February 22, 2001

The Honorable Tommy G. Thompson
U. S. Department of Health and Human Services
200 Independence Avenue, SW
Washington, D.C. 20201

Dear Secretary Thompson:

As part of its responsibilities under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the National Committee on Vital and Health Statistics (NCVHS) monitors the implementation of the Final Rules that adopt the health data standards required by the Administrative Simplification provisions of HIPAA.

The Final Rule for Standards for Electronic Transactions was published on August 17, 2000. The compliance date is October 16, 2002 (October 16, 2003 for small health plans). The health care industry is heavily involved in implementation activities in order to comply with the standards set forth in this Rule by the required dates. In the course of conducting these activities, the industry has encountered issues and concerns that need to be resolved as soon as possible to ensure timely compliance.

The Final Rule for Standards for Electronic Transactions adopted the National Drug Codes (NDCs) as the standard medical code set to be used to report drugs and biologics on standard transactions. While NDCs are currently used extensively on retail pharmacy claims, the requirement to use NDCs to report drugs on institutional and professional claims is new and is causing widespread concern within the health care industry. Today, the Health Care Financing Administration Common Procedure Coding System (HCPCS) drug codes are most widely used to report drugs and biologics on institutional and professional claims.

In a letter dated September 22, 2000, to former Secretary Donna Shalala, the National Uniform Billing Committee (NUBC) outlined its concerns with the requirement to use NDCs on institutional claims, particularly hospital claims. (The NUBC is named in HIPAA as an organization with which the Secretary must consult in adopting Administrative Simplification standards.) More recently, issues have been identified in change requests within the Designated Standard Maintenance Organization (DSMO) process. The DSMO process, described in the Final Rule in section 162.910, is the method by which standards are maintained and modified. The pending DSMO change requests ask to remove the requirement to use NDCs to report drugs and biologics on the standard institutional and professional claims.

On February 1, 2001, the Subcommittee on Standards and Security of the NCVHS held public hearings on HIPAA implementation issues. Health care industry representatives, including the NUBC chairman, presented testimony on concerns with the requirement to use NDCs. Those who testified and the organizations they represent support HIPAA and are deeply involved in HIPAA implementation activities. They and others from their organizations are members of most of the health care industry workgroups that are carrying out this work. The concerns they identified are summarized below:

  • Today, hospitals use NDCs for only two purposes: to purchase drugs and to maintain inventory control. NDCs serve these purposes well. NDCs are not used within hospitals to order drugs from the pharmacy, are not written into the patients’ medical records, and are not found in the patient accounting or billing systems. To comply with HIPAA, hospitals and other institutional providers would be required to conduct extensive conversions and replacement of existing information systems and interfaces. Staff would require training in the use of NDCs. There would be the potential for harm to patients as hospital pharmacies transition to NDCs. New interfaces with the dispensing systems that would need to be created could contain errors that may allow the wrong drug to be dispensed, resulting in a medication error. Hospitals routinely repackage drugs in convenient quantities, making the reporting of dosage more complex when NDCs need to be used. If a hospital pharmacy needs to furnish a substitute for a prescribed drug that is not on hand, it may be difficult to determine which drug should be dispensed when using NDCs because many NDCs can represent a single drug.
  • Estimates indicate that the cost of moving to NDCs for reporting drugs and biologics on institutional claims could easily exceed an institution’s cost of adopting all the other transaction standards combined. While costs would vary depending on the size of the facility, hospitals estimate the minimum cost at $200,000 per facility to switch from using HCPCS codes to NDCs. Institutional providers would not benefit from the use of NDCs on claims and would incur high costs to convert.
  • A recent survey of physician practices by a major designer of practice management systems indicated that HCPCS codes are used almost exclusively to report drugs and biologics. To comply with HIPAA, practice management systems used by providers would be required to expand fields in nearly all modules in order to store and display the thousands of NDCs. The industry estimates that typical physician practices spend as little as $800 to as much as $100,000 for their practice management systems. In general, practices with the most expensive systems would not want to spend more than about 10 percent of what they paid for a system to have that system made HIPAA compliant.
  • Use of NDCs by providers to report drug dosages can be problematic. Drug packaging usually has the NDC printed on it. If one vial (from a box of ten) is used to administer injections to several patients, dosage reporting becomes complicated when using the NDC that is printed on the box that contained the ten vials. Calculations would need to be done to determine how much of the vial from the box of ten was used for a single injection, requiring the reporting of fractional units. This can be complicated and burdensome.
  • Vendors’ product lines are directly impacted by the move from HCPCS codes to NDCs. Software packages that price drugs and that produce product dictionaries, screens, and reports would need to be changed.
  • Two industry crosswalks or cross-references would need to be developed. One would crosswalk HCPCS drug codes to NDCs (one-to-many), and the other would do the reverse (many-to-one). The crosswalks would be used for claims processing and drug pricing during the transition to NDCs. They would need to be updated quarterly to be consistent with the NDC code set updates. They would be needed right away in order to be able to use NDCs by the compliance date. In addition to educating the health care industry about the existence and use of the crosswalks, the costs of developing, maintaining, and disseminating them to the industry within the implementation period are concerns.
  • Some industry representatives identified perceived deficiencies in the NDC maintenance process that they understood could result in re-use of NDCs and the possibility that an NDC for a particular drug could change over time. The Food and Drug Administration (FDA) indicated that it is attempting to resolve known deficiencies through the regulatory process. The FDA expressed its interest in making changes to the NDC code set to ultimately make it more useful to the health care industry in general.
  • HHS staff testified that the comments received on the Proposed Rule touched upon some of the issues that were being discussed at the meeting, and more recent health care industry feedback has revealed significant problems being encountered in attempting to switch from using HCPCS drug codes to NDCs. HHS acknowledged that those problems warrant a more thorough investigation before a standard for drugs and biologics can be implemented in standard transactions other than for retail pharmacy.

Recommendations for HHS

It was clear that the industry strongly supports HIPAA and its administrative simplification provisions, and is working hard to implement the requirements of the Final Rule. In undertaking these efforts, however, many problems with the requirement to use NDCs to report drugs and biologics on the standard institutional and professional claims have become apparent. The problems described in testimony affect nearly all providers, health plans and health care clearinghouses and impede the ability of the health care industry to meet the HIPAA compliance date.

The NCVHS believes that further evaluation is needed before a standard code set for drugs and biologics can be implemented in standard transactions other than for retail pharmacy. We therefore recommend that the requirement at section 162.1002 (c) in the Final Rule for Standards for Electronic Transactions be modified by retracting the adoption of NDCs as the standard for drugs and biologics for use in standard transactions other than for retail pharmacy. We recommend that NDCs remain the standard for drugs and biologics in retail pharmacy transactions.

The NCVHS recommends that HHS work with ASC X12N to ensure that HCPCS codes as well as NDC codes can continue to be used in the standard institutional and professional claim transactions. The institutional and professional claim transactions should be able to accommodate NDCs in cases where those codes are useful or needed. (The ASC X12N dental claim does not capture drugs, so this issue does not affect that transaction standard.)

The NCVHS believes that no drug coding system in existence today fully meets the needs of the health care industry. HIPAA addresses drug coding primarily from a claims aspect, whereas the future needs of the health care industry are for a drug coding system that can be used efficiently throughout the drug inventory, pharmacy, patient care, and billing arenas, and also used to ensure patient safety. The NCVHS recommends that HHS develop criteria that should be met by a drug coding system that could be useful throughout the health care industry, and evaluate any future proposed drug coding systems against those criteria.

We appreciate the opportunity to offer these comments and recommendations.



John Lumpkin, M.D., M.P.H.
National Committee on Vital and Health Statistics