[Federal Register Volume 74, Number 11 (Friday, January 16, 2009)]
[Rules and Regulations]
[Pages 3296-3328]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-740]



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Part VI





Department of Health and Human Services





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45 CFR Part 162



Health Insurance Reform; Modifications to the Health Insurance 
Portability and Accountability Act (HIPAA); Final Rules

  Federal Register / Vol. 74, No. 11 / Friday, January 16, 2009 / Rules 
and Regulations  

[[Page 3296]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

[CMS-0009-F]
RIN 0938-AM50


Health Insurance Reform; Modifications to the Health Insurance 
Portability and Accountability Act (HIPAA) Electronic Transaction 
Standards

AGENCY: Office of the Secretary, HHS.

ACTION: Final rule.

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SUMMARY: This final rule adopts updated versions of the standards for 
electronic transactions originally adopted under the Administrative 
Simplification subtitle of the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA). This final rule also adopts a 
transaction standard for Medicaid pharmacy subrogation. In addition, 
this final rule adopts two standards for billing retail pharmacy 
supplies and professional services, and clarifies who the ``senders'' 
and ``receivers'' are in the descriptions of certain transactions.

DATES: Effective Dates: These regulations are effective March 17, 2009 
except for the provisions of 45 CFR part 162 Subpart S, which are 
effective January 1, 2010. The incorporation by reference of certain 
publications listed in the regulations is approved by the Director of 
the Federal Register as of March 17, 2009.
    Compliance Dates: Compliance with the provisions of Sec. Sec.  
162.1102(c), 162.1202(c), 162.1302(c), 162.1402(c), 162.1502(c), 
162.1602(c), 162.1702(c), and 162.1802(c) is required on January 1, 
2012. Compliance with the provisions of Sec.  162.1902 is required on 
January 1, 2013.

FOR FURTHER INFORMATION CONTACT: Lorraine Tunis Doo, (410) 786-6597.

I. Background

    HIPAA mandated the adoption of standards for electronically 
conducting certain health care administrative transactions between 
certain entities. Through subtitle F of title II of HIPAA, the Congress 
added to title XI of the Social Security Act (the Act) a new Part C, 
entitled ``Administrative Simplification.'' Part C of title XI of the 
Act now consists of sections 1171 through 1180. These sections define 
various terms and impose several requirements on HHS, health plans, 
health care clearinghouses, and certain health care providers 
concerning the electronic transmission of health information. On August 
17, 2000, we published a final rule entitled, ``Health Insurance 
Reform: Standards for Electronic Transactions'' in the Federal Register 
(65 FR 50312) (hereinafter referred to as the Transactions and Code 
Sets rule). That rule implemented some of the HIPAA Administrative 
Simplification requirements by adopting standards for eight electronic 
transactions and for code sets to be used in those transactions. Those 
transactions were: Health care claims or equivalent encounter 
information; health care payment and remittance advice; coordination of 
benefits; eligibility for a health plan; health care claim status; 
enrollment and disenrollment in a health plan; referral certification 
and authorization; and health plan premium payments. We defined these 
transactions and specified the adopted standards at 45 CFR part 162, 
subparts I and K through R.
    Since the time of compliance with the first set of HIPAA standards, 
a number of technical issues with the standards, including issues 
resulting from new business needs, have been identified. Industry 
stakeholders submitted hundreds of change requests to the standards 
maintenance organizations, with recommendations for improvements to the 
standards. These requests were considered, and many were accepted, 
resulting in the development and approval of newer versions of the 
standards for electronic transactions. However, covered entities are 
not permitted to use those newer versions until the Secretary of Health 
and Human Services (HHS) adopts them by regulation for HIPAA 
transactions.
    In addition to technical issues and business developments 
necessitating consideration of the new versions of the standards, there 
remain a number of unresolved policy issues that were identified by the 
industry early in the implementation period for the first set of 
standards, and those issues were never addressed through regulation. 
This final rule addresses those outstanding issues.
    We refer readers to review the following regulations for a more 
detailed discussion of the changes to the standards for electronic 
transactions; the Transactions and Code Sets rule; the Modifications to 
Electronic Data Transaction Standards and Code Sets rule (68 FR 8381), 
published in the Federal Register on February 20, 2003 (hereinafter the 
Modifications rule); Standards for Privacy of Individually Identifiable 
Health Information (65 FR 82462), published in the Federal Register on 
December 28, 2000; Standards for Privacy of Individually Identifiable 
Health Information; Final Rule (67 FR 53182) published in the Federal 
Register on August 14, 2002; and the Modifications to the Health 
Insurance Portability and Accountability Act (HIPAA) Electronic 
Transaction Standards proposed rule (73 FR 49796), published in the 
Federal Register on August 22, 2008 (hereinafter the August 22, 2008 
proposed rule) for further information about electronic data 
interchange, the statutory background and the regulatory history.
    In the August 22, 2008 proposed rule, we included a table that 
shows the full set of HIPAA transaction standards adopted in the 
Transactions and Code Sets rule, as we proposed to modify them in the 
August 22, 2008 proposed rule (73 FR 49744), and adopt in this final 
rule. The list is reproduced here in Table 1:

                Table 1--HIPAA Standard and Transactions
------------------------------------------------------------------------
                    Standard                           Transaction
------------------------------------------------------------------------
ASC X12 837 D..................................  Health care claims--
                                                  Dental.
ASC X12 837 P..................................  Health care claims--
                                                  Professional.
ASC X12 837 I..................................  Health care claims--
                                                  Institutional.
NCPDP D.0......................................  Health care claims--
                                                  Retail pharmacy drug.
ASC X12 837 P and NCPDP D.0....................  Health care claims--
                                                  Retail pharmacy
                                                  supplies and
                                                  professional services.
NCPDP D.0......................................  Coordination of
                                                  Benefits--Retail
                                                  pharmacy drug.
ASC X12 837 D..................................  Coordination of
                                                  Benefits--Dental.
ASC X12 837 P..................................  Coordination of
                                                  Benefits--Professional
                                                  .
ASC X12 837 I..................................  Coordination of
                                                  Benefits--Institutiona
                                                  l.
ASC X12 270/271................................  Eligibility for a
                                                  health plan (request
                                                  and response)--dental,
                                                  professional and
                                                  institutional.

[[Page 3297]]

 
NCPDP D.0......................................  Eligibility for a
                                                  health plan (request
                                                  and response)--Retail
                                                  pharmacy drugs.
ASC X12 276/277................................  Health care claim
                                                  status (request and
                                                  response).
ASC X12 834....................................  Enrollment and
                                                  disenrollment in a
                                                  health plan.
ASC X12 835....................................  Health care payment and
                                                  remittance advice.
ASC X12 820....................................  Health plan premium
                                                  payment.
ASC X12 278....................................  Referral certification
                                                  and authorization
                                                  (request and
                                                  response).
NCPDP D.0......................................  Referral certification
                                                  and authorization
                                                  (request and
                                                  response)--Retail
                                                  pharmacy drugs.
NCPDP 5.1 and NCPDP D.0........................  Retail pharmacy drug
                                                  claims
                                                  (telecommunication and
                                                  batch standards).
NCPDP 3.0......................................  Medicaid pharmacy
                                                  subrogation (batch
                                                  standard).
------------------------------------------------------------------------

II. Provisions of the Proposed Regulations and Responses to Comments

    On August 22, 2008 we proposed to adopt updated standards for the 
eight adopted electronic transactions standards. We proposed to revise 
Sec.  162.1102, Sec.  162.1202, Sec.  162.1302, Sec.  162.1402, Sec.  
162.1502, Sec.  162.1602, Sec.  162.1702, and Sec.  162.1802 to adopt 
the ASC X12 Technical Reports Type 3 (TR3), Version 005010 (hereinafter 
referred to as Version 5010) as a modification of the current X12 
Version 4010 standards (hereinafter referred to as Version 4010/4010A) 
for the HIPAA transactions. In some cases, the Technical Reports Type 3 
have been modified by Type 1 Errata, and these Errata were also 
included in our proposal. The full discussion of our proposal to revise 
each of the above-referenced provisions can be found in the August 22, 
2008 proposed rule (73 FR 49745-49750).
    We proposed to revise Sec.  162.1102, Sec.  162.1202, Sec.  
162.1302, and Sec.  162.1802 by adding new paragraphs (c)(1) to each of 
those sections to adopt the NCPDP Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0) and equivalent 
NCPDP Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2) (hereinafter collectively referred to as Version D.0) in 
place of the NCPDP Telecommunication Standard Implementation Guide, 
Version 5, Release 1 and equivalent NCPDP Batch Standard Implementation 
Guide, Version 1, Release 1 (hereinafter collectively referred to as 
Version 5.1), for the following retail pharmacy drug transactions: 
Health care claims or equivalent encounter information; eligibility for 
a health plan; referral certification and authorization; and 
coordination of benefits. The full discussion of our proposal to revise 
each of the above-referenced provisions can be found in the August 22, 
2008 proposed rule (73 FR 49751).
    We proposed to add a new subpart S to 45 CFR part 162 to adopt a 
standard for the subrogation of pharmacy claims paid by Medicaid. The 
transaction is the Medicaid pharmacy subrogation transaction, defined 
at proposed Sec.  162.1901, and the new standard is the NCPDP Batch 
Standard Medicaid Subrogation Implementation Guide, Version 3, Release 
0 (Version 3.0), July 2007 (hereinafter referred to as Version 3.0) at 
proposed Sec.  162.1902. The standard would be applicable to Medicaid 
agencies in their role as health plans, as well as to other health 
plans that are covered entities under HIPAA, but not to providers 
because this transaction is not utilized by them. For a complete 
discussion of the Medicaid pharmacy subrogation transaction and the 
proposed adoption of Version 3.0, see the August 22, 2008 proposed rule 
(73 FR 49751-49752).
    We proposed to revise Sec.  162.1102 to adopt both Version D.0 and 
the 837 Health Care Claim: Professional ASC X12 Technical Report Type 3 
for billing retail pharmacy supplies and professional services. We 
proposed that the use of either standard would be determined by trading 
partner agreements. The full discussion of the proposed change can be 
found in the August 22, 2008 proposed rule (73 FR 49752-49754).
    We proposed to revise the descriptions of the transactions at Sec.  
162.1301, Sec.  162.1401, and Sec.  162.1501 to more clearly specify 
the senders and receivers of those transactions. See the August 22, 
2008 proposed rule for a full discussion of this proposal (73 FR 
49754). For Versions 5010 and D.0, we proposed a compliance date of 
April 1, 2010 for all covered entities. For Version 3.0, we proposed a 
compliance date 24 months after the effective date of the final rule, 
except for small health plans, which would have to be in compliance 36 
months after the effective date of the final rule. Finally, we proposed 
to revise Sec.  162.923 to resolve the problem of different compliance 
dates for different entities, such that the requirement for covered 
entities to use the standards applies only when the covered entity 
conducts transactions with another entity that is also required to 
comply with the transaction standards.
    In response to the August 22, 2008 proposed rule, we received 192 
timely public comments from all segments of the health care industry, 
including providers, physician practices, hospitals, pharmacies, other 
health care professionals, health plans, clearinghouses, vendors, 
standards development organizations, professional associations, 
consultants, and State and Federal government agencies. We reviewed 
each submission, and grouped similar or related comments together to 
address in this final rule, which also enabled us to identify the areas 
of the proposed rule that required review in terms of policy, 
consistency or clarity.
    In the following sections, we present comments and responses 
generally in the order in which the topics were presented in the August 
22, 2008 proposed rule. There were a number of comments on topics that 
were not addressed in the proposed rule, and our responses to those 
comments are provided at the end of this section. Some comments we 
considered out of scope of the August 22, 2008 proposed rule, and we 
list several of them at the end of this section as well.

A. Adoption of X12 Version 5010 Technical Reports Type 3 for HIPAA 
Transactions

    In the August 22, 2008 proposed rule, we proposed to revise Sec.  
162.1102, Sec.  162.1202, Sec.  162.1302, Sec.  162.1402, Sec.  
162.1502, Sec.  162.1602, Sec.  162.1702, and Sec.  162.1802 to adopt 
Version 5010. In some cases, the version was modified by Type 1 Errata, 
and these Errata were also proposed for adoption. In general, 
deficiencies inherent in the current standards continue to cause 
industry-wide difficulties to such a degree that much of the industry 
rely on ``companion guides'' and proprietary ``work-arounds.'' The four 
types of changes in Version 5010 are structural, front matter, 
technical improvements

[[Page 3298]]

and data content changes. The complete discussion of this proposal can 
be found in the August 22, 2008 proposed rule (73 FR 49745-49749).
    Comment: Commenters overwhelmingly supported our proposal to adopt 
Version 5010 because of the technical and business improvements made to 
the standards. With respect to the specific changes made to Version 
5010, commenters expressed their appreciation for the tightened, clear 
situational rules which will reduce analysis time for everyone, and 
minimize the need for companion guides. Commenters said that the 
improved eligibility responses and better search options will improve 
efficiency for providers and reduce phone calls for both providers and 
health plans. Commenters also said that the detailed clarifications of 
commonly misunderstood areas such as corrections and reversals, refund 
processing, and recoupments should result in a consistent 
implementation of the X12 835 (remittance advice), which is not the 
case today. They noted that incorrect implementations of the X12 835 
have prevented providers from implementing electronic posting, or 
automating the data entry of reimbursement information, as widely as 
they might otherwise. Correct implementation of the X12 835 will reduce 
phone calls to health plans, reduce appeals due to incomplete 
information, eliminate unnecessary customer support, and reduce the 
cost of sending and processing paper remittance advices. Commenters 
also noted that the greatly improved X12 278 for referrals and 
authorizations could encourage wider implementation and save labor 
costs. Commenters noted that the new claims transaction standard 
contained in Version 5010 significantly improves the reporting of 
clinical data, enabling the reporting of ICD-10-CM diagnosis codes and 
ICD-10-PCS procedure codes, and distinguishes between principal 
diagnosis, admitting diagnosis, external cause of injury and patient 
reason for visit codes. Commenters noted that these distinctions will 
improve the understanding of clinical data and enable better monitoring 
of mortality rates for certain illnesses, outcomes for specific 
treatment options, and hospital length of stay for certain conditions, 
as well as the clinical reasons for why the patient sought hospital 
care. Commenters also noted that another improvement in the updated 
claims standard is the ability to handle identification of the 
``Present on Admission'' (POA) indicator to the diagnoses.
    Response: We appreciate the overwhelming support of commenters for 
the adoption of Version 5010.
    Comment: We received a few comments urging X12 to publish an all-
inclusive list of changes made to the standards. Commenters said that a 
change log is issued after each year's changes are approved. Since 
Version 5010 incorporates multiple years of changes, users would be 
required to consolidate multiple change logs. A cumulative change log 
that includes changes from each interim year should be provided so that 
all of the changes are contained in one document.
    Response: We agree that it would be helpful to have a comprehensive 
list of the changes made to a current version of the standards, and 
that it would make it easier for covered entities to identify all of 
the changes that have occurred since the last version of the standard 
was adopted. We have made this recommendation to the X12 work group as 
well as the Designated Standards Maintenance Organizations (DSMO).
    Many commenters submitted technical comments relating to Version 
5010. The comments included highly technical issues and suggested 
structural changes to the standards, definitional issues requiring 
clarification, and interpretational issues regarding routine usage of 
the standards. In total, there were over 470 technical comments. We 
provided all of the technical comments to X12, which had convened a 
committee of subject matter experts to review the technical comments 
and provide us with technical input. The workgroup reviewed each 
comment and categorized them into several groups as follows: (1) The 
committee agrees with the comment and the change will be made in the 
next version of the TR3s (212 comments); (2) the committee does not 
agree with the comment and believes that a change is not appropriate 
(156 comments); (3) the functionality already exists elsewhere in the 
TR3s; commenter requires explanation and references (5 comments); and 
(4) the comment is a request for interpretation and/or training, and 
not a request for a change in the TR3s (43 comments). There were 29 
comments that were not requests for action, but rather statements of 
opinion about Version 5010. Of the 212 comments falling into the first 
category, most were clarifications that would improve usability of the 
TR3s, but would not adversely affect business processes. Therefore, we 
will not request that X12 accommodate these changes in Version 5010, 
but rather would address them in the course of developing later 
versions of the standards.
    After publication of the final rule, all of the technical comments 
reviewed by the X12 workgroup, with the dispositions, will be posted on 
the CMS Web site at http://www.cms.hhs.gov, in the Regulations and 
Guidance section, as well as on the X12 portal at http://www.x12.org. 
Where education and/or additional communication are needed about the 
functionality of the transactions, X12 will provide that in future 
programs, in collaboration with appropriate industry groups. These 
Standards Development Organizations (SDO)-sponsored efforts will 
specifically address the third category of comments in which the 
committee stated that the functionality exists elsewhere in the TR3s, 
or the fourth category of comments where the commenter specifically 
requested additional interpretation guidance.
    During the comment review process, X12 provided input to HHS, and 
we selected several comments to include in this final rule as examples 
of the types of technical issues that were submitted during the public 
comment period. In general, suggested corrections, clarifications, and 
definitional changes to Version 5010 transaction standards will be 
reserved for future versions of the standards. Any suggested changes to 
the structure of the standard will need to be evaluated through the 
standards development process and considered for future versions of the 
standard. All comments submitted during the comment period for the 
August 22, 2008 proposed rule will automatically be included in the X12 
process for considering change requests. Submitters will not need to 
re-submit those comments.
    Comment: We received a few comments requesting clarification of a 
statement in the August 22, 2008 proposed rule regarding the field size 
issue in Version 4010/4010A to accommodate ICD-10. In the August 22, 
2008 proposed rule, we said that Version 4010/4010A does not provide a 
means for identifying ICD-10 procedure or diagnosis codes on an 
institutional claim, and that Version 5010 anticipates the eventual use 
of ICD-10 procedure and diagnosis codes by adding a qualifier as well 
as the space needed to report the number of characters that would 
permit reporting of ICD-10 procedure and diagnosis codes on 
institutional health care claims. Commenters pointed out that the more 
accurate explanation for why Version 4010/4010A cannot accommodate ICD-
10 is because of the lack of a qualifier

[[Page 3299]]

or indicator for the code set name rather than the size of the field 
for the codes.
    Response: We note the correction.
    Comment: One commenter recommended a correction to Version 5010, 
specific to the claims transactions, to enable it to support the 
creation of a proposed National Joint Replacement Registry.
    Response: Because of the technical nature of this comment, we 
consulted with the X12 work group to better understand the context of 
the comment and the stated concern. Based on our current understanding 
of the comment, we agreed with the X12 workgroup on this recommendation 
for the next version of its TR3s, once the registry is finalized. This 
means that Version 5010 will not have changes made to it for this 
purpose at this time, but that the next version of the standards will 
likely have addressed and resolved this issue.
    Comment: We received several comments regarding the external code 
sets used in the standards, such as claims adjustment reason codes. 
Several commenters wrote about the X12 835 remittance advice code 
mapping requirements, stating that providers continue to struggle with 
implementation of the X12 835 as many health plans struggle to provide 
quality mapping from proprietary to standard codes in the health care 
payment and remittance advice transaction. Commenters requested that 
guidelines for mapping be provided.
    Response: During our consideration of these comments, which we 
believe apply to the technical standards maintenance process, and which 
we feel are outside of the scope of this rule, we consulted with the 
WEDI 835 special work group (SWG) to confirm that the stated concerns 
were being addressed in its standards revision process. The WEDI 835 
SWG indicated that it is developing a recommended set of mapping 
instructions and information for the industry. In addition, the WEDI 
835 SWG has adopted recommendations that will assist in facilitating a 
more standard implementation of the X12 835.
    Comment: We received a comment from a large specialty association 
representing anesthesiology. This group responded to a discussion in 
the August 22, 2008 proposed rule in which we indicate that 
efficiencies are gained by allowing only the reporting of minutes for 
anesthesia time in Version 5010, whereas Version 4010/4010A allows for 
reporting of anesthesia time in either units or minutes. The commenter 
stated that this change to Version 5010 will not add efficiency and/or 
cost savings to the submission and processing of claims for anesthesia 
care, and requested that units continue to be permitted, or 
alternatively, that additional time be allowed to implement this change 
because of its impact on business processes and contracts.
    Response: Due to the nature of this comment, which addresses 
potential efficiencies resulting from a technical provision in the 
Version 5010 implementation guide, we consulted with the X12 workgroup. 
Based on our discussion with the X12 workgroup, we think that the 
appropriate course for the commenter to follow would be to submit a 
change request to the workgroup because the X12 development cycle is 
ongoing, and change requests will continue to be accepted and reviewed 
for consideration for the next version of the standards. Given the 
change in this final rule in the compliance date for Version 5010, we 
believe the commenter's request for more time to implement the data 
requirement is addressed.
    Comment: Several commenters suggested changes to the situational 
rule for the health care diagnosis codes segment on the X12 837D for 
dental claims. The situational rule requires inclusion of diagnosis 
codes only under circumstances involving oral surgery or anesthesia. 
Commenters suggested that today's dental health plans are offering 
benefit plans that provide additional coverage for dental services when 
certain medical conditions exist. The commenter suggested that the 
situational rule be expanded to allow for dental providers to include 
diagnosis codes in cases where specific dental procedures may minimize 
the risks associated with the connection between the patient's oral and 
systemic health conditions.
    Response: We do not feel that these comments are within the scope 
of the proposed rule, but instead pertain to certain technical aspects 
of the X12 Technical Reports. As such, we shared the comments with the 
X12 expert committee, which agreed with this recommendation and 
committed to incorporating this change into future versions of X12 
Technical Reports Type 3. As stated earlier, X12 will provide guidance 
on how to accommodate the functionality in Version 5010.
    Comment: A few comments focused on the ability of dental providers 
to report tooth numbers on the X12 837P claim. According to commenters, 
there is a need for all dental providers to be able to report tooth 
numbers on medical claims. There were two specific issues raised in 
this regard. First, even though a field for the tooth number has been 
designated temporarily, to accommodate claims from oral surgeons and 
other practitioners, a permanent data element is needed. The second 
issue pertains to the use of either a national or international tooth 
numbering system. These commenters stated that both numbering systems 
should be accommodated in the X12 837 Dental and Professional Guides. 
Currently, only the Universal National Tooth Designation System is 
accommodated in Version 5010.
    Response: Once again, we believe these comments pertain more 
directly to the technical provisions of the relevant implementation 
guides. We therefore consulted with the X12 expert committee, which 
agreed with the first issue regarding the ability of dental providers 
to report tooth number beyond oral surgery, and committed to allowing 
this level of reporting in future versions of the X12 standards. 
Regarding the issue of which tooth numbering system should be 
accommodated in Version 5010, the X12 committee encourages the 
commenters to initiate the discussion through the DSMO process with 
additional business justification for future consideration. The X12 
portal has several HIPAA Implementation Guide Requests (HIRs) available 
which explain how to use the claims transaction for dental services in 
the interim (http://www.X12.org).
    Overall, the technical comments received on Version 5010 did not 
represent issues that would prevent this version of the standard from 
being adopted as currently proposed. However, enhancements will either 
be implemented in future versions or further vetted for inclusion in 
future versions.

