October 16, 2000

The Honorable Donna E. Shalala
Department of Health and Human Services
200 Independence Avenue SW
Washington, D.C. 20201

Dear Secretary Shalala:

As part of its responsibilities under the Health Insurance Portability and Accountability Act, the National Committee on Vital and Health Statistics (NCVHS) will be monitoring closely the implementation of the Administrative Simplification Final Rules. Our intent, on an ongoing basis, is to identify implementation issues and barriers and make recommendations to you that address these issues. The following concerns and recommendations are based on public hearings conducted by the NCVHS Subcommittee on Standards and Security on July 13 and 14, 2000. The hearings focused on two major areas:

  • Issues surrounding code sets, related both to “externally” maintained codes sets and to the widespread use of “local” (non-national, non-standard) codes in health care transactions, and
  • The experience of early implementers of the health care transactions adopted as standards under the Administrative Simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (HIPAA).

1. Externally Maintained Code Sets

These are code sets that are maintained by external entities, rather than by the Designated Standard Maintenance Organizations (DSMOs) that have agreed to maintain the standard transactions. External code sets include codes for provider taxonomy (specialty and type), place of service, claims adjustment reason, claims status, and remittance advice remarks. Testifiers expressed concern that the maintenance processes used for external code sets must be effective, timely, and nationally responsive. These processes should be based on the same maintenance principles adopted by the DSMOs. Testifiers stated that these processes should consider all bona fide business needs, permit balanced participation from across the health care industry, and provide a widely available mechanism (such as a web site) to receive requests, publicize deliberations and disseminate decisions. We recommend that HHS examine the maintenance processes used by the external entities and conduct discussions with them to resolve any weaknesses that are found.

2. Eliminating “Local” Codes

According to those testifying, movement away from Health Care Financing Administration (HCFA) Common Procedure Coding System Level III “local” codes and those local codes developed by others in the industry, as required by the final rule for Standards for Electronic Transactions, is possible, but will require significant effort and resources. The Health Care Financing Administration’s Common Procedure Coding System (HCPCS) is comprised of Level I, Level II, and Level III codes. HCPCS Level I codes are based on the American Medical Association’s Current Procedure Terminology (CPT) and are used to classify procedures and ancillary services provided to patients. HCPCS Level II codes are developed by the HCPCS Panel and issued by HCFA and used to identify durable medical equipment, drugs, supplies, and services not covered by Level I codes. Both Level I and Level II codes are nationally listed and maintained. HCPCS Level III “local” codes are issued for the Medicare Contractors for specific local needs and these codes have different meanings from region to region. In addition, other local codes are developed in an ad hoc fashion by many different health plans and insurers in the healthcare industry. These are not nationally listed or maintained.

The National Medicaid Electronic Data Interchange (EDI) HIPAA Workgroup is serving as a valuable focal point for Medicaid programs attempting to standardize their use of national codes. Testifiers mentioned several shortcomings in the current HCPCS Level II maintenance process that need to be addressed:

  • The HCPCS Level II maintenance process needs to be communicated more clearly and to a wider audience. There is confusion about the various types of codes, the panel that is responsible for maintenance, and how the process works. We recommend that HCFA initiate an effort to educate the healthcare industry about the maintenance and updating process for HCPCS Level II codes, as well as about the roles of the respective code set developers. One immediate action is for the HCPCS National Panel to clarify this kind of information on the http://www.hcfa.gov/medicare/hcpcs.htm web site, but much more needs to be done.
  • Representation on the HCPCS National Panel consists of representatives from only the Blue Cross/Blue Shield Association, the Health Insurance Association of America, and HCFA. We recommend that representation on the panel should be expanded. For example, state Medicaid representation (perhaps appointed by the National Association of State Medicaid Directors) should be considered. The current limited representation on the National Panel has led to a perception that requests from small entities or those representing other healthcare segments will not receive the same consideration as those from National Panel members.
  • The process for evaluating and granting requests for new HCPCS Level II codes must be able to accommodate a large number of requests in the initial

months of HIPAA implementation, as organizations request standard codes to replace their local codes. The process must also be capable of prompt response, in order to avoid the need for temporary codes, and must be able to handle needs that do not pertain to HCFA’s programs.

  • Since some of the local codes may need to be considered for inclusion in other code sets, national code developers should be alerted to a potential increased volume of requests for new codes.
  • The current process for considering a request for a new HCPCS Level II code includes a criterion requiring the demonstration of a significant frequency of past use, whereas what is important is its expected future use. We recommend that the criterion be modified to also reflect the value of the new code’s future use.
  • In addition to these topics mentioned by the testifiers, the Committee recommends that as HCFA develops instructions to the Medicare Contractors on the use of National Drug Codes and Level II HCPCS codes that replace local codes, these instructions be quickly disseminated to the public. This will assist the rest of the industry in its implementation of the same or similar procedures.

3. HHS Resources in Promoting Industry HIPAA Implementation

A number of experts and industry representatives suggested that HHS should assume a more active role (and increase funding) to actively promote the implementation of the HIPAA data standards by the industry. We recommend that not only should the Department closely monitor the progress of national implementation, but it must devote sufficient resources to ensure there is adequate technical support, education, and testing.

4. Funding to Deploy Identifiers

Testifiers stressed the need for adequate funding to build the infrastructure and obtain necessary support to deploy the HIPAA identifiers, especially the provider and health plan identifiers, in a timely manner. The timely availability of HIPAA identifiers is crucial for obtaining the expected benefits of electronic transactions. We recommend that HHS provide adequate resources to assure that the HIPAA identifiers are available for identifying all providers and payers as soon as is possible.

5. Testing and Compliance with HIPAA Standards

Testing was identified as a critical component of HIPAA implementation. There was concern from testifiers that different private certifying bodies, using different criteria, could provide different results to the industry and thereby undermine implementation. We recommend that HHS take an active role in providing support for uniform compliance certification. The role should include activities such as “certifying the certifiers,” so that purchasers would not be misled by unsupported claims of HIPAA-compliant software or services.

Finally, the Committee is concerned that vendors of provider systems have products that cannot produce standard HIPAA transaction messages. We will hold hearings on this issue to understand the breadth of the problem and to provide additional guidance in the coming year.

We appreciate the opportunity to offer these comments and recommendations.



John Lumpkin, M.D., M.P.H.