David R. Schinderle

Vice President Finance and Treasurer
St. Joseph Health System

My name is Dave Schinderle and I am the Vice President of Finance and Treasurer of the St. Joseph Health System (SJHS). I am a member of the Board of Directors of the Healthcare EDI Coalition (HEDIC), the Health Data Information Corporation (HDIC), and for the past five years, have been a member of the Healthcare Financial Management Association (HFMA) National Administrative Simplification Committee. I co-chaired the Work Group for the Electronic Data Interchange (WEDI) task force, which drafted the Implementation Guide for the Healthcare Payment and Remittance Advice (X12.835 version 3041 and 3051). Since 1990, I have been the SJHS voting representative to ANSI X12 standards development process.

St. Joseph Health System currently consists of ten (10) hospitals and 2,364 licensed beds. Nine of the hospitals are in California and one is located in Lubbock, Texas. SJHS also operates a large number of clinic and physician practices as either licensed hospital clinics or as a Medical Practice Foundation models representing more than 300 physicians. Due to the popularity of health maintenance organizations (HMO's), especially in California, SJHS and its affiliated physicians currently provide services to more than 300,000 members on a full risk capitated reimbursement basis. If you also include capitation arrangements with Independent Practice Association (IPA) medical groups associated with SJHS hospitals, the number of full risk capitated members increases to more than 600,000 members. For the majority of these arrangements, either the hospital or the medical group or both are fully delegated by the HMO as their agent to process and adjudicate claims for all services rendered to their members with some exceptions for out-of-area emergency services or transplants.

We would like to thank you for the opportunity to testify. SJHS strongly supports the process of standardization and administrative simplification for all participants in the health care industry. This statement summarizes the views and concerns of the SJHS in response to the questions you provided. The following points summarize our statement and recommendations for achieving the goals intended by administrative simplification:

1. What does your organization expect to be the impact of the administrative simplification requirement in the Health Insurance Portability and Accountability Act of 1996 (HIPAA) These standards include: administrative transactions, coding sets, privacy, confidentiality, security and unique personal health identification numbers for providers, plans, employers, and individuals. Please describe how each of these issues could affect the members of your organization or the persons you represent.

SJHS hospitals and affiliated physician groups have accepted financial responsibility from the majority of the HMO's it contracts with under full risk capitation arrangements to process and pay all claims. Therefore, SJHS believes that under HIPAA we would be defined as a payer. If we are to expect the industry to act in a uniform and consistent way in the implementation of electronic commerce standards, this is the only conclusion which makes business sense. Most providers today do not understand this distinction. Accordingly, SJHS expects to have to take aggressive steps to implement the standard transaction sets to meet the requirements of HIPAA in all of its organizations involved in capitation.

The problems providers experience today relate not only to the transactions referred to in HIPAA, but also to the data and data sets contained in these transactions. Currently, we do not have uniform data across payers, providers, and transaction sets. Task forces consisting of the NUBC, NUCC, and X12N have been working to resolve this issue and their work should serve as the beginning discussion for final selection.

Once uniform data and data sets are established across the industry transactions, these data sets should be periodically frozen. A maximum data set needs to be established and frozen either annually or semiannually so that no payer, provider, or vendor can make an exception for one group or another. Providers need to know what information may be requested. We need to know that if we collect it and store it, we can send it to everyone, as required in a transaction set, and not have to differentiate by payer. This is because all payers are required to have the same uniform transactions. As soon as an exception is made, the benefits of uniformity are lost. The NCVHS must follow the Act's requirement for periodic updates and establish procedures for petitions and comments for new data collection.

SJHS also believes that the Secretary, the NCVHS, and others in the industry should recognize that while there should be a maximum data set, this should not hinder agreements between trading partners to send less than the full data set when it makes sense to do so and will not hamper the exchange of data for other transactions required by the regulations, such as coordination of benefits or data that must be collected for other regulation or contract requirements.

