Electronic Transactions
Health Insurance Portability and Accountability Act


Issued by Office of the Secretary, Health and Human Services (HHS)

On August 17, 2000, HHS issued its final rule regarding electronic data interchange by health plans, health care clearinghouses and certain health care providers including physicians. Electronic data interchange (EDI) is the electronic transfer of information, such as electronic media health claims, in a standard format between "trading partners". 

According to HHS there are currently about 400 formats for electronic health claims being used in the United States. The lack of standardization minimizes the ability of health care providers and health plans to achieve efficiency and savings. Without government action, a common standard might eventually emerge as the result of technological or market dominance. However, Congress concluded that the health care industry would benefit if government action were taken to establish industry standards. As a result subtitle F was included in the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Through Subtitle F of Title II of HIPAA, Congress required HHS to adopt standards for financial and administrative transactions, and data elements for those transactions, to enable health information to be exchanged electronically.

The final rule adopts standards for eight electronic transactions and for code sets to be used in those transactions. The term "code set" is defined to encompass any set of codes to encode data elements.

The rule adopts the following code sets as standards:

  1. The International Classification of Diseases, ICD-9-CM volumes 1 and 2 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.
  2. ICD-9-CM Volume 3 Procedures 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.
  3. The National Drug Codes (NDC) maintained and distributed by HHS, in collaboration with drug manufacturers, is the required code set for drugs and biologicals.
  4. The Code on Dental Procedures and Nomenclature (the "Dental Code") is the required code set for dental procedures.
  5. The combination of the Health Care Financing Administration Common Procedure Coding System (HCPCS) and Current Procedural Terminology (CPT-4) is the required code set for physician services and other health care services.
  6. HCPCS is the required code set for other substances, equipment, supplies, and other items used in health care services.

The CPT and Dental Code may only be used by payment of a royalty. 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.

Transaction Standards

  1. The transaction standard for health care claims or equivalent encounter data, professional, is the ASC X12N 837 format.

    According to HHS, health care providers will, in the long run, enjoy the advantages associated with not having to keep track of and use different electronic formats for different insurers. This will simplify health care provider billing systems and processes as well as reduce administrative expenses.

  2. The transaction standard for health care payment and remittance advice is the ASC X12N 835 format.
    A health care payment and remittance advice, as embodied in the ASC X12N 835 format, primarily exists to notify the health care provider of the amount being paid for a set of bills, and if the payment does not equal the amount billed, to briefly explain every adjustment applied to those bills by the health plan.

  3. The transaction standard for Coordination of Benefits is the ASC X12N 837 format
    HHS asserts that coordination of benefits will be greatly simplified because all health plans will use the same standard format.

  4. The transaction standard for Health Care Claim Status is the ASC X12N 276/277 format.
    According to HHS, implementation of this standard will enable health care providers to request and receive the status of claims in one standard format from all health plans.

  5. The transaction standard for enrollment and disenrollment in a health plan is the ASC X12N 834 format.
    According to HHS the ASC X12N 834 will enable an employer or sponsor of a health plan to enroll or disenroll its subscribers into or out of a health plan. Currently, most small and medium size employers and other sponsors conduct enrollments/disenrollments using paper forms.

  6. The transaction standard for eligibility for a health plan is the ASC X12N 270/271 format.
    According to HHS, health care providers participate in many health plans and must maintain duplicate software and hardware, as well as human resources to obtain eligibility information. HHS claims that the ASC X12N 270/271 transaction may be used by a health care provider to electronically request and receive eligibility information from a health care plan prior to providing or billing for a health care services.

  7. The transaction standard for health care plan premium payments is the ASC X12N 820.
    HHS claims that the ASC X12N 820 will benefit employers. Currently, most payment transactions are conducted on paper. Those that are conducted electronically use proprietary electronic data interchange standards that differ with each health plan.

  8. The transaction standard for referral certification and authorization is the ASC X12N 278 format.

Prior approvals have become the standard operating procedure for most hospitals, physicians and other health care providers due to the rapid growth of managed care. Currently, most prior approvals are secured through telephone calls, paper forms or proprietary electronic formats that vary with each health plan.

Effective Date

The effective date of the rule is October 16, 2000. The impact of the Rule is expected to be in excess of $100 million per year. This means that Congress will have 60 days after the date of publication in the Federal Register to revise the Rule before it becomes effective. If at the conclusion of the Congressional review process the effective date is changed, the actual effective date will be published in the Federal Register.

Each health plan must implement the standards no later than 24 months after adoption. A "small health plan" must implement the standards no later than 36 months after adoption. A "small health plan" has annual receipts of no more than $5 million (including affiliates).

Physicians and other health care providers are subject to the Rule if they wish to do business electronically. If a health care provider is unwilling to upgrade his/her EDI system, the health care provider has the option of using paper claim submissions or a health care clearinghouse. A health care clearinghouse can receive a non-standard format from a health care provider and convert it to a standard format.

Costs and Savings

HHS estimates that the estimated gross costs of the Rule will range from $5.8 billion to $7 billion over ten years, and estimates gross savings of $36.9 billion and net savings of 29.7 billion over ten years.

HHS estimates that the total cost of implementation for health care providers over the ten-year period 2002-2011 will be $3.5 billion. The estimates are stated in year 2000 dollars. The discounted present value of the costs is estimated at $3.3 billion. Most of the costs will be incurred in years 2002-2004 when health care providers will convert existing software to utilize the standards. HHS estimates that the average cost to solo physician and group practices of less than three physicians will be $1,500. The average cost to physician groups with three or more physicians is estimated to be $4,000. The estimates are based on the cost of software upgrades for personal computers.

HHS estimates that the net savings to all health care providers over the ten-year period 2002-2011 will be $20.2 billion. The discounted present value of the savings will be $19.1 billion. Of this amount $10.7 billion ($7.7 billion discounted present value) is attributed to savings from claims processing.

HHS published proposed privacy standards for electronic health care data on November 3, 1999. (Federal Register Vol. 64, No. 212, pages 59917-60066). It is expected that the final privacy standards will not be published until later this year or next year.