Clearinghouses and the Administrative Simplification Provisions of P.L. 104-191

National Committee on Vital and Health Statistics (NCVHS), Subcommittee on Health Data Needs, Standards and Security

February 10-11, 1997

Introduction

I want to thank the Subcommittee for extending the invitation to testify today representing the Clearinghouses members of AFEHCT. It is a privilege and a special opportunity, not only for AFEHCT, my employer, ENVOY-NEIC, but also for myself.

Preparing today's presentation, I have had meetings with a number of other clearinghouses, large and small, and the views I bring represent a summary of those meetings. It is important to note that although competing with each other in the market, Clearinghouses share common views regarding the need, benefits, expectations, and potential pitfalls of Administrative Simplification.

Since the Clearinghouse role is not well understood, let me start by giving a background of the role we play in Health Care.

The Data Communication Needs Of Health Care

The Administrative participants in Health Care are principally Physician Offices, Hospitals, Pharmacies, Dental offices, and other Health Care Providers on one side; Payers, Managed care organizations, Dental and Prescription Benefits Manages, Medicare, Medicaid, other regulatory or reporting agencies on another side; and a number of other participants such as employers, care review organizations, and a multitude of other parties. For illustration purposes, I will use Figure 1.

Figure 1

This is a reduced set of players that I will use to represent the connectivity requirements of Health Care.

Physicians talk to each other for referrals and consultations; to hospitals, pharmacies, payers, HMOs, PPOs, Medicare, Medicaid, employers, auto insurers, self insured companies and individuals; and most importantly, to the Patients. Likewise, Hospitals, Pharmacies, Dentists, and other health care participants have similar relationships, as seen in a simplified view in Figure 2.

Figure 2

Theoretically, the complexity of these connections increases exponentially. Specially, since all connections are bi-directional, both ends incur the cost, at least the internal cost, of supporting each new connection. In the example in Figure 2, with only 6 players, we have 15 bidirectional connections.

The Magnitude of Complexity

In reality, not each participant needs to correspond with each other participant. For example, a Hospital corresponds only with those providers that have admitting privileges, a Pharmacy only with the players of it's area of influence, an HMO only with the member Providers, etc. Excluding the relationships with the Patients, we can estimate over 57 Million bidirectional connections among less than 200,000 players.

Assuming conservatively round numbers of 100,000 medical sites, 75,000 pharmacies, 15,000 hospitals, 1,700 commercial payers, 400 Managed Care Organizations, and 150 HCFA Contractors for Medicare and Medicaid, and not considering many of the other participants such as Dentists, DME Suppliers, etc., we can calculate as follows:

Table 1

Even though the numbers are approximate, and arguably conservative, it becomes evident that with under 200,000 health care participants, excluding Patients, there are over 57 Million pairs of relationships as potential EDI trading partner arrangements. The administrative cost of maintaining this sort of structure will dwarf the economy of most medium sized countries.

Administrative Simplification

Clearinghouses bring a level of administrative simplification to the scene, reducing the number of relationships by several orders of magnitude. With about 100 clearinghouses of different sizes, each supporting under 2,000 trading partners, the same results can be accomplished than with the 57+ Million trading partner arrangements described above. A simplified diagram is represented in Figure 3.

Figure 3

The relationship between the number of participants and the number of trading partner agreements is no longer exponential, but a linear relationship instead.

Unfortunately, the real world is not as simple as depicted in this figure. Market pressures and business opportunities have caused the creation of a network of clearinghouses, interconnected in a multitude of ways, that offer a balanced an competitive market solution. The reality is more like in Figure 4.

Figure 4

Real health care connectivity is provided by a combination of direct connections between trading partners, clearinghouses, and value added networks. Each plays a distinct role, driven in some cases by performance reasons, financial considerations, or other factors.

Each trading partner chooses one or more method of EDI that it will support, and will work with the other trading partners to find methods in common to accomplish their business need of exchanging data electronically. One of the roles of the clearinghouses is to facilitate and simplify the health care electronic commerce.