B. Adoption of NCPDP Telecommunication Standard Implementation Guide 
Version D Release 0 (D.0) and Equivalent Batch Standard Implementation 
Guide, Version 1, Release 2 (1.2) for Retail Pharmacy Transactions

    We proposed to revise Sec.  162.1102, Sec.  162.1202, Sec.  
162.1302, and Sec.  162.1802 by adding new paragraphs (c)(1) to each of 
those sections to adopt the NCPDP Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0) and equivalent 
NCPDP Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2) in place of the NCPDP Telecommunication Standard 
Implementation Guide, Version 5, Release 1 (Version 5.1) and equivalent 
NCPDP Batch Standard Implementation Guide, Version 1, Release 1 
(Version 1.1), for the following retail pharmacy drug transactions: 
health care claims or

[[Page 3300]]

equivalent encounter information; eligibility for a health plan; 
referral certification and authorization; and coordination of benefits.
    Since the time that Version 5.1 was adopted as a transaction 
standard in the Transactions and Code Sets rule, the industry has 
submitted requests for modifications to Version 5.1 to NCPDP. Some of 
these modification requests were necessary for reasons similar to those 
for the X12 standards--changing business needs--many of which were 
necessitated by the requirements of the Medicare Prescription Drug, 
Improvement and Modernization Act of 2003 (MMA). The complete 
discussion of our proposal and reasons for the proposal can be found in 
the August 22, 2008 proposed rule (73 FR 49751).
    Comment: Commenters unanimously supported the adoption of Version 
D.0, agreeing that Version D.0 is needed so that transactions for the 
Medicare Part D pharmacy benefit can be conducted. We did not receive 
any technical comments on Version D.0.
    Response: We agree that Version D.0 is needed to enhance retail 
pharmacy transactions, as well as to better support Medicare Part D 
requirements. We are adopting Version D.0 as proposed.

C. Adoption of a Standard for Medicaid Pharmacy Subrogation: NCPDP 
Medicaid Subrogation Implementation Guide, Version 3.0 for Pharmacy 
Claims

    We proposed adding a new subpart S to 45 CFR part 162 to adopt a 
standard for the subrogation of pharmacy claims paid by Medicaid. We 
proposed that the transaction would be the Medicaid pharmacy 
subrogation transaction, defined at proposed Sec.  162.1901, and that 
the standard for that transaction would be the NCPDP Batch Standard 
Medicaid Subrogation Implementation Guide, Version 3, Release 0 
(Version 3.0), July 2007 (hereinafter referred to as Version 3.0) at 
proposed Sec.  162.1902. The complete discussion of our proposal and 
reasons for the proposal can be found in the August 22, 2008 proposed 
rule (73 FR 49751-49752).
    Comment: Commenters unanimously supported the adoption of Version 
3.0 for Medicaid pharmacy subrogation, and we did not receive any 
comments in opposition. We also did not receive any technical comments 
on Version 3.0.
    Response: We are adopting Version 3.0 as the HIPAA standard at 
Sec.  162.1902, for the Medicaid pharmacy subrogation transaction, as 
described at Sec.  162.1901.
    Comment: Several commenters requested that standards for Medicaid 
subrogation also be adopted for other claims types in addition to 
pharmacy claims. The commenters pointed out that the ASC X12 837 claim 
standards used for processing institutional, professional and dental 
claims already include the ability to perform Medicaid subrogation and 
that these standards have also gone through the DSMO approval process.
    Response: We appreciate the suggestion that we adopt standards for 
conducting Medicaid subrogation for both pharmacy and medical claims. 
However, since we did not propose the adoption of Version 5010 for 
Medicaid subrogation of non-pharmacy claims, we cannot adopt it in this 
final rule. HHS will consider whether to adopt the X12 standard for 
non-pharmacy Medicaid subrogation transactions. If we pursue that 
option, we would propose it in an NPRM and take industry comments into 
consideration before we would adopt a standard.
    We note that, although we are not adopting a standard for Medicaid 
subrogation for non-pharmacy related claims in this rule, those 
standards are available for use. Covered entities are not prohibited 
from using Version 5010 for non-pharmacy Medicaid subrogation 
transactions between willing trading partners. Some Medicaid agencies 
have already been successfully using this approach with commercial 
health plans.
    Comment: We received comments recommending that HHS clarify that 
State Medicaid agencies would not be prohibited from continuing to bill 
using paper claims when necessary.
    Response: We recognize that there may be situations where it is not 
cost-effective for State Medicaid agencies and certain plans to use an 
electronic format for pharmacy claims. For example, while a particular 
plan may process a large volume of claims, the same plan may have only 
a small number of Medicaid pharmacy subrogation claims. In addition, 
States continue to make advancements in identifying other liable 
payers. This enables States to avoid payment by returning claims to 
providers and instructing them to bill the other payers. This will 
result in a decrease in the volume of subrogation claims for Medicaid. 
Health plans do not always have to conduct electronic transactions for 
which a standard has been adopted, but if they do, the standard must be 
used. Section 162.923, however, places additional requirements on 
health plans so that if a covered entity wanted to conduct the 
transaction electronically with the Medicaid agency, the agency could 
not refuse to do so. Medicaid agencies could continue to bill on paper 
as long as both parties to the transaction agree to conduct the paper 
transaction. However, Medicaid agencies will still be required to have 
the capacity to transmit and receive the Medicaid pharmacy subrogation 
transaction electronically, in standard format, which the Medicaid 
agency could choose to do through its own system or through a health 
care clearinghouse.
    Comment: We received a comment from a pharmacy that supports the 
adoption of Version 3.0. The pharmacy requested that HHS enforce the 
use of the standard and eliminate the practice used by some States of 
recouping money from the pharmacy instead of the third party, which 
puts additional burden on the pharmacy to bill the third party and in 
some instances re-bill Medicaid.
    Response: It is not in the purview of this regulation to eliminate 
the practice of recoupment from providers. The adoption of the Medicaid 
pharmacy subrogation standard will not restrict States that choose to 
recoup from providers in lieu of seeking reimbursement from the third 
party directly. Once a claim is paid to a pharmacy, the State has the 
option to seek recovery directly from liable third party payers, or to 
seek recovery as an overpayment from the provider. We believe that the 
adoption of the Medicaid pharmacy subrogation standard will greatly 
improve the efficiency and effectiveness of the health care system 
which should result in more direct billing of third parties in States 
that routinely recoup from providers.

D. Adoption of the NCPDP Telecommunication Standard Implementation 
Guide Version D Release 0 (D.0) and the Health Care Claim: Professional 
ASC X12 Technical Report Type 3 for Billing Retail Pharmacy Supplies 
and Services

    We proposed to revise Sec.  162.1102 to adopt both Version D.0 and 
the 837 Health Care Claim: Professional ASC X12 Technical Report Type 3 
for billing retail pharmacy supplies and professional services. The use 
of either standard would be determined by trading partner agreements. 
The complete discussion of our proposal and the reasons for the 
proposal can be found in the August 22, 2008 proposed rule (73 FR 
49752-49754).
    Comment: We received several comments in support of the proposal to 
allow the use of either standard for this purpose. Commenters agreed 
that the NCPDP Telecommunication and Batch Standard supports the 
billing of the various code sets needed to bill retail pharmacy 
supplies and professional services (for example, Medication Therapy 
Management (MTM), vaccine

[[Page 3301]]

administration), and that they can use this NCPDP standard for most of 
their transactions. The commenters said that workflow will be less 
disrupted when pharmacies can bill for services and supplies using the 
same NCPDP standard as that used for pharmacy drug claims. Commenters 
said that the ability to use the NCPDP standard will improve customer 
service and lower administrative costs. These commenters said that in 
some cases the X12 standard was appropriate, and that they preferred to 
have the option of using it on a case-by-case basis.
    Response: We are adopting our proposal to allow the use of either 
Version D.0 or Version 5010 for billing retail pharmacy supplies and 
professional services.
    Comment: A few commenters noted their support of the proposal, 
particularly as it relates to improving interoperability of claims 
processing and adjudication, and suggested that we clarify how our 
proposal would be implemented with respect to trading partner 
agreements. Another commenter was cautiously supportive, and said that 
it agreed with the use of either standard, but that we should emphasize 
the requirement that trading partner agreements be voluntary, and that 
a health plan could not create a mandate to use one standard over the 
other.
    Response: We reiterate that, by adopting both standards for the one 
transaction, we are supporting current industry practices with respect 
to the use of these standards for billing supplies and services that 
are commonly dispensed or conducted via the retail pharmacy channel. 
With the exception of the requirements set forth in Sec.  162.915, 
regarding certain particulars that may not be included in trading 
partner agreements, we do not dictate the terms of trading partner 
agreements but expect that health plans and providers will continue to 
collaborate on the processes for these claim types.
    In addition to revising the regulation text at Sec.  162.1102 to 
allow for the use of either the X12 or the NCPDP standard for billing 
retail pharmacy supplies and professional services, we are also making 
a conforming change to the definition of ``standard transaction'' at 
Sec.  162.103. We indicate that a standard transaction means a 
transaction that complies with ``an'' applicable standard adopted under 
this part, rather than ``the'' applicable standard adopted under this 
part.
    Comment: One commenter said that if we are adopting standards for 
retail pharmacy supplies and services, that we should clearly state 
that both adopted standards apply to Medication Therapy Management 
(MTM) services. The commenter stated that MTM is a service designed to 
ensure that Part D drugs prescribed to targeted beneficiaries are 
appropriately used to optimize therapeutic outcomes through improved 
medication.
    Response: In the August 22, 2008 proposed rule, we address MTM 
services, noting that the MMA provides coverage for MTM, which is a 
distinct set of services that encompasses a broad range of professional 
activities and responsibilities. We noted that some pharmacies believe 
it is appropriate to use the NCPDP standard for MTM services because 
the services are part of the prescription. Other industry segments, 
however, believe it is appropriate to use the X12 standard for billing 
MTM services because they interpret ``professional services'' to 
require the use of a professional claim (837P) (73 FR 49753). We agree 
with the commenter and affirm that MTM is included as a service to 
which both standards apply.

E. Modifications to the Descriptions of Transactions

    We proposed to revise the descriptions of the transactions at Sec.  
162.1301, Sec.  162.1401, and Sec.  162.1501 to clearly specify the 
senders and receivers of those transactions. We proposed to revise the 
descriptions for the following transactions: (1) Enrollment and 
Disenrollment in a Health Plan; (2) Referral Certification and 
Authorization; and (3) Health Care Claim Status.
    Comment: The majority of commenters expressed their support for the 
revised transaction descriptions.
    Response: We are adopting the revisions to the regulation text as 
proposed.
    Comment: Several pharmacies and a national pharmacy chain noted 
that real-time pharmacy claim transaction statuses are given using the 
NCPDP standard in real time, whereas Version 4010/4010A is a batch 
standard. A commenter requested that our definition of the health care 
claim status transaction specify that Version 5010 (ASC X12 276/277) is 
used to provide status on X12 transactions for medical claims only, 
because the commenter wanted clear differentiation between pharmacy and 
non-pharmacy claims.
    Response: We are not making a change in our regulation text because 
we do not think it is appropriate. In Sec.  162.1401, the description 
of the health care claim status transaction only describes the actions 
and specifies the senders and receivers of the transaction, whereas 
Sec.  162.1402 clearly identifies the standard that is adopted for the 
function described in Sec.  162.1401.
    Comment: We received a comment requesting a technical clarification 
to the enrollment and disenrollment in a health plan transaction (Sec.  
162.1501). The commenter stated that there has always been a concern as 
to when the enrollment/disenrollment (834) transaction was required. 
This commenter believed that the definition of a group health plan 
could be applied to the plan sponsor role of a self-funded employer 
group, which would require the plan sponsor to use the enrollment 
transaction. The commenter recommended that the final rule include 
wording to further clarify this requirement, by adding to Sec.  
162.1501 the following: For the purpose of enrollment and disenrollment 
in their health plan, the term sponsor shall include self-funded 
employer groups that transmit electronic information to their Third 
Party Administrator (TPA) to establish or terminate insurance coverage 
for their member.
    Response: We proposed to describe this transaction as being ``the 
transmission of subscriber enrollment information from the sponsor of 
the insurance coverage, benefits, or policy, to a health plan to 
establish or terminate insurance coverage.'' We provided in the August 
22, 2008 proposed rule that a sponsor is an employer that provides 
benefits to its employees, members, or beneficiaries through contracted 
services. We further noted that numerous entity types act as sponsors 
in providing benefits, including, for example, unions, government 
agencies, and associations (73 FR 49754). We do not think it is 
appropriate to further revise the definition of the enrollment and 
disenrollment in a health plan transaction to specify that a sponsor 
includes any one particular type of entity, as the commenter suggests. 
We reiterate here that it is not mandatory for a sponsor that is not 
otherwise a covered entity to use the transaction standard because, as 
a non-covered entity, HIPAA does not apply to it.

F. Compliance and Effective Dates

    Versions 5010 and D.0: We proposed to adopt a date of April 1, 2010 
for all covered entities to be in compliance with Versions 5010 and 
D.0. In the August 22, 2008 proposed rule, we discussed our reasons for 
proposing the compliance timeframe we did. We justified the proposed 
date based on assumptions that the industry had sufficient expertise in 
using the X12 and NCPDP standards, and that the system and business 
changes could therefore be

[[Page 3302]]

efficiently coordinated, requiring less time than the original 
standards for implementation. We also discussed at length an 
alternative we considered, but did not propose--a staggered compliance 
timeframe for Versions 5010 and D.0 (72 FR 49754-49757). We received 
more than 100 comments on compliance dates, with virtually all 
indicating that the proposed compliance date was not feasible given the 
extensive changes in Versions 5010 and D.0 from the current standards, 
and the need for a coordinated implementation and testing schedule. As 
stated at the beginning of the preamble, this rule is effective March 
17, 2009. We note that the effective date is the date that the policies 
set forth in this final rule take effect, and new policies are 
considered to be officially adopted. The compliance dates, which are 
different than the effective dates, are the dates on which entities are 
required to have implemented the policies adopted in this rule. The 
compliance dates we now adopt for this regulation are as follows:
     Versions 5010 and D.0--January 1, 2012.
     Version 3.0 for all covered entities except small health 
plans--January 1, 2012.
     Version 3.0 for small health plans--January 1, 2013.
    Comment: The majority of commenters opposed the proposed compliance 
date for Versions 5010 and D.0 and requested additional time for 
implementation. Most commenters stated that the proposed date did not 
provide sufficient time to adequately execute a gap analysis for all of 
the transactions, build programs, train staff, and conduct outreach and 
testing with trading partners. These commenters stressed the need to 
avoid compliance extensions or contingency periods because they 
complicate implementations and increase costs. Health plans and 
providers expressed concern that the proposed compliance date was 
unrealistic because large segments of the industry have not been able 
to meet any of the deadlines for the HIPAA standards to date, including 
Medicare and many State Medicaid agencies.
    The majority of commenters who opposed the April 2010 compliance 
date suggested a thirty-six month compliance period instead. These 
commenters said that this amount of time is needed for full 
implementation because the same programmers, developers and operations 
staff who must re-design technical and business infrastructure 
activities to accommodate Versions 5010 and D.0 will also be needed to 
do similar work to implement ICD-10. In fact, some commenters suggested 
that the impact of ICD-10 is so significant, that there might not be 
sufficient industry resources to address Versions 5010 and D.0 because 
of competing resource needs. A number of health plans stated that, 
based on their own impact assessments, not only would record layouts 
and mapping changes be required, but also changes to edits, business 
procedures and system capabilities. They stated that there are nearly 
850 changes between Version 4010/4010A and Version 5010 to be analyzed 
and potentially implemented. One example is the X12 270/271 eligibility 
transaction, which will require a more detailed response with less 
information supplied. Plans will have to determine where the data can 
be accessed and whether it exists within the current software; in many 
cases, it will not be a case of moving a few extra fields, and 
databases may have to be modified or created. These commenters said the 
complexity of the Technical Reports Type 3 requires in-depth analysis, 
which will have to be conducted through formal procedures (impact 
analysis, requirements definition) before design, build, and testing 
can take place. Similar comments were received regarding the compliance 
date for Version D.0.
    All entities that submitted comments agreed with the proposed 
adoption of that standard, but did not think enough time was given for 
implementation. Commenters stated that the transition from Version 5.1 
to Version D.0 has functional complexity that will require 
standardization of practices, new fields, new situational rules for 
each data element, as well as education, testing and training. These 
commenters pointed out that, although there have been 22 version 
releases of the NCPDP standard since Version 5.1, the majority of the 
industry was reluctant to develop software for any version that was not 
adopted under HIPAA. These commenters suggested a 36-month 
implementation schedule for Version D.0.
    Response: Based on the comments and our analysis of those comments, 
we are adopting a compliance date later than the date we proposed for 
all covered entities for Version 5010 and Version D.0. We are requiring 
that all covered entities be in compliance with Versions 5010 and D.0 
on January 1, 2012.
    We believe that it is crucial for covered entities to meet certain 
milestones during the compliance period in order to ensure full, 
successful, and timely compliance. The NCVHS recommended a framework 
for compliance that we believe will be very effective for these 
purposes. Therefore, we describe below the NCVHS recommendation and the 
schedule to which we expect covered entities to adhere during the 
compliance period.
    A letter from the NCVHS to Secretary of HHS Michael Leavitt dated 
September 26, 2007 (http://www.ncvhs.hhs.gov) summarized the 
Committee's Standards and Security Subcommittee's HIPAA transaction 
hearings of July 2007, noting that ``the timing of standards 
implementation is critical to success.'' The NCVHS weighed the industry 
testimony presented at that hearing and noted that HHS should consider 
establishing two different levels of compliance for the implementation 
of Version 5010. Level 1 compliance, as interpreted by the NCVHS, means 
that the HIPAA covered entity could demonstrate that it could create 
and receive Version 5010 compliant transactions. Level 2 compliance was 
interpreted by the NCVHS to mean that HIPAA covered entities had 
completed end-to-end testing with all of their partners and were ready 
to move into full production with the new version. The NCVHS letter 
stated that: ``it is critical that the industry is afforded the 
opportunity to test and verify Version 5010 up to two years prior to 
the adoption of Version 5010.'' The letter's Recommendation 2.2 states 
that ``HHS should take under consideration testifier feedback 
indicating that for Version 5010, two years will be needed to achieve 
Level 1 compliance.''
    Accordingly, our expectations are as follows. The Level 1 testing 
period is the period during which covered entities perform all of their 
internal readiness activities in preparation for testing the new 
versions of the standards with their trading partners. When we refer to 
compliance with Level 1, we mean that a covered entity can demonstrably 
create and receive compliant transactions, resulting from the 
completion of all design/build activities and internal testing. When a 
covered entity has attained Level 1 compliance, it has completed all 
internal readiness activities and is fully prepared to initiate testing 
of the new versions in a test or production environment, pursuant to 
its standard protocols for testing and implementing new software or 
data exchanges. The Level 2 testing period is the period during which 
covered entities are preparing to reach full production readiness with 
all trading partners. When a covered entity is in compliance with Level 
2, it has completed end-to-end testing with each of its trading

[[Page 3303]]

partners, and is able to operate in production mode with the new 
versions of the standards by the end of that period. By ``production 
mode,'' we mean that covered entities can successfully exchange (accept 
and/or send) standard transactions and as appropriate, be able to 
process them successfully.
    During the Level 1 and Level 2 testing periods, either version of 
the standards may be used in production mode--Version 4010/4010A and/or 
Version 5010, as well as Version 5.1 and/or Version D.0--as agreed to 
by trading partners. Covered entities should be prepared to meet Level 
1 compliance by December 31, 2010, and Level 2 compliance by December 
31, 2011. After December 31, 2011, covered entities may not use 
Versions 4010/4010A and 5.1. On January 1, 2012, all covered entities 
will have reached Level 2 compliance, and must be fully compliant in 
using Versions 5010 and D.0 exclusively.
    The final compliance date provides an implementation period of 36 
months, or three years, as requested by the majority of the commenters. 
Given this revised implementation period that accommodates NCVHS and 
industry concerns, we expect that covered entities will be able to meet 
the compliance date. We anticipate that, since there was support for a 
phased-in schedule, health plans and clearinghouses will make every 
effort to be fully compliant on January 1, 2012. Covered entities are 
urged to begin preparations now, to incorporate effective planning, 
collaboration and testing in their implementation strategies, and to 
identify and mitigate any barriers long before the deadline. While we 
have authorized contingency plans in the past, we do not intend to do 
so in this case, as such an action would likely adversely impact ICD-10 
implementation activities. HIPAA gives us authority to invoke civil 
money penalties against covered entities who do not comply with the 
standards, and we have been encouraged by industry to use our authority 
on a wider scale. We refer readers to the HIPAA Enforcement Final Rule 
(71 FR 8390), published in the Federal Register on February 16, 2006, 
for our regulations implementing that HIPAA authority.
Compliance Date for Version 3.0
    For implementation of Version 3.0 for the Medicaid pharmacy 
subrogation transaction, we proposed to revise Sec.  162.900 to adopt a 
compliance date of 24 months after the effective date of the final rule 
for all covered entities, except for small health plans, which would 
have 36 months. We also proposed to revise Sec.  162.923, entitled 
``Requirements for covered entities'' to make paragraph (a) applicable 
only to covered entities that conduct transactions with other entities 
that are required to comply with a transaction standard. We proposed 
this change in order to address the situation where transactions 
require the participation of two covered entities, where one entity is 
under a different set of compliance requirements. We expect that the 
change we proposed to Sec.  162.923 would resolve the problem of a 
State Medicaid agency attempting to transmit a transaction using 
Version 3.0 to a small health plan before the small health plan is 
required to be compliant and could, therefore, reject the transaction 
on the basis that it is in the standard format (73 FR 49754-49755).
    Comment: We received one comment explaining that Version 3.0 had to 
be implemented either at the same time as Version D.0, or after, 
because certain data elements present in D.0, but not in Version 5.1, 
were needed in order to use Version 3.0. The commenter also believed 
that willing trading partners would be able to agree to use the 
Medicaid pharmacy subrogation standard voluntarily at any time after 
the effective date and before the compliance date.
    Response: We agree that Versions D.0 and 3.0 are tied together by 
certain data elements necessitating their concomitant or sequential 
implementation respectively. To accommodate these technical needs, we 
are making the effective date of Version 3.0 later than the effective 
date for the other parts of this rule. We are making the effective date 
for the portion of the rule concerning the adoption of Version 3.0 
January 1, 2010, which means that covered entities, except small health 
plans, must be in compliance with Version 3.0 no later than January 1, 
2012. Small health plans must be in compliance no later than January 1, 
2013. This gives States and health plans a two-year planning, 
implementation and testing window, in contrast to the three years being 
provided for Versions 5010 and D.0. States and plans are encouraged to 
do as much planning in the year before the effective date (calendar 
year 2009) as possible, to take advantage of that window and the work 
already under way for Version D.0, since Versions D.0 and 3.0 are tied 
together. In other words, States may use calendar year 2009 to conduct 
a preliminary analysis of Version 3.0 changes, in concert with their 
analysis of Version D.0 changes. States should also prepare and submit 
their budget requests to secure funding for design, development and 
implementation in 2010 and 2011, which would leave time to conduct 
testing with trading partners between January 2011 and January 2012.
    Comment: We received a number of comments from providers and health 
plans supporting the proposed revision to Sec.  162.923(a).
    Response: We are adopting the revision to Sec.  162.923(a), as 
proposed in the August 22, 2008 proposed rule.
Timeline
    In the proposed rule, we provided a timeline for implementation and 
compliance of ICD-10 and Versions 5010 and D.0. We included the 
timeline to enable the industry to conduct preliminary planning (73 FR 
49757), and indicated that the proposed timeline represented our best 
estimate for industry implementation at the time. We also indicated 
that the timeline was subject to revision as updated information became 
available. We provide the revised timeline here.

