Federal Register, Volume 77 Issue 6 (Tuesday, January 10, 2012)

[Federal Register Volume 77, Number 6 (Tuesday, January 10, 2012)]
[Rules and Regulations]
[Pages 1555-1590]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-132]

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Vol. 77

Tuesday,

No. 6

January 10, 2012

Part II

Department of Health and Human Services

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Office of the Secretary

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45 CFR Parts 160 and 162

Administrative Simplification: Adoption of Standards for Health Care
Electronic Funds Transfers (EFTs) and Remittance Advice; Interim Final
Rule

Federal Register / Vol. 77, No. 6 / Tuesday, January 10, 2012 / Rules
and Regulations

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 160 and 162

[CMS-0024-IFC]
RIN 0938-AQ11

Administrative Simplification: Adoption of Standards for Health
Care Electronic Funds Transfers (EFTs) and Remittance Advice

AGENCY: Office of the Secretary, HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period implements parts
of section 1104 of the Affordable Care Act which requires the adoption
of a standard for electronic funds transfers (EFT). It defines EFT and
explains how the adopted standards support and facilitate health care
EFT transmissions.

DATES: Effective Date: These regulations are effective on January 10,
2012. The incorporation by reference of the publications listed in this
interim final rule with comment period is approved by the Director of
the Office of the Federal Register January 10, 2012.
Compliance Date: The compliance date for this regulation is January
1, 2014.
Comment Date: To be assured consideration, comments must be
received at one of the addresses provided below on or before March 12,
2012.

ADDRESSES: In commenting, please refer to file code CMS-0024-IFC.
Because of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-0024-IFC, P.O. Box 8013,
Baltimore, MD 21244-8013.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY: Centers for Medicare & Medicaid Services,
Department of Health and Human Services, Attention: CMS-0024-IFC, Mail
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. Alternatively, you may deliver (by hand or
courier) your written comments ONLY to the following addresses prior to
the close of the comment period:
a. For delivery in Washington, DC--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, Room 445-G, Hubert
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC
20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters are encouraged to leave their comments in
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing
by stamping in and retaining an extra copy of the comments being
filed.)
b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid
Services, Department of Health and Human Services, 7500 Security
Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
call telephone number (410) 786-1066 in advance to schedule your
arrival with one of our staff members.
Comments erroneously mailed to the addresses indicated as
appropriate for hand or courier delivery may be delayed and received
after the comment period.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT:
Matthew Albright (410) 786-2546.
Denise Buenning (410) 786-6711.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments
received before the close of the comment period are available for
viewing by the public, including any personally identifiable or
confidential business information that is included in a comment. We
post all comments received before the close of the comment period on
the following Web site as soon as possible after they have been
received: http://regulations.gov. Follow the search instructions on
that Web site to view public comments.
Comments received timely will be also available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-(800) 743-3951.

I. Background

A. Statutory and Regulatory Background

The background discussion below presents a partial statutory and
regulatory history related only to the statutory provisions and
regulations that are important and relevant for purposes of this
interim final rule with comment period. For further information about
electronic data interchange (EDI), the complete statutory background,
and the regulatory history, see the August 22, 2008 (73 FR 49742)
proposed rule entitled ``Health Insurance Reform; Modifications to the
Health Insurance Portability and Accountability Act (HIPAA) Electronic
Transaction Standards''.
1. The Health Insurance Portability and Accountability Act of 1996
(HIPAA)
Congress addressed the need for a consistent framework for
electronic health care transactions and other administrative
simplification issues through the Health Insurance Portability and
Accountability Act of 1996 (HIPAA), (Pub. L. 104-191), enacted on
August 21, 1996. HIPAA amended the Social Security Act (hereinafter
referred to as the Act) by adding Part C--Administrative
Simplification--to Title XI of the Act, requiring the Secretary of the
Department of Health and Human Services (DHHS) (hereinafter referred to
as the Secretary) to adopt standards for certain transactions to enable
health information to be exchanged more efficiently and to achieve
greater uniformity in the transmission of health information.
In the August 17, 2000 Federal Register (65 FR 50312), we published
a final rule entitled ``Health Insurance Reform: Standards for
Electronic Transactions'' (hereinafter referred to as the Transactions
and Code Sets final rule). That rule implemented some of the HIPAA
Administrative Simplification requirements by adopting standards for
electronic health care transactions developed by standard setting
organizations (SSOs) and medical code sets to be used in those
transactions. We adopted Accredited Standards Committee (ASC) X12
Version 4010 standards and the National Council for Prescription Drug
Programs (NCPDP) Telecommunication Version 5.1 standard, which are
specified at 45 CFR part 162, subparts K through R. Section 1172(a) of
the Act states that ``[a]ny standard adopted

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under [HIPAA] shall apply, in whole or in part, to * * * (1) A health
plan. (2) A health care clearinghouse. (3) A health care provider who
transmits any health information in electronic form in connection with
a [HIPAA transaction].'' These entities are referred to as covered
entities.
In the January 16, 2009 Federal Register, we published a final rule
entitled, ``Health Insurance Reform; Modifications to the Health
Insurance Portability and Accountability Act (HIPAA) Electronic
Transaction Standards'' (74 FR 3296) (hereinafter referred to as the
Modifications final rule) that, among other things, adopted updated
versions of the standards, ASC X12 Version 5010 (hereinafter referred
to as Version 5010) and NCPDP Telecommunication Standard Implementation
Guide Version D.0 (hereinafter referred to as Version D.0) and
equivalent Batch Standard Implementation Guide, Version 1, Release 2
(hereinafter referred to as Version 1.2) for the electronic health care
transactions originally adopted in the Transactions and Code Sets final
rule. Covered entities are required to comply with Version 5010 and
Version D.0 on January 1, 2012.
Table 1 summarizes the full set of transaction standards adopted in
the Transactions and Code Sets final rule and as modified in the
Modifications final rule. The table uses abbreviations of the standards
and the names by which the transactions are commonly referred as a
point of reference for the reader. The official nomenclature and titles
of the standards and transactions related to the provisions of this
interim final rule with comment period are provided later in the
narrative of this preamble.

Table 1--Current Adopted Standards for HIPAA 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 and Version 1.2.............. Health care claims--Retail
pharmacy drugs
(telecommunication and batch
standards).
ASC X12 837 P, NCPDP D.0 and Version Health care claims--Retail
1.2 (batch). pharmacy supplies and
professional services.
NCPDP D.0 and Version 1.2 (batch)...... Coordination of Benefits--
Retail pharmacy drugs.
ASC X12 837 D.......................... Coordination of Benefits--
Dental.
ASC X12 837 P.......................... Coordination of Benefits--
Professional.
ASC X12 837 I.......................... Coordination of Benefits--
Institutional.
ASC X12 270/271........................ Eligibility for a health plan
(request and response)--
Dental, professional, and
institutional.
NCPDP D.0 and Version 1.2 (batch)...... 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 and Version 1.2 (batch)...... Referral certification and
authorization (request and
response)--Retail pharmacy
drugs.
NCPDP 3.0.............................. Medicaid pharmacy subrogation
(batch standard).
------------------------------------------------------------------------

In the July 8, 2011 Federal Register (76 FR 40458), we published an
interim final rule with comment period, ``Administrative
Simplification: Adoption of Operating Rules for Eligibility for a
Health Plan and Health Care Claim Status Transactions'' (hereinafter
referred to as the Eligibility and Claim Status Operating Rules IFC).
That rule adopted operating rules for two HIPAA transactions: (1)
Eligibility for a health plan; and (2) health care claim status. The
Eligibility and Claim Status Operating Rules IFC also defined operating
rules and described their relationship to standards.
In general, the transaction standards adopted under HIPAA enable
electronic data interchange using a common interchange structure, thus
minimizing the industry's reliance on multiple formats. The standards
significantly decrease administrative burden on covered entities by
creating greater uniformity in data exchange and reduce the amount of
paper forms needed for transmitting data which remains an obstacle to
achieving greater health care industry administrative simplification.
Section 1173(a) of the Act requires the Secretary to adopt
standards for a number of financial and administrative transactions, as
well as data elements for those transactions, to enable health
information to be exchanged electronically. Section 1172(b) of the Act
requires that a standard adopted under HIPAA ``be consistent with the
objective of reducing the administrative costs of providing and paying
for health care.''
Under section 1172(c)(2)(B) of the Act, if no standard setting
organization (SSO) has developed, adopted, or modified any standard
relating to a standard that the Secretary is authorized or required to
adopt, then the Secretary may adopt a standard relying upon
recommendations of the National Committee on Vital and Health
Statistics (NCVHS), in consultation with the organizations referred to
in section 1172(c)(3)(B) of the Act, and appropriate Federal and State
agencies and private organizations.
2. Electronic Funds Transfers (EFT) and the Affordable Care Act
Section 1104(b)(2)(A) of the Patient Protection and Affordable Care
Act (Pub. L. 111-148) (hereinafter referred to as the Affordable Care
Act) amended section 1173(a)(2) of the Act by adding the electronic
funds transfers (hereinafter referred to as EFT) transaction to the
list of electronic health care transactions for which the Secretary
must adopt a standard under HIPAA. Section 1104(c)(2) of the Affordable
Care Act requires the Secretary to promulgate a final rule to establish
an EFT standard, and authorizes the Secretary to do so by an interim
final rule. That section further requires the standard to be adopted by
January 1, 2012, in a manner ensuring that it is effective by January
1, 2014.
Sections 1104(b)(2)(B) and 10109(a)(1)(B) of the Affordable Care

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Act also amended section 1173 of the Act by adding sections 1173(a)(4)
and (5), respectively, to provide for new financial and administrative
transactions requirements. Section 1173(a)(4) guides us in adopting
standards in this interim final rule with comment period and associated
operating rules (which we will adopt in future rulemaking) for the EFT
transaction, particularly the following requirements: First, such
standards and associated operating rules must ``be comprehensive,
requiring minimal augmentation by paper or other communications;''
second, the standards and associated operating rules must ``describe
all data elements (including reason and remark codes) in unambiguous
terms [and] require that such data elements be required or conditioned
upon set values in other fields, and prohibit additional conditions
(except where necessary to implement State or Federal law, or to
protect against fraud and abuse);'' and third, the Secretary must
``seek to reduce the number and complexity of forms (including paper
and electronic) and data entry required by patients and providers.''

B. Electronic Funds Transfers (EFT): General Background

While industry and consumers use the term EFT in a number of
different ways, the definition of EFT in section 31001(x) of the Debt
Collection Improvement Act of 1996 (Pub. L. 104-134) is particularly
useful in this general background discussion because it includes a
broad spectrum of transmission vehicles and terms that are relevant to
our discussion of EFT in this interim final rule with comment period.
The Debt Collection Improvement Act defines an EFT as ``any transfer of
funds, other than a transaction originated by cash, check, or similar
paper instrument that is initiated through an electronic terminal,
telephone, computer, or magnetic tape, for the purpose of ordering,
instructing, or authorizing a financial institution to debit or credit
an account. The term includes Automated Clearing House (ACH) transfers,
Fedwire transfers, transfers made at automatic teller machines (ATMs),
and point-of-sale terminals.''
Because we are adopting standards in this interim final rule with
comment period that apply only to transmissions of data over the ACH
Network, we focus our discussion on EFT that are transmitted over the
ACH Network.
1. The Automated Clearing House (ACH) Network
The ACH Network is the ``pipeline'' through which many EFT travel;
it is a processing and delivery system for EFT that uses nationwide
telecommunications networks. Consumers use the ACH Network when, for
example, they have paychecks directly deposited in their accounts, or
pay bills electronically by having funds withdrawn automatically from
their accounts.
In the majority of cases, when an EFT is used by a health plan to
pay health care claims, it is transmitted through the ACH Network.
However, payments and debits through the ACH Network represent only one
category of EFT; some EFT, including some health care claim payments,
can be made outside of the ACH Network. One example of an EFT made
outside of the ACH Network is a transfer of funds made through the
Federal Reserve Wire Network, hereinafter referred to as Fedwire. This
is akin in the consumer universe to a wire transfer of funds made via
Western Union, for example, except that the Fedwire is an electronic
transfer system developed and maintained by the Federal Reserve System.
Fedwire transfers on behalf of bank customers include funds used in the
purchase or sale of government securities, deposits, and other large,
time-sensitive payments.
The ACH initiative began in the early 1970s to explore payment
alternatives to paper checks in response to the rapid growth in paper
check volume. The establishment of the first ACH Network, Calwestern
Automated Clearing House Association in California, led to the
formation of similar groups around the country. Agreements were made
between these ACH associations and regional Federal Reserve Banks to
provide facilities, equipment, and staff to operate regional automatic
clearing house networks. The National Automated Clearing House
Association (NACHA) was founded in 1974 to centrally coordinate the
local ACH associations and to administer, develop, and enforce
operating rules and management practices for the ACH Network. In 1978,
in a joint effort between NACHA and the Federal Reserve System,
regional ACHs were linked electronically, with NACHA serving as the
national ACH Network's administrator.
NACHA develops rules, published in NACHA Operating Rules &
Guidelines--A Complete Guide to the Rules Governing the ACH Network
(hereinafter referred to as the NACHA Operating Rules & Guidelines,
available at https://www.nacha.org), that govern the ACH Network. The
NACHA Operating Rules & Guidelines is an annual publication divided
into two sections, the NACHA Operating Rules and the NACHA Operating
Guidelines. The NACHA Operating Rules describes NACHA's legal framework
for the ACH Network and provides NACHA's specifications for electronic
transmissions conducted through the ACH Network. Electronic
transmissions conducted through the ACH Network include money
transfers, money withdrawals, and non-monetary transactions, and are
sent in electronic formats called ACH Files, sometimes referred to as
ACH formats, NACHA formats, ACH Entry Classes, or ACH payment
applications. In the 2011 NACHA Operating Rules, there are
implementation specifications for sixteen different types or
``classes'' of ACH Files that can be used for business and consumer
transactions over the ACH Network.
The NACHA Operating Guidelines provides guidance on implementing
the NACHA Operating Rules through narrative, diagrams, illustrations,
and examples. The NACHA Operating Guidelines is organized by chapter
according to the responsibilities of each of the participants in an ACH
transaction and includes an overview of the different classes of ACH
Files.
The Federal government is the single largest user of the ACH
Network. The Debt Collection Improvement Act requires that all Federal
payments made after January 1, 1999, other than payments required under
the Internal Revenue Code of 1986, be made by EFT. Subsequent
regulations implementing this act allowed for waivers and exceptions.
In 31 CFR 210, the United States Department of the Treasury formally
adopted the NACHA Operating Rules & Guidelines for the Federal
government's EFT payments made through the ACH Network, including
Federal tax collections, tax refund payments, and Social Security and
other benefit payments made by direct deposit.
2. The Payment Flow Through the ACH Network
To give context to how EFT are used in the health care industry, we
consider here how businesses pay one another by transferring funds and
sending related payment information through the ACH Network. We can
simplify understanding of the ACH Network payment process by dividing
the transaction flow of the EFT into three chronological stages, each
of which

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includes a separate electronic transmission of information (see
Illustration A and Table 2).
a. Stage 1 Payment Initiation
In the first stage, the business or entity that is making the
payment orders, instructs or authorizes its financial institution to
make an EFT payment through the ACH Network on its behalf. This
electronic transmission from a business to its financial institution is
sometimes referred to as ``payment initiation,'' ``payment
instructions,'' ``payment authorization,'' or ``originating an entry.''
To order, instruct or authorize a financial institution to make an
EFT payment through the ACH Network, the business or entity that is
making the payment, designated as an ``Originator'' in the NACHA
Operating Rules & Guidelines, must provide its financial institution,
called the ``Originating Depository Financial Institution'' or ODFI,
with payment information similar to information that one would find on
a paper check. This payment information includes the amount being paid,
identification of the payer and payee, bank accounts of the payer and
payee, routing information, and the date of the payment.
An Originator may send this payment information formatted in an ACH
File in accordance with the NACHA Operating Rules & Guidelines. The
Originator may also send the data in a non-ACH File, such as an ASC X12
820, an ASC X12 835, a proprietary file, or a flat file, and the ODFI
will format the data into an ACH File as a service to the Originator
(Table 2). Regardless of the format that an Originator uses to transmit
payment information to the ODFI, we hereinafter refer to the
transmission in this stage in the ACH payment flow as the Stage 1
Payment Initiation.
b. Stage 2 Transfer of Funds
In this stage, a number of separate interactions take place, but
the end result is that funds from one account are moved to another
account. First, the payment information that was sent from the
Originator to the ODFI in the Stage 1 Payment Initiation travels from
the ODFI to one or both of two ACH Operators: The Federal Reserve, run
by the Federal government, or The Clearing House, a private company.
These ACH Operators then conduct the actual funds transfer. They sort
and batch ACH Network transactions and, on the payment date, debit the
ODFI and credit the financial institution of the business that is being
paid. The financial institution of the business that is being paid is
called the ``Receiving Depository Financial Institution'' or RDFI. The
final step in this stage is that the RDFI credits the account of the
business or entity that is being paid, called the Receiver.
In Stage 2, the actual transfer of funds or ``settlement,'' is
governed by the NACHA Operating Rules & Guidelines, as well as Federal
statutes and regulations. In contrast to the Stage 1 Payment Initiation
which allows for a variety of non-ACH File options, the ODFI must
transmit the payment and payment information through the ACH Network
using an ACH File.
We hereinafter refer to the transmission in this stage of the EFT
transaction as the Stage 2 Transfer of Funds.
c. Stage 3 Deposit Notification
In this final stage, the RDFI transmits information to the Receiver
that indicates that the payment has been deposited in the Receiver's
account. The RDFI can do this proactively by notifying the Receiver at
the time the funds are deposited, or the RDFI can simply post the
payment to the Receiver's account and it will appear on the Receiver's
account summary. The NACHA Operating Rules & Guidelines does not
require an RDFI to notify a Receiver that the RDFI has received the ACH
File at the time of receipt, unless the RDFI has an agreement with the
Receiver that contains a request to do so either automatically when a
Receiver receives any deposit via EFT, or episodically if the Receiver
specifically requests such notification on a case-by-case basis for any
given EFT deposit.
The notification data can be transmitted to the Receiver in any
format the RDFI and Receiver agree upon (Table 2). We hereinafter refer
to the transmission in this stage of the EFT transaction as the Stage 3
Deposit Notification.
3. Addenda Records
Two types of ACH Files can be used for domestic business-to-
business payments in the Stage 2 Transfer of Funds: The Corporate
Credit or Debit Entry (CCD), sometimes referred to as the Cash
Concentration/Disbursement format, and the Corporate Trade Exchange
Entry (CTX) (Table 2, Column 2). The difference between the two is that
the CCD is capable of including an ``Addenda Record'' that holds up to
80 characters of remittance or additional payment information supplied
by an Originator, while the CTX has multiple Addenda Records that
together can hold nearly 800,000 characters of remittance or additional
payment information supplied by an Originator.
An Originator has the option of conveying remittance or additional
payment information in the Addenda Records of the CCD or the CTX so
that payment and remittance or additional payment information can move
together electronically through the ACH Network. This remittance or
additional payment information can be any data that the Originator
thinks the Receiver may need to know, such as a tracking or invoice
number, as long as the data relates to the associated EFT payment and
the data stays within formatting limitations described in the NACHA
Operating Rules & Guidelines.
In the Stage 1 Payment Initiation, the remittance or additional
payment information can be transmitted to the ODFI by the Originator in
the same file and in the same formats that can be used to transmit the
payment information; that is, in a flat file, an X12 file (using an ASC
X12 835 or 820 standard), a proprietary file (most often proprietary to
the financial institution), or an ACH File (CCD or CTX), for which
implementation and standards are developed and maintained by NACHA (see
Table 2). Because it is ``enveloped'' in an ACH File, ideally the
remittance or additional payment information in the Addenda Record is
transmitted from the Originator to the ODFI in the Stage 1 Payment
Initiation, through the ACH Network to the RDFI in the Stage 2 Transfer
of Funds, then finally to the Receiver in the Stage 3 Deposit
Notification.
Before the ODFI enters the ACH File into the ACH Network to
initiate the Stage 2 Transfer of Funds, NACHA Operating Rules &
Guidelines requires that the data in the Addenda Record of an ACH File
be formatted according to any ASC X12 transaction set (the data
envelope that consists of a header, detail and summary areas) or ASC
X12 data segment (a grouping of data elements which may be mandatory,
optional or relational), or in a NACHA-endorsed banking convention. The
Originator may format the Addenda Record according to ASC X12
requirements and transmit it as part of the Stage 1 Payment Initiation,
or the Originator may send the ODFI unformatted data in the Stage 1
Payment Initiation and the ODFI will format the data into an ASC X12
format as a service to the Originator. The ODFI then transmits the data
in either the CCD or the CTX through the ACH Network to the RDFI as a
Stage 2 Funds Transfer.
When a CCD includes an Addenda Record, it is referred to as a ``CCD
plus Addenda Record'' or ``CCD+.'' Hereinafter, we refer to the CCD
with Addenda Record as the CCD+Addenda.