If this uniformity can be realized, SJHS would achieve lower costs in the following areas:

• Reduced staffing due to full integration of electronic transactions with application programs without having to keypunch the data.
• Less time spent addressing data quality errors.
• Less time playing telephone tag with voice response systems at payers to research problems or obtain needed information.
• Elimination of having to program, test, implement and maintain a myriad of proprietary standards in use today.
• Lower costs due to work re-engineering activities as a result of providers being able to standardize business processes built on trust in the quality of the data and data sets.

SJHS strongly supports the process of creating a unique national identifier for all payers and providers. This is critical to allow proper identification and the routing of transaction between trading partners. From the institutional provider perspective, it would be extremely helpful if major payer organizations offering multiple product lines (e.g., worker's compensation, indemnity, PPO, HMO, EPO, etc.) would also have sub-identifiers or suffixes to their identifier. This is because each product line normally requires different contact addresses, phone numbers, etc. and must be tracked separately within the hospital accounts receivable system. Without this sub-identifier information, providers today have difficulty accessing or entering transactional data into their receivable's systems.

SJHS strongly supports a unique individual identification number system. We have watched the debate surrounding the use of the social security number, the ASTM standard and others with serious interest. Our systems today are heavily focused around the use of the social security number even though we utilize a permanent medical record number and an encounter based patient control number. We believe there are adequate security measures available to control the use of the social security number as an identifier. While the use of the social security number has numerous issues, the societal cost of moving to any new numbering system probably cannot be justified in either implementation time or the federal budget. Accordingly, SJHS recommends that the social security number be adopted as the unique individual identification number with appropriate modifications to address the issues which have been raised.

2. Are any of these standards currently priority areas for your organization or members of your organization? How are you addressing/or planning to address these standards?

SJHS is one of the pioneers in the implementation of the Health Care Claim Payment/Advice from Medicare and has been fully utilizing the X12.835 for many years. Despite several aborted attempts over the years by other payers, only Blue Cross of California has successfully implemented the 835 with electronic funds transfer for its non-Medicare business.

SJHS has implemented the X12.837 version 3041 to permit the transfer of managed care encounter data to some HMO trading partners. SJHS is receiving a number of HMO rosters in the X12.271 roster format. SJHS is also beta testing software to allow SJHS facilities via Envoy/NEIC to access interactive payer eligibility data using the X12.270 and 271 version 3051. SJHS is successfully transmitting all HMO payment files to Mellon Bank in Pittsburgh from our largest capitated hospital, St. Joseph Hospital of Orange, in the X12.835 version 3040 where either electronic funds transfer or paper checks are produced and sent to providers. At another hospital, Santa Rosa Memorial Hospital, SJHS is successfully transmitting all patient and insurance refund payment files to Mellon Bank in the X12.835 format. Currently, only paper- based payments are being processed; however, SJHS is well positioned to begin making electronic payments to payers as soon as they are ready to begin receiving them.

SJHS has implemented a number of other X12 transaction sets in the last few years including the 810 Invoice, the 820 Payment Order/Remittance Advice, the 824 Application Advice, 831 Application Control Totals, the 832 Price/Sales Catalog, the 850 Purchase Order, the 855 Purchase Order Acknowledgment, the 856 Ship Notice/Manifest, and the 997 Functional Acknowledgment.

Unfortunately, not every hospital or affiliated business unit within SJHS has implemented all these transactions. Efforts are under way to incorporate the changes necessary into our application systems to better facilitate the integration of electronic commerce with current and re- engineered business practices. This has been a slow process to date due in large part to the reluctance of software vendors to fully embrace and build electronic commerce interfaces into their application software. All SJHS Requests for Proposals for replacement information systems now include required specifications requiring the successful vendor to support electronic commerce.

SJHS expects to move as aggressively as possible to fully implement electronic commerce prior to the HIPAA deadlines. Due to new application software and network technology advances based on Windows NT, SJHS has elected to acquire a new installation of EDI translator for implementation of the majority of HIPAA transactions. SJHS will continue to utilize a clearinghouse for claims transactions for the foreseeable future. Older transactions currently in use will need to be migrated to the HIPAA approved versions and to the new translator as older DOS-based EDI systems are phased out in favor of newer and faster Windows-based systems.