   Timeline for Implementing Versions 5010/D.0, Version 3.0 and ICD-10
------------------------------------------------------------------------
    Version 5010/D.0 and Version 3.0                  ICD-10
------------------------------------------------------------------------
01/09: Publish final rule..............  01/09: Publish Final Rule.
01/09: Begin Level 1 testing period
 activities (gap analysis, design,
 development, internal testing) for
 Versions 5010 and D.0.
01/10: Begin internal testing for
 Versions 5010 and D.0.
12/10: Achieve Level 1 compliance
 (Covered entities have completed
 internal testing and can send and
 receive compliant transactions) for
 Versions 5010 and D.0.
01/11: Begin Level 2 testing period      01/11: Begin initial compliance
 activities (external testing with        activities (gap analysis,
 trading partners and move into           design, development, internal
 production; dual processing mode) for    testing).
 Versions 5010 and D.0.

[[Page 3304]]

 
01/12: Achieve Level 2 compliance;
 Compliance date for all covered
 entities. This is also the compliance
 date for Version 3.0 for all covered
 entities except small health plans *.
01/13: Compliance date for Version 3.0
 for small health plans.
                                         10/13: Compliance date for all
                                          covered entities (subject to
                                          the final compliance date in
                                          any rule published for the
                                          adoption of ICD-10).
------------------------------------------------------------------------
* Note: Level 1 and Level 2 compliance requirements only apply to
  Versions 5010 and D.0

Other Comments Pertaining to the Compliance Date Specific to Versions 
5010 and D.0
    Comment: We received a few comments from Medicaid agencies 
explaining why the compliance dates were problematic from a funding 
perspective. Commenters explained that the State budget environment 
requires more lead time to obtain project authority and resources on 
the scale necessary to implement Versions 5010, D.0, and 3.0. One State 
said that it could not begin any substantial required documentation 
activities until there is a final rule. Finally, a number of States 
said that they are facing fairly significant budget shortages. 
Commenters said that, even with 90 percent federal matching rates, 
resource requests based on a proposed rule would be unlikely to receive 
approval from legislatures.
    Response: The comments from the States were compelling with respect 
to funding and planning issues, and were helpful in our reconsideration 
of the proposed compliance dates. We acknowledge the need to work with 
States to coordinate their budget requests and implementation 
activities with legacy system replacement.
    Comment: Another State agency recommended that the final rule 
contain a waiver provision to permit covered entities to seek a waiver 
for implementation of Version 5010 in any existing legacy system that 
is scheduled for replacement.
    Response: Waivers cannot be accommodated. Neither the statute nor 
the regulations provide for waivers for meeting the standards set forth 
under HIPAA.
    Comment: A few commenters favored the proposed compliance dates for 
Versions 5010 and D.0, citing their eagerness to begin benefiting from 
the updated standards as soon as possible, particularly because it has 
been so long between adoption of Versions 4010/4010A1 and 5.1, and the 
updated versions of those standards.
    Response: We believed the proposed compliance dates were reasonable 
for the reasons provided in the proposed rule (73 FR 49754-49757). 
Based on the comments however, we acknowledge that many significant 
actions would have to take place very quickly (for example, budget 
requests, hiring and recruitment of subject matter experts, design 
work, schedule of programming installations, etc.) in order to meet an 
April 2010 compliance date, and as stated above, have adopted a later 
date for both standards.
    Comment: The majority of commenters agreed that small health plans 
should not have additional time (for example, an additional year as in 
past regulations) to become compliant with Versions 5010 and D.0 
because these entities are, or should be, already using Version 4010/
4010A and Version 5.1 through clearinghouses or their own systems. 
Small health plans should be at the same stage of implementation as any 
other covered entity, meaning that their organizations, business 
associates and trading partners are now well-versed in the technology 
and requirements for using Version 4010/4010A and Version 5.1, and 
should not require additional time to accommodate the new versions. All 
covered entities are essentially at the same point with respect to 
having implemented the standards, identified and resolved business 
process issues, trained staff, and incorporated the use of standards 
process into their existing infrastructure.
    Response: We agree with commenters regarding the compliance dates 
for small health plans, and are requiring all covered entities, 
including small health plans, to be in compliance on the same date.
    Comment: We received several comments supporting a different 
schedule which involved staggering compliance based on either covered 
entity type or transaction type over the course of 3 years. In the 
first scenario, all health plans and clearinghouses would be required 
to be compliant one year before covered health care providers in order 
to ensure that providers could begin testing with all trading partners 
the following year. For example, under a 36-month compliance scenario, 
health plans and clearinghouses would have to be in compliance 24 
months after the effective date, and prepared to conduct testing with 
trading partners over the next 12 months. We also received a few 
comments that suggested a staggered implementation schedule by 
transaction type. For example, the updated standards for health care 
claims and related transactions could be implemented first, followed by 
updated standards for eligibility transactions, claims status 
transactions, etc. However, the majority of commenters who had opinions 
about a staggered implementation schedule based on transaction type 
believe that assigning different compliance dates to different 
transactions would not have the intended effect of ensuring compliance 
by the deadline, nor would it facilitate the testing process. These 
commenters explained that the use of certain transactions, particularly 
auxiliary transactions (for example, authorizations and referrals), is 
so inconsistent across the industry, there would be no effective means 
by which to stagger their implementation. The use of the auxiliary 
transactions is uneven--many entities do not use the claims status 
transactions because they have on-line access to their billing files; 
many do not use the eligibility transaction because, historically, it 
has not provided useful information. Thus, entities actually have very 
little experience with these transactions, and may continue to use them 
minimally. They do not wish to expend limited resources on a 
transaction that will not have a return on investment in the early 
years.
    Response: We believe that different compliance dates for different 
types of covered entities could significantly complicate trading 
partner testing, particularly for those entities that function as both 
health plans and health care providers, as well as for other entity 
types that perform in multiple roles. It is likely that different 
compliance dates for different entity types could be confusing to the 
industry, and could actually delay some implementations while entities 
waited for trading partner compliance. For

[[Page 3305]]

example, this approach presumes that providers and their software 
vendors will be making system and operational changes at the same time 
as the health plans and clearinghouses in order to be ready for 
testing.
    Comment: We received a number of comments about our assumption in 
the August 22, 2008 proposed rule that staggered implementation dates 
for health plans and clearinghouses would not be feasible because of 
robust trading partner tracking systems that might be needed so that 
entities could know which providers were testing Versions 5010 and/or 
D.0, which were using Versions 4010/4010A and/or 5.1, and which had 
fully converted to Versions 5010 and/or D.0. This would be very 
complicated to build and manage between the thousands of providers, 
health plans, vendors and clearinghouses. Commenters also expressed 
concern about the impact on coordination of benefits with secondary 
health plans, since each health plan would be implementing Version 5010 
at different times. One commenter said that the reality is that all 
covered entities would need robust trading partner tracking systems for 
any implementation plan, and that coordination of benefits would be 
disrupted with any implementation plan because not all covered entities 
would be ready on the same date to send and receive the updated HIPAA 
standards. Commenters said that covered entities would have to support 
the dual use of Version 4010/4010A and Version 5010 until the 
compliance date in any scenario. They explained that all covered 
entities would need to test at different times during the 
implementation process, and that a complex scheduling process would 
need to exist between health plans, clearinghouses and providers 
testing and migrating to the updated transactions at different times.
    Response: We agree with the commenters' points regarding the 
complexity of programming, testing and coordinating all implementation 
efforts, regardless of the timeline, if we were to adopt a staggered 
implementation schedule by entity type or transaction type.
    Comment: Some commenters said that all health plans, including 
State Medicaid agencies, must be held to the same compliance dates, and 
that compliance with prior HIPAA implementations varies between non-
government health plans and State Medicaid agencies. Since Medicaid 
agencies have lagged behind and not met implementation deadlines, 
hospitals and providers have had to maintain a dual submission strategy 
which incurs significant additional costs to the providers. We received 
a number of comments expressing particular concern about Medicare 
mandating full compliance prior to the compliance date adopted by the 
final rule. The commenters specifically referenced written 
communication they had received from Medicare stating that it 
(Medicare) would have an early compliance date for Version 5010 for the 
coordination of benefits transaction. The commenters stated that, if 
Medicare requires covered entities to be ready to shift to dual 
processing several months before the adopted compliance date, there 
will be significant implementation problems for many providers and 
other health plans. The commenters also stated that, if Medicare 
mandates use of Version 5010 for coordination of benefits, before any 
of the other transactions were mandated for use, other health plans 
would have to run separate processing systems for just the one 
transaction. Other commenters stated that health plans do not maintain 
separate processing systems for each additional health plan with which 
they conduct COB transactions. Commenters stated that, if Medicare is 
allowed to mandate early compliance, it would exacerbate an already 
difficult situation, and reiterated that no entity should be allowed to 
require their trading partners to implement the standards in a 
production environment, prior to the HHS compliance date, if the 
trading partner did not agree. These commenters feel that such a 
prohibition would help ease the implementation as solutions are 
deployed across all entities, over a defined period of time.
    Response: We agree that no covered entity, including State Medicaid 
agencies or Medicare, should be allowed to require compliance earlier 
than the compliance date we are adopting in this final rule. If 
entities were allowed to require earlier compliance, this would cause 
undue financial and operational burdens on other segments of the 
industry. For example, one State chose to implement the NPI before the 
compliance deadline, which caused significant difficulties and expenses 
for providers because, in some cases, they were not ready to comply, 
and therefore had to revert to paper. In many cases, the State's other 
trading partners, namely other commercial health plans and the Federal 
Medicare program, were not prepared to accept the NPI, which meant that 
providers (and their vendors and clearinghouses) in that State had to 
support a complex infrastructure in which the NPI was included on some 
claims, but not on others. HHS will ensure that appropriate agencies 
and departments work together to monitor Medicaid implementation work 
plans, testing and readiness on a regular basis throughout the 
implementation period.
    We are adopting a revision to Sec.  162.925, by adding a new 
paragraph (a)(6), to specify that a health plan is not permitted to 
delay, reject, or attempt to adversely affect the other entity or the 
transaction on the basis that the transaction does not comply with 
another adopted standard during the period from the effective date of 
the final rule until the compliance date. With respect to coordination 
of benefits, this means, for example, that Medicare will not be able to 
require of trading partners that they be in full compliance with 
Version 5010 prior to January 1, 2012, unless willing trading partners 
agree to do so. Health plans that participate in Medicare's 
Coordination of Benefits program will be able to work with Medicare to 
arrange a mutually agreeable testing schedule in order to expedite this 
transaction, but they are not required to do so, and may revert to 
receiving claims directly from providers if they choose to do so.
    Comment: Commenters said that a key component of any implementation 
schedule is testing, and a large number of commenters stressed the 
importance of both internal testing as well as external testing with 
trading partners. Many commenters stated that testing often occurs at 
or near the end of the compliance period, and that such last-minute 
testing causes scheduling problems and creates uncertainty about 
whether changes were applied correctly. Commenters said that, in many 
cases, hospitals and other providers must wait for vendors and health 
plans to schedule testing. Many commenters said that health plans do 
not provide sufficient advance communication about their testing 
efforts or their readiness to implement the standards, and providers 
have indicated that it is difficult to obtain the name of the 
individual or department within the health plan with whom they should 
coordinate. One commenter explained that testing is done in three 
parts: Testing of the standards themselves for workability; conformance 
testing of products and applications that send and/or receive the 
transactions; and end-to-end testing to ensure interoperability among 
trading partners. All three levels of testing are critical to the 
successful implementation of Versions 5010, D.0 and 3.0, and efforts to 
execute all three levels of testing will minimize delays and avoid many 
of the

[[Page 3306]]

complications afflicting previous implementations.
    Response: We agree that testing is absolutely crucial to resolving 
problems before the implementation date to ensure that there are no 
payment delays or service disruptions. In the August 22, 2008 proposed 
rule, we discussed and emphasized the importance of testing to a 
successful and timely implementation (73 FR 49755-49756). Based on the 
industry's experience in previous implementations, it is clear to us 
that testing is core to resolving issues early and effectively. We have 
revised the regulation text that identifies the adopted standard for 
each transaction, in every instance, to enable testing to occur during 
the period from the effective date of the final rule until the 
compliance date for Versions 5010 and D.0. Our revised regulations 
permit the dual use of standards during that timeframe, so that either 
Version 4010/41010A1 or Version 5010, and either Version 5.1 or Version 
D.0, may be used for the period prior to the compliance date. We note 
that the adoption of two standards for one transaction during the 
period prior to compliance does not mean that covered entities must use 
both standards, but, rather, that the use of either standard is 
permitted.
    Comment: Another commenter said that the importance of vendor 
compliance cannot be underestimated, as practice management system 
vendors are critical to provider compliance. Any delays in vendor 
implementation of compliant products will delay end-to-end testing, so 
providing sufficient time for the vendors to design, build and test, 
will only facilitate the process. A large software vendor explained 
that, to enable compliance with Versions 5010 and D.0, users must 
continue to use their current software while testing new software 
updates to accommodate the changes. The commenter explained that there 
are often several stages of software revisions, and this necessity may 
add additional time to the development and implementation process. 
Finally, testing and certification activities on each version must take 
place to ensure compatibility and stability of software. This process 
almost always takes longer than expected.
    Response: While we do not have the authority to regulate vendors, 
as they are not covered entities, we agree about the critical 
importance of vendor testing, and that, in particular, accurate, 
quality software development and testing are critical to the successful 
implementation of the updated versions. We also agree that appropriate 
time is necessary for installation, user training and coordination of 
testing with trading partners. By adopting a later compliance date, we 
hope to ensure that software development vendors have sufficient time 
to conduct the appropriate internal and external testing such that the 
software they provide to their covered entity clients is compliant with 
the standards, capable of facilitating the transmission and receipt of 
the new versions of the standards.

G. Miscellaneous/General Other Comments

    This section includes comments and responses to other issues raised 
during the public comment period.
Claims Attachments
    Comment: We received several comments requesting that HHS not adopt 
standards for electronic health care claims attachments at this time 
because implementation of Versions 5010, D.0, and 3.0, and ICD-10 would 
make it impossible to also implement standards for claims attachments. 
One commenter stressed that, since claims attachments included another 
new standard--the HL7 Attachment Specifications--the industry would not 
be able to accommodate the additional work needed to implement the 
claims attachment standard if Versions 5010, D.0, and 3.0, and ICD-10 
also had to be implemented in that same time period.
    Response: We appreciate and will consider the commenters' concerns 
for not wanting to have to implement the electronic health care claims 
attachment standards at the same time as Versions 5010, D.0 and 3.0, 
and ICD-10.
Standards Adoption and Modifications
    In the August 22, 2008 proposed rule, we provided an explanation of 
the procedures for maintaining existing standards and for adopting new 
standards and modifications to existing standards (73 FR 49744-49755). 
That section of the proposed rule describes how Sec.  162.910 sets out 
the standards maintenance process and defines the role of SDOs and the 
DSMOs. For additional information about the DSMO process and 
procedures, refer to the Web site at http://www.hipaa-dsmo.org/Main.asp. We also described the process for adopting modifications to 
standards under Sec.  162.910, which is discussed in detail in the 
Transactions and Code Sets rule (65 FR 50312), and implemented at Sec.  
162.910.
    The proposed modifications and the new transaction standards were 
developed through the process that conforms with Sec.  162.910. We 
received many technical comments specific to the Version 5010 
standards, indicating that there are still opportunities for 
improvement in that version. We did not receive any technical comments 
specific to Version D.0.
    Comment: A few commenters stated that greater industry involvement 
in the X12 standards development and balloting process would be helpful 
to their industry segment, e.g., health care providers, hospitals, 
health plans, health care clearinghouses and vendors.
    Response: We have suggested to the X12 SDO that it consider the 
following: (1) Expanding the current outreach efforts to industry to 
obtain more diverse representation from all covered entity types. This 
would take place during the development of new versions as well as 
during the balloting process; and (2) securing industry volunteers to 
test the balloted standards before they are proposed to NCVHS. That 
way, when the suggested modifications are submitted to NCVHS for 
consideration, even greater industry support can be expected.
    Comment: We received a few comments suggesting that HHS streamline 
the standards adoption process. Commenters said that the marketplace is 
evolving at a rapid pace, creating new products, new technologies and 
new methods of conducting business. They stressed that, even though X12 
continues to improve the standards each year, the industry has not had 
the opportunity to benefit from necessary and helpful changes because 
too much time elapses between the adoption of versions. Others 
reiterated that there is a need for the updated standards to be 
available for use by the industry as they are tested and balloted. For 
example, one entity found that the industry needs information about tax 
advantaged payment mechanisms (for example, Medical Savings Accounts, 
Health Savings Accounts, Health Reimbursement Accounts, etc.) that are 
now commonly in place to support the movement to consumer-directed 
health care. Version 5010 does not contain the information needed by 
patients or providers to determine the financial impacts and flows. 
Commenters said that the industry cannot wait another eight years to be 
able to exchange this type of crucial information for critical market 
needs. They suggest that a more streamlined way to develop, implement 
and adopt updated standards must be found. Commenters suggested that 
HHS work with industry stakeholders to identify and implement a way to 
increase the predictability and timeliness of adopting updated 
standards, including a means by which the rulemaking process might not 
be

[[Page 3307]]

necessary to allow the industry to use updated versions of the 
standards.
    Response: HHS has considered similar concerns in the past, and 
continues to assess potential alternatives within the context of HIPAA 
and the Administrative Procedures Act (APA). HHS will continue to work 
with industry to identify a means by which updated standards can be 
used on a timelier basis, consistent with the law.
    Comment: One commenter recommended that HHS adopt the X12 standard 
transaction formats in the final rule, but not the specific versions of 
the X12 standards or Technical Reports Type 3 (TR3s). The commenter 
stated that it has been eight years since publication of the 
Transactions and Code Sets rule adopting the Version 4010/4010A 
implementation guides. The long passage of time since the initial 
adoption has resulted in widespread workarounds in the industry to 
address Version 4010/4010A's deficiencies. The commenter suggests that 
HHS could designate the DSMO coordinating committee to biannually 
determine whether a change makes sense for the industry, and which 
updated TR3s would be implemented. The DSMO committee would still 
provide open public access to the standards development process, but 
this approach would eliminate the time-consuming NPRM steps and enable 
smaller iterative version updates to take place. The commenter noted 
that the ongoing maintenance of the adopted code sets is already 
handled outside of the NPRM process. Under this recommendation, new 
standards, as opposed to updates or modifications to the standards, 
would continue to be adopted by HHS utilizing the regulatory process.
    Response: HHS has evaluated options for streamlining the process of 
adopting new versions of the standards, and agrees with commenters that 
alternate, more expedient methods are necessary, consistent with HIPAA 
and the APA. We are committed to working with industry and the 
standards organizations to develop a process that can be proposed in 
the near future, consistent with the law. With respect to the 
commenter's reference to the ongoing maintenance of the adopted code 
sets, HHS notes that there is specific statutory authority in HIPAA 
which permits the routine maintenance, testing, enhancement and 
expansion of code sets outside of the rulemaking process; modifications 
to adopted code sets, however, are adopted by means of the rulemaking 
process.
Outreach, Education and Training
    In the proposed rule, at 73 FR 49756, we stated that HHS would 
begin preparations for, and execution of, outreach and education 
activities, and the engagement of industry leaders and stakeholder 
organizations to provide a variety of educational and communication 
programs for various constituencies.
    Comment: Many commenters advised HHS to establish a network of 
training and outreach partners to work collaboratively to educate the 
industry, and outlined the education and outreach strategies that will 
be needed. Commenters stated there were needs for: National 
associations to collaborate on education efforts; a consistent set of 
messages and/or materials from authoritative sources; recognition that 
different audiences may need different levels of training; and in-
person training to supplement Internet training and printed documents. 
Several commenters recommended that HHS develop a consistent standard 
set of training materials for distribution to industry groups as soon 
as possible. The commenter suggested that key professional associations 
should be the source for common educational materials. One commenter 
suggested that HHS collaborate with other organizations to publish a 
``lessons learned'' guidance document. A number of commenters 
recommended that HHS begin outreach activities as quickly as possible, 
and to clearly differentiate between HHS Policy guidance (for the 
industry at large) and Medicare guidance (specifically for Medicare 
providers). Other commenters agreed, indicating that this was important 
because Medicare policies do not often apply to other covered entities' 
policies, and information is confusing to providers when it is not 
clearly differentiated. Another commenter provided a summarized list of 
requested technical assistance which included migration tools that 
automatically translate Version 4010/4010A to Version 5010, and Version 
5010 to Version 4010/4010A.
    Response: We agree that it is important that consistent and 
accurate messages and/or materials be developed by authoritative 
sources, and will work closely with industry to put together a 
comprehensive, diverse plan that addresses Medicare-specific policies, 
as well as industry-wide policies and implementation issues.
    We agree that different audiences may need different levels of 
training. Our current plan is to develop and disseminate high-level 
materials, and we anticipate that the industry will continue to offer 
the more in-depth materials that specific stakeholder groups may need. 
HHS already dedicates a section of its Web site to the HIPAA 
regulations, including guidance papers, FAQs, and links to external Web 
sites and to other useful resources. The Web site is http://www.cms.hhs.gov.
    Comment: We received a number of comments suggesting that HHS 
ensure better coordination of the communication of, by, and between, 
Medicare and Medicaid.
    Response: We agree that all segments of the industry should 
collaborate and communicate on implementation to avoid misunderstanding 
and to coordinate testing schedules. We will work with State Medicaid 
agencies to support their development of communication and outreach 
initiatives as we develop the overarching implementation strategy for 
education. We will also help to ensure that there are regular 
opportunities for Medicare and Medicaid to collaborate on 
implementation strategies.
Companion Guides
    In the August 22, 2008 proposed rule, we discussed the deficiencies 
in Version 4010/4010A and Version 5.1, and the fact that the industry 
has come to rely upon health plan-specific companion guides to address 
the ambiguities in the implementation guides for each of the standards 
(73 FR 49746). It is possible that the reliance on companion guides has 
minimized some of the potential benefits offered by the standards. 
Based on testimony from the standards organizations and other industry 
representatives to NCVHS, the improvements to Version 5010 should 
minimize dependence on companion guides. Some of those improvements 
include clarifications of the standard requirements, and consistency in 
requirements across all of the transactions. In the August 22, 2008 
proposed rule, we said that companion guides could potentially be 
eliminated if the updated versions of the standards were adopted.
    Comment: We received a number of comments from the industry on this 
subject, offering support for the elimination of companion guides 
because of the complexities they create in implementing the standards. 
Health plans were less supportive of a complete elimination of 
companion guides, but did, in general, comment that the use of 
companion guides could be reduced, and that their content could be less 
complex. A few commenters requested that HHS prohibit the use of 
companion guides. They justified this