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We refer to the CTX with Addenda Records simply as the CTX.
For the Stage 3 Deposit Notification, the NACHA Operating Rules &
Guidelines requires that, upon request of the Receiver, an RDFI provide
the Receiver all payment-related information contained within the
Addenda Records transmitted with a CCD or CTX. If so requested, the
data contained in the Addenda Record(s) are provided by the RDFI to the
Receiver in a format agreed to by the Receiver and the RDFI (See Table
2).
[GRAPHIC] [TIFF OMITTED] TR10JA12.000

Table 2--EFT Formats for Business-to-Business Payments Through the ACH
Network
------------------------------------------------------------------------
Electronic format used in
Transmission stage transmission
------------------------------------------------------------------------
Stage 1 Payment Initiation.............
Payment Information transmission Non-ACH file such as a
from Originator to ODFI. proprietary file, a flat file,
an ASC X12 835 or 820 format,
or
ACH File (CCD or CTX).
Remittance or additional
payment information for
Addenda Record(s) can be
transmitted in any of the
formats listed in the two
bullets above.
Stage 2 Transfer of Funds..............
Payment Information transmission Standard required by
from ODFI to RDFI. NACHA: ACH File (CCD or CTX).
Addenda Record(s) must be in
ANSI ASC X12 transaction set
or data segment format or
NACHA-endorsed banking
convention.
Stage 3 Deposit Notification...........
Payment Information transmission Format to be agreed
from RDFI to Receiver. upon by Receiver and RDFI (but
RDFI is not obligated to
proactively provide payment
information unless requested
by the Receiver).
------------------------------------------------------------------------

4. Advantages and Disadvantages of EFT
According to the 2010 AFP Electronic Payments: Report of Survey
Results, produced by the Association for Financial Professionals (AFP)
and underwritten by J.P. Morgan,\1\ businesses that use EFT cite three
main benefits:
---------------------------------------------------------------------------

\1\ http://www.afponline.org/pub/res/topics/topics_pay.htm.
---------------------------------------------------------------------------

Cost savings: Savings derive from cost avoidance of
printing checks, purchasing and stuffing envelopes, and manually
depositing checks;
Fraud control: The above-cited AFP survey found that 90
percent of organizations that experienced payment fraud in 2008 were
victims of paper check fraud, while only 7 percent of organizations
that experienced payment fraud were victims of EFT fraud; and
Improved cash flow and cash forecasting: Forty percent of
the AFP's 500 survey respondents reported improved cash forecasting as
a result of EFT payments.
In terms of disadvantages, some businesses find it expensive or
inefficient to overlay the ACH Network payment process onto existing
technology, business systems, and processes originally designed to
process paper checks. For instance, for many businesses, the payment
system and process is separate from the accounts payable/receivable
system and electronic data interchange (EDI) systems, and the business
cannot send or receive automated remittance information together with
electronic payments without significant investment and organizational
change.\2\
---------------------------------------------------------------------------

\2\ 2010 AFP Electronic Payments: Report of Survey Results.
---------------------------------------------------------------------------

C. Payment of Health Care Claims via EFT

To understand the context in which an EFT is used to pay for health
care claims, it is necessary to look at the closely-related
transmission of health care remittance advice.
A health plan rarely pays a provider the exact amount a provider
bills the health plan for health care claims. A health plan adjusts the
claim charges based on contract agreements, secondary payers, benefit
coverage, expected co-pays and co-insurance, and

[[Page 1561]]

so on. These adjustments are described in the remittance advice. The
health care remittance advice is somewhat analogous to an employee's
salary paystub which describes the amount the employee is being paid,
the hours worked, and an explanation of any adjustments or deductions
that are being made to an employee's salary payment.
The remittance advice has traditionally been in paper form, sent by
mail to the provider. However, the use of electronic remittance advice
(ERA) is growing.
The Transactions and Code Sets final rule adopted a definition for
the health care payment and remittance advice transaction. The
definition, found in 45 CFR 162.1601, includes descriptions for both
health care payment and ERA.
The transmission described in Sec. 162.1601(a), hereinafter
referred to as the transmission of ``health care payment/processing
information,'' is primarily a financial transmission. The transmission
described in Sec. 162.1601(b) is the ERA--an explanation of the health
care payment or an explanation of why there is no payment for the
claim. The ERA includes detailed identifiable health information.
With few exceptions, the ERA and the health care payment/processing
information are sent in different electronic formats through different
networks, contain different data that have different business uses, and
are often received by the health care provider at different times.
The health care payment/processing information is transmitted via
EFT from the health plan's treasury system. It is then processed by
financial institutions, and ultimately entered into the health care
provider's treasury system. Currently, the health care payment/
processing information is generally transmitted in a CCD through the
ACH Network, though there are instances when other forms of EFT such as
Fedwire are used. The path of the health care payment/processing
information through the ACH Network from health plan to provider is
represented in Illustration B by the solid arrow.
In contrast, the ERA is traditionally sent from the health plan's
claims processing system and processed through the provider's billing
and collection system. The path of the ERA from health plan to provider
is represented in Illustration B by the dashed arrow.
When both the health care payment/processing information and the
ERA to which it corresponds arrive at the health care provider (often
at different times), the two transmissions must be reassociated or
matched back together by the provider; that is, the provider must
associate the ERA with the payment that it describes. This process is
referred to as ``reassociation.'' Ideally, reassociation of the ERA
with the health care payment/processing information is automated
through the provider's practice management system. In practice, time-
consuming manual reassociation by administrative staff is often
required.
[GRAPHIC] [TIFF OMITTED] TR10JA12.001

It is technically possible for the health care payment/processing
information and ERA to be combined and sent via EFT through the ACH
Network using the CTX. Given the amount of data the CTX can hold in its
Addenda Records, all of the ERA can be ``enveloped'' in a single ACH
File and transmitted through the ACH Network. This allows both the
health care payment/processing information and ERA to be transmitted as
a ``package'' through the same network and to be received in the same
``package'' by the health care provider. Theoretically, the provider
can avoid the step of reassociating the ERA with the health care
payment/processing information because the ERA and health care payment/
processing information are transmitted together via EFT.
However, to our knowledge, the CTX is infrequently, if ever, used
by health plans for the transmission of both ERA and health care
payment/processing information to pay for health care claims. It
appears that there are at least two reasons why the CTX is not used:
First, most health plans and health care providers are probably not
technically capable of processing the CTX at this time. As noted in
this section, the transmission of health care payment/processing
information and the ERA are historically sent by health plans and
received by health care providers from two different systems through
two different processes (Illustration B). It would entail a change in
systems and workflow to integrate the two systems and processes, both
for the health plans that send these two transmissions and

[[Page 1562]]

for the health care providers that receive them.
Second, ERA contains protected health information (PHI), as defined
at 45 CFR 160.103, and some in the financial industry are reluctant to
be subject to HIPAA's privacy and security requirements with respect to
such information. On the other side, providers and payers are reluctant
to send PHI through the ACH network without assurances that the PHI is
adequately protected under HIPAA.
The Transactions and Code Sets final rule adopted the ASC X12 835
TR3 (hereinafter referred to as the X12 835 TR3) as the standard for
the health care payment and remittance advice transaction. As noted,
the health care payment and remittance advice transaction includes two
transmissions, the transmission of health care payment/processing
information, and ERA. The X12 835 TR3 includes comprehensive
implementation specifications for the ERA, but has less comprehensive
``data use'' instructions for transmitting health care payment/
processing information. For example:
According to the X12 835 TR3, health care payment/
processing information may be sent through the mail by paper check or
via EFT. If transmitted via EFT, the health care payment/processing
information can be transmitted by wire or through the ACH Network.
The X12 835 TR3 does not require a single standard format
for Stage 1 Payment Initiation. According to the X12 835 TR3,
proprietary, ACH, or ASC X12 data formats can be used in the Stage 1
Payment Initiation (X12 835 TR3, Table 1.1, http://www.x12.org).

D. The National Committee on Vital and Health Statistics (NCVHS):
December 2010 Hearings on EFT

The NCVHS was established by Congress to serve as an advisory body
to the Secretary on health data, statistics, and national health
information policy, and has been assigned a significant role in the
Secretary's adoption of standards, code sets, and operating rules under
HIPAA.
On December 3, 2010, the NCVHS Subcommittee on Standards held a
hearing entitled ``Administrative Simplification under the Patient
Protection and Affordable Care Act Standards and Operating Rules for
Electronic Funds Transfer (EFT) and Remittance Advice (RA)'' (for
agenda and testimony, see http://www.ncvhs.hhs.gov). The NCVHS engaged
in a comprehensive review of potential standards and operating rules
for the EFT transaction, as well as a review of standard setting
organizations and operating rule authoring entities, for purposes of
making a recommendation to the Secretary as to whether such standards
and operating rules should be adopted. The NCVHS hearing consisted of a
full day of public testimony with participation by stakeholders
representing a cross section of the health care industry, including
health plans, health care provider organizations, health care
clearinghouses, retail pharmacy industry representatives, standards
developers, professional associations, representatives of Federal and
State health plans, the Workgroup for Electronic Data Interchange
(WEDI), the banking industry, and potential standard setting
organizations (also known as standards development organizations or
SDOs) for EFT standards and authoring entities for operating rules.
These entities included the Council for Affordable Quality Healthcare
(CAQH) Committee on Operating Rules for Information Exchange (CORE);
the Accredited Standards Committee (ASC) X12; the National Automated
Clearing House Association (NACHA); and the National Council for
Prescription Drug Programs (NCPDP).
The testimony, both written and verbal, described many aspects and
issues of the health care payment and remittance advice transaction.
Testifiers described the advantages to using EFT to pay health care
claims, similar to the advantages that are outlined in section I.B.4.
of this interim final rule with comment period. Chief among these
advantages was the savings in time and money for health plans and
health care providers that EFT affords. Testifiers presented a number
of case studies to illustrate these benefits. Testifiers also presented
a number of obstacles to greater EFT use in health care. We refer the
reader to the testimonies posted to the NCVHS Web site at http://www.ncvhs.hhs.gov for a more comprehensive discussion of the issues.
We summarize here a number of major obstacles for health care
providers to adopt EFT, as identified by NCVHS testifiers and
subsequent research, including: the administratively difficult
enrollment process to accept EFT for health care claim payments; the
time lag between receipt of the health care payment/processing
information and the arrival of the ERA to the provider; and the
problems regarding reassociation of the ERA with the EFT.
1. Enrollment
Health care providers must undertake a labor- and paper-intensive
enrollment process in order to receive health care claim payments via
EFT through the ACH Network from each of the health plans whom they
bill. Each health plan has a different enrollment process. The health
care provider must access the enrollment form and the form's
instructions, which is sometimes difficult to find on a health plan's
web site. Each health plan requires a different form to be filled out
that is unique to that health plan. In the majority of cases, these
forms are 3 to 18 pages that must be filled out manually, and each
health plan requires different information (in some cases, a voided
check or bank note) and signature requirements on the form. The health
care provider must also discuss the options in accepting EFT and the
arrangement for deposit notification with its financial institution.
The health plans' enrollment forms must be resubmitted when a health
care provider changes bank accounts or financial institutions, as is
reportedly done regularly, or when there is a change in a provider's
staff such that an authorizing signature on the EFT enrollment form
must be changed. Finally, the avenues of submission of the enrollment
forms differ from health plan to health plan: Some health plans may
require a telephone call to an account representative in order to
complete enrollment, while others may require the forms to be emailed,
faxed, or mailed.
If a health care provider submits claims to twenty or more health
plans, then the enrollment and maintenance of the enrollment data for
EFT payments with the health plans reportedly becomes onerous for the
provider. If a health care provider decides to pursue EFT at all, it is
likely the provider will enroll only with those health plans that
process significant numbers of the provider's claims to make the EFT
worth the provider's time and effort to enroll.
2. Synchronization of EFT With ERA
According to testimony, another barrier for health care providers
to the use of EFT for health care claim payments is that the ERA
arrives at a different time than the associated health care payment/
processing information that is transmitted via EFT. This is because, as
described in section I.C. of this interim final rule with comment
period, with few exceptions, the ERA is transmitted separately from the
health care payment/processing information, and the two transmissions
often arrive on different days or even different weeks. Consequently,
if the ERA arrives first, it will describe a deposit that will

[[Page 1563]]

be made in a health care provider's account sometime in the future, so
the provider cannot process the ERA until the health care payment/
processing information is transmitted. Or, if the transmission of
payment/processing information arrives first, multiple deposits may be
made into the health care provider's account without the provider
having the corresponding ERA that describes the claims for which the
payments are being made. Both of these circumstances create a situation
where the accounts receivable process for the provider requires costly
manual intervention and oversight.
3. Reassociation and the Transmission of the Trace Number Segment (TRN)
Another barrier for health care providers to the use of EFT for
health care claim payments is the difficulty in matching the health
care payment/processing information with its associated ERA so that
providers can post payments properly in their accounting systems.
Because the two transmissions usually travel separately, the ERA must
ultimately be reassociated with the health care payment/processing
information transmitted via EFT when the two separate transmissions are
received by the health care provider.
The trace number segment, hereinafter referred to as the TRN
Segment, is a type of tracking code for ERA and the health care
payment/processing information transmitted via EFT. The TRN Segment's
implementation specifications are included in the X12 835 TR3. Ideally,
the TRN Segment within a specific ERA is duplicated in the health care
payment/processing information transmitted via EFT. Specifically, the
TRN Segment should be duplicated in the Addenda Record of the
CCD+Addenda. After the health care payment/processing information is
transmitted with the TRN Segment to a health care provider, the
provider's practice management system can use the TRN Segment to
automatically reassociate the health care payment/processing
information with its corresponding ERA and post the payment in the
provider's accounts receivable system.
At the December 2010 NCVHS hearing, industry testifiers noted that
a duplicate of the TRN Segment in the ERA is not always conveyed to the
health care provider within the Addenda Record of the CCD+Addenda as a
part of normal business operations. Therefore, automatic reassociation
becomes difficult if not impossible for the health care provider
receiving the transaction. Testifiers gave a number of reasons why the
TRN Segment is not conveyed to the health care provider, as follows:
In the Stage 1 Payment Initiation, a health plan may not
include an Addenda Record with the CCD or may not authorize its
financial institution to include an Addenda Record with the CCD.
A health plan may include an Addenda Record with the CCD,
or instruct its financial institution to include an Addenda Record with
the CCD, but may not transmit the proper data elements, may fail to
place the data elements in the order specified in the X12 835 TR3, or
may include its own proprietary trace number that is different from the
TRN Segment included in the associated ERA.
A health plan may leave out a particular data element,
such as the Originating Company Identifier (TRN03), which is part of
the TRN Segment specified in the X12 835 TR3, or use a different data
element than that used in the associated ERA.
A health plan may include a TRN Segment in its Stage 1
Payment Initiation but the format that the health plan uses to transmit
this data does not make it clear to the financial institution where the
TRN Segment must be placed in the CCD+Addenda. The financial
institution then puts the TRN Segment in the wrong field or removes it
altogether.
Per NACHA Operating Rules & Guidelines, financial
institutions must put their own ACH ``trace number,'' which is
different from the TRN Segment, in a CCD in a field outside of the
Addenda Record, and there may be confusion among the parties between
the financial institution's trace number and the TRN Segment in the
Addenda Record that needs to match its associated ERA.
The TRN Segment is included in the Addenda Record of the
CCD+Addenda that a health plan's financial institution transmits
through the ACH Network to a health care provider's financial
institution, but the provider's financial institution may not
communicate the TRN Segment to the provider through the Stage 3 Deposit
Notification. This is because, according to the NACHA Operating Rules &
Guidelines, the Receiver must proactively request that the information
in the Addenda Record be transmitted (NACHA Guidelines, Section III,
Chapter 24). Also, a financial institution may translate the data (the
TRN Segment) contained in the Addenda Record of the CCD+Addenda into
its own proprietary format to transmit to the health care provider.
When it is reformatted, the TRN Segment may be altered such that it no
longer matches the TRN Segment in the ERA or cannot be automatically
reassociated by the provider's practice management system.
In summary, the obstacles to having a TRN Segment in the
CCD+Addenda delivered to the health care provider may be categorized as
to their occurrence in two stages of the EFT transmission. First, in
the Stage 1 Payment Initiation transmission between the health plan and
the health plan's financial institution, the TRN Segment may be entered
in the wrong field, contain sequence errors, or be left out or removed.
Second, the TRN Segment may travel successfully through the ACH Network
in the Addenda Record of the CCD+Addenda but, in the Stage 3 Deposit
Notification, the health care provider may not receive the TRN Segment
from the financial institution in a format that allows for automated
reassociation by the health care provider's practice management system.

E. The NCVHS Recommendation to the Secretary

On February 17, 2011, following the December 2010 NCVHS
Subcommittee on Standards hearing, the NCVHS sent a letter to the
Secretary with its recommendations for, among other things, adoption of
a ``health care EFT'' standard (http://www.ncvhs.hhs.gov). From that
letter, we reference the specific recommendations of the NCVHS for the
identification and adoption of a standard to be used for payment of
health care claims via EFT:

1.1 Define health care EFT transaction as the electronic message
used by health plans to order, instruct or authorize a depository
financial institution (DFI) to electronically transfer funds through
the ACH network from one account to another.
1.2 Define health care EFT standard as the format and content
required for health plans to perform an EFT transaction.
1.3 Adopt as the standard format for the health care EFT
standard the NACHA CCD+ format, in conformance with the NACHA
Operating Rules.
1.4 Identify NACHA as the standards development organization for
maintenance of the health care EFT standard.
1.5 Adopt as the implementation specification for the content
for the addenda in the CCD+ the content requirements specified in
the X12 835 TR3 REPORT (ASC X12/005010X221) particular to the CCD+.
1.6 Consider the implications of the fact that, as the result of
the adoption of the healthcare EFT standard, some banks may become
de facto healthcare clearinghouses as defined by HIPAA.

We agree with the spirit and intent of the NCVHS' recommendations
to the

[[Page 1564]]

Secretary as relayed in the February 17, 2011 letter. In this interim
final rule with comment period, we are adopting standards that reflect
the NCVHS' recommendations, with some minor departures. In section II.
of this interim final rule with comment period, we explain the reasons
for the differences between the standards we are adopting and the
NCVHS' recommendations for a standard for payment of health care claims
via EFT.

II. Provisions of the Interim Final Rule With Comment Period

A. The Health Care Electronic Funds Transfers (EFT) and Remittance
Advice Transaction

As previously described in section I.C. of this interim final rule
with comment period, the health care payment and remittance advice
transaction is defined at 45 CFR 162.1601 as either or both of two
different types of information transmissions. We refer to the first
transmission type, in Sec. 162.1601(a), as the health care payment/
processing information, and the second type of transmission, in Sec.
162.1601(b), as the ERA.
As we have discussed, an EFT is an electronic transmission of
payment/processing information. For example, in the CCD+Addenda file
format, the EFT includes information about the transfer of funds such
as the amount being paid, the name and identification of the payer and
payee, bank accounts of the payer and payee, routing numbers, and the
date of the payment. Using health care claims payments as an example,
the CCD+Addenda may also include payment processing information such as
a duplicate of the TRN Segment that is in the associated ERA. So, the
EFT transaction is described already by part of the definition of a
health care payment and remittance advice transaction at Sec.
162.1601(a)--it is the transmission of health care payment, information
about the transfer of funds, and payment processing information.
We considered creating a new subpart in 45 CFR that would define
the EFT transaction separately from the transmission of ERA. However,
we believe that dividing the health care payment and remittance advice
transaction into two separate transactions, one that defines and adopts
standards for the use of EFT to transmit payment/processing information
for health care claims, and another that defines and adopts standards
for ERA, could create the perception that the two are potentially
unrelated transactions. Thus, we believe it is important that the
transmission of health care payment/processing information, as
described in Sec. 162.1601(a) and the transmission of health care
remittance advice as described in Sec. 162.1601(b) be addressed as a
set. In accordance with our decision to link the payment of health care
claims via EFT and the ERA transactions by defining them and
identifying the standards for them in the same regulatory provisions,
we are changing the title of the health care payment and remittance
advice transaction to the ``health care electronic funds transfers
(EFT) and remittance advice'' transaction in Sec. 162.1601 and Sec.
162.1602. For the remainder of this interim final rule with comment
period, we refer to the transmission of health care payment/processing
information as described in Sec. 162.1601(a) as the ``health care
EFT.''
Next, the transaction at Sec. 162.1601(a) is defined as a
transmission ``from a health plan to a health care provider's financial
institution.'' This interim final rule with comment period amends Sec.
162.1601(a) to revise the recipient of the transmission of a health
care EFT to be ``a health care provider'' instead of ``a health care
provider's financial institution.'' We are making this change in the
definition for the purpose of clarifying that the ultimate recipient of
the health care EFT is not the financial institution, but the provider
who requires the health care claim payment/processing information and
in whose account the funds are deposited.
While the definition of the transaction at Sec. 162.1601(a) is
amended to reflect all stages of the transmission of a health care EFT
from health plan to health care provider, we are not adopting standards
in this interim final rule with comment period for every stage of the
health care EFT transmission.

B. Definition of Stage 1 Payment Initiation

We are adding the definition of Stage 1 Payment Initiation to Sec.
162.103. The Stage 1 Payment Initiation ``means a health plan's order,
instruction, or authorization to its financial institution to make a
health care claims payment using an electronic funds transfer (EFT)
through the ACH Network.'' We have described the Stage 1 Payment
Initiation broadly in section I.B.2. of this preamble, and define it
specific to health care claim payments in regulation text. The
definition clarifies that the health plan is the sender of the Stage 1
Payment Initiation, and the health plan's financial institution is the
recipient of the Stage 1 Payment Initiation.
As we discuss later in this interim final rule with comment period,
the standards we are adopting in this interim final rule with comment
period are only for Stage 1 Payment Initiation of the health care EFT.
We are not adopting standards for Stages 2 and 3 of the health care
EFT.

C. Adoption of Standard for Stage 1 Payment Initiation: The NACHA
Corporate Credit or Deposit Entry With Addenda Record (CCD+Addenda)

We are adopting the NACHA Corporate Credit or Deposit Entry with
Addenda Record (CCD+Addenda) implementation specifications, as
contained in the 2011 NACHA Operating Rules & Guidelines, as the
standard for Stage 1 Payment Initiation. We are adopting only the
specific chapter and appendices of the NACHA Operating Rules that
include implementation specifications for the CCD+Addenda, and we are
adopting this standard only for the Stage 1 Payment Initiation of the
health care EFT (Table 3).