3. Do members of your organization have any concerns about the type of transactions specified by HIPAA? For the producers of data, how available is the information that you need to report in the transactions? For organizations and individuals that use this data, is the information useful for bill payment, managing the care process, and health policy analysis and assessments? Do you have comments regarding the quality of this data?

SJHS strongly supports the objectives of administrative simplification, uniformity and the transactions specified by HIPAA. The key to success is the concept of "uniformity." While it is possible to achieve uniformity indirectly, P.L.104-191 falls short of a direct mandate and will make implementation harder. Uniformity must be mandated at all levels with much stiffer penalties for failure to be totally "uniform."

It would be extremely helpful if the Department of Health and Human Services (DHHS) could certify independent testing services which clearinghouses, payers and providers could contract with to assure that their transactions and the content integration were all consistently and strictly being implemented within the adopted implementation guides. Clearinghouses and payers should be required to provide the Secretary DHHS with their implementation plan within six months of the final regulations being published. These plans should detail the education and promotion efforts that the payers, third party administrators, Taft-Hartley Trusts, and any other organizations involved in the adjudication of health related claims processes will undertake to encourage providers to adopt and implement electronic commerce as defined under HIPAA. Quarterly implementation updates to the Secretary should also be required to keep the pressure on the payers and allow the Secretary to monitor progress. Failure to file these reports should result in some form of a substantial economic penalty. Without these actions, implementations will be plagued by extensive testing and achievement of the implementation targets may be compromised.

SJHS recommends that, as an interim step, providers be allowed to continue to use the current UB92 and HCFA-1500 flat files for the claim transaction set for a maximum of three years beginning February 1997, and then be eliminated. The claim transaction is critical to the cash flow of the provider community. Any failure on the part of the clearinghouses and payers to implement the X12.837 uniformity will result in cash flow problems for providers. This is unacceptable. Since a high percentage of claims are now successfully moving electronically, all parties need the additional one year period to build the confidence that cash flows will not be interrupted. As it relates to managed care encounter data, SJHS recommends that all parties immediately move to the 837 as a means of quickly gaining experience and confidence in the use of the 837 transaction set. This could also be true for the Medicare program where zero bill inpatient HMO risk claims must be sent to the fiscal intermediary as well as the encounter data or claims being sent to the HMO.

SJHS strongly favors the use of electronic attachments utilizing the X12.275 and 278 transaction sets where the data cannot be incorporated as part of the initial 837 claim process. This requires a significant upgrade in the technology currently in use in most provider and payer organizations in order to support application system enhancements to manage digital imaging. This will permit providers to scan original documents, films, EKG's, etc. and transmit them to the payer or review organization. This will be critical since widespread adoption of the electronic medical record is still many years away.

The use of the enrollment and dis-enrollment in a health plan transaction set (X12.834) is critical to the success of the timeliness and quality of the eligibility data providers receive from payers. Employers need to be part of the administrative simplification solution process and be required to utilize this standard to provide enrollment information to payers and providers. This will be challenging since most legacy human resource systems today do not support the 834, including the SJHS human resource system. Payers should not just offer the 834 to employers to use on a voluntary basis but its use must be mandatory at least twice per month for those employers with more than 25 employees.

Eligibility is critical to the provider, especially in a capitated environment. Today, however, the roster and eligibility data SJHS receives has an error rate of between 20 and 30 percent. This is caused by the employee not updating their employer, who does not update the plan, who continues to pass along erroneous information to the provider. If the 834 transaction set is successfully implemented by employers along with a systematic process of seeking out employee and dependent change information on a regular basis, it will result in lower health cost for the employer and improved data quality.

The health care payment and remittance advice (X12.835) has been a very solid transaction set for the Medicare program and for providers. Other payers have had difficulty successfully implementing the electronic remittance advice (ERA) along with electronic funds transfer (EFT). To be successful for the provider, the ERA must be implemented with EFT even if the ERA data and the EFT funds move at different dates and through different delivery modes. While the separation of the data from the dollars may cause providers some re-association challenges, the process is still very valuable.

