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Statement of Need: The Health Insurance Portability and Accountability Act of 1996, subtitle F of title II added to title XI of the Social Security Act a new part C, entitled "Administrative Simplification." The purpose of this part is to improve the Medicare program under title XVIII of the Social Security Act and the Medicaid program under title XIX of the Act, and the efficiency and effectiveness of the health care system, by encouraging the development of a health information system through the establishment of standards and requirements for the electronic transmission of certain health information. This regulation implements the requirements for standard transactions and code sets.

Summary of the Legal Basis: Part C of title XI consists of sections 1171 through 1179 of the Act. These sections define various terms and impose several requirements on HHS, health plans, health care clearinghouses, and certain health care providers. As established by Part C of title XI, section 1173 of the Act requires the Secretary to adopt standards for financial and administrative transactions, and data elements for those transactions, to enable health information to be exchanged electronically. Section 1173 of the Act requires the Secretary to establish standards for code sets for each data element for each health care transaction. The Secretary must also ensure that procedures exist for the routine maintenance, testing, enhancement and expansion of code sets. In order to codify this authority, we have proposed implementing regulations at 45 CFR 162.

Alternatives: Alternatives to naming standards would be to leave the marketplace to determine the standards. Up to now, this has not been successful. There has been a steady increase in use of electronic data interchange in the health care market since 1993, and it is predicted there will be continued growth, even without national standards. However, the upward trend in electronic health care transactions will be enhanced by having national standards in place. Because national standards are not in place today, there continues to be a proliferation of proprietary formats in the health care industry. Proprietary formats are those that are unique to an individual business. Due to proprietary formats, business partners that wish to exchange information electronically must agree on which formats to use. Since most health care providers do business with a number of plans, they must produce electronic transactions in many different formats.

Anticipated Costs and Benefits: The economic impact that will stem from this rule will result in an estimated net savings to health plans and health care providers of $1.5 billion during the first five years; use of the standards would continue to save the industry money.

Risks: This regulation will standardize a set of administrative transactions in the health care industry. Not publishing this rule would see the continuing of the myriad of formats of these transactions and eliminate the anticipated $1.5 billion in savings due to simplification efforts.