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Thursday, May 2nd 2002

The Honorable Tommy G. Thompson
Department of Health and Human Services
200 Independence Avenue, SW
Hubert H. Humphrey Building
Washington, DC 20201

Dear Secretary Thompson:

On behalf of the American Hospital Association's (AHA) nearly 5,000 member hospitals, health systems, networks, and other providers of care, I am writing to urge the Department of Health and Human Services (HHS) to consider adopting rulemaking or guidance under authority granted to it by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) to facilitate the prompt and accurate payment of claims. Hospitals' support for administrative simplification under HIPAA was founded on the premise that greater standardization and uniformity of administrative processes will lead to efficiencies and improvements in the timeliness of claims payment, and thus to the fulfillment of Congress' objective in enacting HIPAA of reducing the administrative costs of health care.

One of the major administrative costs facing hospitals, and one of their greatest sources of frustration, is frequent delays in the payment of claims. Although Medicare regulations and many state laws have been implemented to try to ensure the prompt payment of claims, these prompt pay rules are often violated or otherwise ignored, particularly by private payers. Hospitals' confidence and continued support for administrative simplification is being eroded further by statements indicating that providers should not expect to see faster or smoother claims payment as a result of HIPAA standardization. HHS clarification, through guidance or regulation, that HIPAA standardization has a direct connection to the prompt payment of claims will go a long way toward restoring provider confidence in the promise of administrative simplification.

The HIPAA final regulation on electronic formats and code sets establishes national standards for electronic submission of claims. The regulation clearly states that health plans are not permitted to require additional data elements nor standard data elements in a format different from that specified in the standards. Health plans also may not refuse to accept standard transactions. It seems clear then that a HIPAA-compliant claim is a properly completed claim that should be considered, according to HHS policy and state law, as a "clean claim."

In guidance or regulation, HHS should clarify that health plans must accept a HIPAA-compliant claim as a "clean claim" for purposes of contractual provisions with other covered entities under HIPAA, and for state and federal prompt pay requirements. The attached guidance document more clearly explains the role of the trading partner agreement in ensuring that hospitals' adoption of the HIPAA standard formats and code sets ensures acceptance and prompt payment of these standardized claims by all payers. This type of guidance is necessary to address some of the ambiguities in the HIPAA regulation on electronic formats and codes sets. Currently, health plans can be somewhat arbitrary with respect to the processing of a claim, leaving providers facing payment delays and engaged in wasteful re-submissions and reconciliation.

We look forward to discussing the proposed guidance document further with you as the implementation of the HIPAA administrative simplification rules progresses. If you have any questions or need additional information, please feel free to contact Melinda Reid Hatton, vice president and chief Washington counsel at (202) 638-1100, George Arges, senior director, health data management group at (312) 422-3398 or Lawrence Hughes, director, member relations at (312) 422-3328.


Rick Pollack
Executive Vice President


Prompt Processing and Payment of HIPAA Standard Electronic Claims
The Need for Additional Guidance to Improve HIPAA's Standard Formats
and Code Sets Rule


In establishing the requirement for standard formats and code sets for electronic transactions, Congress stated that it intended the standards to achieve "the goals of improving the operation of the health care system and reducing administrative costs." However, there are ambiguities in the transactions and code sets regulations that, without clarification from HHS, threaten to make it impossible for these standards to achieve their fundamental purpose. More precisely, the statute says the standards are fixed and in effect for a full year; but, without further guidance, every health plan selectively may modify what is regarded as a clean, standard transaction at any time and the plan can do so as many times in a plan year as it chooses. Following is a brief explanation of the ambiguities in the regulation that create this problem and a proposal for guidance that would resolve the ambiguities and ensure that Congress' intent is implemented and its goals achieved.

Ambiguities in Transactions and Code Sets Rule and Obstacles to Prompt Claims Processing and Payment

Despite the significant investment of financial and staff resources that will be needed to implement the requirements of the transactions and code sets regulation, hospitals generally support standardization. It is their hope that once formats are standardized, it will be possible to accurately submit claims that payers can process promptly. Hospitals currently incur significant financial losses from the delay in processing claims or the rejection of claims as "incomplete" on initial submission. Congress established the "administrative simplification" requirements of HIPAA in recognition of the fact that standard formats and code sets offer the possibility of eliminating the waste of resources from the denial, resubmission, and delay in processing claims by making it possible for a provider to efficiently submit "clean" claims to multiple health plans.