Why it works

It is important to point out that a central ingredient in the clearinghouse function is the fact that the trading partner relationship is created between the health care provider and the clearinghouse, or between the payer and the clearinghouse, or between the other trading partners and the clearinghouse. If it was not so, and if the trading partner relationship was between the provider and the payer instead, the goal of administrative simplification would not be achieved. Please refer back to Table 1 to see the difference in the number of end-to-end relationships.

This vitally important point is frequently missed by those that see clearinghouses as a temporary measure until all trading partners can establish a relationship with each other. Instead of a temporary measure, it is the only realistic way to achieve administrative simplification in health care EDI.

Typical Scenario

In addition to connectivity services, clearinghouses provide other value added services, such as converting proprietary formats to and from standard formats, editing and validating data, producing management reports, EDI value added services, security firewalls, backups, data recovery, etc.

Different clearinghouse offerings, and market pressures, have caused the development of a multi-tiered interconnection of clearinghouses. Typically, the Provider will choose a clearinghouse as the trading partner, and the Payer will choose a clearinghouse as the trading partner. These two clearinghouses could in fact be one and the same, but most likely, they will be different. If the different clearinghouses are in different geographical region, it is likely that they will not be connected to each other, having to route the transactions through a third party, such as a national clearinghouse, that acts as the bridge between them. This very frequent scenario is depicted in Figure 5.

Figure 5

In this case, there is not a trading partner agreement between the Provider-selected clearinghouse and the Payer-selected clearinghouse. All trading partners, from Provider to Payer, rely on a chain of trading partner agreements that protects them and their data during the process. Once more, if the system was to require trading partner agreements between each pair of trading partners, administrative simplification would hardly be achieved.

Sadly, some of the players, specifically Medicare and Medicaid, being subject to regulations that do not reflect clearinghouses and their role, require trading partner agreements with each one of their distant trading partners, no matter how many clearinghouses are involved. This situation continues to be an impediment to administrative simplification, but due to the small number of players, about 150 HCFA contractors, is a surmontable task. Table 1 shows that of the 50+ Million relationships, only 0.31 Million corresponds to Medicare and Medicaid. Most of the rest of the health care industry understands the importance of relying in the single trading partner agreement with the clearinghouse.

2

Clearinghouse Issues

Privacy, Confidentiality

Privacy and Confidentiality of information is a primary concern of clearinghouses. We handle the most sensitive data. Compared to financial transactions, that have a relatively short time span of 2 to 5 years, the life span of health care data exceeds 50 years. Even today, medical information about personages dead hundreds of years ago routinely makes the news.

In order to operate a Clearinghouse, most data needs to be available for a period of 3 to 6 months for retransmissions, and certain data, such as transaction logs, must be available indefinetly. Traditionally, State and Federal regulations have caused the off-line storage of some data by clearinghouses for periods of 5 to 7 years.

This long term storage is typically off-site, and is only retrievable, at high cost, in case of emergencies. Due to the high volume of transactions processed, it would be very expensive to maintain on-line or database storage of the data. For example, ENVOY-NEIC processes millions of claims per day, reserving the data storage for batch transactions that are susceptible to loss.

Clearinghouses understand that the data they handle is not the property of the Clearinghouse. It may be owned by the Provider, or by the Payer, or by other parties, but certainly not by the Clearinghouse. It would therefore be against the Clearinghouse's own interest to not provide the adequate privacy and confidentiality protection of the data.

Some new entrants in the Clearinghouse arena have not understood this very important fact, and after making claims pretending to own the data have had to close their operations for lack of customer confidence or direct legal action against their trespasses. In the process, there have been some bad experiences that are not representative of the industry.

One of the most important reasons for the failure of CHINs has been regarding the ownership of the confidential medical information in the networks.

In order to proactively protect the Clearinghouse industry, and to assure uniform standards of conduct, Clearinghouses submit voluntarily to accreditation by EHNAC, the Electronic Health Care Network Accreditation Commission. More on EHNAC later.

AFEHCT, and it's clearinghouse members, support the administrative sanctions against Privacy and Confidentiality violations, as one measure to prevent abuses in this very important area. These violations also carry the loss of EHNAC accreditation.

Security

Any entity, such as clearinghouses, handling confidential information, must be concerned in security. When the information is health care information, security becomes a major factor.

