American College of Physicians: Internal Medicine — Doctors for Adults ®

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HIPAA grace period gives physicians a welcome break

From the October ACP Observer, copyright © 2003 by the American College of Physicians.

With the Oct. 16 deadline for the Health Information Portability and Accountability Act (HIPAA) fast approaching, physicians have little time left to make sure their practices will be able to continue processing claims—and be paid.

First, the bad news: If your practice management systems do not meet the new HIPAA rules, known as the transactions and rules set, the claims you send to Medicare and other payers can legally be rejected.

Last month, however, Medicare announced that it will give physicians who were not yet ready to meet the rule—about three-quarters of all physician practices—a break on Medicare claims payments, even as the Oct. 16 implementation deadline is being enforced.

The Centers for Medicare and Medicaid Services (CMS) developed a contingency plan that would allow Medicare and other payers to temporarily pay physician claims that aren't HIPAA-compliant—as long as those practices were making a "good-faith" effort to bring their office systems into compliance with the HIPAA rule.

At press time, the government announced that it would actually implement the proposed grace period. In a press release, CMS administrator Thomas Scully said the agency was moving to avoid disruptng "providers' cash flow and operations."

To sort out what the CMS grace period will mean and to find out what internists should be doing to get their practice ready, we spoke with Carl Cunningham, Director of ACP's Practice Management Center.

Q: Internists have long heard that the HIPAA transactions rule will have a greater impact on their practices than the more publicized privacy rule. Why?

A: The privacy rule is complex, but its enforcement is gradual and benign. With the transactions rule, on the other hand, noncompliant transactions are supposed to be rejected on Oct. 16. Practices that have not yet met the HIPAA transactions and code sets standards could see the payment of their electronic claims come to a halt from some payers.

Q: Will most practices be ready to shift to the new standards by Oct. 16?

A: We don't think so. After updating their practice management systems and billing software, practices must still conduct what is called "end-to-end testing" with each of their payers. They need to confirm that the provider and payer systems can work together properly.

This testing process can take three to six months. We have heard that no more than one-quarter of the physician practices had even started testing their systems as of August.

Q: Does that mean that a large-scale payment disruption will take place?

A: The CMS has announced that it will continue to process claims in the electronic formats physicians are now using, to give them time to complete testing.

Over the last four or five months, the College has taken a leadership role in a coalition of 16 other medical specialty societies. We have lobbied Congress, the payer community and the CMS for flexibility in payments after Oct. 16.

In response, the CMS issued guidance indicating that if health plans met certain conditions, they could continue payments temporarily to providers who are making good-faith efforts to comply with the standards.

The CMS then developed its own contingency plan that would allow Medicare to continue paying noncompliant "legacy" claims while providers work to complete their efforts to meet the standards.

Q: Under the contingency plan, will the Oct. 16 deadline be extended?

A: No. The rule will still take effect Oct. 16. On that date, noncompliant practices will become subject to enforcement actions that could include financial penalties.

The grace period will allow health plans to operate parallel payment systems. They can continue to pay both noncompliant "legacy" claims and HIPAA-compliant claims while physicians work to meet the rules.

Q: Doesn't this grace period give practices more time before they have to get serious about implementing the transactions rule? And how long will the grace period last?

A: Treating the grace period as another extension of the deadline would be a mistake. The CMS will not likely view any further delay in implementing the standards with sympathy. Nor is it clear that private payers will all offer grace periods.

The CMS will decide later how long the grace period will last. As a result, practices that choose to delay implementation could end up squandering their only real chance to avoid a payment disruption.

Q: Given that the original deadline for the transactions rule was already postponed a full year, why is the CMS willing to grant a grace period?

A: Everyone now recognizes that implementation is much more complex than originally anticipated. There is also real concern that a delay in physician payment might hurt the health care system.

Finally, our coalition has argued that payers, clearinghouses and vendors have used up all the available time before the deadline. As a result, physician practices don't have enough time to conduct the testing with payers they need to achieve compliance.

The CMS understands that providers must have time to test their upgraded claims submission software with payers, so it has announced a grace period. But that will put the ball squarely in the providers' court. If testing is not underway or scheduled after Oct. 16, the onus will be on the practice to explain why.

Q: If the CMS and other payers continue paying noncompliant claims for a temporary period, what steps should internists take to make their practices compliant?

A: The first essential step is to ask the practice's vendor to upgrade the practice's billing software so it can submit HIPAA-compliant electronic claims. Most practices should have completed this step by now.

Next, ask your vendor to help your practice send test claims to each of the health plans to which you will send electronic claims. Because this is a tedious process, you may want to start by sending electronic claims only to your largest payers. You can use a clearinghouse for other payers.

Q: We understand that many practice management system vendors are now owned by clearinghouses and are only offering the capability to submit HIPAA-compliant claims through their parent clearinghouses. Is that true, and is it a problem?

A: A number of practice management system vendors have bought clearinghouses in recent years. Some of these vendors want to minimize the changes to their software to meet HIPAA rules by requiring physicians to use their clearinghouses to "translate" electronic claims into HIPAA-compliant formats.

Clearinghouses typically charge providers for transmitting such claims. That expense can be a problem for practices that prefer to send their claims directly to a payer. Most vendors may eventually allow physicians to electronically submit claims directly to health plans, so ask your vendor about its future plans.

Q: If a practice has upgraded its practice management software, is using a vendor owned by a clearinghouse and is willing to pay the clearinghouse to make its claims HIPAA-compliant, does it still have to conduct end-to-end testing with its payers?

A: No one, including your vendor, will know how its systems will work until the first claims have actually been tested. Some large practice management software vendors have assured practices that their clearinghouses will take care of the HIPAA problem.

But when a few practices have insisted on conducting such testing, the results often have been disturbing. Either the claims did not go through as predicted, or the practice had to devote considerable effort to making the electronic claims work.

If my practice's cash flow were at stake, I would insist that testing be conducted, at least with my top-paying three to five payers. I would ask that claims be sent from my practice computer through the clearinghouse to each payer, and that a confirmation be received back indicating that the claims met HIPAA standards and were acceptable for adjudication by the payer.

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