D. Adoption of Standard for the Data Content of the Addenda Record of
the CCD+Addenda: The ASC X12 835 TRN Segment

In its February 17, 2011 letter, the NCVHS recommended that the
Secretary ``adopt as the implementation specification for the content
for the addenda in the CCD+, the content requirements specified in the
X12 835 TR3 REPORT (ASCX12/005010X221) particular to the CCD+.'' In
Sec. 162.1602, we are adopting the X12 835 TR3 TRN Segment as the
standard for the data content of the Addenda Record of the CCD.
The CCD Addenda Record can hold up to 80 characters. The NACHA
Operating Rules & Guidelines requires that the data in the Addenda
Record be formatted according to any ASC X12 transaction set or data
segment, or in a NACHA endorsed banking convention. In order to
standardize the data content of the CCD+, in Sec. 162.1602, we are
requiring health plans to input the X12 835 TRN Segment into the
Addenda Record of the CCD+Addenda; specifically, the X12 835 TRN
Segment must be placed in Field 3 of the Addenda Entry Record (``7
Record'') of a CCD. The TRN Segment implementation specifications are
described in the X12 835 TR3: ``Section 2.4: Segment Detail, TRN
Reassociation Trace Number.'' The TRN Segment includes, consecutively,
the Trace Type Code (TRN01), the Reference Identification (TRN02), the
Originating Company Identifier (TRN03), and, if

[[Page 1565]]

situationally required, the Reference Identification (TRN04).
In order to most efficiently and effectively achieve reassociation,
the TRN Segment in the Addenda Record of the CCD+Addenda should be the
same as the TRN Segment that is included in the associated ERA that
describes the payment. However, this is not a requirement under this
interim final rule with comment period. We believe that the details of
any such requirement are best addressed through operating rules for the
health care EFT and remittance advice transaction.
In summary, we are adopting two standards for the health care EFT:
the CCD+Addenda implementation specifications in the 2011 NACHA
Operating Rules & Guidance for the Stage 1 Payment Initiation, and the
TRN Segment implementation specifications in the X12 835 TR3 for the
data content of the Addenda Record of the CCD+Addenda. Hereinafter,
when we refer to the ``health care EFT standards,'' we are referring to
these two standards. The two standards of the health care EFT, together
with the current standard for the ERA, the X12 835 TR3, are the three
standards for the health care electronic funds transfers (EFT) and
remittance advice transaction. Table 3 summarizes these standards and
the transmissions to which they apply.

Table 3--The Health Care Electronic Funds Transfers (EFT) and Remittance Advice Transaction From Health Plan to
Health Care Provider
----------------------------------------------------------------------------------------------------------------
Participants and Electronic format and
Transmission Data in the direction of implementation
transmission transmission specifications
----------------------------------------------------------------------------------------------------------------
Stage 1 Payment Initiation........... Information about the From the health plan CCD+Addenda as
(A health plan's order, instruction transfer of funds and (Originator) to the contained in 2011
or authorization to its financial payment processing health plan's NACHA Operating Rules
institution to make a health care information. financial institution & Guidelines.*
claims payment using electronic (ODFI). For the
funds transfer through the ACH Addenda Record
Network.). (``7''), field 3: X12
835 TR3 TRN Segment
implementation
specification.*
Stage 2 Transfer of Funds............ Payment, information From the health plan's Standard required by
about the transfer of financial institution NACHA (non-HIPAA): ACH
funds, and payment (ODFI) to the File (CCD).
processing information. provider's financial
institution (RDFI).
Stage 3 Deposit Notification......... Information about the From the provider's Format to be agreed
transfer of funds and financial institution upon by the provider
payment processing (RDFI) to the provider and its financial
information. (Receiver). institution.
Remittance Advice.................... Explanation of benefits From the health plan to X12 835 TR3.
and/or remittance the provider.
advice.
----------------------------------------------------------------------------------------------------------------
* Beginning January 1, 2014.

The goal of the adoption of these standards is to ensure that the
TRN Segment is inputted into the CCD+Addenda and is received without
error by the health care provider. We believe this can be best achieved
by requiring that a single electronic file format, the CCD+Addenda, be
used by all health plans that transmit health care EFT to their
financial institutions and by requiring that consistent data elements
be ordered according to clear implementation specifications found in
the X12 835 TR3 and the 2011 NACHA Operating Rules & Guidelines. By
using the same standard in the Stage 1 Payment Initiation as is used by
financial institutions in the Stage 2 Transfer of Funds (CCD+Addenda),
there will be one less step in formatting/translating of the data in
the overall transmission and, therefore, a decrease in the risk that an
error will be made in that translation. Consistent format and data
elements in the file format used by health plans for Stage 1 Payment
Initiation of an EFT will make it more likely that the TRN Segment is
received by the health care provider and that it will match the TRN
Segment sent with the associated ERA.
Section 1173(g)(4)(B)(ii)(I) of the Act requires that the set of
operating rules for EFT and health care payment and remittance advice
transactions ``allow for automated reconciliation of the electronic
payment with the remittance advice.'' We believe the adoption of these
standards, eventually in coordination with complementary operating
rules, will allow for automated reassociation of health care EFT with
ERA, which will ultimately create considerable time savings for health
care providers' accounts receivable processes. We believe that the time
savings that will be realized from the use of these standards will
increase provider migration from paper checks to EFT for health care
claim payments. As well, the savings to health plans in transmitting
EFT in place of the time and material cost of sending paper checks will
be realized as more health care providers migrate to EFT.
To implement the health care EFT standards, a health plan must
comply with two different standards developed and maintained by two
different organizations, ASC X12 and NACHA. One of the differences is
that the nomenclature used by the two organizations is different as to
how their respective electronic formats and data content are organized
and labeled (files, records, loops, segments, fields, etc.) In order to
achieve successful reassociation of a health care EFT with the
associated ERA, the data elements common to both transmissions must be
correctly harmonized between the CCD+Addenda and the X12 835 TR3. We
anticipate that operating rules for the health care electronic funds
transfers (EFT) and remittance advice transaction will create further
business rules and guidelines that promote consistent application of
these data elements across both standards and will better enable
reassociation.

E. X12 835 TR3 Remains the Standard for All Transmissions of ERA

In our new text in Sec. 162.1602, we are clarifying that the X12
835 TR3, which is the standard originally adopted for ERA in the
Transactions and Codes Sets final rule, remains the standard for ERA
transmissions (as defined in Sec. 162.1601(b)), including when an ERA
accompanies, is transmitted with, or is contained (enveloped) within a
health care EFT. For example, the X12 835 TR3 must be used for ERA that
travels through the ACH Network, the Federal

[[Page 1566]]

Reserve Wire Network, a payment card network, or any system through
which an EFT may travel. The new text in Sec. 162.1602(d)(2) clarifies
this by stating that the X12 835 TR3 must be used ``[f]or transmissions
described in Sec. 162.1601(a), including when transmissions as
described in Sec. 162.1601(a) and (b) are contained within the same
transmission.''

F. Other Factors in the Reassociation of the EFT With the ERA

A number of implementation specifications in the X12 835 TR3 and in
the 2011 NACHA Operating Rules & Guidelines are pertinent to successful
reassociation and are worth re-emphasizing here:
According to the X12 835 TR3, the total amount of payment
transmitted in the health care EFT must equal the total amount of
payment indicated on an associated ERA. If a health plan does not
comply with this implementation specification, then reassociation will
be difficult.
The 2011 NACHA Operating Rules & Guidelines requires that
all financial institutions that participate in the ACH Network must
accept CCD+Addenda. Nearly all financial institutions participate in
the ACH Network, so nearly all financial institutions accept the
CCD+Addenda.
The 2011 NACHA Operating Rules & Guidelines requires that
a Receiver (a health care provider) must request a deposit notification
from its RDFI in order to receive payment information. In the context
of health care EFT made through the ACH Network, health care providers
should work with their banks or financial institutions to ensure that
the data in the Addenda Record of the CCD+Addenda (the TRN Segment) is
transmitted to them in a format that allows for automated reassociation
of the health care EFT with the associated ERA.

G. Additional Considerations

1. The NACHA Standard
We are adopting the CCD+Addenda implementation specifications as
contained in the 2011 NACHA Operating Rules & Guidelines as one of the
standards for the health care EFT Stage 1 Payment Initiation. The
implementation specifications for the CCD+Addenda in the NACHA
Operating Rules & Guidelines are not the ``operating rules'' for the
health care EFT as that term is used under HIPAA. Rather, as per this
interim final rule with comment period, the implementation
specifications in the NACHA Operating Rules & Guidelines are one of the
standards for the health care EFT. The inclusion of ``Operating Rules''
in the title of the document that includes the implementation
specifications should not be confused with the Affordable Care Act's
definition and requirement for the adoption of ``operating rules'' for
the transactions as described in section 1104(b) of the Affordable Care
Act. The operating rules in the NACHA Operating Rules & Guidelines are
not synonymous with those specified in the Affordable Care Act. The
NACHA Operating Rules are implementation specifications regarding
financial transactions that were developed and adopted by ACH
participants more than three decades before the Affordable Care Act
amended HIPAA to mandate the adoption of operating rules for each of
the transactions listed in the Act.
2. The Secretary's Authority To Adopt a Non-ANSI Accredited Standard
The NCVHS, in its February 17, 2011 letter to the Secretary,
recommended NACHA as the standards development organization for the
development and maintenance of the CCD+Addenda, and in this interim
final rule with comment period, we are adopting a NACHA ACH File
format. However, NACHA is not a standard setting organization (SSO), as
the term is defined by HIPAA, because NACHA is not accredited by the
American National Standards Institute (ANSI). As previously discussed
in this interim final rule with comment period, under section
1172(c)(2)(B) of the Act, if no SSO has developed, adopted, or modified
any standard relating to a standard that the Secretary is authorized or
required to adopt under HIPAA, then the Secretary may adopt a standard,
relying upon recommendations of the NCVHS, and after consultation with
the National Uniform Billing Committee (NUBC), National Uniform Claim
Committee (NUCC), WEDI, and American Dental Association (ADA), and
appropriate federal and State agencies and private organizations. These
consultations have taken place through various communication avenues
such as the NCVHS hearings, letters and other public meetings.
3. Clarification Regarding Application of Standards to EFT Stages 2 and
3
We note that the definition of the health care electronic funds
transfers (EFT) and remittance advice transaction at Sec. 162.1601, as
newly defined in this interim final rule with comment period, includes
all three of the ACH payment stages, as discussed in section I.B.2. of
this interim final rule with comment period and illustrated in Table 2.
However, the standards adopted herein are required to be used only for
the electronic file that a health plan transmits in conducting the
health care EFT Stage 1 Payment Initiation (see Table 2 and
Illustrations A and B).
The health care EFT standards adopted herein are not required to be
used for the Stage 2 Transfer of Funds from the health plan's financial
institution (ODFI) to the health care provider's financial institution
(RDFI). The health care EFT standards meet the NACHA ACH standards used
in Stage 2 Transfer of Funds: The Stage 1 Payment Initiation
transmitted according to the health care EFT standards adopted herein
(CCD+Addenda) will indicate to the ODFI that the health care EFT remain
in the form of the CCD+Addenda for Stage 2 Transfer of Funds.
We are also not requiring that the standards adopted herein be used
for the Stage 3 Deposit Notification transmission from the health care
provider's financial institution (RDFI) to the health care provider.
The format by which the deposit notification is rendered from the RDFI
to the provider remains, at this time, dependent on the business
agreement between the provider and the provider's financial
institution.
4. The Corporate Trade Exchange Entry (CTX)
Our amendments to Sec. 162.1602(d)(1) clarify that the health care
EFT standards adopted in this interim final rule with comment period
are not required to be used when health care EFT, as described in Sec.
162.1601(a), and ERA, as described in Sec. 162.1601(b), are
transmitted together in the same transmission.
This interim final rule with comment period does not prohibit the
voluntary use of EFT formats in which an EFT and ERA travel together in
a single transmission using, for example, the CTX ACH File. Some in the
financial sector and in the health care industry see the single
transmission of EFT and ERA together as a promising approach for
seamlessly automating reassociation, and it is hoped that industry
initiatives to use and/or test formats that combine the transmission of
health care EFT and ERA into one transmission will continue.
While this interim final rule with comment period does not adopt a
specific standard for transmitting the ERA together with a health care
EFT in a single transmission, compliance with the X12 835 TR3 is
required for transmitting the ERA regardless of how the ERA is
transmitted. As well, the X12 835 TR3 provides some implementation

[[Page 1567]]

specifications for transmittal of the CTX, and nothing in this interim
final rule with comment period alters or amends the implementation
specifications related to transmitting the CTX within that standard. It
is possible that a standard or standards for transmitting the ERA
together with the health care EFT in a single transmission could be
adopted in future regulations.
5. EFT Conducted Outside the ACH Network
The health care EFT standards adopted in this interim final rule
with comment period do not apply to health care claim payments made via
EFT outside of the ACH Network. Health plans are not required to send
health care EFT through the ACH Network. They may decide, for instance,
to transmit a health care EFT via Fedwire or via a payment card network
. This interim final rule with comment period neither prohibits nor
adopts any standards for health care EFT (as defined in Sec.
162.1601(a)) transmitted outside of the ACH Network. When health plans
do, however, send health care EFT through the ACH Network, they must do
so using the health care EFT standards adopted herein.
We emphasize that the new regulation text at Sec. 162.1602
specifies that the X12 835 TR3 continues to be the standard whenever
the ERA (as defined in Sec. 162.1601(b)) is transmitted, including
when an ERA is transmitted together with a health care EFT either
through the ACH Network or outside of the ACH Network.
6. International Payments
The CCD+Addenda standard adopted in this interim final rule with
comment period cannot be used for Stage 1 Payment Initiation health
care EFT made to or from countries outside of the United States. The
NACHA Operating Rules & Guidelines requires that all international
payment transactions transmitted via the ACH Network use the IAT ACH
File. According to NACHA Operating Rules & Guidelines (Section V,
Chapter 43), ``IAT transactions include specific data elements defined
within the Bank Secrecy Act's (BSA) `Travel Rule' so that all parties
to the transaction have the information necessary to comply with U.S.
law, which includes the programs administered by the Office of Foreign
Assets Control (OFAC).'' Because the Stage 2 Transfer of Funds must be
in the IAT ACH File, the Stage 1 Payment cannot be in the CCD+Addenda.

H. Applicability

1. Covered Entities: Health Plans, Health Care Clearinghouses, and
Health Care Providers
The health care EFT standards adopted in this interim final rule
with comment period apply to transactions that originate with health
plans. We note that some health care providers choose not to conduct
transactions electronically. In practice, health plans will only have
to use the health care EFT standards adopted herein if the provider
wants to receive health care claim payments via EFT through the ACH
Network.
If an entity sends payment/processing information to another entity
for the purpose of having that receiving entity format the information
so that it is compliant with the EFT standards in order to transmit it
to the ODFI, then that receiving entity would meet the definition of a
health care clearinghouse under HIPAA. The receiving entity would be
required to use the health care EFT standards adopted in this interim
final rule with comment period.
2. Financial Institutions
The February 17, 2011, NCVHS recommendations on the EFT standard
included a recommendation for the Secretary to ``consider the
implications of the fact that, as the result of the adoption of the
health care EFT standard, some banks may become de facto health care
clearinghouses as defined by HIPAA.''
In Stage 1 Payment Initiation, some health plans currently transmit
a flat file, an ASC X12 formatted file, or a proprietary formatted file
containing payment/processing information to their financial
institutions. The financial institutions then translate the data into
the CCD format to transmit it through the ACH Network. In this interim
final rule with comment period, we have adopted standards that apply to
the Stage 1 Payment Initiation. Therefore, were financial institutions
to continue to provide this service after the effective date of the
health care EFT standards adopted herein, such financial institutions
would be accepting information from health plans in a nonstandard
format and translating it into the standard format consistent with the
activities of a health care clearinghouse as defined at Sec. 160.103.
Under section 1179 of the Act, the HIPAA Administrative
Simplification standards do not apply to entities to the extent they
are engaged in the activities of a financial institution. Section 1179
of the Act provides as follows:

To the extent that an entity is engaged in activities of a
financial institution (as defined in section 1101 of the Right to
Financial Privacy Act of 1978), or is engaged in authorizing,
processing, clearing, settling, billing, transferring, reconciling,
or collecting payments, for a financial institution, this part, and
any standard adopted under this part, shall not apply to the entity
with respect to such activities, including the following:
(1) The use or disclosure of information by the entity for
authorizing, processing, clearing, settling, billing, transferring,
reconciling or collecting, a payment for, or related to, health plan
premiums or health care, where such payment is made by any means,
including a credit, debit, or other payment card, an account, check
or electronic funds transfer.

Section 1179(1) of the Act expressly refers to the use or
disclosure of ``information * * * for processing * * * a payment for *
* * health care, where such payment is made by any means, including * *
* electronic funds transfer'' as an activity of a financial
institution. Financial institutions that process or facilitate the
processing of health information from a nonstandard format or
containing nonstandard data content into health care EFT standards are
engaging in ``activities of a financial institution'' as set forth in
section 1179 of the Act in performing the processes inherent in the
health care EFT standards adopted herein and will continue to be
considered doing so after their effective date. Therefore, we have
determined that, upon the effective date of these health care EFT
standards, when financial institutions receive payment/processing
information for these transactions and translate it into the
CCD+Addenda format, they will not be required to comply with the health
care EFT standards adopted herein.
The health care EFT standards adopted herein are the only HIPAA
transaction standards adopted to date that do not contain individually
identifiable health information (though, like all HIPAA transactions,
they contain health information as defined by HIPAA at Sec. 160.103).
The information that is required or optional in the health care EFT
standards adopted herein is payment/processing information that is
necessary for a financial institution to process an EFT through the ACH
Network. In fact, the inclusion of protected health information in a
Stage 1 Payment Initiation would be inconsistent with the adopted
health care EFT standards. As we stated in the preamble to the December
28, 2000, HIPAA Privacy final rule (65 FR 82615):

[[Page 1568]]

* * * the ASC X12N 835 we adopted as the `Health Care Payment and
Remittance Advice' standard in the Transactions Rule has two parts.
They are the electronic funds transfer (EFT) and the electronic
remittance advice (ERA). The EFT part is optional and is the
mechanism that payors use to electronically instruct one financial
institution to move money from one account to another at the same or
at another financial institution. The EFT includes information about
the payor, the payee, the amount, the payment method, and a
reassociation trace number. Since the EFT is used to initiate the
transfer of funds between the accounts of two organizations,
typically a payor to a provider, it includes no individually
identifiable health information, not even the names of the patients
whose claims are being paid.

Thus, even absent section 1179 of the Act, the HIPAA Privacy and
Security rules would not apply to the transmission of the health care
EFT standards adopted herein.
In summary, we anticipate that after the adoption of the health
care EFT standards, some financial institutions will continue to
translate nonstandard payment/processing information received from
health plans into the CCD format. With the adoption of the health care
EFT standards, these financial institutions will, by virtue of
performing these activities, become de facto health care clearinghouses
as defined by HIPAA. To the extent, however, those entities engage in
activities of a financial institution, as defined in section 1101 of
the Right to Financial Privacy Act of 1978, (Pub. L. 95-630; effective
March 10, 1979), they will be exempt from having to comply with these
HIPAA standards with respect to those activities.
The health care EFT standards adopted herein apply to health plans,
and health plans are ultimately responsible for ensuring compliance
with the standards regardless of whether a health plan puts the data
into standard format itself or uses a financial institution to do so.
This means that, with regard to the health care EFT standards adopted
herein, upon their effective date, if a health plan has an arrangement
with a financial institution for the financial institution to format
the health plan's nonstandard payment/processing information into the
standard CCD+Addenda format for a Stage 1 Payment Initiation and, for
whatever reason, the bank does so in a way that is noncompliant with
the standards, where the financial institution is the agent of the
health plan, the health plan may be responsible for the noncompliance.
We expect that some health plans will need to educate their financial
institutions about the health care EFT standards adopted herein in
order to ensure compliance.

I. Effective and Compliance Dates

Section 1104(c)(2) of the Affordable Care Act states that ``[t]he
Secretary shall promulgate a final rule to establish a standard for
electronic funds transfers (as described in section 1173(a)(2)(J) of
the [Act], as added by subsection [1104](b)(2)(A) [of the Affordable
Care Act].'' The Secretary may do so on an interim final basis and
shall adopt such standard not later than January 1, 2012, in a manner
ensuring that such standard is effective not later than January 1,
2014.'' In each of our previous HIPAA rules, the date on which the rule
was effective was the date on which the rule was considered to be
established or adopted, or, in other words, the date on which adoption
took effect and the CFR was accordingly amended. Typically, the
effective date of a rule is 30 or 60 days after publication in the
Federal Register. Under certain circumstances the delay in the
effective date can be waived, in which case the effective date of the
rule may be the date of filing for public inspection or the date of
publication in the Federal Register.
The effective date of standards, implementation specifications,
modifications, or operating rules that are adopted in a rule, however,
is different than the effective date of the rule. The effective date of
standards, implementation specifications, modifications, or operating
rules is the date on which covered entities must be in compliance with
the standards, implementation specifications, modifications, or
operating rules. Here, the Act requires that the standard for
electronic funds transfers be effective not later than January 1, 2014.
This means that covered entities must be in compliance with the
standards by January 1, 2014. If we receive comments that compel us to
change any of the policies we are finalizing in this interim final rule
with comment period, we will seek to finalize any such changes to allow
sufficient time for industry preparation for compliance.