The use of the X12.820 payment transaction set to make health plan premium payments should not be difficult. The 820 is well established in the banking and non-health care business sectors today. However, providers legacy accounts payable systems are generally not capable of creating 820's today. This was clearly the case at SJHS. There are good solutions and work arounds available to avoid replacing accounts payable systems, but providers, vendors and EDI capable banking institutions will need to work together to achieve a successful implementation. Adoption of the 820 will also assist providers in achieving improved payment processing with its other trading partners as well.

The first report of injury (X12.148) for worker's compensation cases in use between insurers and state agencies is currently not used by providers due to the lack of application software to support its use today. This may delay the use of this transaction set by many providers. Hopefully, vendors and payers will develop software or secure Internet-based applications which providers may use to complete and submit this information to payers.

The health claim status transaction sets (X12.276/277) will be a real plus for the SJHS business offices. We expect to be able to make and receive inquiries to allow faster and more accurate updates on the status of a claim and facilitate the ability of a payer to request additional information when warranted.

The referral certification and authorization (X12.278) will allow us request and obtain initial treatment authorizations and continuing stay certifications, provide notices of admission, transfer, discharge and emergency treatment when required. The SJHS concern here is that there is virtually no application software available at any price to perform these functions. Further, many organizations providing review services are not defined as payers under HIPAA. It is important that all health entities involved in the administrative process of caring for a patient be covered under HIPAA.

4. How can administrative simplification best be achieved while balancing clinical and payment needs while maintaining the privacy protection for the individuals?

SJHS believes that all health care participants must take appropriate safeguards to protect the dignity and privacy of individuals. The industry has an excellent track record in this area; however, as more and more health care information moves electronically over public versus private networks, additional safeguards are required. SJHS has worked closely with the Health Data Information Corporation here in California and the X12N Insurance Subcommittee Security workgroup over the past few years. We believe that adequate safeguards now exist and the NCHVS should carefully review and consider their thoughtful recommendations in this area.

5. Recognizing the intent of P.L. 104-191 of administrative simplification, what coding approach would best meet your needs? Please suggest how administrative simplification could be achieved while reducing administrative burden and obtaining clinically useful information.

See answers to questions 6, 7, and 8 below.

6. What medical/clinical codes and classifications do you use in administrative transactions now? What do you perceive as the main strengths and weaknesses of the current methods of coding and classification of encounter and/or enrollment data?

SJHS entities currently utilize ICD-9-CM, HCFA's Common Procedure Coding System (HCPCS), Current Procedural Terminology (CPT), and Current Dental Terminology (CDT) coding systems. These codes have been in use for many years and the overall quality of the coding is excellent for inpatient services and outpatient ambulatory surgery. Consistent presentation of the data is very valuable for monitoring trends and the current efforts underway to develop clinical pathways and outcomes data over time to track improvement.

7. What procedure classification do you recommend as the initial standard for outpatient transactions? Is it practical to move to a single procedure classification on the schedule required for the implementation of administrative standards? Should the standards continue the current practices of requiring different procedure coding systems for the ambulatory and inpatient sectors?

SJHS does not believe that a new coding system for non-institutional outpatient services performed in a physician office will improve the quality of the data obtained. Past experience indicates that physicians and their staffs tend to memorize the 30 or so codes which generally cover a high percentage of the cases seen. A new coding system will not be able to address this issue. Additionally, forcing all the providers to go back to school to learn a new coding system at the same time the industry is implementing the HIPAA requirements would likely not be very successful. A longer term implementation is therefore appropriate. In the interim, SJHS recommends that the current coding systems remain in place.