Clearinghouses frequently act as the security gateways for Payers, Providers, and other participants. Due to the nature of the information, clearinghouses have developed sophisticated security barriers.

The difficulty in building these security defenses around Internet connections is what has kept the clearinghouses from connecting to the Internet for EDI. Recent advances in authentication and encryption are being explored cautiously, and in the near future we will see a migration of the health care electronic commerce to Intranets or even to the Internet, once the security mechanisms are in place.

Quality

As in all of commerce, the quality of the services offered varies from company to company. This variability is reduced by the fact that in order to operate as a clearinghouse, a minimum set of services must be offered. It is in the additional value added services that clearinghouses try to maintain a competitive advantage.

The minimum functionality includes sending clean claims in a timely manner to their destination, and returning the corresponding reports as acknowledgement of delivery to the original submitter.

The basic quality requirements include editing the claims, thus preventing the sending of erroneous or incomplete information. This is one of the basic value added services that distinguish a Clearinghouse from a VAN. Clearinghouses verify not only the data structure, but also the semantic content of the data, according to parameters specified by the recipient of the data, whenever possible. For instance, for those procedures that a specific payer requires previous authorization, the presence of a prior authorization number is required.

The parameters for a quality clearinghouse are defined by EHNAC in the accreditation criteria attached to this testimony. Most clearinghouses strive to provide an even higher level of service than specified by EHNAC.

Responsibility

Clearinghouses are responsible for the data they transmit. As opposed to most Payers and Providers, Clearinghouses are trusted third parties that accept responsibility for their transmissions, and for receiving the files from their submitters. If the data is subsequently lost or damaged by the recipient, the clearinghouse will retransmit the data as necessary.

This seemingly basic function is not part of the standard business practices of most Payers or Providers. It is rare the Payer that does not lose claims, even after having acknowledged their receipt. This occurs for multiple reasons, and even though not always the responsibility of the payer, creates a difficult management task. Horror stories abound, with some payers being chronic black holes. Providers sometimes lose their reports, and call on Clearinghouses to regenerate those.

It is the nature of the legacy systems involved, or operator errors, or system changes, that cause most of these claim losses. Traditionally, it is the Clearinghouses that act as the recovery mechanism for these lost transactions.

Clearinghouses assume responsibility for the messages, when other parties are incapable or unwilling to do so. This is an area where the trading partner agreement between the Provider and the Clearinghouse, or between the Payer and the Clearinghouse plays an important role.

Business Practices

Another of the areas inspected by EHNAC before granting accreditation to a Clearinghouse concerns the use of proper business practices. Items such as truth in advertising, the existence of standard trading partner agreements, adequate customer support, personnel training programs, disaster recovery plan, expansion plan, etc. are evaluated as part of the accreditation process.

Instead of a "buyer beware" attitude, EHNAC accredited clearinghouses assure a level of stability and maturity in their practices that provides a degree of confidence in their success. Predatory pricing schemes, and monopolistic practices are excluded.

Complexity

Managing the complexity is one of the greatest challenges that Clearinghouses face. Not only the standard health care EDI transactions are among the most complex in ASC X12, but the business environment has a complexity comparable only to the Tax Code. Managing this complexity, in the middle of constant change in health care, is a fantastic challenge.

In order to reduce the complexity to a minimum, clearinghouses use the most sophisticated computer technology to provide solutions that are unknown in other industries.

For instance, it is a routine process in most clearinghouses to combine multiple transactions from multiple providers into one transaction going to each payer, and to split the single response from that payer among the multiple providers of the original transaction. This seemingly simple process requires the manipulation of transactions, splitting, sorting, and recombining, in ways that are unknown by VANs and X12 translator companies. All so the outgoing queues for thousands of trading partners can be processed easier by those trading partners.

Once those outgoing queues are ready for distribution to the trading partner, translating the data into a different standard or proprietary format is trivial. The complexity inherent in the 57 Million estimated relationships is distilled during the splitting, sorting, recombining, and translating processes.