III. Waiver of Proposed Rulemaking

Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), we
are required to publish a notice of proposed rulemaking (NPRM) in the
Federal Register. Section 553(b) of the APA provides for an exception
from this APA requirement. Section 553(b)(B) of the APA authorizes an
agency to waive normal rulemaking requirements if the Department for
good cause finds that notice and comment procedures are impracticable,
unnecessary, or contrary to the public interest. Section 553(d)(3) of
the APA allows the agency to waive the 30-day delay in effective date
where the agency finds good cause to do so and includes a statement of
support.
Section 1104 of the Affordable Care Act amended section 1173 of the
Act to require the Secretary to adopt standards and a set of operating
rules for certain electronic health care transactions under HIPAA.
Section 1104(c)(2) of the Affordable Care Act requires the Secretary to
``promulgate a final rule to establish a standard for electronic funds
transfers * * *. The Secretary shall adopt such standard not later than
January 1, 2012, in a manner ensuring that such standard is effective
not later than January1, 2014.'' Given the statutory requirement to
promulgate a final rule by January 1, 2012, there is a highly
compressed window of time before the statutory adoption date of the EFT
standards. We believe Congress may have had this in mind when it
expressly authorized the adoption of the EFT standard by an interim
final rule. For the reasons detailed below, we have concluded that
there is good cause to waive normal rulemaking notice and comment
procedures, as they are impracticable. We believe the rationale
provided here supports our exercise of the option provided by Congress
to promulgate the final rule on an interim final basis.
Section 1172(f) of the Act requires the Secretary to ``rely on the
recommendations of the National Committee on Vital and Health
Statistics * * * and [to] consult with appropriate Federal and State
agencies and private organizations'' before adopting a standard under
HIPAA. Furthermore, the Secretary is required to consult four
organizations named in section 1172(c)(3)(B) of the Act before adopting
a standard that has not been developed, adopted or modified by a
standard setting organization, which is the case with one of the EFT
standards adopted herein.
Upon passage of the Affordable Care Act in March 2010, the NCVHS
immediately scheduled hearings in order to gather industry and
government input on the new transaction standards and operating rules
mandated by the Affordable Care Act. The order in which the hearings
were scheduled was established by the NCVHS based on the statutory
effective dates of the new standards and operating rules. Thus, a
hearing on operating rules for the eligibility for a health plan and
health care claim status transactions was scheduled for July 20, 2010,
as those operating rules were required to be adopted by July 1, 2011.
Between July

[[Page 1569]]

and December of 2010, the NCVHS solicited testifiers for a hearing on
EFT standard and operating rules for EFT and ERA, and the NCVHS held a
hearing on December 3, 2010.
Based on the December 3, 2010 NCVHS hearing, the NCVHS issued a
letter to the Secretary on February 17, 2011 detailing its
recommendations for EFT standards. As per the consultation requirements
in the Act, we could not proceed with developing a rule for the EFT
standard until we received and considered the NCVHS recommendation as
well as consulted with appropriate Federal and State agencies and
private organizations. Given that the Affordable Care Acts mandates
that the EFT standard be adopted by January 1, 2012, the agency had
only until November 30, 2011 to consult with the required agencies and
organizations and to publish a final rule on the standard--
approximately 8 months from the week the Secretary received the NCVHS
recommendations.
The December 3, 2010 NCVHS hearing on an EFT standard and operating
rules triggered a wave of discussions within industry on the use of EFT
in the health care industry. An ASC X12 workgroup began work on an
``ASC X12 Type 2 Technical Report'' entitled Health Care Claim Payment/
Advice Reference Model. The Workgroup for Electronic Data Interchange
(WEDI) initiated the EFT Sub Work Group that began drafting an
educational document for health care entities called Creating and
Implementing an EFT Process for Payers and Providers. A number of
representatives from various federal government agencies began meeting
on the use of EFT in medical payments from government agencies under
the auspices of the Department of Treasury. After March 2011, CAQH CORE
began a number of meetings with industry on operating rules for EFT and
ERA.
It was crucial for us to participate in these meetings, conduct in-
depth research on the payment systems of the health care industry, and
continue industry discussions on the EFT transaction. All of these
actions were particularly critical because the health care EFT
standards are the first standards to be adopted under HIPAA in which
the standards and business practices of the financial industry would be
considered and a new standards development organization would be part
of the process. Not only did this require extensive discussion with the
financial industry, it also required the Department to participate in
meetings coordinated between the financial industry, representatives of
covered entities, and government agencies. These meetings and
discussion included issues such as the NCVHS recommendation (in
comparison to other options), the relationship between the EFT
transaction and the ERA transmission in the health care payment and
remittance advice standard transaction, and the implications to the
health care and financial industries of an EFT standard in terms of
privacy and security issues.
The development of the provisions of this interim final rule with
comment period required a thorough understanding of EFT as a tool of
the financial industry and how it intersects and works within the
health care industry. Based on these discussions from March to July
2011, we developed and drafted the provisions for the health care EFT
standards. As detailed in the preamble, the health care EFT standards
are a unique combination of a standard from the financial industry and
a standard from the health care industry. Without these discussions and
research over the past several months, it would not have been feasible
to adopt standards for health care EFT that met both industry needs and
fulfilled the intentions of HIPAA administrative simplification.
After the research and drafting phase of the rule was completed in
July 2011, we were left with four months to publish the rule to meet
the statutory deadline of January 1, 2012. Given the minimum practical
time it takes to promulgate a rule, we determined there was
insufficient time to publish both a proposed and final rule before
November 30, 2011.
We also note that the operating rules for EFT and ERA cannot be
adopted until a standard for the EFT is adopted. Any delay in adopting
the EFT standard would delay adoption of EFT and ERA operating rules,
which are required by section 1173(g)(4)(B)(ii)(II) of the Act to be
adopted by July 1, 2012, and which must be effective by January 1,
2014. Most importantly, the operating rules benefit industry in
significant ways for the processing of claims payments; any delay in
the adoption of EFT and ERA operating rules delays industry opportunity
for efficiency and cost savings.
Therefore, we conclude that there is good cause to waive normal
rulemaking requirements as they are impracticable, and we avail
ourselves of the interim final rule option provided by Congress in the
Affordable Care Act.
We also find good cause for waiving the 30-day delay in the
effective date of this interim final rule with comment period. The 30-
day delay is intended to give affected parties time to adjust their
behavior and make preparations before a final rule takes effect.
Sometimes a waiver of the 30-day delay in the effective date of a rule
directly impacts the entities required to comply with the rule by
minimizing or even eliminating the time during which they can prepare
to comply with the rule. That is not the case here. In this case,
covered entities are not required to comply with the adopted standards
until January 1, 2014, nearly two years after the publication of this
interim final rule with comment period; a waiver of the 30-day delay in
the effective date of the rule does not change that fact. That 30-day
time period is in fact inconsequential here to covered entities--their
statutorily prescribed date of compliance remains January 1, 2014.
Because we believe the 30-day delay is unnecessary, we find good cause
to waive it. We are providing a 60-day comment period.

IV. Collection of Information Requirements

Under the Paperwork Reduction Act of 1995, we are required to
provide 60-day notice in the Federal Register and solicit public
comment before a collection of information is submitted to the Office
of Management and Budget (OMB) for review and approval. In order to
fairly evaluate whether an information collection should be approved by
OMB, section 3506(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.
We are soliciting public comment on the information collection
requirements (ICRs) regarding third party health care EFT enrollment
forms.
The health care EFT standards are the implementation specifications
for the electronic format that a health plan is required to use for the
Stage 1 Payment Initiation. The standards adopted herein do not affect
how a provider's financial institution transmits the TRN segment to the
provider. Therefore, the provider is not required to change or amend
systems or processes. There will be no direct systems costs to
physician practices and hospitals to implement the health care EFT
standards adopted herein.

[[Page 1570]]

However, we do assume that, in part due to this regulation,
physician practices, and hospitals will increase their usage of EFT, or
in some cases will begin accepting EFT for health care claim payments
for the first time. As we relay in section V.A.2. of this interim final
rule with comment period, in the savings for health plans, the high
range of estimated increase in EFT usage attributable to implementation
of the health care EFT standards makes up a percentage of the total
increase. The rest will be due to an increased number of insured
patients, business culture acceptance of EFT, and statutory and other
regulatory initiatives.
We have included both physician practices and hospitals in our
calculation (Table 4). Data have demonstrated that hospitals have a
much higher usage of EDI than physician practices and, by extension, we
assume that hospitals have a higher usage of EFT than physician
practices. However, there is no valid data on EFT usage among hospitals
and so we will include them with physician practices, knowing that cost
estimates are likely conservative.
Many physician practices and hospitals already accept EFT for
health care claim payments from the health plans that pay them the most
(as a percentage of total payments to the provider), pay them most
often, or transmit payment/processing information that works most
successfully with the particular provider's practice management system.
While some physician practices and hospitals do not accept any
payments via EFT, we assume that all physician practices and hospitals,
or their trading partners, are technically capable of receiving payment
via EFT. This assumption is based on the fact that no infrastructure is
necessary because the provider's financial institution is responsible
for the necessary technology required to receive a health care EFT
through the ACH Network, and there are few, if any, ``financial
institutions'' that do not participate in the ACH Network. Therefore,
we assume no systems costs or infrastructure requirements for providers
relative to enrolling for health care EFT.
The burden associated with the requirements of this interim final
rule with comment period, which is subject to the PRA, is the
completion of the health care EFT enrollment, which is accomplished by
filling out and submitting what is generally a 3- to 18-page form,
obtaining signatures, and transmitting the completed document.
In order to quantify the average cost per physician practice or
hospital, we have outlined the following assumptions in the form of a
model physician practice that we will use to project enrollment costs:
For the model physician practice, the time burden of an
EFT enrollment with a single health plan is 2 hours. We base this time
burden on the estimated length of time it would take an average
consumer to complete and submit a 3- to 18-page form, including
obtaining bank account, bank routing, and necessary signatures to allow
an employer to Direct Deposit an employee's salary into the employee's
account (a common consumer EFT enrollment).
The majority of the enrollment will be done by billing and
posting clerk, at that position's average salary rate of approximately
$17.5 per hour in 2014 based on Bureau of Labor Statistics. We factored
labor costs to increase at the rate of 3 percent per year.
The model physician practice receives the vast majority of
its payments from 25 or less plans. From the beginning of 2014 through
2018, we assume that the number of health plans with whom the model
physician practice does business will remain constant because industry
trends indicate that the number of health plans will remain constant,
or even decrease.\3\
---------------------------------------------------------------------------

\3\ American Medical Association, ``Competition in Health
Insurance: A Comprehensive Study of U.S. Markets,'' 2008 and 2009.
---------------------------------------------------------------------------

The model physician practice will receive 34 percent of
its health care claim payments via EFT at the beginning of 2014, and
this will increase to 56 percent by the end of 2018 (reflecting our
calculation in V.A.2. of this interim final rule with comment period
for the whole industry).
Using these factors, we can calculate that the model
physician practice is already enrolled in an EFT program with
approximately eight of the 25 health plans with whom it does business
(34 percent) at the beginning of 2014.
We predict that the model physician practice would be
expected to add six new EFT enrollments from 2014 through 2018. Any
updates to the enrollments would be in conduct of the normal course of
business.

Table 4--Costs and Number of Enrollments in Health Care EFT by Physicians and Hospitals for 2014 Through 2018
----------------------------------------------------------------------------------------------------------------
Total number of Number of annual
Base hourly rate Number of Total number of EFT enrollments enrollments in
Time (in hours) (in dollars) for physician increased EFT attributable to health care EFT
per enrollment billing and practices/ enrollments health care EFT attributable to
form posting clerks * hospitals (Column 3 * 6 standards at 18% adoption of
enrollments) of total standards
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5) (Column 6)
----------------------------------------------------------------------------------------------------------------
2 $17.5 240,727 1,444,362 259,985 52,000
----------------------------------------------------------------------------------------------------------------
* Department of Labor statistics, based on average hourly salary for billing and posting clerks for NAIC Sector
62, May, 2010 with 3 percent annual increase between 2010 and 2014.

The total increase in the number of health care EFT enrollments
from 2014 through 2018 is projected to be 1,444,362 of which
approximately 18 percent or 259,985 will be attributable to the
implementation of the health care EFT standards. Distributed over 5
years and factoring a 3 percent increase in labor costs for each of the
5 years produces a total burden to industry of nearly $10 million over
5 years.

[[Page 1571]]

Table 5--Paperwork Reduction Act Estimated Annualized Burden
----------------------------------------------------------------------------------------------------------------
Year
---------------------------------------------------------------------- Total
2014 2015 2016 2017 2018
----------------------------------------------------------------------------------------------------------------
Cost (Burden Hours for total $1.8 $1.9 $1.9 $2.0 $2.1 $9.7
hospitals & providers) (in
millions)..................
----------------------------------------------------------------------------------------------------------------

If you comment on these information collection and recordkeeping
requirements, please do either of the following:
1. Submit your comments electronically as specified in the
ADDRESSES section of this interim final rule with comment period; or
2. Submit your comments to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Attention: CMS Desk Officer,
CMS-0024-IFC
Fax: (202) 395-6974; or
Email: OIRA_submission@omb.eop.gov.

V. Regulatory Impact Analysis

We have examined the impacts of this interim final rule with
comment period as required by Executive Order 12866 on Regulatory
Planning and Review (September 30, 1993, as further amended), Executive
Order 13563 on Improving Regulation and Regulatory Review (January 18,
2011), the Regulatory Flexibility Act (RFA) (September 19, 1980, Pub.
L. 96-354) (as amended by the Small Business Regulatory Enforcement
Fairness Act of 1996, Pub. L. 104-121), section 1102(b) of the Social
Security Act, section 202 of the Unfunded Mandates Reform Act of 1995
(March 22, 1995; Pub. L. 104-4), Executive Order 13132 on Federalism
(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
Executive Orders 12866 and 13563 direct 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). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. Executive Order 13563 also directs agencies to not only
engage public comment on all regulations, but also calls for greater
communication across all agencies to eliminate redundancy,
inconsistency and overlapping, as well as outlines processes for
improving regulation and regulatory review.
A Regulatory Impact Analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million in 1995 dollars or
more in any 1 year). We estimate that this rulemaking is ``economically
significant,'' under section 3(f)(1) of Executive Order 12866 as it
will have an impact of over $100 million on the economy in any 1 year.
Accordingly, we have prepared an RIA that, to the best of our ability,
presents the costs and benefits of this interim final rule with comment
period, and the rule has been reviewed by the Office of Management and
Budget. We anticipate that the adoption of the health care EFT
standards would result in benefits that outweigh the costs to health
care providers and health plans.
The Regulatory Flexibility Act (RFA) requires agencies to analyze
options for regulatory relief of small businesses if a rule has a
significant impact on a substantial number of small entities. For
purposes of the RFA, small entities include small businesses, nonprofit
organizations, and small government jurisdictions. Small businesses are
those with sizes below thresholds established by the Small Business
Administration (SBA).
We have determined, and certify, that this rule will not have a
significant economic impact on a substantial number of small entities,
and that a regulatory flexibility analysis is not required. Our
reasoning follows:
Most physician practices, hospitals and other health care providers
are small entities, either by nonprofit status or by having revenues of
$7 to $34.5 million in any one year. However, the only costs to
providers are the possible costs of filling out EFT enrollment forms
with health plans, detailed in the Collection of Information section
herein. Those costs are approximately $35 per health care provider per
year. Numbers of this magnitude do not remotely approach the amounts
necessary to be a ``significant impact'' on an individual provider.
The health insurance industry was examined in depth in the
Regulatory Impact Analysis prepared for the proposed rule on
establishment of the Medicare Advantage program (69 FR 46866),
published on August 3, 2004. In that analysis, it was determined that
there were few if any ``insurance firms,'' including health maintenance
organizations (HMOs), that fell below the size thresholds for ''small''
business established by the SBA. Then and even more so now, the market
for health insurance is dominated by a relative handful of firms with
substantial market shares. We assume that the ``insurance firms'' are
synonymous, for the most part, with health plans that make health care
claims payments to health care providers and are, therefore, the
entities that will have costs associated with implementing health care
EFT standards.
There are, however, a number of HMOs that are small entities by
virtue of their nonprofit status even though few if any of them are
small by SBA size standards. There are approximately one hundred such
HMOs. These HMOs and health plans that are non-profit organizations,
like the other firms affected by this interim final rule, will be
required to implement the health care EFT standards for Stage 1 Payment
Initiation for health care claims to health care providers.
Accordingly, this interim final rule will affect a ``substantial
number'' of small entities. However, we estimate, that the costs of
this interim final rule with comment period are, at most, approximately
$12,000 per health plan (regardless of size or non-profit status).
Again, numbers of this magnitude do not remotely approach the amounts
necessary to be a ``significant economic impact'' on firms with
revenues of tens of millions of dollars (usually hundreds of millions
or billions of dollars annually).
In addition, section 1102(b) of the Act requires us to prepare a
regulatory impact analysis if a rule may have a significant economic
impact on the operations of a substantial number of small rural
hospitals. This analysis must conform to the provisions of section 604
of the RFA. This interim final rule would not affect small rural
hospitals, under the same reasoning previously given with regard to
health care providers. Therefore, the Secretary has determined that
this rule would not

[[Page 1572]]

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 require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation. In 2011, that
threshold is approximately $136 million. This interim final rule with
comment period does not impose spending costs on State, local or tribal
government in the aggregate, or by the private sector, of $136 million.
As is reflected in the RIA, costs on all entities are estimated to be
not more than $20 million.
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 interim final rule does not have a substantial
direct effect on State or local governments, preempt States, or
otherwise have a Federalism implication.

A. Current State, Need for Mandated EFT Standards, and General Impact
of Implementation

1. Billing and Insurance Related (BIR) Costs
Health care spending in the United States makes up an estimated 17
percent of the U.S. Gross Domestic Product (GDP) \4\ and costs over
$8,000 per person annually.\5\ Many factors contribute to the high cost
of health care in the United States, but studies point to
administrative costs as having a substantial impact on the growth of
spending \6\ and an area of costs that could likely be reduced.\7\
---------------------------------------------------------------------------

\4\ http://stats.oecd.org/index.aspx.
\5\ Keehan, S.P.; Sisko, A.M.; Truffer, C.J.; Poisal, J.A.;
Cuckler, G.A.; Madison, A.J.; Lizonitz, J.M.; & Smith, S.D.;
``National Health Spending Projections Through 2020: Economic
Recovery and Reform drive faster Spending Growth,'' Health Affairs
30,(8): doi:10.1377/hlthaff.2011.0662, 2011.
\6\ ``Technological Change and the Growth of Health Care
Spending,'' A CBO Paper, Congressional Budget Office, January 2008,
http://www.cbo.gov/ftpdocs/89xx/doc8947/01-31-TechHealth.pdf.
\7\ Morra, D., Nicholson, S., Levinson, W., Gans, D. N.,
Hammons, T., & Casalino, L.P. ``U.S. Physician Practices versus
Canadians: Spending Nearly Four Times as Much Money Interacting with
Payers,'' Health Affairs: 30(8):1443-1450, 2011.
---------------------------------------------------------------------------

A significant portion of administrative costs for physician
practices and hospitals are billing and insurance-related (or BIR)
costs (See Illustration C). It is estimated that half of administrative
costs for physician practices are BIR costs \8\--or between 10 to 12
percent of a physician practice's annual revenue.\9\ In contrast, the
U.S. retail sector spends about 5 percent of annual revenue on accounts
receivable.
---------------------------------------------------------------------------

\8\ Kahn, J.G., Kronick, R., Kreger, M., & Gans, D.N., ``The
cost of health insurance administration in California: Estimates for
insurers, physicians, and hospitals,'' Health Affairs: 24(6):1629-
1639, 2005.
\9\ Sakowski, J.A., Kahn, J.G., Kronick, R.G., Newman, J.M., &
Luft, H.S.,''Peering into the black box: Billing and insurance
activities in a medical group,'' Health Affairs: 28(4):w544-w554,
2009.
---------------------------------------------------------------------------

Along with estimated increases in all health care administrative
costs, we can expect BIR costs to grow as well: In a study by the
Washington State Office of the Insurance Commissioner, BIR costs grew
between 1997 and 2005 at an average pace of 20 percent per year for
hospitals in Washington State and 10 percent per year for
physicians.\10\ In some cases, the increasing administrative cost of
processing claims threatens the survival of small and mid-size
physicians' offices.\11\
---------------------------------------------------------------------------

\10\ ``Health Care Administrative Expense Analysis, Blue Ribbon
Commission Recommendation 6: Final Report 11/26/07;''
Washington State Office of the Insurance Commissioner.
\11\ Akscin J., Barr T., & Towle E.; ``Key Practice Indicators
in Office-based oncology practices: 2007 Report on 2006 data. J
Oncol Pract 3:200-203, 2007, and Mulvey, T.: ``The Time has Come for
National Insurance Cards,'' J. Oncol Pract, 4:161, 2008.