[[Page 3308]]

recommendation based on the use of these guides continuing to undermine 
the potential of standards. A few of the clearinghouse commenters 
suggested that companion guides be limited to providing supplemental 
information and instruction, but that they could not be used to mandate 
the use of certain situational fields. Other commenters felt that the 
next version of the standard should do away with nearly all situational 
data elements, and only leave a bare minimum of fields eligible to be 
situational, thus further reducing the need for companion guides. A few 
of the commenters who supported the use of companion guides said that 
these would always be necessary because health plans would always have 
unique business rules, and that sometimes these rules or practices were 
to the advantage of the provider.
    Response: We acknowledge the issues presented by companion guides, 
but note that we do not have the authority to expressly prohibit the 
use of these guides. However, based on our review of many such 
documents, and the ongoing efforts of the industry to collaborate, we 
strongly discourage health plans from having companion guides unless 
they are focused significantly on the basics for connectivity, trading 
partner arrangements, and use of situational data elements. We 
encourage X12 to evaluate, and address as appropriate, industry 
comments specific to situational data elements, so that the minimum 
number of fields remain situational. This will enhance standardization 
and further reduce the need for companion guides. We also note that we 
have already published FAQs clarifying that, if companion guides 
contradict the implementation guides, the transaction will not be 
compliant. Covered entities may use the existing enforcement process to 
submit official complaints to HHS. Once an investigation is opened, HHS 
will review the companion guide at issue and a determination will be 
made as to its compliance with the standard(s).
Standardization of Data Content
    Comment: We received a few comments requesting that HHS support the 
work of some industry groups, such as the Coalition for Affordable and 
Quality Healthcare (CAQH), that are attempting to standardize the use 
of data content to maximize the benefits of transaction standards--in 
other words, some industry representatives are trying to build 
consensus on the data elements that everyone will request and provide, 
to make implementation more consistent throughout the industry. A few 
commenters said that one group has been working on standard content for 
the eligibility standard, so that the transaction provides more robust 
and useful information above and beyond what is currently a ``yes/no'' 
requirement in response to a request for information about an 
individual's eligibility for health plan benefits. One commenter 
requested that HHS support the CAQH certification process for the use 
of the eligibility transaction, in which organizations voluntarily 
agree to have their programming reviewed and approved by CAQH, and 
those organizations agree to use all of the same data elements as 
others who are participating in the certification program.
    Response: We do support the work of individuals and organizations 
in efforts to make the standard transactions more useful to the 
industry as a whole. While HHS cannot mandate participation in any 
certification programs, we do support any efforts towards improved 
compliance with the standards, as well as efforts towards maximizing 
the usefulness and usability of the standards. We also reiterate that 
we have published FAQs clarifying how a covered entity may file a 
complaint against another entity who it believes may not be in 
compliance with the implementation guides.
Definition of Compliance
    Comment: We received a few comments suggesting that we adopt a 
definition of the term ``compliance,'' using the text from the TR3 
guides, which provides that compliance indicates the receiver of a 
standard transaction does not have to reject a transaction that is not 
in compliance with all of the rules within the standard. According to 
commenters, the TR3 guides have a definition of compliance that states 
a covered entity is out of compliance if it receives and accepts a 
transaction that is a non-standard transaction. These commenters 
believe this statement conflicts with an HHS FAQ which states that a 
receiver may not accept a non-compliant transaction. The commenter 
suggests that the sender of the transactions is responsible for the 
compliance of the transaction, and HHS should not consider the receiver 
to be out of compliance if it accepts a non-compliant transaction. 
Another commenter said that HHS should encourage an ``ignore, don't 
reject'' approach to implementation, which would mean that, if a 
transaction is submitted conforming to the standard, but it contains 
more information than is necessary for an entity to process that 
transaction, the additional information should be ignored by the 
receiver, and the transaction not rejected.
    Response: The definitions in the TR3 reports are not specific to 
the compliance of the transaction with the HIPAA rules, so the way 
``compliance'' is defined by the TR3 reports does not apply to 
compliance under HIPAA. We believe our regulations sufficiently address 
the requirements for compliance. Our regulations at Sec.  162.923 
address the requirements for a covered entity to conduct a standard 
transaction when it conducts a HIPAA transaction using electronic 
media, and we define ``standard transaction,'' as revised in this rule, 
as ``a transaction that complies with an applicable standard adopted 
under this part.'' Regarding the commenter's suggestion of an ``ignore, 
don't reject'' policy, we point out that Sec.  162.925(a)(3) provides 
that 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. 
Finally, we do have an enforcement program through which covered 
entities may file complaints, and we continue to encourage the industry 
to utilize this program when faced with conflicts about the compliance 
of a transaction.
Pilots
    Comment: We received a number of comments suggesting that standards 
should be pilot tested before adoption. These commenters said that 
pilot testing the standards is needed long before a standard is 
proposed for adoption because such testing identifies potential pit-
falls and could identify and correct unanticipated issues with a 
particular standard before it is officially adopted. A few commenters 
noted the lack of a pilot testing process and suggested that HHS, with 
industry input, define a pilot testing process for future standards. 
Another commenter recommended that pilot testing proceed in a certain 
sequence, beginning with internal unit testing, and followed by system 
testing and integration testing, and ultimately ending with trading 
partner testing. One commenter stated that, without workability 
testing, the government, X12 and the industry would be repeating 
implementation mistakes that were made with Version 4010/4010A. That 
same commenter recommended that the provisions for permitting 
exceptions from the requirements to comply with the standards in order 
to test proposed modifications (Sec.  162.940) be suspended until the 
current version of a standard was no longer in use, in other words, 
that some date certain would be set to ``retire'' or sunset a 
particular version of a standard. The

[[Page 3309]]

commenter said that such a suspension would represent cost and 
administrative savings to all parties because it would simplify the 
process of accommodating new versions of the standards. We also 
received a comment suggesting that HHS fund pilot testing and allow an 
additional twelve months for the testing before the compliance date of 
a final rule, implying future final rules. No commenters suggested that 
Version 5010 be tested prior to adoption; rather, recommendations were 
for the future review and adoption of new versions of the standards.
    Response: We recognize the value of pilot testing and its 
importance in the standards implementation process, and intend to work 
with the industry to define parameters for pilot testing in the future. 
We also encourage industry stakeholders and the standards organizations 
to take the lead for initiating pilot tests and monitoring the success 
of such tests.
Acknowledgements
    Version 5010 accommodates the acknowledgement transaction, for the 
data receiver to communicate any errors or transmission problems back 
to the sender. Many health plans and clearinghouses use acknowledgement 
transactions, and they are free to do so using the standards they 
choose for that transaction. We did not propose to adopt a standard for 
the acknowledgement transaction in the proposed rule, so we will not 
adopt one here.
    Comment: We received several comments on this subject, with most 
commenters indicating that acknowledgements improve the process of 
receiving and correcting an error and resubmitting the correction back 
to the receiver. These commenters suggested that HHS adopt Version 5010 
for the acknowledgement transaction. Commenters said that migration to 
standard acknowledgement transactions would offer significant business 
benefits by ensuring that transactions are received and front-end 
errors reported on a timely and consistent basis. In spite of the 
support for adopting an acknowledgement transaction standard, 
commenters also mentioned that they did not wish in any way to delay 
overall implementation of Version 5010 by waiting until an 
acknowledgement transaction standard is proposed and adopted. In other 
words, if the choice was to wait to adopt Version 5010 until the NCVHS 
advises the Secretary to also adopt Version 5010 as the standard for 
the acknowledgement transaction, the commenters did not want to see 
their suggestion go forward.
    Response: Before we would adopt an acknowledgement transaction 
standard, such standard would have to have been vetted through the 
standards adoption process that includes approval of a DSMO change 
request, recommendation by the DSMOs to the NCVHS, and recommendation 
by the NCVHS to the Secretary. Even though the chair of the X12 
standards workgroup testified to the NCVHS in July 2007, and 
recommended adoption of an acknowledgement transaction standard for 
inclusion with NCVHS' recommendation for the adoption of Version 5010, 
NCVHS did not include an acknowledgement transaction standard in its 
recommendations. Nonetheless, the fact that we have not adopted an 
acknowledgement standard does not preclude the industry from using 
Version 5010 to conduct the transaction between willing trading 
partners. We will consider the adoption of a standard for the 
acknowledgement transaction at the time we receive a recommendation 
from NCVHS.
Real-Time Eligibility
    Comment: A few commenters stated that there was a business need for 
a real-time eligibility transaction standard for all participants in 
healthcare delivery. They stated that, without a national standard, 
varying approaches to real-time eligibility will be detrimental to 
providers and plans that do business on a national basis. The 
commenters identified a number of organizations such as WEDI, CAQH and 
Blue Cross Blue Shield of North Carolina that support real-time 
eligibility transactions.
    Response: Similar to a standard for the acknowledgement 
transaction, adopting a standard for real-time eligibility transactions 
would have to be vetted through the standards adoption process 
described above. NCVHS did not include a real-time eligibility 
transaction standard in its recommendations, and we are unable to adopt 
one at this time.
HHS Funding the Purchase of TR3 Reports
    When the Transactions and Code Sets rule was published, HHS 
negotiated a contract with the publisher of the Version 4010/4010A 
implementation guide to enable the industry to download the guides at 
no cost. This practice ended in 2006. At that time, very few downloads 
or copies were being ordered, and we had no complaints about individual 
providers, plans or clearinghouses paying the fee. HHS did not have a 
similar arrangement with NCPDP, so the industry has always paid for 
guides for those standards.
    Comment: A few commenters suggested that HHS should pay for the 
industry to access copies of Version 5010. These commenters stated that 
small providers could not afford to buy the set of guides, which 
currently cost approximately $800 for the set, or $175 for each guide. 
Several other commenters expressed concern about the cost of the X12 
TR3s and a new requirement that covered entities purchase these guides. 
Commenters noted that HHS underwrote the Version 4010/4010A guides on 
behalf of covered entities through that implementation effort and 
believe that it is the most beneficial way for covered entities to 
access and implement new versions.
    Response: It is not uncommon for standards organizations to charge 
a fee for copies of their standards. NCPDP charges such a fee for their 
standards, which HHS has never covered for the industry. We do not 
agree that the price for the guides will negatively impact small 
providers because we think it is unlikely that small providers will 
find them useful in implementing Version 5010. We understand that small 
providers usually rely on software vendors to make their systems 
compliant, and that it is the vendors who will require the guides for 
programming. We expect that, as in the past, vendors and professional 
associations will provide necessary education and training for the 
provider staff on the system changes that will require operational 
changes. Software vendors typically have multiple clients, and we 
expect that they will only need to purchase one, or at most, just a few 
sets of the standards to program for all of their clients. Such 
multiple usages should defray the modest expense.
HIPAA Enforcement
    At present, most formal compliance and enforcement activities for 
HIPAA are complaint-driven and complaint-based. Enforcement efforts are 
focused on investigating complaints to determine if a covered entity is 
in compliance.
    Comment: We received a few comments recommending that HHS increase 
its enforcement efforts related to HIPAA transactions to ensure that 
health plans are adhering to the requirements of the X12 transactions. 
We received another comment suggesting stronger enforcement of the 
adoption of all of the standard transactions by all covered entities. 
One commenter said that, to date, only a subset of HIPAA-mandated 
transaction standards that facilitate EDI have been

[[Page 3310]]

implemented as required, which significantly decreases the benefits of 
standardization to the industry.
    Response: Our complaint-driven enforcement process has been 
successful in obtaining compliance on a case-by-case basis, and we 
encourage covered entities to utilize the process. We understand that 
some of the standards have not been implemented because of their 
limited usefulness, or because of issues with implementation. We 
believe that, because the standards have been significantly improved, 
the standards we adopt here are more useful, and therefore will result 
in greater industry implementation. We have the authority to conduct 
compliance reviews at our discretion to evaluate compliance with any of 
the HIPAA requirements, and have done so already with respect to the 
security standards. We plan to expand our compliance review program in 
the future to include random reviews of compliance with the transaction 
standards as well.
Certification
    Comment: We received several comments suggesting that HHS consider 
petitioning the Certification Commission for Healthcare Information 
Technology (CCHIT) to include Versions 5010 or D.0 in all products that 
would be expected to carry the upgraded standards in order to 
facilitate compliance with the final rule. Commenters believe this will 
be especially important for small covered entities in the process of 
purchasing software until the compliance date. They believe that, if 
purchasers are aware of the need to buy products that are certified to 
meet the incoming HIPAA requirements, conversion might be smoother and 
less expensive.
    Response: Generally, CCHIT does not certify products for 
administrative transactions, and therefore we will not pursue this 
suggestion. Furthermore, HHS does not recognize certification of any 
systems or software for purposes of HIPAA compliance.

H. Comments Considered Out of Scope

    We received a number of comments on subjects that were outside the 
scope of the proposed rule. We do not directly respond to those types 
of comments because we consider them to be outside the scope of this 
rule, but we wish to acknowledge them. We have summarized them in the 
following list:
     One commenter stated the final rule should clarify the 
relationship between HIPAA and the Family Educational Rights and 
Privacy Act (FERPA). The commenter stated that there are entities that 
are bound by both HIPAA and FERPA, and suggested that clarification is 
needed for situations where there are inconsistencies between the two 
laws.
     One commenter stated that HHS should agree to accept and 
utilize all diagnosis codes associated with an admission or an 
encounter, not just those accommodated within the limits first set by 
paper forms. The current practice of truncating numbers for diagnoses 
and procedures so that they are equal to what a paper claim supports 
causes problems for providers when they are trying to meet the 
``Present on Admission'' (POA) requirement of providing adequate 
information about a patient's condition.
     One commenter recommended that HHS add a definition for 
real-time adjudication with regard to the 837 claim, 835 remittance 
advice and the 277 health care claim status transactions in this final 
rule. The commenter referenced the collaborative efforts between WEDI 
and X12 to provide a standard way to conduct real-time adjudication.
     One commenter requested that we address expectations 
related to Sec.  162.925 regarding health plan incentives to health 
care providers for using direct data entry (DDE) transactions. The 
commenter said there are instances where health plans offer more 
information about eligibility and benefit information on Web sites than 
they do through the standard X12 270/271 transactions, which the 
commenter believes is an incentive for a provider to conduct a 
transaction using some means other than the standard transaction. The 
commenter requested clarification regarding the offer of more 
information through a non-standard transaction than in the standard 
transaction, even though the standard transaction contains the required 
amount of information. Since we did not address this issue in the 
proposed rule, we do not respond here, but may provide additional 
direction in a future Frequently Asked Question on the CMS Web site.

III. Provisions of the Final Rule

    This final rule incorporates the provisions of the proposed rule, 
with the following exceptions and changes: We proposed to adopt a 
compliance date for Versions 5010 and D.0 of April 1, 2010 for all 
covered entities. In this final rule, we adopt a compliance date of 
January 1, 2012 for Versions 5010 and D.0 for all covered entities. We 
revise Sec.  162.1102, Sec.  162.1202, Sec.  162.1302, Sec.  162.1402, 
Sec.  162.1502, Sec.  162.1602, Sec.  162.1702, and Sec.  162.1802 
accordingly.
    We proposed a compliance date of 24 months after the effective date 
of the final rule for the Medicaid pharmacy subrogation standard 
(Version 3.0) with an additional 12 months for small health plans. In 
this final rule, we indicate an effective date of January 1, 2010 for 
the provisions of 45 CFR Subpart S. This means that covered entities 
other than small health plans must be in compliance on January 1, 2012, 
while small health plans, which have an additional 12 months, must be 
in compliance on January 1, 2013.
    In Sec.  162.925, we add paragraph (a)(6) that precludes health 
plans from requiring an earlier compliance date than those adopted. Use 
of Versions 5010 and D.0 in advance of the mandatory compliance date is 
permissible, based upon mutual agreement by trading partners.
    We adopt revisions to Sec.  162.1102, Sec.  162.1202, Sec.  
162.1302, Sec.  162.1402, Sec.  162.1502, Sec.  162.1602, Sec.  
162.1702, and Sec.  162.1802 to enable covered entities to engage in 
Level 2 testing by allowing for the use of both the old standard and 
the updated standard.
    We allow covered entities to use either Version 4010/4010A, 5010, 
5.1 or D.0 for billing retail pharmacy supplies and services, and 
reflect that policy in revisions to Sec.  162.1102. We also revise the 
definition of ``standard transaction'' in accordance with our policy to 
allow for the dual use of standards, by replacing ``the applicable 
standard'' with ``an applicable standard'' at Sec.  162.103
    We proposed to clarify the descriptions for three standards: 
Enrollment and disenrollment, referral certification and authorization, 
and health care claims status and request. In the final rule we do so, 
by specifying the senders and receivers of those transactions in Sec.  
162.1301, Sec.  162.1401 and Sec.  162.1501.
    In the proposed rule, at Sec.  162.900, we stated that ASC X12N 
implementation specifications and the ASCX12 Standard for Electronic 
Data interchange Technical Report Type 3 were available from the 
Washington Publishing Company. In the final rule, we provide the 
correct address and Web site for obtaining the Version 5010 guides, 
from X12. Version 4010/4010A specifications may still be obtained from 
the Washington Publishing Company.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and

[[Page 3311]]

approval. In order to fairly evaluate whether an information collection 
should be approved by OMB, section 350(c)(2)(A) of the Paperwork 
Reduction Act of 1995 requires that we solicit comment on the following 
issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    In this rule, we are finalizing the revisions to the information 
collection requirements that were announced in the proposed rule that 
was published on August 22, 2008 (73 FR 49742). Specifically, we are 
revising the currently approved information collection requirements 
contained in Sec.  162.1102, Sec.  162.1202, Sec.  162.1301, Sec.  
162.1302, Sec.  162.1401, Sec.  162.1402, Sec.  162.1501, Sec.  
162.1502, Sec.  162.1602, Sec.  162.1702, and Sec.  162.1802 of this 
document. We believe that the revisions will have an impact on the 
burden (both hour burden and cost burden) associated with the 
aforementioned affected sections that are currently approved under OCN 
0938-0866 with an expiration date of 7/31/2011. In addition to 
announcing the revisions in the proposed rule, we published a 60-day 
Federal Register notice on October 10, 2008 (73 FR 60296) that 
solicited public comments on the proposed revisions. No comments were 
received. Accordingly, we have submitted a revised information 
collection request to OMB for its review and approval of the revised 
information collection requirements. These requirements are not 
effective until approved by OMB.
    If you wish to comment on these information collection and 
recordkeeping requirements, please fax your comments to 202-395-6974 or 
email your comments to [email protected]. Please mark 
comments to the attention of the desk officer for CMS and indicate that 
they are in relation to OMB control number 0938-0866.

V. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), as 
amended by Executive Order 13258 (February 26, 2002) and further 
amended by Executive Order 13422 (January 18, 2007), the Regulatory 
Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), section 
1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 
1995 (Pub. L. 104-4), Executive Order 13132 on Federalism, and the 
Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as further amended) directs agencies to 
assess all costs and benefits of available regulatory alternatives and, 
if regulation is necessary, to select regulatory approaches that 
maximize net benefits (including potential economic, environmental, 
public health and safety effects, distributive impacts, and equity). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
Because we estimate that this rule will have economically significant 
effects, we prepared an RIA. We anticipate that the adoption of the new 
versions of the standards and the adoption of Version 3.0 would result 
in benefits that will outweigh the costs. Accordingly, we prepared a 
Regulatory Impact Analysis in the August 22, 2008 proposed rule that, 
to the best of our ability, presented the costs and benefits of the 
proposals. We did not receive any comments on the Regulatory 
Flexibility Analysis, and therefore provide a summary here. For 
details, we refer readers to the August 22, 2008 proposed rule at 73 FR 
49757.

B. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, 
requires agencies to describe and analyze the impact of the rule on 
small entities unless the Secretary can certify that the regulation 
will not have a significant impact on a substantial number of small 
entities. In the health care sector, a small entity is one with between 
$6.5 million and $31.5 million in annual revenues or is a nonprofit 
organization. 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 attempted to estimate the number of small entities and 
provided a general discussion of the effects of the proposed 
regulation, and where we had difficulty, or were unable to find 
information, we solicited industry comment. We stated our belief that 
the conversion to Versions 5010 and D.0 would have an impact on 
virtually every health care entity. We did not receive any comments in 
response to our solicitation for comments.
    In our analysis, we combined Versions 5010 and D.0 because these 
two standards will be implemented at the same time, and in some cases 
are dependent on each other. We provided examples in the August 22, 
2008 proposed rule (73 FR 49758).
    The summary table in this final rule includes the final cost 
estimates for Versions 5010, D.0 and 3.0 on all entities we anticipated 
would be affected by the rule. The data in that table were used in this 
analysis to provide cost information.
    Because most health care providers are either nonprofit or meet the 
Small Business Administration's (SBA) size standard for small business, 
we treated all health care providers as small entities. For providers, 
we predicted that the changes would be minimal involving software 
upgrades for practice management and billing systems. We included 
pharmacies in the analysis, and considered some of them to be small 
businesses. We considered some health plans small businesses, but were 
unable to identify data for these entities, nor was any information 
submitted in response to our solicitation. We addressed clearinghouses 
and Pharmacy Benefit Managers (PBMs) in our discussion, though we did 
not believe that there were a significant number of clearinghouses that 
would be considered small entities. This was confirmed by a number of 
associations, including the Maryland Commission for Health Care. PBMs 
were excluded from the analysis because we had no data to indicate that 
they would qualify as a small entity. State Medicaid agencies were 
excluded from the analysis because States are not considered small 
entities in any Regulatory Flexibility Analysis.
Final Regulatory Flexibility Analysis (FRFA)
1. Number of Small Entities
    In total, we estimated that there are more than 300,000 health care 
organizations that may be considered small entities either because of 
their nonprofit status or because of their revenues. The Business 
Census data shows that there are 4,786 firms considered as health plans 
and/or payers (NAICS code 5415) responsible for conducting transactions 
with health care providers. In the proposed rule's impact analysis, we 
used a smaller figure based on a report from AHIP. But for purposes of 
the RFA, we did not identify a subset of small plans, and instead 
solicited industry comment as to the percentage of plans that would be 
considered small entities. We identified

[[Page 3312]]

the top 78 clearinghouses/vendors in the Faulkner and Gray health data 
directory from 2000--the last year this document was produced. Health 
care clearinghouses provide transaction processing and translation 
services to both providers and health plans.
    We identified nearly 60,000 pharmacies, using the National 
Association of Chain Drug Stores Industry Profile (2007) (http://www.nacds.org), and for the purposes of the initial regulatory 
flexibility analysis we are treating all independent pharmacies 
reported in the Industry Profile as ``small entities.'' The number of 
independent pharmacies reported for 2006 is approximately 17,000 
entities. We specifically invited comments on the number of small 
pharmacies, but received none.
    Based on Figure 2 of the Industry Profile, independent pharmacy 
prescription drug sales accounted for 17.4 percent of total pharmacy 
drug sales of $249 billion sales for 2006. Allocating the Versions 5010 
and D.0 costs based on the share of prescription drug revenues to 
independent pharmacies (the small businesses), implementation costs are 
expected to range between $6.4 million and $13 million or 0.02 and 0.03 
percent of revenues. These figures indicate that there is minimal 
impact, and the effect falls well below the HHS threshold of 3 to 5 
percent specified in the HHS guidance on treatment of small entities 
(see: ``Guidance on Proper Consideration of Small Entities in 
Rulemakings of the U.S. Department of Health and Human Services'' 
http://www.hhs.gov/execsec/smallbus.pdf.pdf).
2. Costs for Small Entities
    To determine the impact on health care providers we used Business 
Census data on the number of establishments for hospitals and firms for 
the classes of providers and revenue data reported in the Survey of 
Annual Services for each NAICS code. For other providers, we assumed 
that the costs to implement Version 5010 would be accounted for at the 
level of firms rather than at the individual establishments. Since we 
treated all health care providers as small entities for the purpose of 
the initial regulatory flexibility analysis, we allocated 100 percent 
of the implementation costs reported in the impact analysis for 
provider type. Table 2 shows the impact of the Version 5010 
implementation costs as a percent of the provider revenues. For 
example, dentists, with reported 2005 revenues of $87.4 billion and 
costs ranging from $299 million to $598 million have the largest impact 
on their revenues of between 0.11 percent and 0.21 percent. We 
solicited comments specifically on the number of providers affected by 
the proposed rule, but received none.
    We did not include an analysis of the impact on small health plans, 
because we were not able to determine the number of plans that meet the 
SBA size standard of $6.5 million in annual receipts.
    In evaluating whether there were any clearinghouses that could be 
considered small entities, we consulted with three national 
associations (EHNAC, HIMSS and the Cooperative Exchange), as well as 
the Maryland Commission for Health Care, and determined that the number 
of clearinghouses that would be considered small entities was 
negligible. We identified the top 78 clearinghouses, and determined 
that they are typically part of large electronic health networks, such 
as Siemens, RxHub, Availity, GE Healthcare etc., none of which fit into 
the category of small entity. As referenced earlier, in a report by 
Faulkner and Gray in 2000, the top 51 entities were listed, and the 
range of monthly transactions was 2,500 to 4 million, with transaction 
fees of $0.25 per transaction to $2.50 per transaction. We determined 
that even based on these data, few of the entities would fall into the 
small entity category, and we did not count them in the analysis.
    With respect to Version 3.0, we point out that, while we do not 
know how many health plans/payers will exchange the pharmacy 
subrogation standard with Medicaid agencies, those entities would be 
counted in the health plan category and addressed under the analysis 
for Versions 5010 and D.0. We did not provide a separate analysis in 
this section.
    In sum, we assumed that the financial burden would be equal to or 
less than three percent of revenues. Based on the results of this 
analysis, we remain reasonably confident that the rule will not have a 
significant impact on a substantial number of small entities. As stated 
throughout this section, in spite of our request for comments on this 
analysis, we received none.
    Table 2 below summarizes the impact of the rule on the health care 
industry.

                        Table 2--Analysis of Implementation of the Burden of Versions 5010, D.0 and 3.0 on Small Covered Entities
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Small
                                                                                                                                 entity          %
                                                                                               Revenue    % Small    Version    share of  Implementation
                                                                        Total no.    Small        or       entity    5010/D.0   version    cost revenue-
                  NAICS                              Entities               of      entities   receipts   receipts    annual    5010/D.0     receipts
                                                                         entities                 ($      of total  costs (in  costs (in      (costs/
                                                                                              millions)   receipts  millions)   millions     receipts)
                                                                                                                                   $)
--------------------------------------------------------------------------------------------------------------------------------------------------------
6221.....................................  General Acute Care               5,386      5,386    612,245        100    292-583  .........       .05-.10
                                            Hospitals (establishments).
6211.....................................  Physicians (firms).........    189,562    189,562    330,889        100    136-272  .........       .04-.08
6212.....................................  Dentists (firms)...........    118,163    118,163     87,405        100     94-187  .........       .11-.21
44611....................................  Pharmacies (includes 5010       56,946     17,482    249,000       17.4      37-75     6.4-13       .02-.03
                                            and D.0).                                         (42,330 @
                                                                                                   17%)
--------------------------------------------------------------------------------------------------------------------------------------------------------

    In column 1 we display the NAICS code for class of entity. Column 3 
shows the number of entities that are reported in the Business Census 
for 2006 or ``Chain Pharmacy Industry Profile.''
    Column 4 shows the number of small entities that were computed 
based on the Business Census and Survey of Annual Service when the data 
was available. All health care providers were assumed to be small. We 
assumed that all independent pharmacies reported in Table 2 of the 
Industry profile are small entities.
    Column 5 shows revenues that were reported for 2005 in the Survey 
of Annual Services, or in the case of pharmacies, in Figure 2 of the 
Industry profile. In the case of health plans and third party 
administrators, we used the consumer payments reported for private 
health insurance in 2006 in the National Health Expenditure accounts.
    Column 6 shows the percent of small entity revenues.
    Column 7 shows the implementation costs for Versions 5010, D.0 and 
3.0

[[Page 3313]]

taken from Table 14a of the impact analysis and annualized.
    Column 8 shows the costs allocated to the small entities based on 
the percent of small entity revenues to total revenues.
    Column 9 presents the percent of the small entity share of 
implementation costs as a percent of the small entity revenues. As 
stated in the guidance cited earlier in this section, HHS has 
established a baseline threshold of 3 percent of revenues that would be 
considered a significant economic impact on affected entities. None of 
the entities exceeded or came close to this threshold.
    We note that the impact in our scenarios is consistently under the 
estimated impact of 3 percent for all of the entities listed above, 
which is below the threshold the Department considers as a significant 
economic impact. As expressed in the Department guidance on conducting 
regulatory flexibility analyses, the threshold for an economic impact 
to be considered significant is 3 percent to 5 percent of either 
receipts or costs. As is clear from the analysis, the impact does not 
come close to the threshold. Thus, based on the foregoing analysis, we 
conclude that some health care providers may encounter significant 
burdens in the course of converting to the modified Versions 5010 and 
D.0. However, we are of the opinion that, for most providers, health 
plans, and clearinghouses the costs will not be significant.
3. Alternatives Considered
    As stated in the August 22, 2008 proposed rule, we considered 
various policy alternatives to adopting Versions 5010, D.0 and 3.0, 
including not adopting the modifications, using staggered 
implementation schedules, allowing implementation delays for small 
entities, and waiting to adopt a later version of the X12 and/or NCPDP 
standards. We rejected all of these alternatives, resulting in the 
adoption of the standards, as proposed, with an alternate compliance 
date.
4. Conclusion
    As stated in the HHS guidance cited earlier in this section, HHS 
uses a baseline threshold of 3 percent of revenues to determine if a 
rule would have a significant economic impact on affected entities. 
None of the entities exceeded or came close to this threshold. Based on 
the foregoing analysis, the Secretary certifies that this final rule 
will not have a significant economic impact on a substantial number of 
small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule would have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This final rule will 
affect the operations of a substantial number of small rural hospitals 
because they are considered covered entities under HIPAA, however, we 
do not believe the rule will have a significant impact on those 
entities, for the reasons stated above in reference to small entities. 
Therefore, the Secretary has determined that this final rule will not 
have a significant impact on the operations of a substantial number of 
small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates would require spending, in any 1 year, 
$100 million in 1995 dollars, updated annually for inflation. In 2008, 
that threshold is approximately $130 million. This final rule contains 
mandates that will impose spending costs on State, local, or tribal 
governments in the aggregate, or by the private sector, in excess of 
the current threshold. The impact analysis in the proposed rule 
addressed those impacts both qualitatively and quantitatively. In 
general, each State Medicaid Agency and other government entity that is 
considered a covered entity will be required to invest in software, 
testing and training to accommodate the adoption of the updated 
versions of the standards, and Version 3.0. UMRA does not address the 
total cost of a rule. Rather, it focuses on certain categories of cost, 
mainly those ``Federal mandate'' costs resulting from (A) imposing 
enforceable duties on State, local, or tribal governments, or on the 
private sector, or (B) increasing the stringency of conditions in, or 
decreasing the funding of, State, local, or tribal governments under 
entitlement programs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. This final rule will have a substantial direct effect on 
State or local governments, could preempt State law, or otherwise have 
a Federalism implication because, even though State Medicaid agencies 
will be converting to a modified version of an existing standard 
(Version 4010/4010A to Version 5010 and NCPCP 5.1 to NCPDP D.0) with 
which they are familiar, there are expenses for implementation and 
widescale testing. State Medicaid agencies are currently required to 
conduct pharmacy subrogation, and in accordance with this final rule, 
will be able either to use the new Medicaid pharmacy subrogation 
transaction standard or contract with trading partners and/or 
contractors who specialize in this field to fulfill its subrogation 
requirement. With respect to subrogation for pharmacy claims, we note 
that this final rule does not add a new business requirement for 
States, but rather mandates a standard to use for this purpose which 
will be used consistently by all States. There will also be 
expenditures for States as they convert from Version 5.1 to D.0 for 
other pharmacy transactions, and this transition will have 
implementation and testing costs as well, meaning there will be 
additional fiscal impacts on States based on this rule.

C. Anticipated Effects

    The objective of this regulatory impact analysis was to summarize 
the costs and benefits of the following proposals:
     Migrating from Version 4010/4010A to Version 5010 in the 
context of the current health care environment;
     Migrating from Version 5.1 to Version D.0; and
     Adopting a new standard for the Medicaid subrogation 
transaction.
    The following are the key issues that we believe necessitate the 
adoption of these modified standards and of a standard for Medicaid 
pharmacy subrogation:
     The current X12 and NCPDP standards were adopted in 2000 
and do not reflect the numerous business changes that have emerged 
during that time.
     The current standards do not accommodate the use of ICD-10 
codes.
     The standard for Medicaid pharmacy subrogation will 
significantly improve the efficiency of this process.
    The remainder of this section provides details supporting the cost 
benefit analysis for each of the three above-referenced proposals.
    In the August 22, 2008 proposed rule (73 FR 49761), we described 
the research conducted for us by Gartner, Incorporated (Gartner) to 
assess the costs and benefits associated with the

[[Page 3314]]

adoption of Version 5010. Details about Gartner's methodology were 
provided in the August 22, 2008 proposed rule, and a summary of the 
calculations and methodology is available on the CMS Web site at: 
http://www.cms.hhs.gov/TransactionCodeSetsStands/Downloads/5010RegulatoryImpactAnalysisSupplement.pdf.
    In this section of the final rule, we summarize the key assumptions 
from the August 22, 2008 proposed rule, and discuss those with which 
commenters did not agree. In cases where we agreed with commenters, and 
changed our assumptions, we provide both the original and revised 
amounts, unadjusted for present value. The last section of the impact 
analysis contains the summary detailed tables with all of the costs and 
benefits recalculated to reflect the changes to the estimates for each 
of the standards and adjusted for present value. The analysis contained 
herein is presented at a high level. For a complete description of the 
analysis, see the Economic Impact Analysis in the docket of this final 
rule.
    Additionally, although many commenters mentioned that we 
underestimated the costs, or overestimated the benefits of 
transitioning to the new versions, no substantive data or additional 
information was provided to counter our analysis, and therefore, though 
some changes have been made, they are not substantial, particularly for 
the benefits that are detailed in this final rule. However, based on 
the information we did receive, there are three items that changed, 
which affected some of the figures in the impact analysis: (1) The cost 
estimate was increased from between 20 percent and 40 percent of the 
Version 4010/4010A costs to between 25 percent and 50 percent; (2) the 
salary for provider billing specialist was reduced from $60 thousand 
per year to $50 thousand per year; (3) the timing for adoption of the 
auxiliary standards was changed to begin in calendar year 2013 instead 
of calendar year 2012; These three items represent cost and benefit 
changes that are reflected in this revised impact analysis, and we have 
updated the tables for each industry sector accordingly. One of the 
benefit categories, Cost savings or savings due to new users of claims 
standards, is not impacted by the aforementioned items. We do not 
repeat this entire explanation in each section, but rather refer the 
reader back to this introduction.
    As noted in the preamble, the compliance date for Version 5010 has 
been changed to January 1, 2012, and the cost allocations have been 
updated in accordance with the new timeline. We assumed transition 
costs would occur in the fourth year of implementation (monitoring, 
maintaining, and adjusting the upgraded systems and related processes) 
and continue until all parties reach a ``steady state.''
    While significant efforts were taken to ensure that the cost and 
benefits captured for this rule were accurate, there are a few key 
uncertainty factors that should be considered in reviewing the 
regulatory impact analysis:
     As detailed in the next section (Assumptions for Version 
5010 Impact Analysis), the primary driver for all of the cost estimates 
was the expected range of costs for all covered entities relative to 
those same costs for implementation and transition to Version 4010.
     As detailed in the next section (Assumptions for Version 
5010 Impact Analysis), one of the key drivers for all of the benefit 
estimates was increased use in electronic transactions. In all cases, 
HHS evaluated the industry feedback and used the conservative estimates 
for expected uptake in the electronic transactions so as to not inflate 
the benefits.
     As explained in the section on Version D.0, there is 
uncertainty as to the complexity and the number of systems that will be 
affected, and industry experts made their best estimates on the 
possible impacts to their constituents.
Assumptions for Version 5010 Impact Analysis
    In calculating the costs and benefits, Gartner made a number of 
assumptions, based on interview data and secondary research. We 
outlined the key assumptions used to support Version 5010 impact 
analysis in the August 22, 2008 proposed rule (73 FR 49762).
    Gartner projected the annual increase in the number of claims at 
four percent, and used these figures to calculate the provider 
benefits. We outlined annual claim volume projections in the August 22, 
2008 proposed rule (73 FR 49762), and did not receive any comments on 
those figures.
    Gartner estimated the current adoption rate for each of the HIPAA 
standards, and the projected rate of adoption for each of the modified 
versions of the standards over the planning horizon. We outlined those 
rates in the August 22, 2008 proposed rule (73 FR 49763). These figures 
were used to calculate the benefits for healthcare industry.
    Comment: We received a few comments disagreeing with our 
assumptions about the increased use of auxiliary transactions. They 
stated that there will not be an automatic increase in the usage/volume 
of the auxiliary transactions, because the industry is still 
establishing a clear business need for these less widely used 
transactions (which are required for plans, but voluntary for 
providers). Auxiliary transactions are those that supplement or support 
claims information, including eligibility, enrollment and 
disenrollment, referral requests and authorizations and premium 
payments. Commenters also stated that, because these transactions were 
not useful in Version 4010/4010A, there is still some hesitancy to use 
Version 5010 until the transactions can be evaluated. Because efforts 
will be focused on implementing the claims and eligibility transactions 
for Version 5010, commenters stated that it may take industry longer to 
schedule testing for the auxiliary transactions.
    Response: Gartner conducted additional discussions with industry 
experts regarding the original assumptions in the August 22, 2008 
proposed rule. These experts acknowledged that providers that do not 
now use these transactions will be focusing all their initial efforts 
on implementing the key claims transactions--claims and remittance 
advice--and that they would likely focus on implementing the auxiliary 
transactions later. Accordingly, we changed the benefits realization 
assumption for auxiliary transactions to start in year 2013 instead of 
2012. We do not agree with the few commenters who stated there would be 
no increase in the use of auxiliary transactions. In fact, the Gartner 
interviewees did not veer from their original statements that the 
auxiliary transactions would be used by more providers, albeit after 
initial implementation of the core transactions for claims and 
remittance advice. An association for physicians, in its comments, 
stated that these transactions would be increasingly used because of 
the improvements in the standards themselves and increased streamlining 
of various administrative processes.
    The total benefits (low) across the industry declined from $18,635 
million to $15,896 million.
    Comment: We received a comment from a government health program 
stating that it did not agree with our savings/benefits assumption of 
reduced phone calls. The commenter explained that the salary savings/
benefit has historically been found to be false savings unless 
personnel positions were actually eliminated.

[[Page 3315]]

    Response: We disagree with the comment. Although personnel 
positions may not be eliminated, these personnel can be assigned to 
other tasks; in this case, the benefit is cost avoidance. Our estimates 
are based on cost avoidance, not personnel reductions.
General Assumptions for the Cost-Benefit Analysis for Providers and 
Health Plans
    We outlined the key assumptions used to develop the cost benefit 
analysis for each of the provider segments--hospitals, physicians, 
pharmacies, and dentists as well as the health plans in the August 22, 
2008 proposed rule (73 FR 49763).
Explanation of Cost Calculations
    To determine the costs for each subsegment (that is, providers and 
health plans), we established an estimate for what the total 
approximate Version 4010/4010A costs were for an individual entity 
within that subsegment (based on the interviews and other data 
available through research--see 73 FR 49761) and then applied an 
estimated range of 20 to 40 percent of those costs to come up with 
estimated low and high costs for Version 5010. Additional information 
about the cost calculations and Gartner methodology are available in 
our supplemental document on the CMS Web site at: http://www.cms.hhs.gov/TransactionCodeSetsStands/Downloads/5010RegulatoryImpactAnalysisSupplement.pdf.
    Comment: As stated above, a number of commenters disagreed with our 
assumptions concerning the level of effort necessary to migrate to 
Version 5010, in comparison with the initial implementation costs for 
Version 4010/4010A, and believed the costs to be significantly higher 
than our projections. Although no commenters actually provided a cost 
figure, a small number of commenters wrote that it would take 50 to 75 
percent of the initial implementation effort to migrate to the new 
versions. The rationale provided was that:
    (1) Organizations will have to operate dual systems through both 
testing and implementation phases as different trading partners migrate 
at different times.
    (2) Additional considerations in the salary cost assumptions such 
as real estate, utilities, phone, computer systems, infrastructure, 
etc., to represent total cost of employee should be taken into 
consideration.
    Other commenters supported our assumptions regarding costs of 
operating dual systems through both testing and implementation phases. 
These commenters explained that there may be additional hardware costs 
to upgrade existing equipment to manage the dual use period, or 
enhanced functionality necessary when upgrading to new versions of 
software ready to handle the new versions. Another commenter disagreed 
with our statement that little or no transmission costs would be 
required to comply with the new regulation. The commenter said that new 
transmission costs will be created with new trading partners and new or 
increased number of transactions. Another commenter stated that, while 
there would be a number of one-time costs to implement Version 5010 
(for business flow changes, software procurement or customized software 
development, etc.), they did not agree that the system testing costs 
would account for 60 to 70 percent of all costs, but did not provide 
any additional detail for their dissension. In sum, while we received a 
variety of comments, none provided specific cost or implementation data 
to support their statements.
    Response: We agree that the industry will need to operate dual 
systems to process both versions of the standards, and that 
transmission costs will increase. The implementation of Version 4010/
4010A required extensive remediation of applications; development of 
external support capability to deal with expanded code lengths; 
different handling of coordination of benefits; and a variety of other 
business changes. It further involved the first implementation of X12 
transaction formats for many providers, health plans and 
clearinghouses. In addition, many providers switched from paper to 
electronic transmission concurrent with this change. The changes going 
from Version 4010/4010A to Version 5010 are far less extensive on the 
whole, even though there are a host of content and format changes. 
While we acknowledge the need to support both formats, the time spent 
dealing with errors and reworking business flows should not be nearly 
as great as the experience of implementing Version 4010/4010A. This 
difference in the scope of the changes between implementation of 
Version 4010/4010A and Version 5010 was one of the key bases for the 
original estimates that we obtained when surveying industry segments in 
preparing the August 22, 2008 proposed rule.
    With regard to the comments regarding dual hardware, many 
transaction mapping products are capable of supporting more than one 
variant of the transaction format using the same hardware and 
communications channels. Although some additional transaction volume 
will be required for testing and parallel operations, HHS has concluded 
that there will be an incremental need for added hardware and 
communications capacity to support submitting all transactions in both 
formats during the conversion period.
    With regard to the comment regarding additional salary cost 
assumptions, all cost estimates provided in the analysis presented in 
the proposed rule (73 FR 49762) included the full set of overhead and 
added personnel costs including real estate, utilities, phone, computer 
systems, infrastructure, etc. These items are considered to be part of 
the fully loaded costs to implement and maintain the Version 5010 
transactions and would also be considered to be costs avoided in the 
benefit period once all parties have implemented the new version.
    While most commenters did not provide specific data regarding 
additional costs, we nonetheless acknowledge that commenters generally 
believed our estimates to be too low, and did note specific areas of 
concern. Accounting for all of the new cost considerations, we have 
adjusted our assumption to a range of 25 to 50 percent of the Version 
4010/4010A implementation costs to move to Version 5010. The total 
costs (low estimate) incurred by the whole industry increased from 
$5,656 million to $7,717 million, unadjusted for present value.
    In the August 22, 2008 proposed rule (73 FR 49764), we show 
Gartner's estimates of the percent of the total costs allocated to each 
cost category (for example, testing and training) for the provider and 
plan segments. As discussed above, we used industry comments to revise 
the estimates for hardware and transmission costs. Table 3 reflects the 
new allocations of the percent of the total costs to each cost 
category.