Regulation

Only the Computer and Communications fields are changing as fast as the health care market. In the last few years we have seen developments characterized by a multitude of acronyms, each one bringing new rules, new paradigms, and new complexity. Some of these have been accompanied by a flurry of new regulations. Recently, the Health Insurance Portability and Accountability Act of 1996, has brought a fresh air intended to simplify the complex environment in which we live, and shines as a bright ray of hope.

With the advent of Community Health Information Networks, around 1992, there was a strong movement, led by privacy considerations, to regulate our industry in a myriad of ways. Each State, each Agency, had their own ideas on how the clearinghouse industry should be run. Most, instead of simplifying the environment, added a new layer of complex regulations.

It was under these pressures that the Electronic Health Care Network Accreditation Commission was formed, in an effort to provide industry self-regulation that would be acceptable across the board in all 50 States. To this date, EHNAC still stands as a way to truly simplify the clearinghouse industry.

Clearinghouse Solutions

Industry Organization: AFEHCT

During it's infancy years of the '80s, clearinghouses were not represented as an industry. As the industry matured, and entering into the '90s, a large group of clearinghouses got together to form AFEHCT, the Association For Electronic Health Care Transactions. You have heard testimony from Mr. Benjamin Curtis concerning the importance of AFEHCT in our industry, and it's representation of clearinghouses as an industry.

Adoption of EDI Standards

This is seen by clearinghouses as one of the critical elements that will facilitate our growth, and reduce expenses in the entire health care industry. Ironically, it has been the clearinghouses and payers, instead of the Provider organizations, that have been behind the standards push. Most active ASC X12 participants belong to these two categories, and all large and most medium clearinghouses are represented in X12.

We see the uniform application of Standards as a necessary element if we are going to move beyond the simplest transactions. This includes not only the standard transaction sets, but also standard data requirements, uniform identifiers, standard implementations, standard trading partner agreements, standard interfaces, and all other standards leading to true simplification.

However, the application of standard transaction sets, per se, ignoring the other factors that need to be standardized, will not achieve the desired simplification.

Accreditation with EHNAC

Probably the best way to protect the consumer, and at the same time assure a standard level of quality, performance, business practices, and above all privacy and confidentiality, is for clearinghouses to obtain EHNAC accreditation.

The EHNAC accreditation process examines multiple facets of a clearinghouse. The Appendices contain the basic EHNAC accreditation documents for your review. The experience from accredited companies has been very positive. The process causes a thorough self examination of the entire clearinghouse operations.

EHNAC does not look at how the results are achieved, but rather that they are achieved. This "outcome" approach lets the clearinghouses maintain their identity, their competitive advantages, while at the same time assure that the results are truly achieved in a manner that protects the client of the clearinghouse.

Industry self-regulation in this manner has proven to be more effective and less onerous than government regulation. If EHNAC accreditation was to achieve "deemed status" in all 50 States, or through Federal regulation, it would save the industry enormous amounts over letting each State or Agency dictate their own regulations for clearinghouses.

Lacking EHNAC accreditation, developing an equivalent accreditation or certification criteria, without the intimate knowledge of the clearinghouse industry, would take years, and produce dubious results, at a much higher cost.

Participation in the process

The participation of AFEHCT in the regulatory process is a necessary ingredient in order to achieve administrative simplification. Clearinghouses represented by AFEHCT have been involved in administrative simplification for many years. Not only we understand the meaning and significance of simplification, we also prove that it is feasible, since we have been applying these principles for 15 years.

The elusive goal of administrative simplification cannot be achieved through technology and standards alone. It is a combination of business processes, technology, and experience in applying these that will culminate in simplification, rather than an additional regulatory layer.

AFEHCT is willing, ready, and committed to the goal of administrative simplification.

3

Expectations from the HIPAA

EDI "Investment" in the future

We expect the "Investment" in standard EDI to pay dividends in the future. As all investments, it is not going to be free. There will be a cost at first, not only in translation equipment for all players, systems, procedures, and policies, but also the emotional cost of change. However, once the initial investment is made, the pay-back will be multiple:

· Increased number of players.

· Variety of transactions, beyond those that we know today.

· Dramatic increase in the transaction volumes and clearinghouse functionality.

· Reduced cost of health care administration for all participants.

· Simplification of the current complexity, even as functionality increases.