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[[Page 1573]]

[GRAPHIC] [TIFF OMITTED] TR10JA12.002

BIR tasks include patient billing, insurance verification,
responding to patients' cost questions, contracting with health plans,
health care provider credentialing, processing payer requests for
additional information, authorizations (procedures, referrals), payment
for services provided outside the group, coding support, entering
charges, claims review and edits, filing claims, creating and mailing
patient statements, data entry and payment processing managements,
collecting payments and posting to patient accounts, depositing checks
and payments, account reconciliation, discrepancy research, follow-up,
and write-offs, posting refunds, follow-up on denials, underpaid,
nonresponsive claims, filing for shared risk-pool payments, and filing
for contractual payments.\12\
---------------------------------------------------------------------------

\12\ Casalino, L.P., Nicholson, S., Gans, D.N., Hammons, T.,
Morra, D., Karrison, T., & Levinson, W., ``What does it cost
physician practices to interact with health insurance plans?''
Health Affairs, 28(4) (2009):w533-w543.
---------------------------------------------------------------------------

BIR tasks are costly, in part, because physician practice staff
must often manually customize transactions depending on the separate
requirements of multiple health plans, insurance companies,
clearinghouses, and third party administrators with whom the physician
practice contracts. Because of the manual nature of BIR tasks, the
majority of BIR costs are associated with staffing costs. Hospitals,
physician offices and other health care providers employ more billing
and posting clerks than any other industry, according to the U.S.
Bureau of Labor Statistics.\13\ These costs include not just the labor
costs of employing staff, but also the opportunity cost of providers
whose time would otherwise be spent caring for patients. A 2009 study
found that the average physician spent three hours a week interacting
with health plans--nearly three weeks a year--while physicians' nursing
and clerical staff spent much more time.\14\ Above and beyond the
financial costs of manual BIR tasks, interruptions in the work of
physician practices to deal with BIR tasks may interfere with patient
care.
---------------------------------------------------------------------------

\13\ http://data.bls.gov/cgi-bin/print.pl/oes/current/oes433021.htm.
\14\ Casalino, et al., 2009.
---------------------------------------------------------------------------

Simply put, there are qualitative and quantitative savings to be
gained by automating many BIR tasks. For example, 14 percent of
administrative staff time on BIR tasks in a physician practice is spent
simply receiving payments and posting the payments to accounts
receivable.\15\ Automated electronic payment and posting, such as what
is possible through use of EFT, would decrease this percentage.
---------------------------------------------------------------------------

\15\ Sakowski et al., 2009.
---------------------------------------------------------------------------

The August 2000 Transaction and Code Sets final rule was intended,
among other things, to reflect the Congress' intent in the 1996 HIPAA
statute to decrease health care administrative costs for some of the
electronic health care transactions that include BIR tasks. Standards
for electronic transactions for claim submission, payment, and
remittance advice were adopted in the Transaction and Code Sets final
rule with the goal of making these transactions more consistent, and
therefore less costly, for health care providers.
A standard for EFT was not adopted at that time because section
1173(a)(2)(E) of the Act stipulates the transaction for which the
Secretary is required to adopt a standard as the ``health care payment
and remittance advice,'' with no explicit reference to EFT. At that
time, we adopted the ASC X12 TR3 835 to support primarily the ERA.
In general, the savings and benefits related to use of EFT for
business-to-business transactions is well established

[[Page 1574]]

(see section I.B.4. of this interim final rule with comment period) and
demonstrates that a physician practice that accepts EFT payments for
health claim payments could expect to decrease its BIR costs. Yet
adoption and use of EFT by physician practices and hospitals has been
slow when compared to U.S. consumer and other industry EFT use, and
seemingly obvious BIR savings go unrealized in the health care
industry.
We have noted the reasons given by industry as to why there has not
been greater adoption of EFT for health care claim payments among
health care providers in Section I.D. The obstacles to greater adoption
and use of EFT, and thus the possibility of staff time savings
conducting BIR tasks throughout the health care industry, could be
lessened by the adoption of health care EFT standards.
This interim final rule with comment period aims to solve a
collective action problem that currently leads to underutilization of
EFT. Without health care EFT standards, the costs of adopting EFT by a
particular physician often exceed the benefits. By creating EFT
standards, this rule will result in benefits exceeding costs for most
physicians.
2. Current and Projected EFT Usage
For an estimated current usage of EFT for health care claim
payments, we considered numerous health care and other industry
studies. All these studies vary, but all report that EFT is generally
used for less than 40 percent of health care claim payments.
According to the ``2010 AFP Electronic Payments: Report of Survey
Results,'' produced by the Association for Financial Professionals and
underwritten by J.P. Morgan,\16\ the typical U.S. business makes 43
percent of its business-to-business payments by EFT. There was general
agreement among industry representatives who testified at the December
2010 NCVHS hearing that the usage of the EFT in the health care
industry was considerably less than other industries (that is, less
than 43 percent). The National Progress Report on Healthcare
Efficiency, 2010, reports that only ten percent of all health care
claim payments are conducted electronically.\17\ The National Progress
Report calculated this based on data supplied by Emdeon, a national
health care clearinghouse that sponsors the report. PNC Bank testified
at the December 3, 2010 NCVHS hearing that 30 percent of health care
claim payments it initiated on behalf of health industry clients in
September 2010 were EFT payments.\18\ Seventy percent of Medicare
payment to health care providers are made via EFT. The Medicare EFT
payments to health care providers account for 20 percent of all
industry health care claim payments.
---------------------------------------------------------------------------

\16\ http://www.afponline.org/pub/res/topics/topics_pay.html.
\17\ Produced by the U.S. Healthcare Efficiency Index, http://www.ushealthcareindex.com.
\18\ http://www.ncvhs.hhs.gov.
---------------------------------------------------------------------------

Based on this data and research, we estimate the entire health care
industry combined, including Medicare, used EFT for approximately 32
percent of all health care claim payments in 2010 (see Table 6),
approximately 26 percent less than the 43 percent U.S. business-to-
business average as estimated in the J.P. Morgan study and 12
percentage points more than the number of Medicare health care claim
payments transmitted via EFT(that is, only 12 percent of all health
care claim payments via EFT were made by Medicaid, other government,
and private payers.) We estimate that commercial health plans transmit
health care claim payments via EFT for approximately 15 percent of
their total health care claim payments. This approximates to Emdeon
statistics, adjusted to account for the fact that data illustrates that
Emdeon statistics are low.

Table 6--EFT Usage for Medicare, Medicaid and Other Government Health
Plans, and Commercial Health Plans in 2010
------------------------------------------------------------------------
EFT usage
as a
percentage
Health plan category of payments
per
category in
2010
------------------------------------------------------------------------
Medicare................................................... 70
Medicaid, CHIP, VHA, and Other Federal, State, and Local 19
Governmental Payers.......................................
Commercial Health Plans.................................... 15
Entire Industry............................................ *32
------------------------------------------------------------------------
* Weighted average, based on proportion of payments per category.

We will apply these estimates to our cost/benefit analysis, but
will adjust them for 2013 levels, the year before the health care EFT
standards will be implemented, to establish a baseline for EFT usage
for health care claim payments. Our projected numbers of health care
claim payments in 2013 and EFT health care claim payments in 2013 are
based on data and projections derived from a number of different
sources:
The Center for Medicare & Medicaid Services (CMS)
``National Health Expenditure Data'' (http://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp).
CMS Electronic Data Interchange (EDI) Performance
Statistics (http://www.cms.gov/EDIPerformanceStatistics/) and CMS CROWD
data. Medicare data is the most precise data we can use for our
baseline because it tracks EFT usage among Medicare providers alone.
With over 42 million participants, Medicare is the largest single payer
of health care in the U.S. and accounts for 20 percent of total health
care expenditures.\19\ Therefore, we have based many of our estimates
and projections on Medicare data.
---------------------------------------------------------------------------

\19\ The Center for Medicare & Medicaid Services (CMS)
``National Health Expenditure Data'' (http://www.cms.gov/NationalHealthExpendData/25_NHE_Fact_Sheet.asp), 2011.
---------------------------------------------------------------------------

``The 2010 Annual Report of the Boards of Trustees of the
Federal Hospital Insurance and Federal Supplementary Medical Insurance
Trust Funds'' (http://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf ).
Financial Management Service, U.S. Department of Treasury,
Payment Volume Charts Treasury-Disbursed Agencies, (www.fms.treas.gov/eft/reports.html).
DeNavas-Walt, Carmen, Bernadette D. Proctor, and Jessica
C. Smith, U.S. Census Bureau, Current Population Reports, P60-238,
``Income, Poverty, and Health Insurance Coverage in the United States:
2009,'' U.S. Government Printing Office, Washington, DC, 20010.
Veteran Health Administration Chief Business Office.
A major assumption in our impact analysis is that the percentage of
total health care claim payments that are transmitted via EFT will
increase by 52 percentage points from 2010 to 2023 across the health
care industry (Table 7). Another way of illustrating this increase is
that we estimate that the average physician's practice or hospital will
begin receiving EFT health care claim payments from a little more than
one additional health plan every year between 2013 and 2023. We base
this estimated growth on three premises:
First, the number of total health care claim payments are expected
to increase considerably, due to the anticipated increase in the number
of claims, and usage of EFT is expected to rise with it. Health care
claims are expected to increase due to an aging population that will
require an increasing number of health care services; for instance,
aging baby boomers will double Medicare's enrollment between 2011 and
2031.\20\

[[Page 1575]]

As well, the Affordable Care Act is expected to increase the number of
insured adults by 32 million in 2014,\21\ though this anticipated rise
in the number of health care claims may be countered somewhat by the
Affordable Care Act's initiatives to encourage the bundling of
payments.\22\ Not only will more health care claims mean more payments,
but the expected increase in claims will drive health care providers to
seek more automated BIR processes in order to handle them all.
---------------------------------------------------------------------------

\20\ ``The 2011 Medicare Trustees Report: The Baby Boomer
Tsunami,'' presentation by the American Enterprise Institute for
public Policy Research, May 2011: http://www.aei.org/event/100407.
\21\ http://www.whitehouse.gov/healthreform/relief-for-americans-and-businesses.
\22\ http://www.whitehouse.gov/healthreform/timeline.
---------------------------------------------------------------------------

Second, it is anticipated that the use of electronic payments is
expected to become more widespread and acceptable for U.S. businesses
and society at large. ACH payments increased 9.4 percent every year
between 2006 and 2009.\23\ Business-to-business transactions have
increasingly moved to EFT. E-commerce is expected to have a compound
average growth rate of 11 percent each year from 2009 to 2014.\24\
Growth of ACH payments is expected in sectors of the economy that have
remained largely untapped by electronic payments; for instance,
business-to-consumer transactions and person-to-person EFT
transactions.\25\
---------------------------------------------------------------------------

\23\ ``The 2010 Federal Reserve Payments Study: Noncash Payment
Trends in the United States: 2006-2009,'' Research Sponsored by the
Federal Reserve System, April 2011, http://www.frbservices.org/files/communications/pdf/press/2010_payments_study.pdf.
\24\ Sucharita Mulpuru, P.Hult, ``U.S. Online Retail Forecast,
2009 to 2014: Online Retail Hangs Tough for 11% Growth in a
Challenging Economy,'' March, 2010, Forrester Research, http://www.forrester.com/rb/Research/us_online_retail_forecast,_2009_to_2014/q/id/56551/t/2.
\25\ Shy, Oz, ``Person-to-Person Electronic Funds Transfers:
Recent Developments and Policy Issues,'' Public Policy Discussion
Paper No. 10-1, Federal Reserve Bank of Boston, http://www.bostonfed.org/economic/ppdp/2010/ppdp1001.pdf.
---------------------------------------------------------------------------

Third, statutory and regulatory initiatives at the State and
Federal level will drive or attract health care entities to increased
usage of EFT. For example, in 2010, Ohio implemented a state law
requiring that health care plans pay health care claims via EFT if the
claims are submitted electronically.\26\ On the Federal level,
regulatory initiatives include EFT requirements for Federal payments
issued by the Department of the Treasury, and implementation of
provisions in the Affordable Care Act, including the health care EFT
standards and the anticipated operating rules on the health care and
remittance advice standards.
---------------------------------------------------------------------------

\26\ http://www.osma.org/tools-resources/reimbursement-payer-assistance/electronic-funds-transfers-eft.
---------------------------------------------------------------------------

Table 7 illustrates the predicted increase in adoption by health
plan sector, driven by the increased number of health care claims,
business acceptance, and regulatory initiatives. Taken as a whole, we
estimate EFT usage will increase by 52 percentage points, as a
percentage of total payments, across the whole industry, from 32
percent in 2010 (Table 6) to 84 percent in 2023 (Table 7).

Table 7--Predicted EFT Usage by 2023
------------------------------------------------------------------------
EFT Usage
as a
percentage
Health plan category of payments
per
category in
2023
------------------------------------------------------------------------
Medicare................................................... 98
Medicaid, VHA, & Other Federal, State, and Local Government 79
Payers....................................................
Commercial................................................. 79
Entire Industry............................................ *84
------------------------------------------------------------------------
* Weighted average, based on proportion of payments per sector.

3. Projected Increase in EFT Usage Attributable to Implementation of
the Health Care EFT Standards
This impact analysis is based on the assumption that the health
care EFT standards will make health care claim payments via EFT more
cost effective and will therefore incentivize increased usage of EFT by
physician practices and hospitals. We estimate a 6 to 8 percentage
point annual increase in the use of EFT for health care claim payments
(as a percentage of total payments year over year) from 2014 through
2018 attributable to implementation of the health care EFT standards.
Thereafter, we estimate a 4- to 6-percentage point increase in the use
of EFT for health care claim payments (as a percentage of total
payments year over year) from 2019 through 2023 attributable to
implementation of the health care EFT standards. We now look more
carefully at the basis and dynamics of that assumption.
The numbers illustrated in Table 6 reflect the current total number
of EFT transactions transmitted by all health plans and received by all
health care providers. On the sending side, health plans find that they
only transmit EFT to some of the health care providers with whom they
do business, and, even to providers who receive health care claim
payments from them via EFT, health plans may still sometimes send
health care claim payments via paper checks.
On the receiving end, all health care providers have the capability
to receive EFT, just as all consumers with a bank account are able to
receive Direct Deposit. However, many health care providers only
receive EFT from only a subset of health plans from which they receive
health care claim payments. For example, most physician practices and
hospitals with Medicare patients receive their health care claim
payments via EFT, but many do not receive EFT health care claim
payments from the other health plans with which they do business, as
the percentages in Table 6 demonstrate.
Although health plans are the entities that send EFT and that will
be required to comply with the health care EFT standards, it is the
physician practices and hospitals that drive overall adoption and usage
of EFT. Most health plans give physician practices and hospitals a
choice of payment between paper checks (sometimes accompanied by paper
remittance advice) or EFT. Up until now, the numbers demonstrate that,
while physician practices and hospitals may choose to accept EFT from
some health plans, they are clearly choosing to continue to receive
paper checks from the majority of the health plans with whom they do
business.
In general, physician practices and hospitals choose to receive
EFT: (1) From health plans with whom they do the most business in terms
of amounts or frequency of payments; and/or (2) from health plans that
transmit payment/processing information via EFT that allows the
physician practices' and hospitals' practice management systems to
reassociate the payment with the ERA with the least amount of manual
intervention. In terms of the first criteria, many physician practices
and hospitals will not go to the trouble of enrolling with health plans
with which they do not conduct much business. For these providers, the
burden of enrollment outweighs the health care provider's perceived
benefits to accepting EFT. In terms of the second criteria, a health
care provider may find that manually reassociating paper checks with
remittance advice (paper or electronic) is easier, more efficient, and
more familiar than attempting to manually reassociate an EFT with
remittance advice.
The reasons why automated reassociation may be more difficult or
less efficient than manually reassociating paper checks with remittance
advice were described in testimony at the December 3, 2010 NCVHS
hearing and fall into two

[[Page 1576]]

categories (see section I.D. of this interim final rule with comment
period for a complete summary): (1) The time difference between the
arrival of the EFT and the arrival of the ERA; and (2) the lack of a
TRN Segment in the EFT needed for automated reassociation of the ERA
with the associated ACH payment. The focus of the health care EFT
standards adopted herein is to ameliorate the latter issue.
According to the American Medical Association, ``If a payer does
not include the accurate TRN Segment, or the bank fails to maintain it
without any change, there is no easy way for the physician practice to
match the payment with the X12 835 * * * unless payers are required to
use a tracking number, and complete the fields to determine accurate
payment to the highest specificity, the value of the EFT transaction
will be limited.''\27\
---------------------------------------------------------------------------

\27\ ``Standardization of Electronic Funds Transfer Transaction
and Process White Paper,'' prepared by the American Medical
Association Practice Management Center, December 2010, http://www.ama-assn.org/ama1/pub/upload/mm/368/electronic-funds-transfer-white-paper.pdf.
---------------------------------------------------------------------------

A number of industry representatives stated their support for the
use of the TRN Segment in increasing health care provider usage of EFT
at the December 3, 2010 NCVHS hearing: ``The need for reconciled
transactions is key,'' a representative of HERAE, a health care payment
and data automation company, stated in written testimony, ``but without
key elements of data being retained through the entire process, a
significant quality breakdown occurs that can exasperate the industry
and stifle innovation. Such is the case with EFT data elements being
transmitted and received for provider use.'' \28\
---------------------------------------------------------------------------

\28\ ``Six Years of Marketplace ERA & EFT Learnings &
Recommendations Regarding the Rules: Written Testimony to the
National Committee on Vital and Health Statistics (NCVHS), the Sub-
Committee on the Rules for ERA/EFT per the Patient Protection and
Affordable Care Act,'' by Jim Ribelin, HERAE, LLC., submitted
December, 2010.
---------------------------------------------------------------------------

In deciding to receive health care claim payments via EFT from any
particular health plan, the health care provider is making a cost/
benefit analysis, comparing the cost and benefit of processing paper
checks with the costs and benefits of EFT. This is analogous to the
payment decision consumers make every day between paper-based
transactions and electronic payments when considering how to receive
their paychecks, how to pay their bills, and how to manage their
accounts. One reason for the current slow adoption rate of EFT among
physician practices and hospitals is that the EFT transaction fails to
win physicians' and hospitals' cost/benefit analysis. Many physician
practices and hospitals conclude that, because of the difficulties in
enrollment and reassociation, they will maintain their current
processes based on paper checks.
The health care EFT standards are intended to make the EFT a more
efficient and economic method for receiving health care claim payments.
The health care EFT standards require that the payment information
needed for automated reassociation (the TRN segment) be sent with the
EFT. By mandating use of an ACH File and holding the health plan
accountable for including the X12 835 TRN Segment, the health care EFT
standards give physician practices and hospitals assurance that
intermediaries on the health plan's side (clearinghouses, financial
institutions, payment vendors) will not alter or omit payment/
processing information required for automated reassociation. In so
doing, more of the benefits of EFT to physician practices and hospitals
can be realized, and physicians and hospitals will be more likely to
conclude that EFT is more cost effective than continued use of paper
checks.
For these reasons, we believe that an estimated range of 6 to 8
percent annual increase in the percentage of payments per year that are
EFT from 2014 through 2018 and a 4 to 6 percent increase from 2019
through 2023 can be attributed to the implementation of the health care
EFT standards.
Table 8 illustrates the percentage of EFT usage by 2023 that is
attributable to adoption and implementation of the health care EFT
standards. The Table demonstrates that usage of EFT to pay claims by
the health care industry would be an estimated 12 to 17 percent less in
2023 were the health care EFT standards not adopted. This projection is
derived from the estimated number of payments that will shift from
paper checks to EFT because providers recognize the time and cost
savings produced by health plans use of the health care EFT standards.
However, in order to have a comprehensive picture of the consequences
of not adopting the health care EFT standards, we would have to
consider other factors.
For instance, because operating rules for the health care EFT and
remittance advice transaction cannot be adopted before the adoption of
health care EFT standards, the increased use of EFT by providers that
might be attributable to EFT and ERA operating rules will not occur
without adoption of the health care EFT standards. Considering that
factor, if the health care EFT standards are not adopted, use of EFT by
providers could be less than what is estimated in Table 8, Column 3.
Another factor to consider when attempting to estimate the
consequences of not adopting the health care EFT standards is the fact
that payers realize savings in printing and mailing costs when they use
EFT with or without the adoption of health care EFT standards. In
contrast, as we have described in this preamble, without the data
elements required by the health care EFT standards, the time and cost
savings of EFT will not be realized by providers. If health care EFT
standards are not adopted, it is possible that state laws and health
plans would create laws and requirements that would force providers to
accept EFT for health care claim payments, thus allowing savings for
the payers but creating a possible burden for providers. The result
would be that providers use of EFT might increase, even at the rate
illustrated in Table 7, but the considerable time and cost savings
possible through use of EFT transmission would not be realized.

Table 8--Predicted Usage of EFT in 2023 With and Without the Health Care
EFT Standard
------------------------------------------------------------------------
EFT usage as a
percentage of Increase in EFT usage
payments per as a percentage of
Health plan category category in 2023 payments if health
assuming adoption care EFT standards are
of health care not adopted
EFT standards
(Column 1) (Column 2) (Column 3)
------------------------------------------------------------------------
Medicare..................... 98 98

[[Page 1577]]

Medicaid, VHA, & Other 79 56 to 63.
Federal, State, and Local
Government Payers.
Commercial................... 79 56 to 63.
Entire Industry.............. *84 67 to 72.
------------------------------------------------------------------------
* Weighted average, based on proportion of payments per sector.

It should be noted that the health care payment is only one element
of the payment process, and the sending and receiving of health care
claim payments is only one part of the total BIR cost. As such, the
health care EFT standards work in concert with other regulatory and
industry-based initiatives that are intended to decrease overall costs
associated with how a health care provider gets paid. For instance, we
will be adopting operating rules for the health care EFT and remittance
advice transaction by July, 2012, as per the Affordable Care Act, and
operating rules will be adopted for four other HIPAA transactions
before July 2014. By themselves, none of these initiatives will
significantly decrease BIR costs. However, there is industry consensus
that BIR costs can be reduced considerably, and the health care EFT
standards are an important part of that overall effort.