8. Before the passage of HIPAA, the National Center for Health Statistics initiated the development of a clinical modification of the International Classification of Diseases, Tenth Edition (ICD-10-CM) to replace ICD-9-CM. In addition, the Health Care Financing Administration undertook the development of a new procedure coding system for inpatient services, entitled ICD-10-PCS (Procedure Classification System). There is a plan to implement these systems simultaneously in the year 2000. On the pre-HIPAA schedule, they will be released to the field for evaluation and testing by 1998. Should ICD be used for administrative transactions? If so, which version do you advocate and why?

SJHS believes that ICD-9-CM, CPT and HCPCS coding systems should continue to be utilized for administrative transactions for the initial HIPAA regulation with migration toward ICD-10- CM as it becomes viable. The ICD-9-CM has been around for more than 20 some years now and is working well. To adopt a new system at the same time providers and payers are undertaking significant processes to better define outcomes and quality would be a disservice to our patients and the communities they serve. As mentioned earlier, we see little of any value for this change in the ambulatory non-institutional provider setting. Additionally, we would have to put all the coders and administrative teams back in school to teach them the new coding system. It would be years before the quality of the data would again approach the levels we have today.

9. Do you have any advice or recommendations for the NCHVS and/or The Department of Health and Human Services related to the implementation of the standards and privacy provisions of the HIPAA? Do you have any concerns?

SJHS is concerned that states may be able to "opt out" of some or all of HIPAA's requirements. Patients and data cross state lines; therefore, any exception becomes a break in uniformity and eliminates the benefits intended for payers, providers, and ultimately patients. SJHS recommends that the Secretary and the NCVHS not entertain any request for exception from the uniform standards and processes that are determined, but at the same time ensure that groups requesting exceptions have their concerns addressed in the standards development consensus process.

SJHS does not agree with HIPAA's two-tier implementation. Any two-tiered implementation means that there will be no uniformity until the second tier is complete. This will raise the cost of implementation and delay the benefits. SJHS recommends that a single-tiered implementation should be sought as an amendment from Congress so that all parties have the capability to implement the standards correctly and completely. Given the dates ordinally spelled out in HIPAA, SJHS would recommend a single implementation at 30 or 36 months after the final standards are released.

SJHS is also concerned that the penalties placed on non-compliance are so small, in aggregate, that there are minimal incentives for payer groups to comply. SJHS recommends that incentives be established and that all health care industry partners educate their constituents to promote the full benefits of electronic commerce, EDI standards, and uniformity in the area of data exchange. The alternative would be to seek an amendment from Congress to significantly increase the penalties.

SJHS suggests that the NCVHS focus on the electronic transactions initially included in the Act. Clinical transactions need to follow based on the experience gained with the administrative transactions.

SJHS urges the NCVHS to encourage the Secretary DHHS to create technically oriented advisory groups and other processes to obtain expert feedback across all segments of the health care industry. These groups can assist the NCHVS during and after implementation to make sure that business requirements are being met while maintaining total uniformity.

Furthermore, SJHS fully expect that the requirements contained in HIPAA will result in standardized uniform transactions and, to some extent, standardized processes associated with the transactions. SJHS expects all parties in the health care industry to participate directly using X12 standard transactions, or use clearinghouse, value added network or Internet options, to maximize the benefits of uniformity. We also believe that by having the industry work together to develop the standards, security mechanisms, and processes for the initial "core" financial and administrative transactions, we will also build a model for future transactions, including clinical and medical information.

SJHS believes that, in the long run, uniform industry standards, determined by consensus, should be applied across all payers and providers and integrated with other industries, especially banking and finance, transportation, purchasing, insurance, etc. This will significantly reduce administrative costs throughout the health care industry. SJHS recognizes that we will have to make significant changes in existing computer systems, data bases, transaction systems, communication systems, and management. We are concerned about the cost, the time needed to prepare for and implement the changes, and how we will best educate and retrain our employees to the new ways of doing business. However, we look forward to the day when we know that a centralized change control process will eliminate the myriad of proprietary changes we now face each month. We look forward to the day when we can make reasonable, planned changes, knowing that we can depend on similar changes for everyone, and that data sent or received will be consistent with the national standard.

Thank you for the opportunity to share our thoughts with you today.