HHS attempted to achieve Congress' goals by promulgating the new standards and establishing the following new regulation: "A health plan may not reject a standard transaction on the basis that it contains data elements not needed or used by the health plan (for example, coordination of benefits information)." 45 C.F.R. §162.925(a)(3). This rule will help eliminate frivolous denials that result from the intolerance of information processing programs.

For each of eight national transactions specified by Congress in the HIPAA statute, the transactions and code sets regulations define a "standard" transaction as:

  • Using the right electronic format;
  • Using the right medical code sets, including all of the "required" elements for the particular transaction; and
  • Including no elements that are not specified in the Implementation Guide as permissible "situational" elements for the particular transaction.

In order for a provider to submit a transaction in standard form, however, the health plan to which it is sending the transaction must specify which of the optional "situational" elements for the transaction is necessary to process the transaction. (The total possible pool of situational elements for each transaction is specified in the Implementation Guide.)

There is ambiguity in the regulation because it does not require health plans to inform providers which of the optional situational elements will be necessary for a clean, standard transaction. Instead, the regulation merely tells plans that they cannot agree to circumvent the standards or use elements that exceed the maximum data set in a trading partner agreement. The regulation specifically prohibits covered entities from participating in certain kinds of arrangements that would circumvent Congress' intent that there be clear, standard formats for common administrative transactions, 45 C.F.R. §162.915. The rule explicitly states:

"A covered entity must not enter into a trading partner agreement that would do any of the following:

  1. Change the definition, data condition, or use of a data element or segment in a standard.
  2. Add any data elements or segments to the maximum defined data set.
  3. Use any code or data elements that are either marked 'not used' in the standard's implementation specification or are not in the standard's implementation specification(s).
  4. Change the meaning or intent of the standard's implementation specification(s)." 

The regulation is unclear as to whether a health plan can arbitrarily change its specifications regarding which situational elements are necessary for processing a claim of a particular type, thus further delaying payment.

Under the privacy regulation, the provider is required to send only the minimum information necessary for the purpose, but the provider cannot anticipate what is required if the health plan has not specified which situational elements it deems necessary, 45 C.F.R. §164.514(d). In effect, without specification from the health plan, providers - after significant investments to reprogram information systems to use the new standards - are in the same position as before. If health plans are free to be somewhat arbitrary with respect to the elements necessary for processing a given transaction, or to reject claims of certain types if they do not routinely include an attachment, providers still will be faced with payment delays, frivolous rejections of claims, and the need for wasteful re-submissions and reconciliation. This is not consistent with Congress' intent. Moreover, it seems clear from the rule that HHS did not intend this result.

Proposed Guidance

It is clear that the regulation anticipates that each health plan will promptly inform providers of any special situational elements the plan may require for prompt processing of a standard transaction, and that these selections should be relatively predictable. Otherwise, it would make no sense to pretend that the regulation has established a "standard" form for the transaction. Accordingly, HHS should promulgate guidance that more clearly explains the role of the trading partner agreement in ensuring that the industry's expenditures to adopt the formats and code sets actually achieves Congress' objectives. Following is a suggestion of the type of guidance necessary to address the current ambiguity.

"Trading Partner Agreement" 45 C.F.R. § 160.103.

A trading partner agreement is the primary vehicle by which a health plan specifies which of the situational elements permissible for a standard transaction will be needed for prompt processing of the transaction under the health benefits plan. At the option of the health plan, a trading partner agreement may be uniform for all health benefits programs administered by the health plan.

  1. A health plan may modify a trading partner agreement to change specifications for a standard transaction only to accommodate (i) a duly promulgated change in the standard, or (ii) a lawful modification of a health benefits plan available to enrollees and/or beneficiaries.
  2. With respect to a health plan that fails to promulgate a trading partner agreement applicable to a health benefits package, a transaction is deemed to meet the requirements of this part if it includes the maximum defined data set for a standard transaction.

A health claim that meets the requirements of this part and any trading partner agreement applicable to the beneficiary's health benefits plan shall be considered a "clean claim" for purposes of state and federal laws and regulations applicable to the processing of such transactions.


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