B. Alternatives Considered

1. Alternative 1: Adopt A Standard for Stage 2 Transfer of Funds or
Stage 3 Deposit Notification Transmissions
The CCD+Addenda is an ACH File that is used between financial
institutions, the ODFI and the RDFI, in the Stage 2 Transfer of Funds.
As this interim final rule with comment period demonstrates, the
CCD+Addenda is also an electronic format that an Originator can use in
the Stage 1 Payment Initiation to order, instruct, or authorize the
ODFI the send a transaction through the ACH Network. In the December
2010 NCVHS hearing, these two different uses of the CCD+Addenda--to
initiate payment and to actually transfer funds through the ACH
Network--were not consistently differentiated in testimony. However,
the co-chair of the NCVHS Subcommittee on Standards made clear to
testifiers what the aim of the health care EFT standard(s) was to be:
``We're not trying to standardize [transmissions] between two banks.
That's not our role; not our responsibility. Our responsibility and
role is to identify the standard that a health plan will be submitting
to a bank, and defining that as the standard, and operating rules that
will go along with it. Between the banks there is no role, in many
respects, for what we do.'' \29\
---------------------------------------------------------------------------

\29\ Co-chair Walter Suarez, NCVHS Subcommittee on Standards,
Administrative Simplification under the Patient Protection and
Affordable Care Act Standards and Operating Rules for Electronic
Funds Transfer (EFT) and Remittance Advice (RA), December 3, 2010,
hour 5:05 in audio recording: http://hhs.granicus.com/MediaPlayer.php?publish_id=11.
---------------------------------------------------------------------------

In this interim final rule with comment period, we did not adopt a
standard for the Stage 2 Transfer of Funds for two reasons, and we
believe these reasons reflect why the NCVHS did not perceive
recommending the adoption of a standard ``between two banks'' as its
``responsibility and role,'' as follows:
First, as the NCVHS pointed out, Stage 2 Transfer of Funds is a
transaction between two financial institutions. As we describe in the
Applicability section of this preamble, due to the nature of the
contents of the health care EFT (payment/processing information with no
PHI), the standards adopted herein would not be applicable to financial
institutions.
Second, there is no practical reason to adopt the CCD+Addenda as
the standard for the Stage 2 Transfer of Funds. When a health plan's
financial institution receives the Stage 1 Payment Initiation in the
form of a CCD+Addenda, there is no question that the Stage 2 Transfer
of Funds should also be transmitted in CCD+Addenda by the health plan's
financial institution. The Stage 1 Payment Initiation transmitted
according to the health care EFT standards will indicate to the health
plan's financial institution that the health care EFT remain in the
form of the CCD+Addenda for Stage 2 Transfer of funds. This is one of
the main reasons for adoption of an ACH File as the health care EFT
standard for Stage 1 Payment Initiation instead of other possible
formats. We intend to reduce the number of places that data
translations or reformatting occur in the transmittal of health care
EFT from the health plan to the health care provider. Data can be lost
or misplaced every time the payment/processing information is
translated or reformatted.
In this interim final rule with comment period, we did not adopt a
standard for the Stage 3 Deposit Notification. Although the testimony
at the NCVHS December 3, 2010 hearing referred to the loss of the TRN
Segment in the translation or reformatting that a health care
provider's financial institution undertakes in the Stage 3 Deposit
Notification, there was no specific discussion or recommendations from
those testifying regarding the adoption of a standard for Stage 3
Deposit Notification.
2. Alternative 2: Adopt the CTX as a Health Care EFT Standard
At the December 3, 2010 NCVHS hearing, stakeholder testimony was
given concerning the CTX. The CTX, as previously noted, is an ACH file
that could include the health care payment/processing information as
well as the entire ERA. According to some testimony at the NCVHS
December 3, 2010 hearing, if both the health care EFT (payment/
processing information) and the ERA were transmitted together in a
single transmission, then reassociation by the health care provider
would not be necessary. It would be the electronic version of a paper
check sent through the mail together with paper remittance advice, but
without the material and time costs associated with paper transactions.
In testimony, a representative from the financial industry recommended
the CTX and stated that ``a significant opportunity will have been lost
in this process if the

[[Page 1578]]

end result is a solution which does not tackle this reassociation
challenge.'' \30\
---------------------------------------------------------------------------

\30\ ``How the Payment and Remittance Advice Process Works in
Healthcare,'' presented to National Committee on Vital and Health
Statistics at the hearing on ``Administrative Simplification under
the Patient Protection and Affordable Care Act: Standards and
Operating Rules for Electronic Funds Transfer (EFT) and Remittances
Advice(RA), Presenter: Stuart Hanson, Fifth Third Bank, December 3,
2010, http://hhs.granicus.com/MediaPlayer.php?publish_id=11.
---------------------------------------------------------------------------

We did not adopt the CTX for three reasons. First, as discussed in
section I.C. of this interim final rule with comment period, the health
care EFT is processed and transmitted from a different system in a
health plan than the system that transmits the ERA. In essence,
adoption of the CTX would be a mandate to dramatically change the
processes and systems of health plans and health care providers.
Second, there is little to no experience with the CTX in the health
care industry, and it is therefore difficult to support assumptions
that administrative simplification and its estimated benefits can be
realized simply by the adoption of an untried electronic format. Third,
although there was industry and stakeholder testimony supporting the
adoption of the CTX, the great majority of testimony favored adoption
of the CCD+Addenda. There was much interest in and support for the CTX,
but the testimony, in general, urged further exploration of the use of
the CTX before it is considered as a viable standard.
As has been illustrated, EFT is used much less in the health care
industry than it is in other industries. Our intent with the health
care EFT standards is to attract more physician practices and hospitals
to use the EFT for health care claim payments, and achieve some clear
savings in a relatively short period of time. However, adoption of the
CTX would require an overhaul of most health plans', physician
practices', and hospitals' payment/billing and claim adjudication
systems, processes, and organizational structures. Given the low use of
EFT by physician practices and hospitals, and the assumed cost of an
overhaul of systems and processes to accommodate the CTX, it is
possible that adoption of the CTX at this time as the health care EFT
standard would actually reduce the number of physicians and hospitals
willing to use EFT to receive health care claim payments in the short
term.
3. Alternative 3: Adopt the X12 835 TR3 as the Health Care EFT Standard
for Stage 1 Payment Initiation
This interim final rule with comment period adopts two standards
for the health care EFT: The CCD+Addenda as the standard for Stage 1
Payment Initiation and the X12 835 TR3 TRN Segment for the data content
of the Addenda Record. ASC X12 is the SDO of the X12 835 TR3; NACHA has
authority over the CCD+Addenda.
It is possible for a data segment of X12 835 TR3 to be utilized as
a Stage 1 Payment Initiation from a health plan to its financial
institution. According to X12 835 TR3: ``* * * the 835 can authorize a
payee to have a DFI [(Depository Financial Institution)] take funds
from the payer's account and transfer funds to the payee's account. The
835 can authorize a DFI to move funds. In this mode, the 835 is sent to
the payer's DFI.'' (Section 1.10.1.1) Because a data segment of the ASC
X12 835 TR3 can be used by a health plan in a Stage 1 Payment
Initiation to its financial institution, it was considered a possible
candidate for the Stage 1 Payment Initiation health care EFT standard.
Along with the X12 835 TR3, other electronic formats were
considered candidates for the standard for the Stage 1 Payment
Initiation health care EFT standard as well. Currently, a health plan
can use proprietary files, the ASC X12 820, and other formats in a
Stage 1 Payment Initiation transmission to its financial institution.
Our decision to adopt the CCD+Addenda instead of the X12 835 TR3,
or any other electronic format, for the Stage 1 Payment Initiation
health care EFT standard was based mostly on written and verbal
testimony given at the December 3, 2010 NCVHS hearing. At that hearing,
there was overwhelming support for use of the CCD+Addenda. The reasons
for support appeared to have two bases: First, the CCD+Addenda was seen
by testifiers as a successful electronic format, reportedly used for
nearly all health care claim payments transmitted via EFT in Stage 2
Transfer of Funds transmissions between financial institutions, and, to
a lesser extent, used by many in Stage 1 Payment Initiation from a
health plan to a health plan's financial institution.
While some industry representatives implied in testimony that other
electronic formats were used in the Stage 1 Payment Initiation,
including the ASC X12 820 and flat files, none of those that testified
stated that an X12 835 was ever used. Further, no one suggested in
written or verbal testimony that an X12 820 or flat file be the
standard.
At one point during the testimony of December 3, 2011, NCVHS asked
representatives from NACHA, ASC X12, and the Council for Affordable
Quality Healthcare's (CAQH) Committee on Operating Rules for
Information (CORE), whether there was any consideration given to using
the ASC X12 835 as the electronic format that transmits a health plan's
order, instruction, or authorization for a health care EFT to its
financial institution. The representatives replied that no
consideration had been given, and did not disagree with the co-chair
when he stated that the apparent choice was only between an ACH File
and proprietary formats.\31\
---------------------------------------------------------------------------

\31\ Co-chair Walter Suarez, NCVHS Subcommittee on Standards,
Administrative Simplification under the Patient Protection and
Affordable Care Act Standards and Operating Rules for Electronic
Funds Transfer (EFT) and Remittance Advice (RA), December 3, 2010,
hour 5:05:30 in audio recording: http://hhs.granicus.com/MediaPlayer.php?publish_id=11.
---------------------------------------------------------------------------

As well, at the NCVHS hearing and in written testimony, no
proprietary formats were suggested as a possible standard for the Stage
1 Payment Initiation.
The second basis for adopting the CCD+Addenda, as presented by
testimony in the NCVHS hearing, was that NACHA is recognized as an
organization that has been successful in the development of its
implementation specifications and operating rules for ACH files. NACHA
was perceived by testifiers to be a trusted developer and maintainer of
implementation specifications and operating rules for electronic
formats, although NACHA is not recognized as an SSO under HIPAA.
In addition to basing our decision on the testimony, and the
February 17, 2011 NCVHS recommendation to the Secretary that resulted
from the hearings and testimony, we adopt the CCD+Addenda as one of the
health care EFT standards for Stage 1 Payment Initiation because many
of the issues with regard to reassociation, discussed in section I.D.
of this interim final rule with comment period, arise because of the
multiple translations that occur as the health care EFT travels from
the health plan, through the ACH Network, to the health care provider.
By adopting the CCD+Addenda as one of the health care EFT standards, we
are adopting the same electronic format for Stage 1 Payment Initiation
as is used in Stage 2 Transfer of Funds between banks, thus eliminating
one translation/reformatting of the data wherein the TRN segment might
be omitted or transmitted erroneously. By transmitting the payment/
payment information in a CCD+Addenda to its financial institution, a
health plan will have more assurance that the Addenda Record holding
the TRN Segment will not be

[[Page 1579]]

altered or omitted by the financial institution before it arrives at
the health care provider's financial institution.

C. Impacted Entities

The health care EFT standards are expected to decrease BIR costs;
therefore, the segments of the health care industry, non-health care
industry, and society that will be affected by the implementation of
the standards include the following:

Health Care Providers:
++ Offices of Physicians
++ Hospitals
++ Nursing Homes and Residential Care facilities
++ Dentists
++ Suppliers of Durable Medical Equipment
++ Pharmacies
++ Other Providers (home health agencies, dialysis facilities,
etc.)
Health Plans
++ Commercial health plans
++ Government health plans
Financial institutions
Clearinghouses and Vendors
Patients
Environment

All HIPAA covered entities would be affected by the standards
adopted in this interim final rule with comment period. HIPAA covered
entities include all health plans, health care clearinghouses, and
health care providers that transmit health information in electronic
form in connection with a transaction for which the Secretary has
adopted a standard.
Table 9 outlines the number of entities that may be impacted by the
health care EFT standards, along with the sources of those data.

Table 9--Type and Number of Affected Entities
------------------------------------------------------------------------
Type Number Source
------------------------------------------------------------------------
Health Care Providers--Offices of 234,222 Health Insurance Reform;
Physicians (includes offices of Modifications to the
mental health specialists). Health Insurance
Portability and
Accountability Act
(HIPAA) Electronic
Transaction Standards;
Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf
(based on the AMA
statistics).
Health Care Providers--Hospitals. 5,764 Health Insurance Reform;
Modifications to the
Health Insurance
Portability and
Accountability Act
(HIPAA) Electronic
Transaction Standards;
Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf.
Health Care Providers--Nursing 66,464 The number of providers
and Residential Care Facilities was obtained from the
not associated with a hospital. 2007 Economic Census
Data--Health Care and
Social Assistance
(sector 62) using the
number of
establishments: http://factfinder.census.gov/servlet/IBQTable?_bm=y&-ds_name=EC0762A1&-geo_id=01000US&-dataitem=*
and http://factfinder.census.gov/servlet/IBQTable?_bm=y&-fds_name=EC0700A1&-_skip=100&-ds_name=EC0762SLLS1&-NAICS2007=62&-_lang=en lang=en.
--NAICS code 623:
Nursing Homes &
Residential Care
Facilities n = 76,395 x
87 percent (percent of
nursing and residential
care facilities not
associated with a
hospital) = 66,464.
Other Health Care Providers-- 384,192 The number of providers
Offices of dentists, was obtained from the
chiropractors, optometrists, 2007 Economic Census
mental health practitioners, Data--Health Care and
speech and physical therapists, Social Assistance
podiatrists, outpatient care (sector 62) using the
centers, medical and diagnostic number of
laboratories, home health care establishments: http://
services, and other ambulatory factfinder.census.gov/
health care services, resale of servlet/IBQTable?--
health care and social bm=y&-ds--
assistance merchandise (durable name=EC0762A1&-geo--
medical equipment). id=01000US&-dataitem=*
and http://factfinder.census.gov/servlet/IBQTable?_bm=y&-fds_name=EC0700A1&-_skip=100&-ds_name=EC0762SLLS1&-NAICS2007=62&-_lang=en lang=en.
--NAICS code 621: All
ambulatory health care
services (excluding
offices of physicians)
= 313,339 (547,561
total-234,222 offices
of physicians).
--NAICS code 62-
39600(product code):
Durable medical
equipment = 70,853.
Health Care Providers-- 18,000 Health Insurance Reform;
Independent Pharmacies. Modifications to the
Health Insurance
Portability and
Accountability Act
(HIPAA) Electronic
Transaction Standards;
Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf.
Health Care Providers--Pharmacy 200 Health Insurance Reform;
chains. Modifications to the
Health Insurance
Portability and
Accountability Act
(HIPAA) Electronic
Transaction Standards;
Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf.
Health Plans--Commercial......... 1,827 Impacted commercial
health plans are health
insurance issuers; that
is, insurance
companies, services, or
organizations,
including HMOs, that
are required to be
licensed to engage in
the business of
insurance in a State.
Includes companies
offering Medicaid
managed care. This
number represents the
most recent number as
referenced in ``Patient
Protection and
Affordable Care Act;
Standards Related to
Reinsurance, Risk
Corridors, and Risk
Adjustment, 2011
Federal Register (Vol.
76), July, 2011,'' from
www.healthcare.gov.
Health Plans--Government......... 60 Represents the 56
Medicaid programs,
Medicare, the Veteran's
Administration (VHA),
Indian Health Service
(IHS), and TRICARE.

[[Page 1580]]

Health Plans--All................ 1,887 Insurance issuers (n =
1,827) + Government
agencies (N = 60).
Clearinghouses and Vendors....... 162 Health Insurance Reform;
Modifications to the
Health Insurance
Portability and
Accountability Act
(HIPAA) Electronic
Transaction Standards;
Proposed Rule http://edocket.access.gpo.gov/2008/pdf/E8-19296.pdf,
based on a study by
Gartner.
Third Party Administrators....... 750 Summary of Benefits and
Coverage and the
Uniform Glossary;
Notice of Proposed
Rulemaking http://www.gpo.gov/fdsys/pkg/FR-2011-08-22/pdf/2011-21193.pdf.
Financial Institutions that can 15,000 2010 ACH Rules: A
transmit EFT through ACH Network. Complete Guide to Rules
& Regulations Governing
the ACH Network,
National Automated
Clearing House
Association, 2010.
------------------------------------------------------------------------

D. Scope and Methodology of the Regulatory Impact Analysis

This impact analysis analyzes the costs and benefits to be realized
by implementation of the ACH CCD+Addenda for the health care EFT Stage
1 Payment Initiation and the ASC X12 835 TRN Segment for the data
content for the Addenda Record. It does not analyze the costs and
benefits of the other provisions/changes that are made in this interim
final rule with comment period. For instance, we do not provide an
analysis of the cost or benefit of amending the definition of the
health care payment and remittance advice transaction title or
definition. While these amendments may have a positive impact in terms
of clarifying policy, we do not believe that there are any costs or
quantitative benefits directly associated with such provisions/changes.
While we assume that adoption of the health care EFT standards will
impact a broad range of health care providers, as illustrated in Table
9, we will only be examining the costs and benefits of the health care
EFT on two types of providers: hospitals and physician practices. We
will not analyze the impact to pharmacies, nursing and residential care
facilities, dentists, or suppliers of durable medical equipment.
There are two reasons for narrowing the scope of this analysis to
only two categories of health care providers; we: (1) Have very little
data on the adoption rate or usage of EFT among pharmacies, dentists,
suppliers of durable medical equipment, nursing homes, and residential
care facilities. The lack of data for these types of health care
providers has been noted in other studies on administrative
simplification; \32\ and (2) assume that the greatest benefits will be
gained by hospitals and physician practices as they receive the
majority of health care claim payments. For this reason, our estimates
of savings to health care providers is conservative. We welcome
comments from industry and the public as to our assumptions.
---------------------------------------------------------------------------

\32\ Kahn, James, ``Excess Billing and Insurance-Related
Administrative Costs,'' in The Healthcare Imperative; Lowering Costs
and Improving Outcomes: Workshop Series Summary, edited by Yong,
P.L., Saunders, R.S., & Olsen, L.A., The National Academies Press:
2010.
---------------------------------------------------------------------------

We include health care clearinghouses and vendors as impacted
entities in Table 9. However, we did not calculate costs and benefits
in our impact analysis for these entities, although they are entities
that may be required to make the most software and system changes in
order to transmit the health care EFT to financial institutions on
behalf of health plans. We did not calculate costs and benefits to
health care clearinghouses and vendors in this cost analysis because we
assume that any associated costs and benefits will be passed on to the
health plans, and will be included in the costs and benefits we apply
to health plans.
We include financial institutions as impacted entities. The number
of financial institutions reflected in Table 9 are the number of NACHA
member financial institutions, that is, the number of financial
institutions that can transmit EFT through the ACH Network. We
calculated the costs to financial institutions of this interim final
rule with comment period based on the fee that financial institutions
are assessed by NACHA for transmitting a single EFT and the estimated
increase in EFT attributable to the implementation of the health care
EFT standards. We calculated that, between 2013 and 2023, the sum cost
to all financial institutions would be less than $4,000 dollars.
Because of the negligible negative impact to financial institutions, we
have not included the costs to financial institutions in our impact
analysis. While we also assume that the increase in health care EFT
will have benefits to financial institutions, we have not calculated
those benefits in this impact analysis. The focus of this interim final
rule with comment period is on the benefits to the health care
industry.
Although we acknowledge the impact to ERISA (Employee Retirement
Income Security Act) and non-Federal government plans, we did not
include the costs or benefits of such ``health plans''--or other
employers who might be defined as ``health plans''--in our analysis due
to the lack of data with regard to these types of health plans. Only a
very small percentage of employers with self-insured health plans
conduct their own health care transactions. The majority employ third
party administrators (TPAs). For our analysis, we use the number of
TPAs (750) estimated in the ``Summary of Benefits and Coverage and the
Uniform Glossary; Notice of Proposed Rule Making,'' published in the
August 22, 2011 Federal Register. Self-funded and non-Federal
government health plans meet the definition of covered entities under
HIPAA, while TPAs, in general, do not. However, TPAs employed by self-
funded and non-federal government health plans will ultimately be the
party that implements the health care EFT standards. Ostensibly, these
TPAs will pass on their costs and benefits to the self-funded and non-
federal government health plans that they serve. Therefore, we will
estimate the costs and benefits to TPAs in this analysis, and assume
that TPAs will be impacted similarly to the 1,827 commercial health
insurance issuers indicated in Table 9. In this RIA, we will not
separate the analysis of the costs and benefits of TPAs and commercial
health insurers, and, hereinafter, we will refer to both collectively
as ``commercial health plans'' for purposes of this analysis.
We use the total number of health insurance issuers as the number
of commercial health plans that will be affected by this interim final
rule with

[[Page 1581]]

comment period, and will use this number--plus the number of TPAs--in
our impact analysis. A health insurance issuer is an insurance company,
insurance service, or insurance organization, including an HMO, that is
required to be licensed to engage in the business of insurance in a
State, and that is subject to State law that regulates insurance. While
the category of ``health insurance issuers'' represents a larger number
of health plans than those included in the NAICs codes for ``Direct
Health and Medical Insurance Carriers'' (897 firms) we believe the
category of health insurance issuers is a more accurate representation
of companies conducting HIPAA transactions.
We did not analyze the costs and benefits of the health care EFT
standards on Medicare, as our research has demonstrated that there will
be no substantive impact to this government health plan. Medicare
already requires that their contracted payers use the CCD+Addenda as
the Stage 1 Payment Initiation. As well, Medicare requires that all
health care providers accept and enroll in EFT when they enroll as a
participating provider in the Medicare program in order to receive
payments.\33\ Therefore, health care providers who receive Medicare
payments for health care claims are already benefiting from Medicare's
use of the CCD+Addenda. Because of existing policies, Medicare has high
health care provider and health plan usage rates of EFT.
---------------------------------------------------------------------------

\33\ 42 CFR parts 405, 424, and 498, ``Medicare Program; Appeals
of CMS or CMS Contractor Determinations When a Provider or Supplier
Fails to Meet the Requirements for Medicare Billing Privileges:
Final rule,'' published in Federal Register June 27, 2008.
---------------------------------------------------------------------------

For illustrative purposes, we will analyze the impact to Medicaid
and other government health plans separately from commercial health
plans, although the costs and benefits of the government health plans
other than Medicare will be similar to those of the commercial health
plans. Companies that provide Medicaid managed care plans are included
in the category of commercial health plans.
We estimate that, because of the time savings that will be
quantified in the analysis of benefits, patients will benefit
downstream from a health care delivery system that spends less time on
administrative tasks. While we will detail this benefit to patients, we
will not attempt to quantify it in monetary terms. Society at large
will also be further impacted by the beneficial aspects the use of EFT
will have on the environment, and we will quantify those benefits.
Table 10 summarizes the sectors that will be analyzed in the impact
analysis.