All of this will be happening at the same time we are dealing with the "Year 2000" changes and the Internet revolution. We are facing interesting times.

Wide adoption of EDI standards

This is probably the single most commonly expressed expectation from the HIPAA of 1996. In the last decade we have seen a proliferation of "Non Standard Formats" that have caused great confusion, and increased the barriers to uniform deployment of EDI. With the Administrative Simplification Provisions of the HIPAA, all participants will be required to support the Standard formats. This should lower the entrance barrier to EDI, and create enough critical mass to allow implementation of health care EDI at a wide scale not yet seen.

We expect most payers and providers to come up to speed with EDI, and, once the confusion of standards disappears, all participants should embrace electronic commerce. We have, however, several concerns about this, expressed later.

Along with the new standards, the adoption of uniform and standard identifiers will bring one more layer of simplification. The current situation of each payer issuing different provider identifiers causes additional expenses. Having a unique health care identifier for each patient will allow the statistical analysis of health care data in manners never before possible, and will create a great new research tool.

We expect to see standards for the following:

· Standard Transaction Sets for all common transactions.

· Standard Implementation Guides for the Transaction Sets.

· Standard Data Requirements across Transaction Sets and Implementation Guides.

· Standard Data Dictionary and Data Definitions.

· Standard Identifiers for Payers, Providers, Patients, Clearinghouses, other parties.

· Standard EDI Trading Partner Agreements and contracts.

· Standard clearinghouse Accreditation with EHNAC.

The availability of these Standards does not have much value unless they are implemented by the industry in a consistent manner, and by players of all sizes. We understand this will be a challenge. Some of the problems arise because of the age of claims payment and other systems; the complications of massive payer consolidations; the continuing decrease in the number of COBOL, PL/1 and other non-micro language programmers; and the congruence of a host of resource-draining system initiatives at the end of this century, such as the Year 2000 challenge.

Administrative Simplification

Even though this expectation may seem redundant, it is probably one of the most difficult expectations to fulfill. In the past, most regulatory attempts to simplify an industry have resulted in additional layers of regulation without tangible results in the simplification area.

We have in Health Care the unique opportunity to truly simplify a process, to generate true savings for every one involved, and to do so in a record short time. The process will not be easy, and certainly not to every participant's liking.

We expect to be given the opportunity to participate in this process. The AFEHCT clearinghouses have been implementing simplification methods for 15 years, and have gained a wealth of experience in the process. For many years we have beeing ignored, mistaken, even vilified, while we were building the infostructure required for administrative simplification. It is now the time to put that infrastructure to use.

4

Clearinghouse Concerns

Misunderstood Role

This is an are of great concern. The general public misunderstands the role of Clearinghouses, relegating them to that of EDI translation and mailboxing of messages. In that light it is easy to miss the importance of the simplification to the process that the Clearinghouses bring.

It is our responsibility, through AFEHCT, to educate not only the public but also the policy makers, so our pivotal role in the industry can be put to its best use.

The HIPAA, even though it contemplates Clearinghouses only in the EDI translation role, is one of the first pieces of legislation that even mentions Clearinghouses as playing any role at all in this industry. It is an opportunity to build upon that foundation and truly achieve a level of simplification beyond what was initially envisioned by the HIPAA.

The distinction between a Clearinghouse and a VAN must be understood. Due to the overlapping nature of some of the services provided by both entities, it is sometimes difficult to define a clear boundary line between them. In general a VAN is a conduit for EDI documents between two trading partners. A Clearinghouse is an EDI trading partner. That simple distinction in their roles has profound implications.

Billing Services are sometimes confused with clearinghouses. However, a billing service processes source documents for Providers, and generates the EDI transactions out of these source documents. These EDI transactions are then sent to a clearinghouse. Hence billing services are seen in the same light as Provider groups, and equivalent to them.

Inadequate Contractual Relationships

The lack of understanding of the Clearinghouse role has resulted in the existence of inadequate EDI trading partner agreements. The standard clearinghouse trading partner agreement must contemplate the responsibilities undertaken by a clearinghouse as a trading partner.

