law were passed with the support of the health care industry. The industry believed standards would lower the cost and administrative burdens of health care, but they needed Government's help to get to one uniform way of doing things. In the past, individual providers (physicians and others) have had to submit transactions in whatever form each health plan required. Health plans could not agree on a standard without giving their competitors a market advantage, at least in the short-run. The law, which requires standards to be followed for electronic transmission of health care transactions, levels the playing field. It does not require providers to submit transactions electronically. It does require that all transactions submitted electronically comply with the standards.

Providers, even those without computers, may want to adopt these standard electronic transactions, so they can benefit directly from the reductions in cost and burden. This is possible because the law allows providers (and health plans too, for that matter) to contract with clearinghouses to conduct the standard electronic transactions for them.

How will the standards affect data stored in my system?

The transaction standards will apply only to electronic data interchange (EDI) -- when data are transmitted electronically between health care providers and health plans as part of a standard transaction. Data may be stored in any format as long as it can be translated into the standard transaction when required. Security standards, on the other hand, will apply to all health care information.

To comply with the transaction standards, health care providers and health plans may exchange the standard transactions directly, or they may contract with a clearinghouse to perform this function. Clearinghouses may receive non-standard transactions from a provider, but they must convert these into standard transactions for submission to the health plan. Similarly, if a health plan contracts with a clearinghouse, the health plan may submit non-standard transactions to the clearinghouse, but the clearinghouse must convert these into standard transactions for submission to the provider.

Can health plans require changes or additions to the standard claim?

Currently, some insurers accept the de facto standard claim (e.g., UB-92) but also require additional records (e.g., a proprietary cover sheet) for each claim submitted. Others have special requirements for data entered into the claim which make it non-standard.

Under the law, health plans are required to accept the standard claim submitted electronically. They may not require providers to make changes or additions to the standard claim. They must go through the private sector standards setting process to get their requirements added to the standard in order to effect desired changes. Health plans may not refuse the standard transaction or delay payment of a proper standard transaction.

An additional standard will be adopted for electronic health claims attachments, which health plans will be required also to accept. Until that standard is adopted (by February, 2001), health plans may continue to require health claim attachments to be submitted on paper. No other additions to standard claims will be acceptable.

Should health plans publish companion documents that augment the information in the standard implementation guides for electronic transactions?

Additional information may be provided within certain limits.

Electronic transactions must go through two levels of scrutiny:

  1. Compliance with the HIPAA standard. The requirements for compliance must be completely described in the HIPAA implementation guides and may not be modified by the health plans or by the health care providers using the particular transaction.
  2. Specific processing or adjudication by the particular system reading or writing the standard transaction. Specific processing systems will vary from health plan to health plan, and additional information regarding the processing or adjudication policies of a particular health plan may be helpful to providers.

Such additional information may not be used to modify the standard and may not include:

  • Instructions to modify the definition, condition, or use of a data element or segment in the HIPAA standard implementation guide.
  • Requests for data elements or segments that are not stipulated in the HIPAA standard implementation guide.
  • Requests for codes or data values that are not valid based on the HIPAA standard implementation guide. Such codes or values could be invalid because they are marked not used in the implementation guide or because they are simply not mentioned in the guide.
  • Change the meaning or intent of a HIPAA standard implementation guide.

Could companion documents from health plans define cases where the health plan wants particular pieces of data used or not used?

The health plan must read and write HIPAA standard transactions exactly as they are described in the standard implementation guides. The only exception would be if the guide explicitly gives discretion regarding a data element to a health plan. For claims and most other transactions, the receiver must accept and process any transaction that meets the national standard. This is necessary because multiple health plans may be scheduled to receive a given transaction (e.g., a single claim may be processed by multiple health plans).

For example: Medicare currently instructs providers to bill for certain services only under certain circumstances. Once HIPAA standard transactions are implemented, Medicare will have to forego that policy and process all claims that meet HIPAA specifications. This does not mean that Medicare, or any other health plan, has to change payment policy. Today, Medicare would refuse to accept and process a bill for a face lift for cosmetic purposes only. Once the HIPAA standards are implemented, Medicare will be required to accept and process the bill, but still will not pay for a face lift that is purely for cosmetic purposes.

May health plans stipulate the codes or data values they are willing to accept and process in order to simplify implementation?

The simplest implementation is the one that is identical to all others. If the standard adopted stipulates that HCPCS codes will be used to describe procedures, then the health plan must abide by the instructions for the use of HCPCS codes. A health plan could refuse a code that was not applied in accordance with the HIPAA national standard coding instructions, but could not refuse a code properly applied for reasons of policy unrelated to the standard.

For example, if the standard stipulates that the most specific code available must be used, then a health plan would be right to refuse a code that does not meet that criterion. The health plan would need to work with the committee(s) governing the particular coding scheme to have codes adopted that meet its needs.

May health plans stipulate the number of loop iterations or the file sizes they are willing to accept?

Any loop iterations, file sizes, etc. stipulated in the standards must be honored by all players. If any health care electronic data interchange participant cannot live with the numbers stipulated in the HIPAA implementation guides, then the participant needs to work with the implementation guide author(s) to get numbers that all players can live with

For example, there are up to 99 service lines in a professional claim. The provider need not write 99 service lines, but the health plan must have the capability to accept that number when presented. If that is not the right number for all players, it should be changed. But the number identified in the implementation guide must be adhered to.