Table 10--Sectors That Will Be Analyzed in Impact Analysis
------------------------------------------------------------------------

-------------------------------------------------------------------------
Commercial Health Plans (includes TPAs and health insurance issuers)
Government Health Plans (Medicaid, VHA, TRICARE, IHS)
Physician Practices (includes offices of mental health specialists)
Hospitals
Health care patients
Environment
------------------------------------------------------------------------

In general, the high and low range approach used in this impact
analysis illustrates both the range of probable outcomes, based on our
analysis, as well as the uncertainty germane to a mandated application
of a standard on an industry with highly complex business needs and
processes.

E. Costs

1. Costs for Health Plans (Health Insurance Issuers and TPAs)
We know from the December 2010 NCVHS testimony that some commercial
health plans are currently using the CCD+Addenda in the Stage 1 Payment
Initiation, and that they are already inputting the TRN Segment in the
Addenda Record. For lack of other data, we will assume that 85 percent
of the estimated 2,637 (or approximately 2,242) commercial health plans
do not use the CCD+Addenda or do not input the TRN Segment in the
Addenda Record.
For the commercial health plans that do not use the CCD+Addenda or
do not use it according to the implementation specifications detailed
in this interim final rule with comment period, there will be system
and business process changes required in order to originate the
CCD+Addenda with a TRN Segment in the Addenda Record.
Creating a CCD+Addenda and inputting or translating data into a
CCD+Addenda is a comparatively simple and inexpensive technical
process. A health plan that does not currently use the CCD+Addenda for
the Stage 1 Payment Initiation transmits the data in some other form--
flat file, an ASC X12 TR3 820, or a proprietary format. Translating the
data into a CCD+Addenda can be done with commercial off-the-shelf
(COTS) software for personal use that can be purchased for as little as
$200, and set up in less than 15 minutes. However, it is more
complicated and therefore more expensive to coordinate the treasury/
accounts payable systems and processes (which would transmit the
CCD+Addenda) with the claims systems and processes (which would
transmit the health care remittance advice) in order for a health plan
to assure duplicate TRN Segments are included in both the health care
EFT and ERA. As noted previously, duplicate TRN Segments in the Addenda
Record of the CCD+Addenda and in the ERA are essential to allowing
automated reassociation on the health care provider side.
We have estimated that it will cost health plans, on average,
$4,000 to $6,000 to implement the health care EFT standards. This is a
one-time cost to health plans to install COTS software or amend
systems, change processes, train staff, and/or communicate/contract for
required implementation specifications for the CCD+Addenda (Table 11).
The low range of costs was derived by considering the cost of high end,
commercially available software that can originate a CCD+Addenda and
can be integrated into most corporate accounts-payable systems. The
high range of costs takes into consideration the possible difficulties
associated with coordinating the health plan's payment or treasury
systems with the claims processing systems so that the TRN Segment is
duplicated in both the ERA and the health care EFT. It is possible that
some health plans may require customization of the software.
There may be a number of commercial health plans that would have
costs greater than the high range of costs we have estimated; for
example, commercial health plans that currently send Stage 1 Payment
Initiation in a proprietary format. As well, we assume that there are
as many commercial health plans that will have minimal to no costs; for
example, health plans that must simply update their vendor contracts to
accommodate this change without any additional operational costs.
We estimate the maintenance, update or subscriber fees to be $2,000
to $3,000 annually for the 2 years after the first year of
implementation. Subscriber fees are often assessed by software vendors
that maintain and update the COTS software on the part of the health
plan industry. From our research, we could not find any subscriber or
update fees that were more than $500 a year, but we have estimated much
higher maintenance and subscriber costs in order to account for costs
that may be associated with adjustments in software or a health plan's
business processes in the first few years of the standards'
implementation.
Although we assume health plans will start to transition to the
health care EFT

[[Page 1582]]

standards before the formal implementation date of January 1, 2014, for
simplicity we have included all one-time implementation costs in the
year 2014. Subscriber and maintenance costs will occur in 2015 and
2016. See Table 11.

Table 11--Cost to Commercial Health Plans of Implementing the Health Care EFT Standards *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of health
plans that will
have to make
changes to
LOW cost to HIGH cost to implement the
Year implementing implementing health care EFT LOW annual cost HIGH annual cost
health care EFT health care EFT standards (85% (in millions) (in millions)
standards standards of 1,827 health
insurance
issuers + 750
TPAs)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.......................................................... $4,000 $6,000 2,242 $9.2 $13.8
2015.......................................................... 2,000 3,000 2,242 4.6 6.9
2016.......................................................... 2,000 3,000 2,242 4.6 6.9
Total (in millions)........................................... ................ ................ ................ 18.3 27.5
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2010 dollars.

For Medicaid, CHIP, and IHS, we have used similar cost factors with
an identical range. Medicaid is actually 56 different programs, each of
which administers a number of health plans, and includes more than 600
managed care plans.\34\ We have included the Medicaid managed care
plans in the commercial health plans category, the costs of which were
previously calculated. For purposes of this cost estimate, we have
counted each of the 56 Medicaid programs as an individual health plan.
---------------------------------------------------------------------------

\34\ ``Medicaid Managed Care Trends,'' Medicaid Managed Care
Enrollment Report, Centers for Medicare and Medicaid Services,
http://www.cms.gov/MedicaidDataSourcesGenInfo/downloads/09Trends.pdf.
---------------------------------------------------------------------------

As was the case with commercial health plans, we are aware that
certain State Medicaid programs use the health care EFT standards
already. However, it is difficult to obtain the exact number of
programs that use it. Therefore, we have made the same assumption we
made for commercial health plans: We estimate 85 percent of Medicaid,
CHIP, and IHS health plans will need to make software and/or system
changes in order to implement the health care EFT standards (see Table
12).

Table 12--Cost to Medicaid, Chip, and Indian Health Services *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Number of health
plans that will
LOW cost to HIGH cost to have to make
implementing implementing changes to LOW annual cost HIGH annual
Year health care EFT health care EFT implement the (in millions) cost (in
standards standards health care EFT millions)
standards (85%
of 60)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2014.......................................................... $4,000 $6,000 51 $0.20 $0.31
2015.......................................................... 2,000 3,000 51 0.10 0.15
2016.......................................................... 2,000 3,000 51 0.10 0.15
Total in millions............................................. ................ ................ ................ 0.41 0.61
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Based on 2010 dollars.

2. Cost for Physician Practices and Hospitals
We estimate there will be no direct costs to physician practices
and hospitals to implement the health care EFT standards. The health
care EFT standards are required for the Stage 1 Payment Initiation of
the health care EFT between a health plan and its financial
institution. While we assume in this impact analysis that the impact to
physician practices and hospitals will be positive in terms of giving
some assurance that the TRN Segment is transmitted to the health care
provider's financial institution, the standards adopted herein do not
affect how a provider's financial institution transmits the TRN Segment
to the provider. Therefore, the health care provider is not required to
change or amend systems or processes.
However, the impact analysis assumes that physician practices and
hospitals will increase their usage of EFT or, in some cases, will
begin accepting EFT for health care claim payments for the first time
on account of the adoption of the health care EFT standards. The cost
for this enrollment--less than $200 per provider over 5 years--is
included in section IV. of this interim final rule with comment period.
This cost of enrollment will also be reflected in the RIA summary of
costs and benefits and the accounting statement.

F. Benefits

Our analysis of benefits is similar to analyses included in other
recent regulations that implement administrative simplification
mandates under the Affordable Care Act. The implementation of the
health care EFT standards, as well as other administrative
simplification regulatory initiatives such as operating rules for the
HIPAA standard transactions, are expected to streamline administrative
health care transactions, make the standard transactions more
consistent, and decrease dependence on manual

[[Page 1583]]

intervention in the transmission of health care and health care payment
information. These improvements, in turn, will drive more physician
practices, hospitals and health plans to utilize electronic
transactions in their operations. Each move from a non-electronic,
manual exchange of information to an electronic transaction brings with
it material savings in terms of less money spent on paper, postage, and
equipment required for paper-based transactions, as well as cost
avoidance in terms of time savings for staff.
For health plans, we expect direct savings from the transition from
a paper-based payment system (for example, paper checks) to EFT. These
savings are found in the amount of staff time saved, as well as
material savings such postage, paper, and printing.
For physician practices and hospitals, we expect downstream savings
from a decrease in the amount of time a physician practice or hospital
staff spends in manually reassociating the ERA with health care EFT.
Though we expect some direct savings as well in terms of paper savings,
our analysis will concentrate on health care provider staff time
savings.
1. Savings for Health Plans
We assume health plans will generate savings from increased usage
by physician practices and hospitals of EFT for health care claim
payments. As noted previously in this impact analysis, this estimated
increase will be due to a number of factors; however, we will only
calculate the savings derived from increased EFT usage attributable to
implementation of the health care EFT standards.
As noted in section III.A.2. of this interim final rule with
comment period, we estimate a 6 to 8 percent annual increase in the use
of EFT from 2014 through 2018 and a 4 to 6 percent increase from 2019
through 2023 that will be attributable to implementation of the health
care EFT standards. We have included these ranges in order to reflect
the uncertainty inherent in making a causal claim in a complex,
multifactorial environment such as the U.S. health care industry.
There have been a number of different analyses and case studies
with regard to the possible savings realized when a health plan
switches from paper checks to EFT for health care claim payments. A
2007 analysis by McKinsey and Company concluded that the ``system wide
cost'' of using paper checks for health care claim payments was $8.00
per check.\35\ This included printing and mailing the checks from the
payer side, and manually reconciling and depositing the check on the
health care provider side. We have not used the McKinsey's conclusion
because we do not know what methodology was used and wanted to be
specific about the difference between health care provider savings and
health plan savings.
---------------------------------------------------------------------------

\35\ ``Overhauling the US Healthcare Payment System,'' conducted
by McKinsey & Company, published in The McKinsey Quarterly, June
2007. (http://www.mckinseyquarterly.com/Overhauling_the_US_health_care_payment_system_2012).
---------------------------------------------------------------------------

In another example, United Healthcare reports that it costs the
company $30.7 million to pay 145 million health care claims with paper
checks compared with the cost of $2.7 million to pay the same amount of
claims using EFT.\36\ This is a difference of about $0.19 a claim. We
did not use United Healthcare's savings estimate since, apparently, it
is based on single claims, and the metric we used is based on health
care claim payments. A single health care claim payment from a health
plan covers payment for multiple claims submitted by a provider.
---------------------------------------------------------------------------

\36\ ``E-Payment Cures for Healthcare,'' presentation by J.W.
Troutman (PNC Healthcare), D. Lisi (United Healthcare), B.C.
Mayerick (Department of Veterans Affairs), April 26, 2010, https://admin.nacha.org/userfiles/File/Healthcare%20Resource/Epayments%20Cures%20for%20Healthcare.pdf.
---------------------------------------------------------------------------

For our calculations, we use data from the Financial Management
Service (FMS), a bureau of the United States Department of Treasury. We
use FMS data because they are the lowest estimates, and because we
consider them the most valid. According to FMS, it costs the U.S.
government $0.11 to issue an EFT payment compared to $1.03 to issue a
check payment--a difference of $0.92 per check.\37\ This estimate
includes the cost of material such as postage, envelopes, and checks,
but does not include labor costs. FMS processes millions of
transactions, and there are economies of scale that may not be
experienced by health plans. As a result, the $0.92 estimate is
probably less than the amount plans will experience. Table 12
summarizes the estimated increase and savings based on the Department
of Treasury's numbers.
---------------------------------------------------------------------------

\37\ www.fms.treas.gov/eft/index.html.
---------------------------------------------------------------------------

The ``LOW'' savings (Tables 13 and 14, Column 4) are based on 4 to
6 percent percentage point annual increases in EFT usage attributable
to the health care EFT standards, while the ``HIGH'' savings (Tables 13
and 14, Column 5) are based on 6 to 8 percentage point annual increases
in EFT usage attributable to implementation of the health care EFT
standards.

Table 13--Savings by Medicaid, Chip, and Indian Health Service Attributable to Implementation of Health Care EFT
Standards *
----------------------------------------------------------------------------------------------------------------
LOW savings for HIGH savings for
LOW number HIGH number health plans based health plans Based
increase in EFT increase in EFT on 6% (first 5 on 8% (first 5
transactions from transactions from years) to 4% years) to 6%
previous year previous year increase in usage Increase in usage
Year attributable to attributable to attributable to attributable to
implementation of implementation of health care EFT health care EFT
health care EFT health care EFT standards ($0.92 standards ($0.92
standards (in standards (in per transaction) per transaction)
millions) millions) (in millions) (in millions)
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5)
----------------------------------------------------------------------------------------------------------------
2013............................ 0.00 0.0 $0.00 $0.00
2014............................ 0.86 1.15 0.79 1.06
2015............................ 1.12 1.49 1.03 1.37
2016............................ 1.46 1.94 1.34 1.79
2017............................ 1.89 2.53 1.74 2.32
2018............................ 2.46 3.28 2.27 3.02
2019............................ 2.13 3.20 1.96 2.95
2020............................ 2.56 3.84 2.36 3.53

[[Page 1584]]

2021............................ 3.07 4.61 2.83 4.24
2022............................ 3.69 5.53 3.39 5.09
2023............................ 4.43 6.64 4.07 6.11
Total........................... 23.68 34.22 21.78 31.48
----------------------------------------------------------------------------------------------------------------
* Based on 2010 dollars.

Table 14--Estimated Savings by Commercial Health Plans Attributable to Implementation of Health Care EFT
Standards*
----------------------------------------------------------------------------------------------------------------
LOW savings for HIGH savings for
LOW number HIGH number health plans based health plans based
increase in EFT increase in EFT on 6% (first 5 on 8% (first 5
transactions from transactions from years) to 4% years) to 6%
previous year previous year increase in usage increase in usage
Year attributable to attributable to attributable to attributable to
implementation of implementation of health care EFT health care EFT
health care EFT health care EFT standards ($0.92 standards ($0.92
standards (in standards (in per transaction) per transaction)
millions) millions) (in millions) (in millions)
----------------------------------------------------------------------------------------------------------------
(Column 1) (Column 2) (Column 3) (Column 4) (Column 5)
----------------------------------------------------------------------------------------------------------------
2013............................ 0.00 0.0 $0.00 $0.00
2014............................ 1.11 1.48 1.02 1.36
2015............................ 1.44 1.93 1.33 1.77
2016............................ 1.88 2.50 1.73 2.30
2017............................ 2.44 3.25 2.25 2.99
2018............................ 3.17 4.23 2.92 3.89
2019............................ 2.75 4.12 2.53 3.79
2020............................ 3.30 4.95 3.04 4.55
2021............................ 3.96 5.94 3.64 5.46
2022............................ 4.75 7.13 4.37 6.56
2023............................ 5.70 8.55 5.25 7.87
Total........................... 30.51 44.09 28.07 40.56
----------------------------------------------------------------------------------------------------------------
* Based on 2010 dollars.

Table 15 illustrates the total costs and savings for commercial and
governmental health plans.

Table 15--Health Plans' Low and High Range of Costs and Savings *
------------------------------------------------------------------------
LOW (in HIGH (in
millions) millions)
------------------------------------------------------------------------
Commercial Health Plans: .............. ..............
Savings............................. $28.07 $40.56
Costs............................... 18.34 27.58
Medicare and VHA .............. ..............
Savings............................. 0 0
Costs............................... 0 0
Medicaid, CHIP, and IHS health plans: .............. ..............
Savings............................. 21.78 31.48
Costs............................... .41 .61
TOTAL .............. ..............
Savings............................. 49.85 72.04
Costs............................... 18.75 28.13
------------------------------------------------------------------------
* Based on 2010 dollars.

[[Page 1585]]

2. Savings for Physician Practices and Hospitals
For physician practices and hospitals, the greater savings to be
garnered is the cost avoidance that comes from a decrease in health
care provider administrative staff time dedicated to BIR tasks. These
might be considered ``cost avoidance,'' in contrast to direct savings,
because the decrease in time needed for a staff member to manually
conduct functions that can be done electronically does not necessarily
mean that money is saved. Rather, it means that the staff time,
previously deployed on BIR tasks, can instead be dedicated to other
areas, such as customer service for an increasing number of patients.
Calculating cost avoidance is more difficult than calculating
material savings, because we must draw assumptions about the business
processes a health care provider uses. Nevertheless, there has been
research in the area of staff time spent on the administration of
health care, specifically in the area of physician practices, from
which we can draw some conclusions.
As an example, the VHA did a study of cost avoidance after
implementing an ``E-payment system'' in 2003 with the 1,675 health care
``payers'' from whom they collect health care claim payments. The new
E-payment system implemented a number of different changes to how
payers paid VHA claims, including: (1) Enabling the VHA to accept ERA
(X12 835 TR3) and health care EFT, and urging health plans to transmit
remittance advice and payment electronically; (2) routing the payment
to a single lockbox bank; and (3) routing the health care EFT and ERA
together for accounts receivable posting.\38\
---------------------------------------------------------------------------

\38\ ``E-Payment Cures for Healthcare,'' presentation, Barbara
C. Mayerick, Department of Veterans Affairs, April 26, 2010, https://admin.nacha.org/userfiles/File/Healthcare%20Resource/Epayments%20Cures%20for%20Healthcare.pdf and ``Comments from VHA
Health Care as Health Care Provider,'' testimony by Barbara Mayerick
for NCVHS December 3, 2010 hearing: http://hhs.granicus.com/MediaPlayer.php?publish_id=11.
---------------------------------------------------------------------------

Notably, in order to facilitate the reassociation of the health
care EFT and ERA, the VHA required that payers use the CCD+Addenda to
transmit the health care EFT with the same TRN Segment as that included
in the associated ERA.
In cases where health plans transmitted both the health care EFT
and the ERA electronically, the VHA found two substantial consequences
resulted from the new system. There was a: (1) 71 percent reduction in
the time between when a claim was submitted and when the payment was
received by the VHA, from 49 days down to 14 days; and (2) 64 percent
time savings for accounts receivable and related tasks by 2010. The
first result is especially important when applied to small physician
practices for which cash-on-hand is crucial for continuity of
operations. The second consequence resulted in $9.3 million in annual
cost avoidance for the VHA. In a clear example of how cost avoidance
can be of benefit, the 64 percent time saving resulted in the VHA being
able to handle 2.5 times the number of claims that were processed
before the E-payment system was implemented in 2003 without adding
additional staff.
While the VHA found a 64 percent time savings for accounts
receivable and related tasks after implementation of its E-payment
system, we calculate that there will be a 10 to 15 percent time savings
for the health care providers to receive and post payments after
implementation of the health care EFT standards. We have estimated a
much lower percentage of time savings because the VHA E-payment system
was much more comprehensive in its approach to automating accounts
receivable process compared to the health care EFT standards adopted in
this interim final rule with comment period. However, some of the VHA
savings can be attributed to the fact that the VHA E-payment system
required payers to use the CCD+Addenda, and we therefore estimate that
time savings can likewise be directly attributed to implementation of
the health care EFT standards adopted herein.
We estimate that implementation of the health care EFT standards
will save a percentage of staff time for two reasons: First, as
demonstrated above, there is a direct causal relationship between
making payment by EFT more efficient and consistent and an increase in
utilization of EFT by physician practices and hospitals. For every
health care EFT a physician practice receives from a health plan, there
will be time saved because staff will not have to manually open checks,
fill out deposit slips and make deposits, create and update
spreadsheets or other tools to track check payments, and manually file
and organize the paperwork. Second, the standardization of the
electronic format and implementation specifications of the Stage 1
Payment Initiation transmission will allow for some assurance that the
health care provider will be able to receive a TRN Segment that matches
an accompanying ERA. This will decrease staff time necessary to
manually oversee the receipt of payment and manually reassociate the
health care EFT with the associated ERA. This second benefit of the
health care EFT standards will save time not only for health care
providers that are increasing their EFT usage, but also for those that
currently use EFT with some payers; that is, it will allow for
automation of current EFT claim payments that may not be fully
automated due to erroneous or missing TRN Segments in the EFT.
Given these two elements of cost savings in receiving and posting
payments, we estimate that there will be a 10 to 15 percent savings in
the time spent receiving and posting payments in a physician practice
every time a physician practice or hospital enroll to receive EFTs from
a health plan (in comparison to when a physician practice receives
paper checks). We believe this estimate to be low, as a 15 percent
savings in time might be achieved solely in terms of the time saved by
not having a staff member manually transport and deposit paper checks.
We expect that the forthcoming operating rules required to be
adopted for the health care EFT and remittance advice transaction will
provide further cost avoidance benefits in terms of time savings.
For our calculations, data on the amount of time that is currently
spent on ``payment and posting'' tasks is taken from Sakwoski, et al.,
2009.\39\ Sakowski found that a total of 0.67 nonclinical full time
employees (FTEs) were dedicated to BIR activities per physician in a
sample of California physician practices. Of those BIR tasks, 14
percent included ``payment receiving and posting'' tasks, and we
estimate there will be time savings in these specific tasks upon
implementation of the health care EFT standards. The 14 percent does
not include follow-up on payments and the reconciliation of payments
received with payments pending. Although the health care EFT standards
may streamline these tasks as well, more direct savings are found in
receiving and posting payments.
---------------------------------------------------------------------------

\39\ Sakowski, J.A., Kahn, J.G., Kronick, R.G., Newman, J.M., &
Luft, H.S., ``Peering into the black box: Billing and insurance
activities in a medical group,'' Health Affairs: 28(4):w544-w554,
2009.
---------------------------------------------------------------------------

Based on Sakowski and 2010 statistics from the U.S. Bureau of Labor
Statistics, we calculate the total time dedicated to receiving and
posting payments for all physician practices and hospitals (Table 16,
Column 2). The calculation for the total time dedicated to receiving
and posting payments for physician practices is: [percent of time full
time employee is dedicated to BIR tasks per

[[Page 1586]]

physician] X [total number of physicians in physician practices] X
[percent of BIR time spent on ``payment and posting'']. For hospitals,
we used a slightly different methodology based on the ratio of
physicians to administrative staff conducting BIR tasks in physician
practices.
The total time dedicated to receiving and posting payments is then
multiplied by 10 percent for the LOW time savings attributable to the
health care EFT standards and 15 percent for the HIGH time savings, the
products of which are illustrated in Table 16 and 17, Columns 2 and 3.
The 10 to 15 percent time savings occurs every time physician practices
and hospitals, as a whole, moves from paper checks to EFT with one
health plan. Given our assumptions of the increased use of EFT for
health care claim payments, the average hospital and physician practice
will begin receiving health care claim payments via EFT from 12 health
plans (from whom they had previously received paper checks) between
2014 to 2023 (Table 16 and 17, Col. 5). For simplicity sake, we have
projected this movement from paper checks to EFT as spread evenly over
ten years, and illustrated in Table 16 and 17 that physician practices
and hospitals, as a whole, make the switch with 1.2 health plans a
year. We then multiplied each year's time savings by the average salary
of a billing and posting clerk in physician practices (Table 16 and 17,
Column 4), to arrive at the projected yearly cost savings attributable
to implementation of the health care EFT standards. The range of 10 to
15 percent reflects the uncertainty inherent in the estimate of time
savings. However, it should be noted that the VHA found a 64 percent
time savings across all accounts receivable and related tasks, while
our estimate reflects a time savings in ``receiving and posting
payments'' only.