Since clearinghouses will have to connect with other clearinghouses to provide universal coverage, this second relationship must be reflected in the agreements, either as a sub-contract or otherwise. This is one of the areas examined during the EHNAC accreditation.

The clearinghouse situation is unique to health care, and even though it is similar to the NACHA relationship in banking, it is not identical to it. A proper contractual framework must be in place, and must be recognized by the regulations in HIPAA.

Lacking the recognition for these multiple connections among clearinghouses, and their supporting contractual infrastructure, will cause structural problems in the operation of clearinghouses under the HIPAA.

Digital Signatures / Encryption

Using encryption to provide Privacy and Confidentiality of the information, and using Digital Signatures to provide Authenticity, Integrity, and non-repudiation, is a giant step in the right direction. As more States enact legislation modeled after the Utah Digital Signature Act, the usefulness of these cryptographic methods will increase even further.

We run the risk, however, of impeding progress by using these powerful technologies indiscriminately. If encryption or digital signatures are used between the Provider and the Payer, ignoring the existence of the clearinghouses, the data will be beyond the reach of the clearinghouse as a trading partner. The consequence will be that the Provider and Payer will have to establish and end-to-end relationship, thus causing the exponential growth of the complexity.

In some cases, such as sending clinical data between a specialist and a primary care provider, or sending a prescription from the provider to the pharmacy, it will be entirely appropriate to encrypt and/or sign the data being transferred.

In most other cases, with the data flowing through a clearinghouse, it only makes sense to encrypt/sign the data with the immediate next trading partner, that is, the clearinghouse. Otherwise, the clearinghouse would not be able to handle the data (a digital signature would be invalidated as soon as the data is aggregated with someone else's data) and the complexity of the relationships would be pushed out to the end users.

It is questionable that the end users will be able to handle a "key ring" with more than a few public keys, thus making communication with thousands of partners almost impossible. Clearinghouses, on the other hand, could easily support "key servers" with tens of thousands of public keys.

EDI Standards not mandatory ?

This is a most interesting question. The text of the HIPAA reads:

Sec. 1173. (a) (1) In general.- The Secretary shall adopt standards for transactions, and data elements for such transactions, to enable health information to be exchanged electronically, that are appropriate for -

Sec. 1171. (7) Standard. - The term 'standard', when used with reference to a data element of health information or a transaction referred to in section 1173(a)(1), means any such data element or transaction that meets each of the standards and implementation specifications adopted or established by the Secretary with respect to the data element or transaction under sections 1172 through 1174.

Sec. 1175. (a) Conduct of Transactions by Plans.-

"(1) In general.- If a person desires to conduct a transaction referred to in section 1173(a)(1) with a health plan as a standard transaction- {emphasis added}

"(A) The health plan may not refuse to conduct such transaction as a standard transaction;

"(B) the insurance plan may not delay such transaction, or otherwise adversely affect, or attempt to adversely affect, the person or the transaction on the ground that the transaction is a standard transaction; and

"(C) the information transmitted and received in connection with the transaction shall be in the form of standard data elements of health information.

The interesting part is that health plans may continue to use non-standard transactions for as long as they wish. As long as they support standard transactions, they may continue to support and promote non-standard transactions. They could give incentives to users of non-standard transactions, such as expedited reimbursement, or free services, to submitters of non-standard transactions.

Of course, this would go against the spirit of the HIPAA, but I have already encountered the situation of a payer that intends to deploy a new proprietary system with much more functionality than the standard transactions. The standard transactions will also be supported, of course.

Data Requirement Standards

Not only the transactions and the data elements need to be standard, but also the data requirements need to be uniform. For instance, is it appropriate for a payer to require the name of the employer of the spouse in all claims ? Undoubtedly this information may lead to a marginal increase in coordination of benefits for such payer, but at what cost ? And who is carrying the burden of collecting that information ? Certainly not the payer.

Data requirements are as variable as the "Non Standard Formats" are. Sometimes even more variable than the format itself. It serves no purpose to have a standard format when the data carried by such format has disparate requirements from each payer.

The common complaint today is about those payers that will not accept a claim electronically but will pay the same claim when filed on paper without any additional information over what was in the electronic claim.