[[Page 3316]]



  Table 3--Percentage and Total Amounts for Cost Items Used for Version
              5010 Calculations--Providers and Health Plans
------------------------------------------------------------------------
                                                 Percent of total costs
                                               -------------------------
                   Cost item                                    Health
                                                 Providers      plans
                                                 (percent)    (percent)
------------------------------------------------------------------------
Hardware Procurement..........................           10           10
Software Costs................................           10          7.5
Transmission Costs............................          2.5          2.5
New Data Collection...........................            0            0
Customized software development...............            5          2.5
Testing Cost..................................           60           65
Training Costs................................          2.5          2.5
Transition Costs..............................           10           10
                                               -------------------------
    Totals....................................          100          100
------------------------------------------------------------------------
Original source: Gartner interviews and secondary research.

Explanation of Benefits and Savings Calculations
    In our analysis, we assumed that benefits would accrue in three 
categories which were described and explained in detail in the August 
22, 2008 proposed rule (73 FR 49764). For ease of reference, they were 
labeled: (1) Better standards or savings due to improved claims 
standards; (2) Cost savings or savings due to new users of claims 
standards; and (3) Operational savings or savings due to increased 
auxiliary standards usage.
    For ease of reference, we repeat the explanation of the three 
savings categories:
    (1) Better standards or savings due to improved claims standards: 
The improvements in Version 5010 that would reduce manual intervention 
to resolve issues related to the claim or remittance advice, due to 
ambiguity in the standards;
    (2) Cost savings or savings due to new users of claims standards: 
Increased use of electronic transactions for claims and remittance 
advice that would accrue to parties who had previously avoided the 
electronic transactions because of their deficits and shortcomings; and
    (3) Operational savings or savings due to increased auxiliary 
standards usage: Increase use of auxiliary transactions through EDI 
that would result from a decrease in manual intervention to resolve 
issues with the data (handled through phone calls or correspondence).
    The August 22, 2008 proposed rule (73 FR 49765) details the 
business activities, such as manual interventions and phone calls, that 
make up the calculations for two of the categories of projected 
savings: Better standards or savings due to improved claims standards 
and Operational savings or savings due to increased auxiliary standards 
usage. As stated, only two of the three benefit categories are impacted 
by the revised assumptions.
    Comment: We received one comment disagreeing with our assumption 
that provider billing specialist yearly costs are $60,000. The 
commenter stated that the billing specialist yearly cost, on average 
across the country, is not higher than $50,000.
    Response: We agree with the comment after performing additional 
research regarding this assumption, and as a result, have changed our 
estimate regarding yearly costs for a provider billing specialist from 
$60,000 to $50,000. Based on this change, the total benefits (low 
estimate) across the industry declined from $18,635 million to $15,896 
million, unadjusted for present value.
    The benefits category, ``Cost savings, or savings due to new users 
of claims standards,'' does not change as a result of our revised 
calculations. The revised provider billing specialist salary assumption 
only affects the benefit calculations for benefit category, ``Better 
standards or savings due to improved claims standards'' and the revised 
benefits realization assumption for auxiliary transactions only changes 
the benefit calculation for benefits category, ``Operational savings or 
savings due to increased auxiliary standards usage''. However, the 
entire benefit projection changes because of the revised compliance 
date.

1. Health Care Providers

    In the August 22, 2008 proposed rule (73 FR 49765), we reiterated 
that providers are not required by HIPAA to conduct HIPAA transactions 
electronically, but if they do, they must use the standards adopted by 
the Secretary. Providers that conduct these transactions electronically 
would be required to implement Version 5010 of those transactions.
Hospitals
    In the August 22, 2008 proposed rule, we calculated that the total 
cost for all hospitals to implement Version 5010 would be within a 
range of $932 million to $1,864 million (73 FR 49767). Based on the 
revised cost assumptions outlined earlier (increased rate of 25 to 50 
percent), the new estimate of total costs for all hospitals to 
implement Version 5010 will be within a range of $1,165 million to 
$2,331 million, unadjusted for present value.
    Hospitals would realize savings and benefits in the same three 
categories we identified in the August 22, 2008 proposed rule (73 FR 
49766). In the proposed rule, we calculated that the savings due to 
better standards were estimated to be a low of $403 million. Cost 
savings due to an increase in use of the electronic claims transactions 
(837 and 835) were estimated at a low of $66 million. Operational 
savings due to an increase in the use of auxiliary transactions were 
estimated at $1,314 million.
    Based on the revised benefit assumptions outlined earlier, the new 
estimate for minimum savings due to better standards is $348 million 
and operational savings due to increase in the use of auxiliary claim 
transactions are $1,132 million, unadjusted for present value. The cost 
savings benefit category is not impacted by the revised benefit 
assumptions.
Physicians and Other Providers
    We outlined the key assumptions used to develop the cost benefit 
analysis for physicians and other providers segment in the August 22, 
2008 proposed rule (73 FR 49767), and calculated that the total cost 
for all physicians and other providers segment to implement Version 
5010 would be within a range of $435 million to $870 million. Based on 
the revised cost

[[Page 3317]]

assumption outlined earlier, the new estimate of total cost for 
physicians and other providers segment to implement Version 5010 is 
between $544 million to $1,088 million, unadjusted for present value.
    In the proposed rule, we calculated that the savings due to better 
standards was estimated to be a low of $1,612 million. Cost savings due 
to an increase in use of the electronic claims transactions (837 and 
835) were estimated at a low of $270 million. Operational savings due 
to an increase in the use of auxiliary transactions were estimated at 
$5,251 million.
    Based on the revised benefit assumptions outlined earlier (change 
in salary and later adoption of auxiliary transactions), the new 
estimate for physician savings due to better standards is $1,392 
million and operational savings due to increase in the use of auxiliary 
claim transactions are $4,443 million, unadjusted for present value. As 
mentioned earlier, the benefit category cost savings is not impacted by 
the revised benefit assumptions.
Dentists
    In the August 22, 2008 proposed rule, we acknowledged that the 
dental community has not yet widely adopted the HIPAA standards, in 
large part because the standards did not meet their practical business 
needs, particularly for claims and remittance advice. We assumed that 
the costs for implementing Version 5010 would largely fall on vendors 
as a cost of doing business, as they support the majority of dentists. 
We outlined the key assumptions used to develop the cost benefit 
analysis for dentists segment in the August 22, 2008 proposed rule (73 
FR 49768). We received a few general comments from the dental community 
regarding our estimates of the dental profession. We did not receive 
any actual cost data from any organization or practitioner.
    Comment: We received one comment clarifying a figure in Table 18 in 
the supplement document posted on the CMS Web site in October 2008. The 
clarification is that the number of dentist practices (outlined in 
Table 18) does not include a one-to-one relationship between dentists 
and their office, so the calculation assumes too large a number. The 
commenter did not provide a figure however.
    Response: We agree with the clarification and distinction, and have 
updated the table in the supplement to indicate the numbers were for 
individual dentists. However, in HHS's opinion, the current cost 
estimates are not overstated. We derived the cost per dentist based on 
input provided by the industry, which reflected office costs, in 
keeping with the other portions of the analysis.
    Comment: We received one comment clarifying another data point--in 
Table 19 in the supplement document posted on the CMS Web site in 
October 2008. The clarification is that the size of most dental 
practices is less than 5. In Table 19, the practice size categories 
were too large (``50-100 physicians'' and ``100 + physicians,'') for 
dentistry, and should have reflected a smaller number at the lower end.
    Response: We agree with the clarification, and have updated the 
table to represent the data collected from the industry. However, the 
calculation of the costs and benefits are not affected by this comment.
    In the August 22, 2008 proposed rule (73 FR 49768), we calculated 
that the total cost for dentists to implement Version 5010 would be 
within a range of $299 million to $598 million. Based on revised cost 
assumption outlined earlier, the new revised estimate of total costs 
for the dentist segment to implement Version 5010 is within a range of 
$373 million to $747 million, unadjusted for present value.
    Based on the revised benefit assumptions outlined earlier, the new 
estimate for savings due to better standards is $236 million and 
operational savings due to increase in the use of auxiliary claim 
transactions are $753 million, unadjusted for present value. As 
mentioned earlier, the benefit category cost savings is not impacted by 
the revised benefit assumptions.
Pharmacies
    Pharmacies will transition to greater use of Version 5010 when the 
final rule becomes effective, specifically for the 835 transaction 
(remittance advice). For retail pharmacy claims, pharmacies primarily 
use the NCPDP standard, Version 5.1. Since we are replacing Version 5.1 
with Version D.0 in this regulation, and many of the system changes, 
costs and benefits for implementing both Version 5010 and Version D.0 
will result from related efforts, we combined the impact analysis for 
Version 5010 and Version D.0. That analysis is detailed later in this 
analysis.
    Comment: We received a comment from a pharmacy chain that 
identified a pharmacy segment that was not considered in the regulatory 
impact analysis. The commenter stated that there are retail pharmacies 
that are not considered a chain store, and would not fall under the 
category of independent pharmacies. In addition, the commenter provided 
representative costs incurred by a typical retail pharmacy in this 
segment. This commenter said that the cost of implementation of both 
the standards (Versions D.0 and 5010) would be approximately $250,000, 
with 90 percent of the cost associated with the upgrade from Version 
4010/4010A to Version 5010.
    Response: Although the commenter had identified representative 
costs, it did not provide additional information regarding the number 
of retail chains that fall in this segment. We were, therefore, not 
able to re-model the impact analysis based on the additional 
information provided by the commenter. Furthermore, the impact analysis 
for pharmacies is handled in the section for Version D.0 and we believe 
those figures are representative of the segment overall.
Health Plans
    In the August 22, 2008 proposed rule (73 FR 49769), we outlined the 
key assumptions used to develop the cost benefit analysis for the 
health plans segment. We calculated that the total cost for health 
plans to implement Version 5010 would be within a range of $3,604 
million to $7,209 million. Based on the revised cost assumption 
outlined earlier, the new estimate of total cost for health plans to 
implement Version 5010 is to be within a range of $4,505 million to 
$9,011 million, unadjusted for present value.
    In the August 22, 2008 proposed rule (73 FR 49769), we calculated 
that the savings due to better standards were estimated at a low of 
$1,283 million. Cost savings due to an increase in use of the 
electronic claims transactions (837 and 835) were estimated at a low of 
$111 million. Operational savings due to an increase in the use of 
auxiliary transactions were estimated at $4,386 million. We outlined 
the Version 5010 cost benefit summary for health plans segment (73 FR 
49769).
    Based on the revised benefit assumptions outlined earlier, the new 
estimate for savings due to better standards is $1,093 million, and 
operational savings due to increase in the use of auxiliary claim 
transactions are $3,711 million, unadjusted for present value. As 
mentioned earlier, the benefit category cost savings is not impacted by 
the revised benefit assumptions.
Government Plans
    We outlined the key assumptions used to develop the cost benefit 
analysis for government plans segment in the August 22, 2008 proposed 
rule (73 FR 49770), and calculated that the total

[[Page 3318]]

costs for government plans segment to implement Version 5010 would be 
within a range of $252 million to $481 million. Based on the revised 
cost assumption outlined earlier, the new estimate of total costs for 
the government plans segment to implement Version 5010 is within a 
range of $314 million to $601 million, unadjusted for present value.
    In the August 22, 2008 proposed rule, we estimated that savings due 
to better standards would be a low of $279 million. Cost savings due to 
an increase in use of the electronic claims transactions (837 and 835) 
were estimated to be a low of $24 million. Operational savings due to 
an increase in the use of auxiliary transactions were estimated at $953 
million. We outlined the Version 5010 cost benefit summary for 
government plans segment (73 FR 49770).
    Based on the revised benefit assumptions outlined earlier, the new 
estimate for savings due to better standards is $238 million and 
operational savings due to increase in the use of auxiliary claim 
transactions are $807 million, unadjusted for present value. As 
mentioned earlier, the benefit category cost savings is not impacted by 
the revised benefit assumptions.
Clearinghouses and Vendors
    We outlined the key assumptions used to develop the cost benefit 
analysis for clearinghouses and vendors segment in the August 22, 2008 
proposed rule (73 FR 49770), and calculated that the total costs for 
clearinghouses to implement Version 5010 would be within a range of $37 
million to $45 million.
    Comment: We received a comment from a large clearinghouse stating 
that our cost assumptions were significantly understated, and that 
their costs to implement Version 5010 would be at least $3.5 million, 
and would be affected specifically by the amount of testing that would 
be required with trading partners--both providers and health plans.
    Response: We agree with the comment based on several additional 
interviews with large and medium clearinghouse representatives. In 
preparing the final rule, we did some additional analysis on a larger 
sample of the 162 clearinghouses that we included in our estimate. In 
this analysis we found that the cost per clearinghouse would be driven 
primarily by the number of trading partners with whom the 
clearinghouses would need to test Version 5010 transactions. The number 
varied greatly between the smaller clearinghouses and the larger ones 
and, therefore, created a range of costs for implementation and 
transition to Version 5010 based on this variable. Using this analysis, 
we increased our estimates and came up with an average implementation 
cost for each clearinghouse of $1 million (low) and $1.21 million 
(high) (up from a range of $0.23 million to $0.28 million). The total 
costs (low) for the clearinghouse segment increased from $37 million to 
$160 million.
    Based on the comments, we revised our estimate of the total costs 
for the clearinghouse segment to implement Version 5010 to be within a 
range of $160 million to $196 million, unadjusted for present value.
    In the August 22, 2008 proposed rule (73 FR 49771), we stated our 
assumption that there would be no benefits for clearinghouses. We did 
not receive any comments on this assumption, but feedback from industry 
interviews supports our belief that other than business stability, 
there are no other benefits for clearinghouses.
Other Comments Pertaining to Cost Estimates
    Comment: We received a few comments requesting that HHS review the 
WEDI Cost Benefit Analysis (CBA) documents prepared in CY2007 and 
consider the industry projections of Version 5010 implementation costs 
from that analysis.
    Response: We reviewed all of the CBA documents forwarded by WEDI. 
We were able to make some qualitative inferences based on the CBA 
survey responses and used those to solicit additional feedback from 
industry leaders regarding the CBA findings and to better augment the 
regulatory impact analysis. The input from this analysis helped inform 
the changes we have outlined in the final rule. However, we did not 
take the CBA estimates in their current form because:
     The CBA does not capture a breakdown of costs by 
healthcare sub segment but rather at the aggregate. Although the CBA 
summarizes the survey responses, it does not include analysis based on 
the survey responses. For example, the CBA captures the survey 
responses regarding participant details and the cost details. It does 
not tie the cost by survey participant as to establish a clear basis 
for comparison across organizations of similar size and type.
     It is difficult to develop Version 5010 costs based on the 
WEDI CBA because each analysis was conducted by transaction. For 
example, there are three analyses, one for each transaction: 835, 837 
and 276/277. The costs outlined in the CBA have a high potential for 
overlap. In addition, participants are different for each survey. For 
example: 837 survey participants include four long term care health 
plans while 835 survey participants did not include any health plans.
     The survey results were not from a controlled sample. The 
depth of the survey respondent's understanding of the impact of Version 
5010 was unclear. The lack of attribution and ability to contextualize 
survey responses makes it difficult to use the WEDI CBA directly; the 
utility of the data is extremely limited because of the small number of 
respondents, the uncertainty of the responses (over \1/3\ of the payer, 
provider and vendor responders answered ``not sure'' when asked to 
estimate the costs for new software, upgrading of existing software, 
and custom solutions), and the lack of consistency of respondents 
across surveys.
    As a result of these factors, this final rule is informed by the 
qualitative input from the WEDI CBA, but relies on the specific cost 
benefit study performed by Gartner to prepare the regulatory impact 
analysis for the August 22, 2008 proposed rule to adopt Version 5010.
    Comment: One commenter stated that costs estimated to implement 
Version 5010 were 150 percent of the costs incurred during NPI 
implementation.
    Response: We understand the context of the comment, although the 
commenter did not provide any data on which we could conduct any 
analysis or comparison. Since the commenter did not provide baseline 
data, a specific analysis could not be done to help us consider 
revising our cost estimates further.
    Comment: We received a few comments requesting that HHS use the 
actual Version 4010/4010A implementation costs incurred by Medicare and 
Medicaid to estimate the truer costs to implement Version 5010.
    Response: We acknowledge the comment, but do not provide a specific 
number for the Version 4010/4010A implementation costs incurred by 
Medicare and Medicaid. The budgetary process used by Medicare and 
Medicaid allocates funds for all approved Health Information Technology 
initiatives, and those estimates were used in our analysis, as was 
other data obtained from the industry at large. With respect to 
Medicare expenditures specifically, funds are allocated to the 
contractors for purposes of all updates and releases each year. 
Medicaid agencies do not report on a specific implementation, but 
rather track all system changes for purposes of federal cost sharing.

[[Page 3319]]

    Comment: We received one comment requesting that HHS examine the 
costs for providers who must submit electronic information to HIPAA-
exempt payers such as auto insurance, workers' compensation, property 
and casualty insurers who are not required to accept the HIPAA standard 
transactions. These providers must operate separate systems to support 
the requirements of covered and non-covered entities.
    Response: This is consistent with current practice. These 
referenced entities have never been covered under HIPAA; there are 
already processes and systems being used to submit claims to different 
payer types. The commenter did not submit any data with respect to 
claims volumes or costs to help support the statement that these costs 
are unique and need to be examined.
Version D.0 (and Version 5010 for pharmacies)
    In this section of the impact analysis, we summarize the key 
assumptions from the August 22, 2008 proposed rule, and discuss those 
with which the commenters disagreed. In cases where we agreed with the 
commenters and changed our estimates, revised tables are provided. In 
cases where we did not change our assumptions or estimates, the table 
from the August 22, 2008 proposed rule is not repeated. The last 
section of the impact analysis contains the summary detailed tables 
with all of the costs and benefits recalculated to reflect the changes. 
In general, pharmacy chains, health plans and PBMs believed that our 
cost estimates were too low, and provided modest justification for 
their position, but no entity provided actual data that could be used 
to adjust our estimates with precision. Based on the comments, we made 
some changes to our original assumptions and estimates for the cost of 
implementing Versions D.0 for pharmacy benefit managers.
    As stated in the preamble, there was consensus that we should adopt 
Version D.0 to replace Version 5.1. No commenters disagreed with our 
estimates of the number of organizations and professionals affected by 
this rule, and there was also no disagreement about the estimate of 
more than 2.3 billion prescriptions annually.