Table 16--Physician Practice Savings/Cost Avoidance Attributable to Implementation of Health Care EFT Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
LOW time HIGH time
savings (in savings (in
FTEs) FTEs) Salary per FTE
attributable attributable (baseline 2010 Low cost High cost
to EFT to health care Bureau of Average number avoidance of avoidance of
standard (10% EFT standard Labor of new EFT projected EFT projected EFT
decrease in (15% decrease Statistics, enrollment per enrollments in enrollments in
payment and in payment and plus benefits provider millions millions
posting time posting time and 3% annual
spent per EFT spent per EFT increase
enrollment) enrollment)
(Col. 1) (Col. 2) (Col. 3) (Col. 4) (Col. 5) (Col. 6) (Col. 7)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013.................................................... 0 0 48,250 0 $.00 $.00
2014.................................................... 3,143 4,715 49,698 1.2 187.47 281.20
2015.................................................... 2,876 4,079 51,189 1.2 176.68 250.53
2016.................................................... 2,950 4,245 52,725 1.2 186.65 268.57
2017.................................................... 2,975 4,269 54,306 1.2 193.89 278.18
2018.................................................... 3,005 4,314 55,935 1.2 201.72 289.55
2019.................................................... 3,035 4,356 57,614 1.2 209.81 301.14
2020.................................................... 3,064 4,398 59,342 1.2 218.21 313.20
2021.................................................... 3,094 4,441 61,122 1.2 226.92 325.70
2022.................................................... 3,129 4,491 62,956 1.2 236.38 339.31
2023.................................................... 3,164 4,541 64,845 1.2 246.17 353.35
-----------------------------------------------------------------------------------------------
Total............................................... .............. .............. .............. 12 2,084 3,001
--------------------------------------------------------------------------------------------------------------------------------------------------------
* From Sakowski, et al., 2009, and Bureau of Labor Statistics.

Table 17--Hospital Savings/Cost Avoidance Attributable to Implementation of Health Care EFT Standards
--------------------------------------------------------------------------------------------------------------------------------------------------------
LOW time HIGH time
savings (in savings (in
FTEs) FTEs) Salary per FTE
attributable attributable (baseline 2010 Low cost High cost
to EFT to health care Bureau of Average number avoidance of avoidance of
standard (10% EFT standard Labor of new EFT projected EFT projected EFT
decrease in (15% decrease Statistics, enrollment per enrollments in enrollments in
payment and in payment and plus benefits provider millions millions
posting time posting time and 3% annual
spent per EFT spent per EFT increase
enrollment) enrollment)
(Col. 1) (Col. 2) (Col. 3) (Col. 4) (Col. 5) (Col. 6) (Col. 7)
--------------------------------------------------------------------------------------------------------------------------------------------------------
2013.................................................... 0 0 $48,250 0 $.00 $.00
2014.................................................... 1,557 2,335 49,698 1.2 92.85 139.28
2015.................................................... 1,425 2,020 51,189 1.2 87.51 124.09
2016.................................................... 1,461 2,102 52,725 1.2 92.45 133.02
2017.................................................... 1,474 2,114 54,306 1.2 96.03 137.78
2018.................................................... 1,488 2,137 55,935 1.2 99.91 143.41
2019.................................................... 1,503 2,157 57,614 1.2 103.92 149.15
2020.................................................... 1,518 2,178 59,342 1.2 108.08 155.12

[[Page 1587]]

2021.................................................... 1,532 2,199 61,122 1.2 112.39 161.32
2022.................................................... 1,550 2,225 62,956 1.2 117.08 168.06
2023.................................................... 1,567 2,249 64,845 1.2 121.92 175.01
-----------------------------------------------------------------------------------------------
Total............................................... .............. .............. .............. .............. 1,032 1,486
--------------------------------------------------------------------------------------------------------------------------------------------------------

We note a number of assumptions built into the calculations
illustrated in Tables 16 and 17:
The number of physicians in the United States will grow
considerably between 2014 and 2023. Our estimates are based on
projections of physician supply and demand by the Association of
American Medical Colleges.\40\ In spite of the estimated time savings
realized by implementation of the health care EFT standards, overall
time spent on payment and posting tasks for physicians will remain
constant or even increase due to the increase in physicians (which, in
turn, is due to an increase in expected claims over the next twenty
years).
---------------------------------------------------------------------------

\40\ ``Physician Shortages to Worsen Without Increases in
Residency Training,'' Association of American Medical Colleges fact
sheet at https://www.aamc.org/download/150584/data/physician_shortages_factsheet.pdf, from AAMC Center for Workforce Studies,
June 2010 Analysis.
---------------------------------------------------------------------------

The number of FTEs who spend time on BIR tasks per
physician remains constant between 2014 and 2023. While we expect that
efficiencies will be developed through administrative simplification
and other federal, state and industry initiatives, the administrative
complexity involved in the projected increase in the number of claims
may counter balance any decreases in the ratio of administrative staff
to clinical staff.
The salary of a billing and posting clerk FTE increases at
a rate of 3% a year.
We project the health care EFT standard and other statutory and
regulatory requirements will save staff time by making it possible for
health care providers to automate more and more of their BIR tasks.
3. Benefits to Patients
A 2002 study concluded that there is an inverse relationship
between administrative complexity and quality of care.\41\ The study
analyzed data from the National Committee for Quality Assurance's
(NCQA) Quality Compass 1997, 1998, and 2000. In essence, the study
compared administrative costs to quality indicators and found that
``Higher administrative costs were associated with worse quality for
virtually every quality measure in each of the four years * * * The
correlation coefficients were remarkably stable from year to year,
suggesting that high administrative costs did not facilitate quality
improvement over time.'' \42\
---------------------------------------------------------------------------

\41\ Himmelstein, D. U. and Woolhandler, S., ``Taking care of
Business: HMOs that spend more on administration deliver lower-
quality care,'' International Journal of Health Services, Volume 32,
Number 4, 2002.
\42\ Himmelstein, et al.
---------------------------------------------------------------------------

The study did not describe reasons for this correlation, beyond
commentary on excess costs in the U.S. health care industry in general,
nor will we attempt to draw any quantifiable patient benefits in our
impact analysis. However, as we have illustrated, the average physician
practice and hospital is spending an increasing amount of time (60
hours of staff time per week per physician interacting with health
plans \43\) and money (10 to 14 percent of physician practice revenue)
on BIR tasks. We can conclude that, overall, the time and money spent
on BIR tasks are increasingly encroaching on the time and money spent
on delivering quality health care.
---------------------------------------------------------------------------

\43\ Casalino, et al.
---------------------------------------------------------------------------

4. Benefits to the Environment
As an electronic, paperless exchange, the benefits of the use of
EFT reverberate through our environment. Table 16 illustrates some of
the environmental benefits to using EFT. The calculator was developed
under a NACHA initiative entitled ``Pay It Green'' to persuade
consumers to pay bills online and persuade companies to deposit
salaries through EFT Direct Deposit based on its positive environmental
impacts.\44\ The data entered into the calculator are our estimated
number of increased EFT, year after year, attributable to
implementation of the health care EFT standards. Table 18 illustrates
the environmental savings or cost avoidance that is gained by an
estimated increase in EFT usage, attributable to the implementation of
the health care EFT standards, from 2014 to 2023.
---------------------------------------------------------------------------

\44\ http://www.payitgreen.org/business/dirDepCalculator.aspx.

[[Page 1588]]

Table 18--Benefits to the Environment Based on Increased Usage of EFT Attributable to Health Care EFT Standards
*
----------------------------------------------------------------------------------------------------------------
Number of
payments that
move from paper Gallons of
check to EFT Pounds of Gallons of wastewater
attributable to Pounds of paper greenhouse gas gasoline saved prevented from Pounds of waste
health care EFT saved ** avoided *** discharging into prevented
standards (in rivers and lakes
millions) (LOW
estimate)
----------------------------------------------------------------------------------------------------------------
50.94 794,000 2,259,000 292,000 7,566,000 905,000
----------------------------------------------------------------------------------------------------------------
* Taken from calculations derived from NACHA ``Pay It Green'' Organization, ``Direct Deposit Financial Paper
Footprint Calculator (http://www.payitgreen.org/business/dirDepCalculator.aspx).
** Data on the environmental impact of producing paper for checks was taken from Environmental Defense Fund's
Paper Calculator (available at www.edf.org/papercalculator/).
*** Data on the greenhouse gas impact of printing and transporting paper checks and bills was provided by the
``Life and Travels of a Paper Check'' study done for NACHA. Additional greenhouse gas data related to
transportation was calculated using the World Resources Institute's Mobile Combustion Calculator (available at
www.ghgprotocol.org).

G. Summary

Although we have calculated savings as a result of usage of the
health care EFT standards, our calculations appear significantly lower
than analogous calculations in other studies and reports.
For example, the UnitedHealth Group reported in a 2009 working
paper that $108 billion could be saved industry wide over the course of
ten years if health care claim payments were required to be paid via
EFT and remittance advice was required to be transmitted
electronically.\45\ The UnitedHealth Group appeared to base the savings
solely on industry-wide adoption of the EFT and the ERA, and not on any
associated operating rules or consistent application of standard
implementation specifications.
---------------------------------------------------------------------------

\45\ ``The Health Care Cost Containment--How Technology Can Cut
Red Tape and Simplify Health Care Administration,'' Unitedhealth
Center for Health Reform & Modernization, Working Paper 2, June
2009, http://www.unitedhealthgroup.com/hrm/UNH_Working Paper2.pdf.
---------------------------------------------------------------------------

The Healthcare Efficiency Index National Progress Report on
Healthcare Efficiency, sponsored by Emdeon, a health care
clearinghouse, estimates an annual savings of $11 billion if the
industry were to use EFT for 100 percent of health care claim
payments.\46\ Our savings analysis is based on use of EFT for
approximately 84 percent of health care claim payments by 2023, but our
savings are significantly less than the Healthcare Efficiency reported.
---------------------------------------------------------------------------

\46\ ``The Health Care Cost Containment--How Technology Can Cut
Red Tape and Simplify Health Care Administration,'' UnitedHealth
Center for Health Reform & Modernization, Working Paper 2, June
2009, http://www.unitedhealthgroup.com/hrm/UNH_Working Paper2.pdf.
---------------------------------------------------------------------------

In one recent study, the estimated total BIR costs to the health
care industry were estimated at $361 billion in 2009. From a survey of
other studies, the study concludes that $65 to $70 billion a year is
``excess'' cost to physicians. ``Excess'' was defined as spending above
a benchmark comparison with Canadian physicians.\47\
---------------------------------------------------------------------------

\47\ Kahn, James, ``Excess Billing and Insurance-Related
Administrative Costs,'' in The Healthcare Imperative; Lowering Costs
and Improving Outcomes: Workshop Series Summary, edited by Yong,
P.L., Saunders, R. S., & Olsen, L. A.
---------------------------------------------------------------------------

None of these studies specifically examined the impact of the
health care EFT standards adopted in this interim final rule with
comment period, and the health care EFT standards will only decrease
BIR costs by a small percent of total ``excess.'' However, the savings
estimated in these studies reflect the extent to which the health care
EFT standards, and all subsequent standards adopted under section 1104
of the ACA, may impact U.S. healthcare.
Costs and savings of implementing the health care EFT standards for
the health care industry are summarized in Table 19, and range of
return on investment is illustrated in Table 20.

Table 19--Total Costs and Savings of Implementing the Health Care EFT Standards for Health Care Industry
----------------------------------------------------------------------------------------------------------------
LOW estimate HIGH estimate LOW estimate, HIGH estimate
Year total costs (in total costs (in total savings total savings
millions) * millions) * (in millions) (in millions)
----------------------------------------------------------------------------------------------------------------
Cumulative total over 10 years.......... $28 $38 $3,166 $4559
----------------------------------------------------------------------------------------------------------------
* Includes cost of provider enrollment in EFT described in COI.

Table 20--Range of Return on Investment
------------------------------------------------------------------------
LOW (LOW HIGH (HIGH
savings--HIGH savings--LOW
cost) (in cost) (in
millions) millions)
------------------------------------------------------------------------
Range of Return on Investment: $3,128 $4,531
Entire Industry....................
------------------------------------------------------------------------

[[Page 1589]]

H. Accounting Statement

As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars_a004_a-4/), in Table 21 we have
prepared an accounting statement showing the classification of the
expenditures associated with the provisions of this interim final rule.
This table provides our best estimate of the costs and benefits
associated with the implementation of the health care EFT standards
adopted herein.

Table 21--Accounting Statement: Classification of Estimated Expenditures, From FY 2013 to FY 2023
[In millions]
----------------------------------------------------------------------------------------------------------------
Minimum Maximum
Category Primary estimate estimate estimate Source citation (RIA,
(millions) (millions) (millions) preamble, etc.)
----------------------------------------------------------------------------------------------------------------
BENEFITS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized benefits:
7% Discount................... Not estimated............. $271.5 $391.3 RIA.
3% Discount................... Not estimated............. 280.8 404.5 RIA.
Qualitative (un-quantified) Wider use of EFT due to ........... ...........
benefits. adoption of standards;
ability to re-associate
EFT and RA; increased
cost avoidance due to
decrease in manual
requirements.
----------------------------------------------------------------------------------------------------------------
Benefits generated from plans to physician practices and hospitals. It is probable that other providers will
experience proportional benefits.
----------------------------------------------------------------------------------------------------------------
COSTS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized costs:
----------------------------------------------------------------------------------------------------------------
7% Discount................... Not Estimated............. 3.0 4.1 RIA and COI.
3% Discount................... Not Estimated............. 2.8 3.7 RIA and COI.
Qualitative (un-quantified) costs. None...................... None None ......................
----------------------------------------------------------------------------------------------------------------
Physician practices and hospitals will have costs associated with enrollment in EFT, if they choose to enroll.
Other categories of providers may have similar costs. Health plans will pay costs to software vendors,
programming and IT staff/contractors, and clearinghouses.
----------------------------------------------------------------------------------------------------------------
TRANSFERS
----------------------------------------------------------------------------------------------------------------
Annualized monetized transfers: N/A....................... N/A N/A ......................
``on budget``.
From whom to whom?................ N/A....................... N/A N/A ......................
Annualized monetized transfers: N/A....................... N/A N/A ......................
``off-budget``.
----------------------------------------------------------------------------------------------------------------

List of Subjects

45 CFR Part 160

Administrative practice and procedure, Computer technology, Health
care, Health facilities, Health insurance, Health records, Hospitals,
Medicaid, Medicare, Penalties, Reporting and recordkeeping
requirements.

45 CFR Part 162

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

For the reasons set forth in this preamble, the Department of
Health and Human Services amends 45 CFR subchapter C to read as
follows:

PART 160--GENERAL ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 160 continues to read as follows:

Authority: 42 U.S.C. 1302(a), 42 U.S.C. 1320d-1320d-8, sec. 264
of Pub. L. 104-191, 110 Stat. 2033-2034 (42 U.S.C. 1320d-2 (note)),
5 U.S.C. 552; secs. 13400 and 13402, Pub. L. 111-5, 123 Stat. 258-
263, and sec. 1104 of Pub. L. 111-148, 124 Stat. 146-154.

Subpart A--General Provisions

0
2. Amend Sec. 160.103 as follows:
0
A. Redesignating paragraph (11) to the definition of ``transaction'' as
paragraph (12).
0
B. Adding a new paragraph (11) to the definition of ``transaction''.
The addition read as follows:

Sec. 160.103 Definitions.

* * * * *
Transaction * * *
(11) Health care electronic funds transfers (EFT) and remittance
advice.
* * * * *

PART 162--ADMINISTRATIVE REQUIREMENTS

0
3. The authority citation for part 162 continues 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, sec. 105 of Pub. L. 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), and secs. 1104 and 10109 of Pub. L.111-148, 124
Stat. 146-154 and 915-917.

Subpart A--General Provisions

0
4. Amend Sec. 162.103 by adding the definition of ``Stage 1 payment
initiation'' to read as follows:

Sec. 162.103 Definitions.

* * * * *
Stage 1 payment initiation means a health plan's order, instruction
or authorization to its financial institution to make a health care
claims payment using an electronic funds transfer (EFT) through the ACH
Network.
* * * * *

[[Page 1590]]

Subpart I--General Provisions for Transactions

0
5. Amend Sec. 162.920 by adding a new paragraph (d) to read as
follows:

Sec. 162.920 Availability of implementation specifications and
operating rules.

* * * * *
(d) The National Automated Clearing House Association (NACHA), The
Electronic Payments Association, 1350 Sunrise Valle Drive, Suite 100,
Herndon, Virginia 20171 (Phone) (703) 561-1100; (Fax) (703) 713-1641;
Email: info@nacha.org; and Internet at http://www.nacha.org. The
implementation specifications are as follows:
(1) 2011 NACHA Operating Rules & Guidelines, A Complete Guide to
the Rules Governing the ACH Network, NACHA Operating Rules, Appendix
One: ACH File Exchange Specifications (Operating Rule 59) as referenced
in Sec. 162.1602.
(2) 2011 NACHA Operating Rules & Guidelines, A Complete Guide to
the Rules Governing the ACH Network, NACHA Operating Rules Appendix
Three: ACH Record Format Specifications (Operating Rule 78), Part 3.1,
Subpart 3.1.8 Sequence of Records for CCD Entries as referenced in
Sec. 162.1602.

0
6. Revise the heading of Subpart P to read as follows:

Subpart P--Health Care Electronic Funds Transfers (EFT) and
Remittance Advice

Sec. 162.1601 [Amended]

0
7. In Sec. 162.1601, paragraph (a) introductory text is amended by
removing the phrase ``provider's financial institution'' and adding the
term ``provider'' in its place.

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

Sec. 162.1602 Standards for health care electronic funds transfers
(EFT) and remittance advice transaction.

The Secretary adopts the following standards:
(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 of the following standards:
(1) The standard identified in paragraph (a) of this section.
(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 from January 1, 2012 through December 31, 2013,
the standard identified in paragraph (b)(2) of this section.
(d) For the period on and after January 1, 2014, the following
standards:
(1) Except when transmissions as described in Sec. 162.1601(a) and
(b) are contained within the same transmission, for Stage 1 Payment
Initiation transmissions described in Sec. 162.1601(a), all of the
following standards:
(i) The National Automated Clearing House Association (NACHA)
Corporate Credit or Deposit Entry with Addenda Record (CCD+)
implementation specifications as contained in the 2011 NACHA Operating
Rules & Guidelines, A Complete Guide to the Rules Governing the ACH
Network as follows (incorporated by reference in Sec. 162.920)--
(A) NACHA Operating Rules, Appendix One: ACH File Exchange
Specifications; and
(B) NACHA Operating Rules, Appendix Three: ACH Record Format
Specifications, Subpart 3.1.8 Sequence of Records for CCD Entries.
(ii) For the CCD Addenda Record (``7''), field 3, of the standard
identified in 1602(d)(1)(i), the Accredited Standards Committee (ASC)
X12 Standards for Electronic Data Interchange Technical Report Type 3,
``Health Care Claim Payment/Advice (835), April 2006: Section 2.4: 835
Segment Detail: ``TRN Reassociation Trace Number,'' Washington
Publishing Company, 005010X221 (Incorporated by reference in Sec.
162.920).
(2) For transmissions described in Sec. 162.1601(b), including
when transmissions as described in Sec. 162.1601(a) and (b) are
contained within the same transmission, 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).

Dated: November 16, 2011.
Donald M. Berwick,
Administrator. Centers for Medicare & Medicaid Services.
Dated: December 28, 2011.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-132 Filed 1-5-12; 8:45 am]
BILLING CODE 4120-01-P