Proposes Rapid Adoption of Updated Transaction Standards and ICD-10 Code Set

The Centers for Medicare and Medicaid Services (CMS) published a notice of proposed rulemaking on August 22, 2008 to update the standards for HIPAA transactions for all covered entities, including retail pharmacies (X12 5010 NPRM). See 73 Federal Register 49741 (Aug. 22, 2008). CMS also published on August 22, 2008 a notice of proposed rulemaking to adopt the International Classification of Diseases, Tenth Revision (ICD-10) code set for diagnoses and hospital inpatient procedures for use in HIPAA standard transactions (ICD-10 NPRM). See 73 Federal Register 49795 (Aug. 22, 2008). ICD-10 would replace the International Classification of Diseases, Ninth Revision (ICD-9) code set.

Although the industry has anticipated these proposals for some time, the X12 5010 NPRM and the ICD-10 NPRM propose a more “aggressive timetable” than expected. If finalized, the X12 5010 NPRM and the ICD-10 NPRM would require all HIPAA covered entities to comply with a new version of the standard transactions by April 1, 2010 and with the ICD-10 code set by October 1, 2011—18 months later. In proposing these deadlines, CMS ignored recommendations and observations of industry groups calling for longer implementation periods to avoid the mass non-compliance that forced postponement of the deadlines for the original HIPAA transactions and code set standards (Transactions Rule) in 2002 and the National Provider Identifier (NPI) Rule in 2007.

CMS also proposes in the X12 5010 NPRM a new HIPAA standard transaction for Medicaid pharmacy subrogation. CMS did not propose as a HIPAA standard transaction the electronic prescribing standard that CMS has adopted for Medicare Part D.

X12 Version 5010 on April 1, 2010 

The X12 5010 NPRM would mandate implementation of ASC X12 Technical Reports Type 3 Version 005010 (X12 Version 5010) for each of the eight HIPAA standard transactions to replace the current X12 Version 4010/4010A. Covered entities would be required to exclusively use the X12 Version 4010/4010A through March 31, 2010, then exclusively use the X12 Version 5010 beginning April 1, 2010. That means covered entities would be required to implement X12 Version 5010 overnight with all of their trading partners.

CMS asserts that X12 Version 5010 will greatly reduce, if not eliminate, the need for “companion guides” that many health plans currently publish to facilitate the conduct of HIPAA standard transactions. CMS claims that, in X12 Version 5010, “ambiguous language has been eliminated, the rules for required and situational data elements are more clearly defined and instructions for many business processes have been clarified.” X12 Version 5010 will accommodate the increased complexity of the proposed ICD-10 code set.

NCPDP Version D.0 on April 1, 2010

The X12 5010 NPRM proposes to update the standards for retail pharmacy transactions to address “changing business needs, many necessitated by the requirements of the Medicare Prescription Drug Improvement and Modernization Act of 2003.” CMS proposes to replace the current version of the NCPDP standards with NCPDP Telecommunication Standard Implementation Guide, Version D, Release 0 and NCPDP Batch Standard Implementation Guide, Version 1, Release 2 (collectively, NCPDP Version D.0). NCPDP Version D.0 will affect the four retail pharmacy transactions: (1) health care claims or equivalent encounter information; (2) eligibility for a health plan; (3) referral certification and authorization; and (4) coordination of benefits.

The X12 5010 NPRM would revise 45 C.F.R. § 162.1102 to allow either NCPDP Version D.0 or ASC X12 837 Version 5010 to be used for retail pharmacy claims involving supplies and professional services. The Transactions Rule currently requires retail pharmacies to use the ASC X12 837 Version 4010/4010A to submit claims for pharmacy supplies and professional services and the NCPDP Version 5.1 to submit claims for prescription drugs, even if the two transactions are for the same patient. Thus, the proposed change would give retail pharmacies greater flexibility.

ICD-10 Code Set on October 1, 2011 

The ICD-10 NPRM proposes to replace the ICD-9-CM code set Volumes 1 and 2 for diagnostic coding with ICD-10-CM. The proposed replacement for ICD-9-CM Volume 3 – for hospital inpatient procedure coding—is ICD-10-PCS. CPT-4 and HCPCS code sets, used for coding all other procedures, are not affected by the ICD-10 NPRM. Covered entities would be required to exclusively use ICD-9-CM through September 30, 2011, then exclusively use ICD-10-CM and ICD-10-PCS beginning October 1, 2011. Hence, an overnight transition would again be required.

CMS asserts that ICD-9-CM is no longer capable of providing sufficient codes to accommodate new hospital inpatient procedures or the detail and specificity required to report health care effectively. CMS says that inherent limitations cause ICD-9-CM to be insufficient to support emerging health care needs that require large amounts of detailed health care information, such as pay-for-performance programs, advanced medical research and electronic health records.

ICD-9-CM includes approximately 16,000 codes consisting of three to five digits (13,000 codes for diagnoses and 3,000 codes for hospital inpatient procedures). By comparison, ICD-10-CM and ICD-10-PCS together include over 155,000 codes consisting of three to seven alphanumeric characters (68,000 codes for diagnoses and 87,000 codes for hospital inpatient procedures). Whereas ICD-9-CM allows providers to select among four codes to describe the diagnosis of a sprained (or strained) ankle, for example, ICD-10-CM would offer providers 72 coding options for the same diagnosis.