Costs

a. Chain Pharmacies
    The retail pharmacy industry would be the most impacted by the 
transition from Version 5.1. to Version D.0. In the August 22, 2008 
proposed rule, we reported that one large national pharmacy chain 
estimated that it spent approximately $10 million when it converted to 
Version 5.1. In comparison, this chain estimated that corporate-wide 
costs for the conversion to Version D.0, including programming, system 
testing and personnel training, would be around $2 million per chain. 
Another large national pharmacy chain estimated its migration costs 
from Version 5.1 to Version D.0 would be $1.5 million. We solicited 
industry input in preparation for the proposed impact analysis, and the 
overall initial industry input for conversion to D.0 ranged from 
$100,000 for a small pharmacy chain to $1 million for large national 
pharmacy chains. Based on this information, we estimated implementation 
costs to be $20 million for large national pharmacy chains, and $18 
million for small chains, for a total of $38 million.
    Comment: We received a few comments disagreeing with our original 
cost estimates. One large chain estimated their cost at $4.9 million 
over two years but did not provide specifics. Another commenter 
estimated implementation costs of $2 million for small chains with 
costs increasing based on the size of the chain, but indicated that 
this estimate included both Version D.0 and Version 5010 costs.
    Response: The few comments we received on this topic did not 
provide enough detail to permit us to assess them, and in one case the 
estimate did not distinguish between Version D.0 and Version 5010 
costs. We retain our original estimates of $100,000 per small pharmacy 
chain and $1 million per large pharmacy chain company, unadjusted for 
present value. We estimate that these costs would be spread over the 
first two years of implementation of Version D.0.
b. Independent Pharmacies
    In the August 22, 2008 proposed rule, we stated that independent 
pharmacies would incur costs resulting from software upgrades to 
accommodate Version D.0. We stated that we believed that maintenance 
fees would increase slightly, as vendors pass along their cost of the 
upgrade to the pharmacy. Based on industry input, we estimated that the 
average monthly maintenance contract between a pharmacy and a vendor 
amounts to a range of $400 to $800 per month per pharmacy with an 
additional percent for maintenance fee increases attributable to the 
conversion to Version D.0. Our original estimate per pharmacy was a 
range of $540,000 to $1,080,000 based on 18,000 independent pharmacies.
    We did not receive any comments from any independent pharmacist or 
from any of their associations; therefore we stand by our original 
assumptions. We have modified the dates for those costs, in accordance 
with the revised compliance schedule.
c. Health Plans and PBMs
    In the August 22, 2008 proposed rule (73 FR 49773), we stated that 
health plans should see minimal changes in their operations and 
workflows between Version 5.1 and Version D.0. We estimated the cost 
for large PBMs to migrate to Version D.0 to be approximately $1 million 
to $1.5 million per large national PBM, and approximately $100,000 for 
specialty PBMs. Our total estimated costs for health plans and PBMs 
ranged between $3.6 and $10.6 million per plan based on the size of the 
PBM.
    Comment: We received a few comments suggesting that we understated 
the cost for health plans and PBMs to transition to Version D.0. While 
commenters agreed with our assessment of the consolidation of the PBM 
industry nationwide, they claimed that we did not account for the 
effect on a large PBM. Commenters explained that maintenance of 
multiple platforms results in increased complexities of operations and 
upgrades. One commenter estimated that costs for their upgrades would 
be $11 million, and, unlike the upgrades to the retail systems, they 
stated that few if any benefits will result from the costs.
    Another commenter expanded on the cost issues, stating that the 
business requirements for commercial and Medicare Part D clients have 
required significant changes to the claim standard. They stated that 
the requirements affect all of the logic associated with the new fields 
which must be accommodated. They explained that even the customer 
service screens will require revision and that the representatives will 
require training on the new fields and the benefit changes so that they 
can answer beneficiaries' questions correctly. They estimate their 
total cost to be in excess of $10 million dollars.
    Another commenter challenged our assumption that health plans and 
PBMs should see minimal changes in their operations and workflows 
between Version 5.1 and Version D.0., stating that Version D.0 requires 
additional data reporting related to the eligibility or subrogation/
secondary plan aspects of the transaction, and that this represents a 
significant workload.
    Response: When we prepared our original cost estimates, we treated 
the large PBMs the same as a large chain pharmacy. We did not 
completely

[[Page 3320]]

account for the complexity that the systems changes would present to 
large PBMs. At the time, we allowed for changes to be made on only one 
operating platform, while commenters pointed out that as many as seven 
platforms might need to be updated. We agree with commenters that large 
PBMs have complex systems that often include more than one platform, 
and that such comprehensive system upgrades can be more costly. Based 
on the comments, we have revised our cost projections. We amend our 
estimates from $2 million to $10.5 million for each large PBM company. 
Since we did not receive any comments from the smaller specialty PBMs, 
we leave our original assumption as stated in the August 22, 2008 
proposed rule. Thus, our cost estimates have increased to $42 million 
for the large PBMs, and $3.6 million for the remaining small chains, 
for a total of $45.6 million, unadjusted for present value. We estimate 
that these costs would be incurred during the first two years of 
implementation.
d. Vendors
    In the August 22, 2008 proposed rule (73 FR 49772), we solicited 
industry and stakeholder comment on the assumptions that vendor costs 
will be passed on to the customer over time, and solicited feedback on 
actual costs for vendor software upgrades and impact on covered 
entities, including the conversion of historical data. We received no 
comments from vendors related to their costs to upgrade to Version D.0 
and therefore make no changes to this section. The figures from the 
proposed rule will be included in the summary table at the end of the 
impact analysis.

Benefits

    In the August 22, 2008 proposed rule (73 FR 49742), we assumed that 
the benefits of converting to Version D.0 would accrue over several 
years, beginning in 2012. For a full overview of the benefit 
assumptions, refer to the discussion in the August 22, 2008 proposed 
rule at 73 FR 49773-49778.
a. Pharmacies
    In the August 22, 2008 proposed rule (73 FR 49742), we said 
pharmacies need Version D.0 to process Medicare Part D claims more 
efficiently, and with fewer workarounds, particularly with respect to 
processing coordination of benefits claims.
    Comment: We received a few comments on our benefit assumptions. One 
large pharmacy chain commented that, while they do not disagree that 
there will be benefits and savings following complete implementation of 
Version D.0, they are concerned that HHS has overstated those savings. 
The commenter recognized that the use of Version D.0 will decrease 
audit risks, however the savings assumption by HHS failed to recognize 
other gaps that will continue to exist in the outpatient health care 
system, specifically relative to the coordination of benefits.
    Another commenter said that some of the savings numbers are so 
small (for example, the 1.1 percent of time of a pharmacist being spent 
on benefit issues), that they become hard to validate. Commenters did 
not provide any alternative data to show what the benefits to the 
pharmacies would be in their view.
    Response: As we stated in the August 22, 2008 proposed rule (73 FR 
79744), we based our assumptions on a study funded by the National 
Association of Chain Drug Stores (NACDS), ``Pharmacy Activity Cost and 
Productivity Study'' (http://www.nacds.org/user-assets/PDF_files/ 
arthur_andersen.PDF ). In projecting the growth in the number of 
pharmacies over the next 9 years, we used data from the NACDS, 
``Community Retail Pharmacy Outlets by Type of Store, 1996-2006'' 
(http://www.nacds.org/userseets/pdfs/facts_resources/2006/Retail_Outlets2006.pdf ). Since we did not get any new data on the benefits, 
we stand by our assumptions and make no changes to the benefit data.
Health Plans and PBMs
    We assumed that if pharmacists and technicians realize productivity 
savings as a result of the use of Version D.0, then conversely, health 
plans and PBMs would realize commensurate savings though a reduction in 
pharmacist and technician calls to customer service representatives at 
health care plans and PBMs. For a more detailed discussion of these 
savings through reductions in pharmacist and technician calls to 
customer service representatives at health plans and PBMs, please refer 
to the August 22, 2008 proposed rule (73 FR 49778).
    Comment: One commenter stated that they felt that there are few if 
any benefits that will result from the cost of upgrading their system 
to Version D.0, however they did not expand on this statement or offer 
any alternative information.
    Response: When estimating the benefits accrued to dispensers, we 
solicited industry and stakeholder comments on our assumptions. 
Although we received one comment stating that there were few, if any 
benefits to upgrading to Version D.0, the commenter did not provide us 
with any other data to refute what we originally proposed. Since most 
commenters did not dispute our assumptions, we do not make changes in 
the final rule.
Version 3.0 (Medicaid Pharmacy Subrogation)
    As stated in the impact analysis for Version 5010 and Version D.0 
above, in this section, we summarize the cost and benefit assumptions 
from the August 22, 2008 proposed rule, and discuss those with which 
the commenters disagreed. In cases where we agreed with the commenters 
and changed our estimates, revised tables are provided. The last 
section of the impact analysis contains the summary detailed tables 
with all of the costs and benefits recalculated to reflect the changes.
    There was consensus that we should adopt Version 3.0, and we 
received no comments opposing our cost or benefit assumptions or 
estimates. However, to accommodate the change in effective and 
compliance dates for Version 3.0, we have made modifications to each of 
the tables presented in the proposed rule, and re-published them below.
    In the August 22, 2008 proposed rule (73 FR 49779), we said that 
approximately 37 States were already billing a major portion of their 
Medicaid pharmacy subrogation claims electronically. Of those 37 
States, 33 of them were using a contingency fee contractor to bill 
their (electronic) claims. The other four (out of 37) States were 
billing electronically without the use of a contractor. The remaining 
14 States were still billing most of their Medicaid pharmacy 
subrogation claims on paper.
    A detailed analysis of the impact on Medicaid agencies and health 
plans can be found in the proposed rule (73 FR 49779-49781).
    In the August 22, 2008 proposed rule (73 FR 49779), we said that 
the costs for States that currently bill electronically to upgrade 
their systems to Version 3.0, and to transition from paper Medicaid 
subrogation claims to using Version 3.0, would be outweighed by the 
benefits. We did not receive any comments on this conclusion.
1. Impact on States That Use a Contingency Fee Contractor
    In the August 22, 2008 proposed rule (73 FR 49779), we said that, 
for the 33 States that contract out their Medicaid pharmacy subrogation 
billing processes, there would be no direct costs, and that 
reimbursement to States would increase proportionally to a projected 
increase in the volume of electronic claims. The contractors supporting 
these States

[[Page 3321]]

would recover their cost on the back-end, as they would be recouping 
additional contingency fees based on the volumes. We received no 
comments on this assumption.
2. Impact on States Converting From Paper
a. Cost of Development
    In the August 22, 2008 proposed rule (73 FR 49780), we described 
the costs that would be incurred by the 14 States converting from a 
paper process to an electronic process, using Version 3.0, including 
the cost of development for gap analysis, requirements documentation, 
training, translator mapping, legacy system changes, acceptance testing 
and external, end-to-end testing. We said that infrastructure costs 
would be relatively small, in the range of $50,000 to $150,000 per 
State, unadjusted for present value. The State would be responsible for 
10 percent of those sums, and the Federal government would reimburse 
the State 90 percent of the design, development, and installation costs 
related to changes in their Medicaid Management Information Systems 
(MMIS). We projected that seven States would incur development costs in 
order to conduct their own billing and the other seven would hire a 
contingency fee contractor to conduct their billing. We received no 
comments on these estimates or assumptions.
b. Costs of Adopting and Implementing Trading Partner Agreements (TPAs) 
With Third Party Payers
    In the proposed rule, (73 FR 49780), we said that States would 
enter into Trading Partner Agreements with other payers in order to 
conduct subrogation electronically. We projected that approximately 
forty (40) third party payers, primarily PBMs and claims processors, as 
well as a few large health plans that process claims in-house, would 
participate. We stated that trading partner agreements would cost 
approximately $14,000 to $20,000--with a range of $5,000 to $15,000 for 
each agreement. We assumed that each State would enter into a trading 
partner agreement with an average of 15 payers, and that the 
anticipated costs per State would range from $75,000 to $225,000. As 
stated in the previous section, we projected that half of the 14 States 
would hire a contractor, and half would adopt trading partner 
agreements. Therefore, the agreements with 15 plans would range from 
$525,000 to $1.6 million, unadjusted for present value. The State would 
be responsible for 50 percent of the cost since the Federal government 
reimburses States 50 percent of their administrative costs. We did not 
receive any comments on this section of the analysis.
3. Impact on States That Bill Electronically (Without a Contractor)
a. Cost of Development
    In the August 22, 2008 proposed rule (73 FR 49780), we said that 
changes for States that bill electronically would be minimal and the 
cost impact would be much less than for the States that currently bill 
paper to convert to Version 3.0. We did not receive any comments on 
this section of the analysis.
b. Costs of Adopting and Implementing Trading Partner Agreements With 
Third Party Payers
    In the August 22, 2008 proposed rule (73 FR 49780), we suggested 
that the cost to execute and implement trading partner agreements would 
be approximately $5,000 to $15,000 per agreement, and that four States 
would establish trading partner agreements with an additional 12 health 
plans/payers, for a total cost ranging from $20,000 to $60,000, 
unadjusted for present value. We did not receive any comments on this 
section of the analysis.
Medicaid Savings
    In the August 22, 2008 proposed rule, 73 FR 49780, we stated that 
the accrued savings to States would outweigh the costs because Medicaid 
agencies would no longer have to keep track of and use various 
electronic formats for different payers. We estimated the total number 
of paper Medicaid pharmacy subrogation claims to be between 2.5 and 3.4 
million annually. We cited a study by Milliman in 2006, which was also 
referenced by the American Medical Association (AMA), which stated that 
electronic claims can save an average of $3.73 per clean claim. Based 
on this study, we estimated that the Medicaid program could save an 
estimated $12.7 million annually unadjusted for present value, once 
Version 3.0 is fully implemented. We said that the savings represents 
both State agencies and the Federal government, as the Federal 
government would share 50 percent of any administrative savings. We did 
not receive any comments on this section of the analysis.
Impact on Medicaid Pharmacy Providers
    In situations where Medicaid has been unable to successfully bill 
third parties, due to the current challenges of having to use various 
formats to meet the needs of different payers, States sometimes recoup 
the subrogation monies from pharmacy providers. We do not believe this 
practice is widespread and, therefore, did not account for it in the 
impact analysis. We did not receive any comments on this section of the 
analysis.
Impact on Third Party Payers (Includes Plan Sponsors, Pharmacy Benefit 
Managers (PBMs), Prescription Drug Plans (PDPs) and Claims Processors)
1. Impact on Plan Sponsors That Use a PBM or Claim Processor
    In the August 22, 2008 proposed rule (73 FR 49781), we stated that 
the four large PBMs handle about 75 percent of all prescription orders 
dispensed annually in the United States, and that many of these 
organizations already accept Version 2.0 subrogation transactions. We 
said that, for the majority of plan sponsors that contract out their 
claims adjudication, the costs of implementing Version 3.0 and 
establishing trading partner agreements would be minimal. We received 
no comments on this portion of the analysis.
2. Impact on Plan Sponsors That Do Not Use a PBM or Claim Processor
    We did not estimate any costs for this sector, as we believe there 
are few large payers that administer their own claims adjudication. We 
continue to assume that these payers have already made the necessary 
investments in developing electronic capabilities to meet HIPAA 
mandates, and that they will be upgrading their systems in order to 
accommodate Version D.0, to meet the requirements of this final rule. 
Since Version 3.0 utilizes a number of the data elements found in 
Version D.0, we expect additional infrastructure costs to be small. We 
did not receive any comments on this assumption.
a. Cost of Development
    In the August 22, 2008 proposed rule (73 FR 49781), we estimated 
the development costs to individual health plans that would need to 
implement Version 3.0 to be similar to the cost for State Medicaid 
programs, or approximately $50,000 to $150,000. We estimate that there 
are about 20 payers that do not contract with a PBM and that they would 
need to upgrade their systems for a total cost of $1 to $3 million, 
unadjusted for present value. We solicited comments on this subject but 
received none.

[[Page 3322]]

b. Costs of Adopting and Implementing Trading Partner Agreements With 
States
    In the proposed rule (73 FR 49781), we estimated the plan sponsor's 
costs of adopting and implementing trading partner agreements with 
States would be similar to the cost estimated for State Medicaid 
programs, which would range from $5,000 to $15,000 per agreement. We 
also anticipated that approximately 40 States would utilize a 
contingency fee contractor, setting up trading partner agreements. We 
estimated the cost per plan sponsor to range from $60,000 to $180,000, 
unadjusted for present value, and received no comments on this 
assumption.
3. Savings Impact
    We assumed that 50 percent of all subrogation claims currently 
require manual review, and that the savings of converting 3.4 million 
paper claims to electronic transmission would be $3.3 million, 
unadjusted for present value. We did not receive any comments in the 
section on savings.
    In summary, we did not receive any public comments on the impact 
analysis for Version 3.0. However, we did receive comments, as 
described earlier, requesting additional time to implement the 
standards and expressing the need to implement Version 3.0 either at 
the same time as, or after, implementation of Version D.0 because of 
the interdependency of the two standards. The compliance date has been 
changed to allow for additional implementation time, and to ensure that 
the Version 3.0 transactions can be used in concert with Version D.0. 
Based on the adopted effective and compliance dates, we have revised 
the tables to coincide with the new dates.
Summary of Costs and Benefits for This Final Rule
    The final tables, 4a and 4b, which replace tables 14a and 14b from 
the proposed rule, are the compilation of the total low and high costs 
and benefits for all of the standards being adopted in this final rule. 
In the proposed rule, we did not adjust for present value. In order to 
assure readers a valid comparison, we also did not adjust for present 
value in the final rule in the main text of the document. However, for 
the reader's edification, in Tables 4a and 4b, we show the costs and 
benefits discounted by 7% and 3% to reflect present value.

Table 4a--Estimated Low and High Costs--in Millions*--for Years 2009 Through 2019 for Implementation of Versions
                                                5010, D.0 and 3.0
----------------------------------------------------------------------------------------------------------------
                                                                            Unadjusted
                 Cost type                             Industry            for present      @ 3%         @ 7%
                                                                              value       Discount     Discount
----------------------------------------------------------------------------------------------------------------
5010--Imp costs...........................  Hospitals--low...............         $792         $762         $727
                                            Hospitals--high..............        1,584        1,525        1,453
                                            Physicians--low..............          370          356          339
                                            Physicians--high.............          740          712          679
                                            Dentists--low................          254          245          233
                                            Dentists--high...............          508          489          466
                                            pharmacy--low................           57           55           52
                                            pharmacy--high...............          114          110          105
                                            private hp--low..............        3,063        2,949        2,810
                                            private hp--high.............        6,127        5,898        5,621
                                            govt hp--low.................          213          205          195
                                            govt hp--high................          410          395          376
                                            CH--low......................          137          132          126
                                            CH--high.....................          167          161          153
5010 Transition costs.....................  Hospitals--low...............          373          338          298
                                            Hospitals--high..............          746          677          597
                                            Physicians--low..............          174          158          139
                                            Physicians--high.............          348          316          279
                                            Dentists--low................          120          109           96
                                            Dentists--high...............          239          217          191
                                            pharmacy--low................           27           24           22
                                            pharmacy--high...............           54           49           43
                                            private hp--low..............        1,442        1,308        1,154
                                            private hp--high.............        2,883        2,615        2,307
                                            govt hp--low.................          100           91           80
                                            govt hp--high................          193          175          154
                                            CH--low......................           24           22           19
                                            CH--high.....................           30           27           24
Medicaid subrogation development..........  federal--low.................          .32          .29          .27
                                            federal--high................          .94          .87          .79
                                            state--low...................         .040         .037         .034
                                            state--high..................           .1         .093         .084
                                            payers--low..................            1          .93         .844
                                            payers--high.................            3         2.78         2.53
Medicaid subrogation--Trading Partner       federal--low.................          .38          .35          .32
 agreements.
                                            federal--high................         1.16         1.07          .98
                                            state--low...................          .38          .35          .32
                                            state--high..................         1.16         1.07          .98
                                            payers--low..................          2.4          2.2            2
                                            payers--high.................            7            7            6
D.0--pharmacy chain systems implementation  pharmacy--low................           18           17           16
                                            pharmacy--high...............           38           36           34
Independent pharmacy maintenance fees.....  pharmacy--low................          .54          .51          .48
                                            pharmacy--high...............         1.08         1.03          .97

[[Page 3323]]

 
PBM programming...........................  PBM--low.....................            8            8            7
                                            PBM--high....................           10          9.5            9
                                           ---------------------------------------------------------------------
    Total Costs...........................  LOW..........................        7,177        6,783        6,319
                                           ---------------------------------------------------------------------
    Total Costs...........................  HIGH.........................       14,206       13,425       12,505
----------------------------------------------------------------------------------------------------------------


   Table 4b--Estimated Low and High Benefits--in Millions*--for Years 2009 Through 2019 for Implementation of
                                           Versions 5010, D.0 and 3.0
----------------------------------------------------------------------------------------------------------------
                                                                            Unadjusted
               Savings type                            Industry            for present      @ 3%         @ 7%
                                                                              value       Discount     Discount
----------------------------------------------------------------------------------------------------------------
5010 operational savings..................  Hospitals--low...............         $348         $286         $224
                                            Hospitals--high..............          952          783          612
                                            Physicians--low..............        1,392        1,144          895
                                            Physicians--high.............        3,802        3,126        2,445
                                            Dentists--low................          237          195          153
                                            Dentists--high...............          605          497          389
                                            pharmacy--low................           16           13           10
                                            pharmacy--high...............           23           19           15
                                            private and govt hp--low.....        1,330        1,093          855
                                            private and govt hp--high....        3,577        2,941        2,300
                                            CH--low......................            0            0            0
                                            CH--high.....................            0            0            0
5010 cost savings increase in transactions  Hospitals--low...............           66           53           40
                                            Hospitals--high..............          219          176          133
                                            Physicians--low..............          270          217          164
                                            Physicians--high.............          874          702          532
                                            Dentists--low................           45           36           27
                                            Dentists--high...............           56           45           34
                                            pharmacy--low................            0            0            0
                                            pharmacy--high...............            0            0            0
                                            private and govt hp--low.....          135          110           86
                                            private and govt hp--high....          338          276          214
                                            CH--low......................            0            0            0
                                            CH--high.....................            0            0            0
5010 operational savings--increase in       Hospitals--low...............        1,131          897          669
 auxiliary claim transaction.
                                            Hospitals--high..............        2,890        2,288        1,700
                                            Physicians--low..............        4,442        3,517        2,612
                                            Physicians--high.............       11,553        9,147        6,795
                                            Dentists--low................          752          595          442
                                            Dentists--high...............        1,839        1,456        1,082
                                            pharmacy--low................            0            0            0
                                            pharmacy--high...............            0            0            0
                                            private and govt hp--low.....        4,519        3,578        2,658
                                            private and govt hp--high....       11,749        9,302        6,910
                                            CH--low......................            0            0            0
                                            CH--high.....................            0            0            0
Medicaid subrogation......................  fed--low.....................           13           11           10
                                            fed--high....................           18           16           13
                                            state--low...................           13           11           10
                                            state--high..................           18           16           13
                                            payer--low...................            7            6            5
                                            payer--high..................            9            8            7
Version D.0...............................  Pharmacist productivity--low.          951          779          607
                                            Pharmacist productivity--high        1,921        1,574        1,225
Version D.0...............................  Pharmacy technician                     77           63           49
                                             productivity--low.
                                            Pharmacy technician                    160          132          103
                                             productivity--high.
Version D.0...............................  Avoided audits--low..........          152          126           99
                                            Avoided audits--high.........          304          251          198
                                           ---------------------------------------------------------------------
    Total Benefits........................  LOW..........................       15,896       12,732        9,615
----------------------------------------------------------------------------------------------------------------
    Total Benefits........................  HIGH.........................       40,906       32,753       24,719
----------------------------------------------------------------------------------------------------------------


[[Page 3324]]

Accounting Statement and Table
    Whenever a rule is considered a significant rule under Executive 
Order 12866, we are required to develop an Accounting Statement. This 
statement must state that we have prepared an accounting statement 
showing the classification of the expenditures associated with the 
provisions of this final rule. Monetary annualized Benefits and non-
budgetary costs are presented as discounted flows using three percent 
and seven percent factors.

