[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