HIPAA Transactions and Code Sets


The HIPAA Transactions and Code Sets (TCS) Rule governs how the health care industry conducts business electronically.  It establishes the business-to-business (e.g., provider, health plan and healthcare clearinghouse data exchange) transactions and designates the transaction standard to follow.  This also establishes the codes to be used or, in a way, the vocabulary to be used. 
Standardized transactions were adopted with the goal of saving costs and speeding up the process of administrative simplification.  If a practice management application printed the standard claim form (HCFA 1500, now CMS 1500) the physician’s office would mail it to the health plan.  They in turn would have a person key it or scan it into their claims processing system.  The transition from paper transactions from the physician’s office into the health plan’s computer introduces cost, time delays, and errors.   

This type of computer-to-computer business transaction transfer is called electronic data interchange (EDI) and has been fully operational and relied upon for years prior to the passage of HIPAA.  Congress and the US Department of Health and Human Services (HHS) mandated that the healthcare industry catch up to what other industries have accepted as standard business operations for some time.  Also, it should be noted that the adoption and mandate of these standards was done at the healthcare industry’s request to Congress at the time HIPAA was being debated in Congress.

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Over the years, the health care industry has witnessed a steady march toward standardization of formats and data and a somewhat slower paced progress in the use of electronic health information exchange. The combination of HIPAA and the attraction of electronic and web-based business solutions results in an acceleration of this evolution.
The outcome potential is:

  • Reduction in handling and process time
  • Elimination of the risk of lost paper documents
  • Elimination of the inefficiencies of handling paper documents
  • Improvement of overall data quality
  • Decreased administrative costs

The hope is that at some point in the future, health plans, providers, healthcare clearinghouses and patients/health plan members will find a new and improved landscape that is more cost effective and provides higher quality health care.  Starting from a place where much of the communication still relies on mail service, telephone calls, and faxes, and where the parties use a multitude of formats, codes, and conventions, the HIPAA TCS Rule was intended to move the healthcare industry in a new direction where health care information is exchanged on-line or through batch transactions, and everyone speaks the same language.

Potential Benefits to Health Plans:

  • Speed, efficiency, lower cost of operations
  • Standard data for fraud detection; comparative analysis
  • Overhaul of business processes
  • Replacement of antiquated functionality
  • Increased provider participation
  • Smoother Coordination of Benefits

Potential Benefits to Physicians:

  • Improved practice management
  • Efficient inter-provider communications
  • Future patient-provider communications
  • Lower costs; comparative data
  • Faster inquiry and response
  • Faster claims payment

Potential Benefits to Patients/Health Plan Members

  • Privacy
  • Portability
  • Coordination of care

Ultimately, successful and smooth implementation of the standards promises the healthcare industry, both private and public, improvements in the data exchange processes, lower operating costs, consistent data for statewide and national analysis and comparisons, better fraud detection capabilities, improvements in the promptness of payment and the opportunity to renovate antiquated systems and streamline business processes. Standardized formats and data content should also improve the coordination of benefits (COB) process.

The physician community is potentially a big winner in the long run with investments in standardizing health information exchange. Major efficiencies can be achieved at a point when standards adoption is complete and transaction exchange stabilizes. As in the health plan community, physicians are challenged with upgrading their systems and data exchange capabilities as well as standardizing the adopted standards (the TCS Rule provided for a standard set of transactions but still a fair amount of variability is allowed through what are called situational fields), resulting in more efficient and timely inter-provider communications. Standards should, in the long run, also speed up inquiry and response for eligibility verification, service requests and claim status.

Patients share indirectly in improvements associated with administration simplification. Standards, combined with electronic data exchange, result in improved coordination of care for the patient. Standards may remove some of the barriers to provider participation which could lead to more choice for the Medicaid beneficiary. As application and web application interoperability, public and private health plan members could have increased access to health care information such as health care education, rosters of providers and directions to medical facilities.

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General Introduction

In order to perform EDI using a common interchange and data structure, widely adopted use of standards was required.  HHS adopted standards for electronic data transactions used in the administration of health care data and claims through rule. The purpose behind the use of industry-wide standards was to eliminate the need for software adaptation for multiple formats required to meet the demand of proprietary variations then in use by providers and health plans. Operational efficiencies with long term savings is the intended result.

The Transactions & Code Sets Standards applies to "...any health plan, any healthcare clearinghouse, and any health care provider that transmits any health information in electronic form in connection with..." the defined transactions. The scope of the Transaction Standard includes:

  • Electronic transmissions using all media, even when the transmission is physically moved from one location to another using magnetic tape, disk, or CD media.
  • Transmissions over the Internet (public network), extranet (private network using Internet technology to link a business collaborating parties), leased lines, dial-up lines, and private networks are all included.
  • Telephone voice response and "faxback" systems are not included.
  • HIPAA defines EDI healthcare transactions as:
  • Health claims or similar encounter information (X12N 837 professional, institutional or dental transaction)
  • Health care payment & remittance advice (X12N 835 transaction)
  • Coordination of Benefits (X12N 837 professional, institutional or dental transaction)
  • Health claim status and response (X12N 276/277 transactions)
  • Enrollment & un-enrollment in a health plan (X12N 834 transaction)
  • Health plan eligibility and response (X12N 270/271 transactions)
  • Health plan premium payments (X12N 820 transaction)
  • Referral certification & authorization (X12N 278 transaction)
  • First report of injury (draft rule yet to be published)
  • Health claims attachments (draft rule published but not finalized)


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v2 2016