                                          Table 5--Accounting Statement
      [Accounting statement: classification of estimated expenditures, from FY2009 to FY2019 (in millions)]
----------------------------------------------------------------------------------------------------------------
                                                                                                        Source
                                                                             Minimum      Maximum      citation
                 Category                    Primary estimate (millions)     estimate     estimate      (RIA,
                                                                            (millions)   (millions)   preamble,
                                                                                                        etc.)
----------------------------------------------------------------------------------------------------------------
BENEFITS:
Annualized Monetized benefits:
    7% Discount...........................  2,142.4......................      1,203.7      3,081.1          RIA
    3% Discount...........................  2,389.5......................      1,314.8      3,437.2          RIA
Qualitative (un-quantified) benefits......  Wider adoption of standards
                                             due to decrease in use of
                                             companion guides; increased
                                             productivity due to decrease
                                             in manual intervention
                                             requirements.
----------------------------------------------------------------------------------------------------------------
Benefits generated from plans to providers and pharmacies, providers to plans and pharmacies, and pharmacies to
 beneficiaries.
----------------------------------------------------------------------------------------------------------------
COSTS:
Annualized Monetized costs:
    7% Discount...........................  1,144.0......................        787.5      1,500.5          RIA
    3% Discount...........................  1,034.8......................        711.7      1,357.8          RIA
Qualitative (un-quantified) costs.........  None.........................         None         None
----------------------------------------------------------------------------------------------------------------
Cost will be paid by health plans to contractors, programming consultants, IT staff and other outsourced
 entities; providers will pay costs to software vendors, trainers and other consultants. Clearinghouses will pay
 costs to IT staff/contractors and software developers; pharmacies will pay costs to contractors, software
 vendors and trainers, and government plans will pay costs to consultants, vendors and staff.
----------------------------------------------------------------------------------------------------------------
TRANSFERS:
Annualized monetized transfers: ``on        N/A..........................          N/A          N/A
 budget''.
From whom to whom?........................  N/A..........................          N/A          N/A
Annualized monetized transfers: ``off-      N/A..........................          N/A          N/A
 budget''.
From whom to whom?........................  N/A..........................          N/A          N/A
----------------------------------------------------------------------------------------------------------------

    In accordance with the provisions of Executive Order 12866, as 
amended, this regulation was reviewed by the Office of Management and 
Budget.

List of Subjects in 45 CFR Part 162

    Administrative practice and procedure, Electronic transactions, 
Health facilities, Health insurance, Hospitals, Incorporation by 
reference, Medicare, Medicaid, Reporting and recordkeeping 
requirements.

0
For the reasons set forth in the preamble, the Department of Health and 
Human Services amends 45 CFR Part 162 as set forth below:

PART 162--ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 162 is revised to read as follows:

    Authority: Secs. 1171 through 1180 of the Social Security Act 
(42 U.S.C.1320d-1320d-9), as added by sec. 262 of Pub. L. 104-191, 
110 Stat. 2021-2031, and sec. 105 of Public Law 110-233, 122 Stat. 
881-922, and sec. 264 of Pub. L. 104-191, 110 Stat. 2033-2034 (42 
U.S.C. 1320d-2 (note)).

Subpart A--General Provisions

0
2. Amend Sec.  162.103 by revising the definition of ``standard 
transaction'' to read as follows:


Sec.  162.103  Definitions.

* * * * *
    Standard transaction means a transaction that complies with an 
applicable standard adopted under this part.

Subpart I--General Provisions for Transactions


Sec.  162.900  [Removed and Reserved]

0
3. Remove and reserve Sec.  162.900.
0
4. Amend Sec.  162.920 as follows:
0
A. Revise introductory text and paragraph (a) introductory text.
0
B. Add paragraphs (a)(10) through (a)(18).
0
C. Revise paragraph (b) introductory text.
0
D. Add paragraphs (b)(4) through (b)(6).
    The revisions and additions read as follows:


Sec.  162.920  Availability of implementation specifications.

    A person or an organization may directly request copies of the 
implementation specifications and the Technical Reports Type 3 
described in subparts I through S of this part from the publishers 
listed in this section. The Director of the Federal Register approves 
the implementation specifications, which include the Technical Reports 
Type 3 described in this section, for incorporation by reference in 
subparts I through S of this part in accordance with 5 U.S.C. 552(a) 
and 1 CFR part 51. The implementation specifications and Technical 
Reports Type 3 described in this section are also available for 
inspection by the public at the Centers for Medicare & Medicaid 
Services (CMS), 7500 Security Boulevard, Baltimore, Maryland 21244. For 
more information on the availability on the materials at CMS, call 
(410) 786-6597. The implementation specifications and Technical Reports 
Type 3 are also available at the National Archives and Records 
Administration (NARA). For information on the

[[Page 3325]]

availability of this material at NARA, call (202) 714-6030, or go to: 
http://www.archives.gov/federal_register/code_of_federal_regulations/ibr_locations.html. Implementation specifications are 
available for the following transactions.
    (a) ASC X12N specifications and the ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3. The implementation 
specifications for the ASC X12N and the ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3 (and accompanying 
Errata or Type 1 Errata) may be obtained from the ASC X12, 7600 
Leesburg Pike, Suite 430, Falls Church, VA 22043; Telephone (703) 970-
4480; and FAX (703) 970-4488. They are also available through the 
internet at http://www.X12.org. A fee is charged for all implementation 
specifications, including Technical Reports Type 3. Charging for such 
publications is consistent with the policies of other publishers of 
standards. The transaction implementation specifications are as 
follows:
* * * * *
    (10) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Dental (837), May 2006, ASC 
X12N/005010X224, and Type 1 Errata to Health Care Claim Dental (837), 
ASC X12 Standards for Electronic Data Interchange Technical Report Type 
3, October 2007, ASC X12N/005010X224A1, as referenced in Sec.  162.1102 
and Sec.  162.1802.
    (11) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Professional (837), May 
2006, ASC X12, 005010X222, as referenced in Sec.  162.1102 and Sec.  
162.1802.
    (12) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Institutional (837), May 
2006, ASC X12/N005010X223, and Type 1 Errata to Health Care Claim: 
Institutional (837), ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3, October 2007, ASC X12N/005010X223A1, as 
referenced in Sec.  162.1102 and Sec.  162.1802.
    (13) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim Payment/Advice (835), April 
2006, ASC X12N/005010X221, as referenced in Sec.  162.1602.
    (14) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Benefit Enrollment and Maintenance (834), 
August 2006, ASC X12N/005010X220, as referenced in Sec.  162.1502.
    (15) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Payroll Deducted and Other Group Premium 
Payment for Insurance Products (820), February 2007, ASC X12N/
005010X218, as referenced in Sec.  162.1702.
    (16) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Services Review--Request for 
Review and Response (278), May 2006, ASC X12N/005010X217, and Errata to 
Health Care Services Review--Request for Review and Response (278), ASC 
X12 Standards for Electronic Data Interchange Technical Report Type 3, 
April 2008, ASC X12N/005010X217E1, as referenced in Sec.  162.1302.
    (17) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim Status Request and Response 
(276/277), August 2006, ASC X12N/005010X212, and Errata to Health Care 
Claim Status Request and Response (276/277), ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3, April 2008, ASC 
X12N/005010X212E1, as referenced in Sec.  162.1402.
    (18) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Eligibility Benefit Inquiry and 
Response (270/271), April 2008, ASC X12N/005010X279, as referenced in 
Sec.  162.1202.
    (b) Retail pharmacy specifications and Medicaid subrogation 
implementation guides. The implementation specifications for the retail 
pharmacy standards and the implementation specifications for the batch 
standard for the Medicaid pharmacy subrogation transaction may be 
obtained from the National Council for Prescription Drug Programs, 9240 
East Raintree Drive, Scottsdale, AZ 85260. Telephone (480) 477-1000; 
FAX (480) 767-1042. They are also available through the Internet at 
http://www.ncpdp.org. A fee is charged for all NCPDP Implementation 
Guides. Charging for such publications is consistent with the policies 
of other publishers of standards. The transaction implementation 
specifications are as follows:
* * * * *
    (4) The Telecommunication Standard Implementation Guide, Version D, 
Release 0 (Version D.0), August 2007, National Council for Prescription 
Drug Programs, as referenced in Sec.  162.1102, Sec.  162.1202, Sec.  
162.1302, and Sec.  162.1802.
    (5) The Batch Standard Implementation Guide, Version 1, Release 2 
(Version 1.2), January 2006, National Council for Prescription Drug 
Programs, as referenced in Sec.  162.1102, Sec.  162.1202, Sec.  
162.1302, and Sec.  162.1802.
    (6) The Batch Standard Medicaid Subrogation Implementation Guide, 
Version 3, Release 0 (Version 3.0), July 2007, National Council for 
Prescription Drug Programs, as referenced in Sec.  162.1902.

0
5. Revise Sec.  162.923 paragraph (a) to read as follows:


Sec.  162.923  Requirements for covered entities.

    (a) General rule. Except as otherwise provided in this part, if a 
covered entity conducts, with another covered entity that is required 
to comply with a transaction standard adopted under this part (or 
within the same covered entity), using electronic media, a transaction 
for which the Secretary has adopted a standard under this part, the 
covered entity must conduct the transaction as a standard transaction.
* * * * *

0
6. Section 162.925 is amended by adding a new paragraph (a)(6) to read 
as follows:


Sec.  162.925  Additional requirements for health plans.

    (a) * * *
    (6) During the period from March 17, 2009 through December 31, 
2011, a health plan may not delay or reject a standard transaction, or 
attempt to adversely affect the other entity or the transaction, on the 
basis that it does not comply with another adopted standard for the 
same period.
* * * * *

Subpart K--Health Care Claims or Equivalent Encounter Information

0
7. Amend Sec.  162.1102 by--
0
A. Removing paragraph (a).
0
B. Redesignating existing paragraph (b) as paragraph (a).
0
C. Revising the introductory text of newly redesignated paragraph (a).
0
D. Adding new paragraphs (b) and (c).
    The revisions and additions read as follows:


Sec.  162.1102  Standards for health care claims or equivalent 
encounter information transaction.

* * * * *
    (a) For the period from October 16, 2003 through March 16, 2009:
* * * * *
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1)(i) The standards identified in paragraph (a) of this section; 
and
    (ii) For retail pharmacy supplies and professional services claims, 
the

[[Page 3326]]

following: The ASC X12N 837--Health Care Claim: Professional, Volumes 1 
and 2, Version 4010, May 2000, Washington Publishing Company, 
004010X096, October 2002 (Incorporated by reference in Sec.  162.920); 
and
    (2)(i) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0), August 2007 
and equivalent Batch Standard Implementation Guide, Version 1, Release 
2 (Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec.  162.920.)
    (ii) Dental health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3-- Health Care 
Claim: Dental (837), May 2006, ASC X12N/005010X224, and Type 1 Errata 
to Health Care Claim: Dental (837) ASC X12 Standards for Electronic 
Date Interchange Technical Report Type 3, October 2007, ASC X12N/
005010X224A1. (Incorporated by reference in Sec.  162.920.)
    (iii) Professional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Professional (837), May 2006, ASC X12N/005010X222. (Incorporated by 
reference in Sec.  162.920.)
    (iv) Institutional health care claims. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care Claim: 
Institutional (837), May 2006, ASC X12N/005010X223, and Type 1 Errata 
to Health Care Claim: Institutional (837) ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3, October 2007, ASC 
X12N/005010X223A1. (Incorporated by reference in Sec.  162.920.)
    (v) Retail pharmacy supplies and professional services claims. (A) 
The Telecommunication Standard, Implementation Guide Version 5, Release 
1, September 1999. (Incorporated by reference in Sec.  162.920.)
    (B) The Telecommunication Standard Implementation Guide, Version D, 
Release 0 (Version D.0), August 2007, and equivalent Batch Standard 
Implementation Guide, Version 1, Release 2 (Version 1.2), National 
Council for Prescription Drug Programs (Incorporated by reference in 
Sec.  162.920); and
    (C) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim: Professional (837), May 2006, ASC 
X12N/005010X222. (Incorporated by reference in Sec.  162.920.)
    (c) For the period on and after the January 1, 2012, the standards 
identified in paragraph (b)(2) of this section, except the standard 
identified in paragraph (b)(2)(v)(A) of this section.

Subpart L--Eligibility for a Health Plan

0
8. Section 162.1202 is amended by--
0
A. Removing paragraph (a).
0
B. Redesignating existing paragraph (b) as paragraph (a).
0
C. Revising the introductory text of newly redesignated paragraph (a).
0
D. Adding new paragraphs (b) and (c).
    The revisions and additions read as follows:


Sec.  162.1202  Standards for eligibility for a health plan 
transaction.

* * * * *
    (a) For the period from October 16, 2003 through March 16, 2009:
* * * * *
    (b) For the period from March 17, 2009 through December 31, 2011 
both:
    (1) The standards identified in paragraph (a) of this section; and
    (2) (i) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 
2 (Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec.  162.920.)
    (ii) Dental, professional, and institutional health care 
eligibility benefit inquiry and response. The ASC X12 Standards for 
Electronic Data Interchange Technical Report Type 3--Health Care 
Eligibility Benefit Inquiry and Response (270/271), April 2008, ASC 
X12N/005010X279. (Incorporated by reference in Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

Subpart M--Referral Certification and Authorization

0
9. Revise Sec.  162.1301 to read as follows:


Sec.  162.1301  Referral certification and authorization transaction.

    The referral certification and authorization transaction is any of 
the following transmissions:
    (a) A request from a health care provider to a health plan for the 
review of health care to obtain an authorization for the health care.
    (b) A request from a health care provider to a health plan to 
obtain authorization for referring an individual to another health care 
provider.
    (c) A response from a health plan to a health care provider to a 
request described in paragraph (a) or paragraph (b) of this section.

0
10. Section 162.1302 is amended by--
0
A. Removing paragraph (a).
0
B. Redesignating existing paragraph (b) as paragraph (a).
0
C. Revising the introductory text of newly redesignated paragraph (a).
0
D. Adding new paragraphs (b) and (c).
    The revisions and additions read as follows:


Sec.  162.1302  Standards for referral certification and authorization 
transaction.

* * * * *
    (a) For the period from October 16, 2003 through March 16, 2009:
* * * * *
    (b) For the period from March 17, 2009 through December 31, 2011 
both--
    (1) The standards identified in paragraph (a) of this section; and
    (2)(i) Retail pharmacy drugs. The Telecommunication Standard 
Implementation Guide Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 
2 (Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec.  162.920.)
    (ii) Dental, professional, and institutional request for review and 
response. The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Services Review--Request for 
Review and Response (278), May 2006, ASC X12N/005010X217, and Errata to 
Health Care Services Review---Request for Review and Response (278), 
ASC X12 Standards for Electronic Data Interchange Technical Report Type 
3, April 2008, ASC X12N/005010X217E1. (Incorporated by reference in 
Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

Subpart N--Health Care Claim Status

0
11. Revise Sec.  162.1401 to read as follows:


Sec.  162.1401  Health care claim status transaction.

    The health care claim status transaction is the transmission of 
either of the following:
    (a) An inquiry from a health care provider to a health plan to 
determine the status of a health care claim.
    (b) A response from a health plan to a health care provider about 
the status of a health care claim.

0
12. Section 162.1402 is revised to read as follows:


Sec.  162.1402  Standards for health care claim status transaction.

    The Secretary adopts the following standards for the health care 
claim status transaction:

[[Page 3327]]

    (a) For the period from October 16, 2003 through March 16, 2009: 
The ASC X12N-276/277 Health Care Claim Status Request and Response, 
Version 4010, May 2000, Washington Publishing Company, 004010X093 and 
Addenda to Health Care Claim Status Request and Response, Version 4010, 
October 2002, Washington Publishing Company, 004010X093A1. 
(Incorporated by reference in Sec.  162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section; and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Status Request and Response (276/277), 
August 2006, ASC X12N/005010X212, and Errata to Health Care Claim 
Status Request and Response (276/277), ASC X12 Standards for Electronic 
Data Interchange Technical Report Type 3, April 2008, ASC X12N/
005010X212E1. (Incorporated by reference in Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

Subpart O--Enrollment and Disenrollment in a Health Plan

    13. Revise Sec.  162.1501 to read as follows:


Sec.  162.1501  Enrollment and disenrollment in a health plan 
transaction.

    The enrollment and disenrollment in a health plan transaction is 
the transmission of subscriber enrollment information from the sponsor 
of the insurance coverage, benefits, or policy, to a health plan to 
establish or terminate insurance coverage.

0
14. Section 162.1502 is revised to read as follows:


Sec.  162.1502  Standards for enrollment and disenrollment in a health 
plan transaction.

    The Secretary adopts the following standards for enrollment and 
disenrollment in a health plan transaction.
    (a) For the period from October 16, 2003 through March 16, 2009: 
ASC X12N 834--Benefit Enrollment and Maintenance, Version 4010, May 
2000, Washington Publishing Company, 004010X095 and Addenda to Benefit 
Enrollment and Maintenance, Version 4010, October 2002, Washington 
Publishing Company, 004010X095A1. (Incorporated by reference in Sec.  
162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section; and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Benefit Enrollment and Maintenance (834), August 2006, 
ASC X12N/005010X220 (Incorporated by reference in Sec.  162.920)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

Subpart P--Health Care Payment and Remittance Advice

0
15. Section 162.1602 is revised to read as follows:


Sec.  162.1602  Standards for health care payment and remittance advice 
transaction:

    The Secretary adopts the following standards for the health care 
payment and remittance advice transaction:
    (a) For the period from October 16, 2003 through March 16, 2009: 
Health care claims and remittance advice. The ASC X12N 835--Health Care 
Claim Payment/Advice, Version 4010, May 2000, Washington Publishing 
Company, 004010X091, and Addenda to Health Care Claim Payment/Advice, 
Version 4010, October 2002, Washington Publishing Company, 
004010X091A1. (Incorporated by reference in Sec.  162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section; and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Health Care Claim Payment/Advice (835), April 2006, ASC 
X12N/005010X221. (Incorporated by reference in Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

Subpart Q--Health Plan Premium Payments

0
16. Section 162.1702 is revised to read as follows:


Sec.  162.1702  Standards for health plan premium payments transaction.

    The Secretary adopts the following standards for the health plan 
premium payments transaction:
    (a) For the period from October 16, 2003 through March 16, 2009: 
The ASC X12N 820--Payroll Deducted and Other Group Premium Payment for 
Insurance Products, Version 4010, May 2000, Washington Publishing 
Company, 004010X061, and Addenda to Payroll Deducted and Other Group 
Premium Payment for Insurance Products, Version 4010, October 2002, 
Washington Publishing Company, 004010X061A1. (Incorporated by reference 
in Sec.  162.920.)
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standard identified in paragraph (a) of this section, and
    (2) The ASC X12 Standards for Electronic Data Interchange Technical 
Report Type 3--Payroll Deducted and Other Group Premium Payment for 
Insurance Products (820), February 2007, ASC X12N/005010X218. 
(Incorporated by reference in Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standard 
identified in paragraph (b)(2) of this section.

Subpart R--Coordination of Benefits

0
17. Section 162.1802 is amended by--
0
A. Removing paragraph (a).
0
B. Redesignating existing paragraph (b) as paragraph (a).
0
C. Revising the introductory text of newly redesignated paragraph (a).
0
D. Adding new paragraphs (b) and (c).
    The additions and revisions read as follows:


Sec.  162.1802  Standards for coordination of benefits information 
transaction.

* * * * *
    (a) For the period from October 16, 2003 through March 16, 2009:
* * * * *
    (b) For the period from March 17, 2009 through December 31, 2011, 
both:
    (1) The standards identified in paragraph (a) of this section; and
    (2)(i) Retail pharmacy drug claims. The Telecommunication Standard 
Implementation Guide, Version D, Release 0 (Version D.0), August 2007, 
and equivalent Batch Standard Implementation Guide, Version 1, Release 
2 (Version 1.2), National Council for Prescription Drug Programs. 
(Incorporated by reference in Sec.  162.920.)
    (ii) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Dental (837), May 2006, ASC 
X12N/005010X224, and Type 1 Errata to Health Care Claim: Dental (837), 
ASC X12 Standards for Electronic Date Interchange Technical Report Type 
3, October 2007, ASC X12N/005010X224A1. (Incorporated by reference in 
Sec.  162.920.)
    (iii) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Professional (837), May 
2006, ASC X12N/005010X222. (Incorporated by reference in Sec.  
162.920.)
    (iv) The ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3--Health Care Claim: Institutional (837), May 
2006, ASC X12N/005010X223, and Type 1 Errata to Health Care Claim: 
Institutional (837), ASC X12 Standards for Electronic Data Interchange 
Technical Report Type 3,

[[Page 3328]]

October 2007, ASC X12N/005010X223A1. (Incorporated by reference in 
Sec.  162.920.)
    (c) For the period on and after January 1, 2012, the standards 
identified in paragraph (b)(2) of this section.

0
18. Add a new Subpart S to read as follows:

Subpart S--Medicaid Pharmacy Subrogation

Sec.
162.1901 Medicaid pharmacy subrogation transaction.
162.1902 Standard for Medicaid pharmacy subrogation transaction.


Sec.  162.1901  Medicaid pharmacy subrogation transaction.

    The Medicaid pharmacy subrogation transaction is the transmission 
of a claim from a Medicaid agency to a payer for the purpose of seeking 
reimbursement from the responsible health plan for a pharmacy claim the 
State has paid on behalf of a Medicaid recipient.


Sec.  162.1902  Standard for Medicaid pharmacy subrogation transaction.

    The Secretary adopts the Batch Standard Medicaid Subrogation 
Implementation Guide, Version 3, Release 0 (Version 3.0), July 2007, 
National Council for Prescription Drug Programs, as referenced in Sec.  
162.1902 (Incorporated by reference at Sec.  162.920):
    (a) For the period on and after January 1, 2012, for covered 
entities that are not small health plans;
    (b) For the period on and after January 1, 2013 for small health 
plans.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program) (Catalog of Federal Domestic Assistance Program 
No. 93.773, Medicare--Hospital Insurance; and Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program)

    Approved: December 11, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. E9-740 Filed 1-15-09; 8:45 am]
BILLING CODE 4150-28-P