Possible Claims Disruption as HIPAA Compliance Date for Standard Transactions Approaches


On October 16, 2003, the Health Insurance Portability and Accountability Act (“HIPAA”) requires employer-sponsored group health plans and others to be in compliance with the Transaction and Code Sets (“TCS”) standards for electronic transactions adopted by the Department of Health and Human Services (“HHS”).  The federal government has been warned of potential disruption in the claim submission and payment cycles because the health care industry remains substantially non-compliant.  This Alert describes the current concerns facing the health care industry, summaries the unintended consequences and potentially adverse impacts facing health plans in processing claims and in other transactions using electronic data interchange (“EDI”), and contains recommendations for actions group health plans should take to assess their ability to continue timely processing and paying claims.

HIPAA's TCS Standards

HIPAA’s TCS standards address electronic claims, remittance advice, eligibility verification, referral authorization, claims status inquiry and other transactions.  The intent of these standards, and the identifiers standards for health plans and others who use electronic transactions, is to have a single standard that replaces the many versions of electronic professional and institutional claims and other transaction formats in order to streamline, enhance and automate the transaction processes.  Reduction of errors, paper claims and manual posting is forecast to result in significant savings to health plans and providers from the implementation of the TCS standards.


There are powerful incentives for compliance by the October 16, 2003 deadline, as Medicare is prohibited from paying claims that are not submitted electronically after the deadline.  HHS may grant waivers  to providers employing fewer than 10 persons and in other circumstances.  After October 16, 2003, if a compliant health plan accepts a non-compliant transaction in order to avoid the cost and administrative burden of a paper claim and manual processing, it is a potential civil and criminal violation.

Claim Processing Disruption Warnings

The Secretary of HHS has been warned about the unintended consequences and adverse impacts of non-compliance, such as:

  • Rejection of non-standard electronic transactions

  • Disruption of payment flows to providers under Medicare, Medicaid and private health plans

  • Reversion to paper transactions

The American Hospital Association (“AHA”) has stated that hospitals are having difficulty getting health plans (i.e., insurers and HMOs) to commit to conducting end-to-end testing in a timely fashion.  Of particular concern to the AHA are:

  • Rejection of an entire batch of claims if one of the included claims is missing data elements (this may impact an employer-sponsored self-insured health plan's ability to process claims within the time frames required by the U.S. Department of Labor's Claims Procedure regulations)

  • Rejection of claims due to differing interpretations of required situational data elements for specific patients, services and health plan benefits coverage

  • Significantly increased administrative costs due to system slowdowns or failures

The Blue Cross and Blue Shield Association (“BCBSA”) has stated that:

  • 20-30% of hospitals and other institutions and 30-40% of physicians and other professionals will not be compliant by the deadline

  • 50-60% of clearinghouses and vendors may be non-compliant by the deadline and unable to accept/transmit HIPAA standard transactions

Consequences of a Disruption

The cost to health plans if the health care industry does not comply with the TCS standards and reverts to paper claims is demonstrated by the following data:

  • Cost of electronic processing: $2.00 to $12.00/claim

  • Cost of paper/manual processing: $25.00 to $75.00/claim

  • Current usage of electronic transactions (BCBSA estimate): 90% of hospital claims, 60% of physician claims

Third party administrators for employer-sponsored health plans will be under considerable pressure to assure that their products and services for HIPAA-compliant transactions are timely installed and fully tested; however, increased claim processing costs may be passed on to plans.


Employer-sponsored group health plans should:

  • Assess their plan's vendor's TCS compliance status, internal and external testing progress, readiness of transaction trading partners, and back up plans in the event of a large increase in paper claims and obtain a report from the vendor on compliance status

  • Discuss with their vendors their vendor's support obligations and determine if the Plan will need additional claims data capture support, translations creation support, connectivity support, and linkage of health care management systems to production of data for compliant transactions; certification of transactions compliance should be achieved prior to the deadline

  • Review key terms of contracts with third party administrators with respect to performance requirements, termination, indemnification, contract breach and dispute resolution; contract terminations are possible if plans believe sufficient progress toward TCS compliance has not been achieved.

  • Consider trading partner agreements with any entity converting claims for the health plan which address issues such as:

    • Accuracy of transmission

    • Transmission back-up

    • Testing

    • Equipment costs

    • Data content

    • Transmission format

    • Security controls

  • Develop contingency plans and consider vendor contract termination and remedies

Further Information

This Alert summarizes key issues in the implementation of HIPAA’s transaction and code set standards.  This Alert is a publication of Haynes and Boone, LLP and should not be construed as legal advice on any particular facts or circumstances.  This Alert is for general information purposes only, and may not be quoted or referred to in any other documents or legal proceeding without our prior written consent.  The publication of this Alert is not intended to create an attorney-client relationship.

If you would like to learn more about HIPAA and the rules and regulations relating to HIPAA privacy, security and TCS requirements, please feel free to contact any one of the attorneys listed above.

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