It will be a resounding success if the NCVHS issues instructions for a standard minimum amount of information that must be acceptable to all payers and enough to process 90% of their claims. This will have greater impact than the standard formats by themselves.

Lack of Standards Compliance

It has been our experience, as clearinghouses, that Payers lag behind in their implementation of the standards. There are two important issues to consider: when the payer receives the standard transaction set, and when the payer generates the standard transaction set.

Receiving the standard transaction set is plagued by deviations from the standard. The payers try to accommodate minor deficiencies in their translations by pushing the changes to the submitters. For instance, they may require non-standard proprietary codes, instead of translating the standard codes into their proprietary codes on receipt, or they may limit the number of service lines per claims, or claims per transaction, to accommodate incomplete translation algorithms at their end.

Generating the standards for the payer is easy. Since there is no mechanism for the receiving provider or clearinghouse to reject a defective transaction set back to the payer, the receiver must accept whatever the payer wants to send, even if it does not even resemble the standard. This is currently the case with a number of ERA (837) implementations, where the payer sends the data out of financial balance. The payer is king and ruler, and if the receiver does not like it, tough !

It is necessary to have a compliance verification for payers, and apply penalties when the payers send transactions out of specification. Since the payers test incoming transactions for validity, and reject those invalid, the same privilege must be given to the provider and the clearinghouse.

Multiple State regulatory requirements

Hopefully, the situation where States and Agencies are free to impose diverse technical and contractual requirements, will go away with the HIPPA.

We need a uniform set of requirements at the Federal level for the operation of Clearinghouses. Giving "deemed status" to the EHNAC accreditation is a step in the right direction.

simplification. It is now the time to put that infrastructure to use.

5

Suggestions to the NCVHS

Increased Clearinghouse Involvement

Clearinghouses have been involved in laying the infostructure for administrative simplification since 1982. The role of the clearinghouses is pivotal in achieving true simplification of the administrative process. Without clearinghouses, the complexity will increase from 200,000 relationships to 57,000,000 relationships. An unmanageable proposition.

Develop Standard EDI Trading Partner Agreements

These should be a model agreement that covers the real complexity of the health care environment. Currently there is too much variability, and while some agreements are adequate, most health care EDI agreements are lacking.

Clear and unambiguous policies

No set of standards and policies is going to be satisfactory to every participant. The longer the delays and/or the more ambiguous the decisions, the longer participants will delay in making the required changes. Better to be swift and clear.

If the intent is to not allow the lingering of proprietary and non-standard formats, specify a sunset date for them. Lacking a sunset date, EDI format standardization may not happen.

Provide incentives for early standards adopters

Coupled with the penalties, this could be a powerful tool to cause a swift change

Issue standards for Data Content requirements

Without data content standards, the burden to produce exactly the data required by each payer is pushed back to the provider. This negates all the advantages achieved through standard data formats, and even the impact of the complexity reduction introduced by the clearinghouses.

Standards compliance verification process

It has also been called the "Standards Police". Without a real way to enforce the standards, without a reference implementation against which an infractor can be tested, without a standard standard, there is no valid standard.

Require EHNAC accreditation for clearinghouses

This will provide the necessary quality control for such pivotal trading partners such as clearinghouses. The simplification achieved through clearinghouses operating according to established parameters, cannot be surpassed by any other measure. A trusted network of clearinghouses, together with the other measures of the HIPAA will actually achieve administrative simplification.

Thank you for the opportunity to present this testimony to you.

[Additional Testimony made on February 11, 1996]

Mr. Chairman, members of the subcommittee,

Thank you for the opportunity to offer additional testimony today. After yesterday's presentations, the Clearinghouses and Vans members of AFEHCT would like to make a clear and unambiguous statement.

We recommend that the secretary adopts the NCPDP claim for pharmacy use, and adopts the ASC X12 Standards for all other transactions.

We recommend that the Secretary endorses and recommends that payers use commercial off the shelf EDI translator products, and discourages the use of one time custom translation programs.

We see these two recommendations as an investment in the future that will result in an increased use of health care EDI.

Thank you for this additional opportunity.

Kepa Zubeldia, M.D.

ENVOY-NEIC / AFEHCT