Two-week payment penalty threatens as HIPAA claims deadline looms

Beginning July 1, doctors will see a reimbursement delay if they or their claims processor isn't complying.

By Joel B. Finkelstein — Posted May 17, 2004

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Tens of thousands of doctors will soon see their Medicare payments postponed for two weeks if they don't begin meeting federal electronic transaction standards.

To avoid the cash crunch, physicians need to contact their software vendors and clearinghouses to check whether those firms are submitting electronic claims that conform to the rules, said federal and American Medical Association officials.

"It's really important that physicians realize that the only people who are going to pay the penalty are the physicians themselves," said AMA Trustee Joseph M. Heyman, MD. "They really need to make certain that they are working with a reliable partner."

The payment delay for noncompliant claims, known as "legacy" claims, will kick in on July 1. Anything received in legacy format will be treated like paper claims and reimbursed in no sooner than 28 days. By comparison, electronic claims that meet the standards, a result of the Health Insurance Portability and Accountability Act, are reimbursed after 14 days.

Doctors and others subject to HIPAA were supposed to begin following the electronic transaction standards in October 2003. But realizing that many practices would be unable to meet that deadline, the Centers for Medicare & Medicaid Services developed a contingency plan that allowed Medicare payment for noncompliant claims to continue. The reimbursement delay is a new step intended to spur more doctors to comply.

As of April, about 80% of claims sent to Medicare through clearinghouses conformed to HIPAA's standard format. The remaining 20% of electronic claims would be hit by the slowdown.

"That's very disturbing, but on the other hand, it's pretty encouraging to know that about 80% of them are now HIPAA-compliant," said Dr. Heyman. "That is quite an accomplishment."

Experts agree that 80% compliance represents great progress within the industry over the past six months. However, even a conservative estimate of the number of physicians who could be affected by the two-week delay is sobering.

According to 2003 CMS data, there are approximately 888,000 physicians in the United States, said Martin Jensen, a consultant with the Frontline Group in Tulsa, Okla. Under his assumption, half a million of those doctors participate in Medicare, and 90% of them would use compliant formats by July, leaving 10% to face a reimbursement delay.

"What sound will 50,000 doctors make when they don't get paid for two weeks this summer?" he asked.

CMS is working to generate a clearer picture of just who makes up the population sending in legacy claims, said Cathy Carter, deputy director of the agency's business standards and systems operations group.

Many experts conjecture it is mainly small practices. "That's a very good hypothesis; however, I don't have absolute statistics to support that," Carter said.

Meanwhile, the agency is continuing outreach efforts, and the bulk of physicians shouldn't be caught off guard by the July 1 change, she said. However, CMS officials expect the payment delay will serve as a rather strong reminder that eventually electronic claims that don't meet the standards will not be paid.

"After all, the goal of this modification is to take a step in that direction," said Carter.

Physicians on the hook

In a recent communication, CMS advised physicians to assess their vendors' readiness and either put pressure on them to get compliant or consider switching to a new company.

"You need to make sure that you understand what your billing service is doing," said Carter. "You need to question them and you need to be comfortable that they're submitting what you think they're submitting."

Electronic claims often travel through two or more clearinghouses, making it difficult to know what form they are in once they reach the Medicare carrier. There have been anecdotal reports that some companies may be converting all outgoing claims to legacy format to make their claims processing uniform.

Unfortunately, physicians, not these companies, will be directly affected by the July deadline. It is clearly in the best financial interests of practices to track down any potential problems before then.

Industry watchers hope that the payment slowdown will motivate physicians to switch to another company if they aren't getting good communication from their vendors or clearinghouses about their readiness.

"Providers caught at the front line of this chain of events will demand greater satisfaction," said Steven Lazarus, PhD, managing principal of Boundary Information Group in Denver, and a member of the Workgroup on Electronic Data Interchange.

Deciding to switch to a new billing system is a business decision physicians should be making on an ongoing basis anyway, he said.

Few choices

However, doctors may be picking new vendors from a narrowing field of choices, according to statistics from Jewson Enterprises, a Menlo Park, Calif., market research and analysis firm that maintains data on the doctor office management and medical information systems industry.

In 1999, the company's database contained more than 1,400 vendors, but that number is down to fewer than 900 now, said Vinson J. Hudson, Jewson president.

Some of that decrease is from consolidation, others dropped out because of the Y2K problem, but much is due to vendors deciding that they can no longer meet the needs of their clients who are requesting HIPAA-compliant billing software that is integrated into an electronic medical record system, experts said.

Even if physicians do switch to a new vendor, they may find themselves at the back of the line. Vendors will likely be focused on helping their existing clients get ready first.

There is also the cost of switching.

Physicians would be stuck spending money on new computer equipment and software, but no one is telling them that they will see a return on that investment anytime soon. Benefits achieved through streamlining administrative processes, improving turnaround times and reducing billing errors can be expected down the line.

"Once everybody is using the same format, it's a lot cheaper," said Dr. Heyman. "But I don't know who benefits from the savings; it's probably not the physicians."

Many in the medical community consider it an irony that the current HIPAA rules are the result of the law's so-called administrative simplification provisions.

"It's administrative simplification from the perspective of the payers," said Hudson.

However, it should also eventually benefit physicians through similar streamlining of their documentation, coding and billing procedures, he said.

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Who's ready

Physicians will be held responsible for noncompliant claims, even if a third-party biller is at fault. CMS recommends physicians assess their vendors' progress toward meeting this deadline by asking:

  • About their readiness.
  • How they certified their readiness.
  • If they are aware of the Medicare payment delay that takes effect July 1.
  • If claims will continue to be eligible for payment 14 days after receipt, as of July 1.
  • If they are not in compliance, when they will correct the problem so claims are eligible for prompt payment.

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HIPAA deadlines, past and present

The Health Insurance Portability and Accountability Act and the Administrative Simplification Compliance Act that supplemented it contained multiple deadlines to phase in complex and far-reaching privacy and electronic standards for the medical community.

Oct. 16, 2002 Original deadline for the electronic transaction and code set rule. Congress then passed a one-year reprieve.

April 14, 2003 Deadline for the privacy rule.

Oct. 16, 2003 Revised electronic transaction and code set rule deadline resulting from ASCA. The government then implemented a contingency plan allowing physicians to still get paid for noncompliant Medicare claims.

July 1, 2004 Upcoming electronic transaction rule deadline that must be met to prevent a two-week delay in Medicare payment.

April 21, 2005 Deadline for the health information security rule.

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External links

Centers for Medicare & Medicaid Services article in Medlearn Matters on its contingency plan regarding the electronic health care standards, in pdf (link)

CMS on HIPAA transaction and code set standards (link)

AMA on transaction and code set standards (link)

Frontline Group's Martin Jensen on electronic transaction standards (link)

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