HIPAA Overview

In the early 1990s, the Bush Administration called healthcare industry leaders together to discuss how healthcare administrative costs could be reduced. This group concluded that this could best be accomplished by increasing the use of electronic data interchange (EDI), or electronic transactions, within the healthcare industry. This advisory group later organized as the Workgroup for Electronic Data Interchange (WEDI).

WEDI conducted a number of studies to determine how electronic transactions could improve the efficiency of America’s healthcare system. Upon completing its analysis it identified more than four hundred (400) various formats being utilized for sending and receiving health information. WEDI estimated that providers would save $9 billion annually, and the healthcare industry at large would save $26 billion annually through the implementation of EDI for certain financial and administrative healthcare transactions.

WEDI recommended that Federal legislation be passed to ensure that a consistent set of standards could be used across the country. WEDI's recommendations were incorporated in the Health Insurance Portability and Accountability Act (HIPAA) which was signed into law on August 21, 1996.

The portion of HIPAA that affects the 2.5 million covered entities identified by the Department of Health and Human Services is Section II, subtitle F, Administrative Simplification. The Administrative Simplification section requires that the U.S. Department of Health and Human Services (DHHS) mandate the use of specific electronic formats for a number of business purposes and specify what administrative and medical coding schemes can be used within those formats. It also mandates the development and implementation of national identifiers for patients, providers, payers, and employers, and the adoption of security and privacy standards appropriate for the protection of individually identifiable health care information.

As a result of the HIPAA standards for electronic transactions health care providers are mandated to transmit health claims electronically and in HIPAA standard formats. Health care providers that are unable to transmit health claims in HIPAA compliant formats may not receive reimbursement for their services.