On behalf of the State Farm Insurance Companies, I appreciate the opportunity to testify before the Subcommittee regarding the electronic data standards that the Department of Health and Human Services (HHS) is to develop pursuant to the Health Insurance Portability and Accountability Act of 1996 (HIPAA). State Farm, as one of the largest individual health insurers and the largest automobile and homeowners insurer in the nation, has a major stake in HHS's forthcoming regulations. These regulations will very significantly affect how State Farm processes the millions of claims for medical care reimbursement that it receives annually under its health, automobile, homeowners, workers compensation, commercial liability, and umbrella insurance policies.
In my remarks today, I will briefly describe State Farm's current involvement with electronic data interchange (EDI), and then address the specific questions posed in connection with this hearing. I would be happy to respond to any additional questions the Subcommittee may have.
A. State Farm's Involvement In
Electronic Data Interchange
State Farm is currently using industry EDI standards for a variety of transactions with more than 800 business partners. In the health care context, we have begun and are expanding implementation of EDI for health claims, claim
payments, and eligibility requests. When fully implemented, EDI will significantly facilitate our processing of the more than 346,000 individual health claims and 950,000 group health claims that we receive each year. More than 1.3 million medical bill transactions are associated with those claims. These figures relate solely to our health insurance policies, and exclude the millions of transactions required for processing of medical claims each year under our property/casualty insurance policies. In 1995 alone, State Farm paid over $3.4 billion for medical treatment under property/casualty policies.
State Farm already has realized significant benefits from the use of EDI, including higher productivity, more timely communications, reduction in data errors and improved error detection, and the elimination of other costs associated with vast amounts of paper handling. Recognizing these benefits and their potential expansion to the company's multiple lines of business and transactional functions, State Farm is committed to working with our business partners, government agencies, and other interested parties on the development of mutually acceptable, widely applicable, EDI standards.
Since February 1991, State Farm has participated in the meetings of the Accredited Standards Committee (ASC) X12 group, and was a leader in the development of an auto liability reporting transaction set by the ASC X12N subcommittee in 1994. State Farm is also a member of the Workgroup for Electronic Data Interchange (WEDI) and, as such, is involved in WEDI's effort to standardize electronic health data communications.
B. State Farm's Expectations for
HHS's Electronic Data Standards
State Farm anticipates that the standards adopted pursuant to the administrative simplification requirements of the HIPAA will, in general, have very positive results. If properly designed and implemented, these standards promise to promote efficiency, save costs, ensure better and more timely service to customers, and reduce transaction errors. Assuming that they properly accommodate the needs of all potential users, the standards should facilitate a much more productive and effective system for processing of medical insurance than exists today.
For State Farm in particular, the potential benefits of national uniform health data standards include:
State Farm foresees few adverse results from HHS's forthcoming standards so long as they take into account the needs of all potential users and adhere to Congress' intent with respect to the purposes of administration simplification. In particular, State Farm expects that HHS will conform to Congress' express direction regarding the administrative simplification part of the HIPAA: "While requiring standardization of data transmitted electronically among persons governed by this part, the provisions in this part would not impose any requirement for information collection or reporting."(1) Assuming these conditions are properly met, State Farm predicts that the costs of complying with the new standards, while likely substantial at the onset, will be far outweighed by the standards' long-term benefits.
C. The Standards Development Process
At HHS
State Farm is impressed with HHS's demonstrated willingness to solicit the views of interested parties regarding the required administrative simplification standards. HHS appears to be adhering closely to Congress' mandate that it consult with the established standards-setting organizations and give deference to the standards endorsed by those organizations. In addition, HHS appears to be taking seriously its statutory mandate to weigh carefully the costs and benefits of particular standards for their various potential users.