CMS acknowledges that replacing ICD-9-CM with ICD-10-CM and ICD-10-PCS “will require significant effort on the part of covered entities and their vendors.” CMS’s cost estimates to implement ICD-10-CM and ICD-10-PCS vary from $1.6 billion to $13.8 billion for training, system change costs and productivity losses.

CMS estimates that the cumulative net benefit of switching to ICD-10-CM and ICD-10-PCS will be $2.3 billion by 2023. Over $1 billion of the benefit would come from what CMS calls “more accurate payments for new procedures.” CMS’s underlying assumption in calculating this dollar figure is that the ICD-10-PCS codes will enable health plans to pay hospitals more for procedures for which no ICD-9-CM codes exist and that the concomitant increase in new procedures will benefit the health care system.

Implementation Timeline 

Congress effectively postponed the October 16, 2002 compliance date for the initial version of the Transactions Rule by passing the Administrative Simplification Compliance Act in response to industry concerns about the initial compliance date causing a “train wreck,” due to insufficient time for implementation and trading-partner testing. On April 2, 2007, CMS issued guidance effectively postponing the implementation of the NPI Rule in response to similar widespread concerns. Despite these difficulties and industry group recommendations to allow sufficient time for testing, CMS proposes to require compliance with X12 Version 5010 and NCPDP Version D.0 less than 18 months following publication of a final rule and to require compliance with ICD-10-CM and ICD-10-PCS 18 months later.

CMS acknowledges that many covered entities estimate that it will take two to three years to implement ICD-10-CM and ICD-10-PCS after implementing X12 Version 5010. The National Committee on Vital and Health Statistics (NCVHS), a government-appointed committee designated by statute to advise CMS on HIPAA standard transactions, recommended a phased implementation to allow covered entities more time to test and verify transactions with their trading partners. NCVHS observed that “it is critical” that the industry have two years experience with X12 Version 5010 before implementing ICD-10-CM and ICD-10-PCS. CMS rejected these recommendations because it believes “the industry has sufficient experience with implementation issues associated with the HIPAA standards to enable them to conduct their design/build activities, and schedule and perform testing within a 12-month period.”

New Transaction for Medicaid Pharmacy Subrogation 

The X12 5010 NPRM would require health plans to accept Medicaid agencies’ electronic transmission of a new Medicaid pharmacy subrogation transaction. The proposed standard for this transaction is NCPDP Batch Standard Medicaid Subrogation Implementation Guide Version 3, Release 0 (NCPDP Version 3.0).

CMS defines the Medicaid pharmacy subrogation transaction as “the transmission of a claim from a Medicaid agency to a payer for the purpose of seeking reimbursement from the responsible health plan for a pharmacy claim the State has paid on behalf of a Medicaid recipient.” Thus, any health plan from which a State Medicaid agency is seeking payment for a subrogated claim must be capable of conducting transactions using NCPDP Version 3.0 by April 1, 2010 (April 1, 2011 for small health plans). NCPDP Version 3.0 would not apply to providers because they are not involved in Medicaid subrogation activities.

CMS indicates that the need for NCPDP Version 3.0 is demonstrated by a 2001 study that found 29 States did not have universal formatting and data elements for pharmacy claims. The lack of universal formatting often results in health plan denials of Medicaid claims, “contributing to millions of dollars of lost revenue to Medicaid.” According to CMS, at least two-thirds of the States already voluntarily use an older version of the proposed standard developed in 2000, the NCPDP Batch Standard Medicaid Subrogation Implementation Guide Version 2.0.

Transactions with Small Health Plans

The X12 5010 NPRM seeks to mitigate problems resulting from different compliance dates for small health plans and other covered entities. It would revise 45 C.F.R. § 162.923(a) to require use of a standard transaction only if both the sending and receiving covered entities are required to comply. Thus, for example, a Medicaid agency would not be required to use NCPDP Version 3.0 with a small health plan until April 1, 2011—one year later than required when conducting the transaction with other health plans.

Unlike prior HIPAA standard transaction implementation deadlines, however, CMS does not propose to allow small health plans an extra year to comply with the X12 Version 5010, NCPDP Version D.0 and ICD-10 requirements. CMS determined that small health plans do not need the extra year because they “have had sufficient time to be compliant with the HIPAA transaction standards as well as the NPI, and to have made the appropriate investments in technology and infrastructure, as have their larger counterparts.”

No HIPAA Standard Transaction for e-Prescribing

CMS does not propose to adopt a HIPAA standard transaction for electronic prescriptions, even though it adopted an electronic prescribing standard for the Medicare Part D program. Currently, a prescriber who transmits prescriptions electronically for Medicare Part D drugs for Medicare beneficiaries must comply with the Medicare electronic prescribing standard. See NGE 12/11/07 Health Law Alert, CMS Amends Compliance, e-Prescribing and Other Provisions of Medicare Advantage and Prescription Drug Plan Rules, available at A prescriber who transmits a non-Medicare Part D drug prescription electronically may therefore use any format that a trading partner will accept. 

Comment Period

Comments on the X12 5010 NPRM or the ICD-10 NPRM are due by 5 p.m. ET on October 21, 2008.