D. Current Problems With Transactions that
Will be Subject to the HHS Standards
State Farm has not experienced major problems with the X12 transactions that will be covered by HHS's standards pursuant to the administrative simplification provisions of the HIPAA. We are currently undertaking a detailed review of all the X12N implementation guides for the various business processes they cover, and generally are finding the guides very usable. Where we see the need for code or note additions, we will make specific requests for their inclusion.
With respect to EDI generally, the biggest challenge for State Farm is overcoming the educational obstacles for potential users both within and outside the company. Some EDI transactions, such as the 811 consolidated invoice, are relatively straightforward and applicable to numerous business processes in multiple industries. For these transactions, State Farm has found EDI implementation to be very successful. Implementing EDI for other transactions, including the 837 health care claim (submission), will require the development of more complex business and technical mapping expertise. The bottom line in effectuating this is providing the proper training and education both within State Farm and among the company's many business partners.
State Farm has negotiated individual trading partner agreements with each of the entities with whom it currently conducts EDI transactions. We are in the process of negotiating a trading partner agreement with a clearinghouse that will eliminate the across-the-board need for individual agreements. State Farm is hopeful that the HHS regulations will eliminate many of the cumbersome aspects of negotiating trading partner agreements with respect to transactions identified in the HIPAA. However, we are uncertain whether the regulations will specify terms for timing, version control, and other elements of EDI covered by our existing trading partner agreements. We are hopeful that HHS will provide clarification in this area prior to issuing its regulations in proposed form.
E. Achieving the Goals of Administrative
Simplification While Meeting Multiple
Business Needs
State Farm strongly believes that the single most effective means of achieving the goals of administrative simplification under HIPAA is to adopt the ASC X12 standards for all HIPAA-specified transactions, and to ensure that the standards are effectively implemented. Notably, WEDI has recommended across-the-board adoption of the X12 standards with provision for a 5-year phase-in of the X12 837 standard for health care claims. In light of the aggressive schedule for adoption of HHS's standards, State Farm agrees that some phase-in of particular standards may be appropriate. To ensure effective implementation, we strongly advocate that HHS undertake a comprehensive educational program for all users of the forthcoming standards. EDI is a simple concept, but many transactions are complex. Education is critical to deal with that complexity.
Finally and most importantly, State Farm urges HHS to design its standards for application by property/casualty insurers as well as health insurers, in order that the standards may be used to facilitate all medical insurance transactions. It simply makes no sense to prescribe health data standards with the objective of achieving widespread efficiency and yet to exclude a major portion of the health care payer population from consideration as potential users of the standards. Although the HIPAA does not refer to property/casualty insurers as "health plans," as a practical matter, property/casualty insurers will inevitably be compelled to use the HIPAA standards in order to conduct electronic transactions with providers and other users. In light of this inevitability, State Farm strongly urges HHS to take account of the particular needs of property/casualty insurers in its forthcoming regulations.
In this context, State Farm is encouraged by the fact that HIPAA explicitly includes "first report of injury" among the transactions covered by HHS's EDI standards. Congress' recognition of the need for standardization of injury onset information reflects the comprehensive goals of administrative simplification and underscores the importance of HHS taking property/casualty insurers' data needs into account.
State Farm further notes that the HIPAA expressly requires the Secretary of Health and Human Services to "adopt standards for transferring among health plans appropriate standard data elements needed for the coordination of benefits, the sequential processing of claims, and other data elements for individuals who have more than one health plan." This requirement clearly demonstrates Congress' recognition of the value of EDI for coordinating benefits among multiple insurers whose policies overlap. Standardization of EDI transactions for all potential payers, including property/casualty insurers, would enhance coordination of benefits and the rapid resolution of claims and subrogation issues.
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In summary, State Farm strongly supports adoption of uniform EDI health transaction standards for all relevant parties on a national basis. Such standards promise to produce a more rational and efficient medical insurance system. In the long run, the anticipated cost savings from the EDI standards could serve to make health care more affordable for all Americans.
(1) H.R. Rep. No. 104-496, pt. 1, at 29 (1996).