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The Affordable Care Act—Countdown to Compliance for Employers, Week 8: Breaking HPID News

Written by Alden J. Bianchi

In a surprise move, the Centers for Medicare & Medicaid Services (CMS) announced an indefinite delay in enforcement of regulations pertaining to “health plan enumeration and use of the Health Plan Identifier (HPID) in HIPAA transactions” that would have otherwise required self-funded employer group health plans (among other “covered entities”) to take action as early as November 5, 2014.

The CMS statement reads as follows:

Statement of Enforcement Discretion regarding 45 CFR 162 Subpart E - Standard Unique Health Identifier for Health Plans

Effective October 31, 2014, the Centers for Medicare & Medicaid Services (CMS) Office of E-Health Standards and Services (OESS), the division of the Department of Health & Human Services (HHS) that is responsible for enforcement of compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA) standard transactions, code sets, unique identifiers and operating rules, announces a delay, until further notice, in enforcement of 45 CFR 162, Subpart E, the regulations pertaining to health plan enumeration and use of the Health Plan Identifier (HPID) in HIPAA transactions adopted in the HPID final rule (CMS-0040-F). This enforcement delay applies to all HIPAA covered entities, including healthcare providers, health plans, and healthcare clearinghouses.

On September 23, 2014, the National Committee on Vital and Health Statistics (NCVHS), an advisory body to HHS, recommended that HHS rectify in rulemaking that all covered entities (health plans, healthcare providers and clearinghouses, and their business associates) not use the HPID in the HIPAA transactions. This enforcement discretion will allow HHS to review the NCVHS’s recommendation and consider any appropriate next steps.

The CMS statement followed, but was not anticipated by, a recent series of FAQs that provided some important and welcome clarifications on how employer-sponsored group health plans might comply with the HPID requirements.


Congress enacted the HIPAA “administrative simplification” provisions to improve the efficiency and effectiveness of the health care system. These provisions required the Department of Health and Human Services (HHS) to adopt national standards for electronic health care transactions and code sets, unique health identifiers, and security. As originally enacted, HIPAA directed HHS to establish standards for assigning “unique health identifiers” for each individual, employer, health plan, and health care provider. The Affordable Care Act modified and expanded these requirements to include an HPID. On September 5, 2012, HHS published final regulations adopting HPID enumeration standards for health plans (“enumeration” is the process of getting an HPID).

For the purposes of HPID enumeration, health plans are divided into controlling health plans (CHPs) and sub-health plans (SHPs). Large CHPs (i.e., those with more than $5 million in annual claims) would have been required to obtain HPIDs by November 5, 2014. Small controlling health plans had an additional year, until November 5, 2015.

The Issue(s)

While we have no idea what led the NCVHS to recommend to CMS that it abruptly suspend the HPID rules, we can make an educated guess—two guesses, actually.

What is it that is being regulated here?

The HIPAA administrative simplification rules apply to “covered entities.” i.e., health care providers, health plans, and health care data clearing houses. Confusingly, the term “health plan” includes both group health insurance sponsored and sold by state-licensed insurance carriers and employer-sponsored group health plans. Once HHS began issuing regulations, it became apparent that this law was directed principally at health care providers and health insurance issuers or carriers. Employer-sponsored group health plans were an afterthought. The problem for this latter group of covered entities is determining what, exactly, is being regulated. The regulatory scheme treats an employer’s group health plan as a legally distinct entity, separate and apart from the employer/plan sponsor. This approach is, of course, at odds with the experience of most human resource managers, employees and others, who view a company’s group health plan as a product or service that is “outsourced” to a vendor. In the case of an insured plan, the vendor is the carrier; in the case of a self-funded plan, the vendor is a third-party administrator.

The idea that a group health plan may be treated as a separate legal entity is not new. The civil enforcement provisions of the Employee Retirement Income Security Act of 1974 (ERISA) permit an “employee benefit plan” (which includes most group health plans) to be sued in its own name. (ERISA § 502(d) is captioned, “Status of employee benefit plan as entity.”) The approach taken under HIPAA merely extends this concept. But what exactly, is an “employee benefit plan?” In a case decided in 2000, the Supreme Court gave us an answer, saying:

“One is thus left to the common understanding of the word ‘plan’ as referring to a scheme decided upon in advance . . . Here the scheme comprises a set of rules that define the rights of a beneficiary and provide for their enforcement. Rules governing collection of premiums, definition of benefits, submission of claims, and resolution of disagreements over entitlement to services are the sorts of provisions that constitute a plan.” (Pegram v. Herdrich, 530 U.S. 211, 213 (2000).)

Thus, what HHS has done in the regulations implementing the various HIPAA administrative simplification provisions is to impose rules on a set of promises and an accompanying administrative scheme. (Is there any wonder that these rules have proved difficult to administer?) The ERISA regulatory regime neither recognizes nor easily accommodates CHPs and SHPs. The FAQs referred to above attempted to address this problem by permitting plan sponsors to apply for one HPID for each ERISA plan even if a number of separate benefit plan components (e.g., medical, Rx, dental, and vision) are combined in a “wrap” plan. It left in place a larger, existential problem, however: It’s one thing to regulate a covered entity that is a large, integrated health care system; it’s quite another to regulate a set of promises. The delay in the HPID enumeration rules announced in the statement set out above appears to us to be a tacit admission of this fact.

Why not permit a TPA to handle the HPID application process?

One of the baffling features of the recently suspended HPID rules is CMS’ rigid insistence on having the employer, in its capacity as group health plan sponsor, file for its own HPID. It was only very recently that CMS relented and allowed the employer to delegate the task of applying for an HPID for a self-funded plan to its third party administrator. By cutting third party administrators out of the HPID enumeration process, the regulators invited confusion. The reticence on CMS’ part to permit assistance by third parties can be traced to another structural anomaly. While HIPAA views TPAs in a supporting role (i.e., business associates), in the real world of self-funded group health plan administration, TPAs function for the most part autonomously. (To be fair to CMS, complexity multiplies quickly when, as is often the case, a TPA is also a licensed carrier that is providing administrative-services-only, begging the question: Are transmissions being made as a carrier or third party administrator?)

HIPAA Compliance

In last week’s post, we alluded to the need of employers new to self-funding to be aware of the HIPAA privacy and security compliance burdens that they are taking on. That the HPID enumeration rules have been delayed does not mean that employers which sponsor self-funded plans have nothing to do. The HIPAA privacy rule imposes on covered entities a series of requirements that must be adhered to. These include the following:

  • Privacy Policies and Procedures. A covered entity must adopt written privacy policies and procedures that are consistent with the privacy rule.
  • Privacy Personnel. A covered entity must designate a privacy official responsible for developing and implementing its privacy policies and procedures, and a contact person or contact office responsible for receiving complaints and providing individuals with information on the covered entity’s privacy practices.
  • Workforce Training and Management. Workforce members include employees, volunteers, and trainees, and may also include other persons whose conduct is under the direct control of the covered entity (whether or not they are paid by the entity). A covered entity must train all workforce members on its privacy policies and procedures, as necessary and appropriate for them to carry out their functions. A covered entity must also have and apply appropriate sanctions against workforce members who violate its privacy policies and procedures or the Privacy Rule.
  • Mitigation. A covered entity must mitigate, to the extent practicable, any harmful effect it learns was caused by use or disclosure of protected health information by its workforce or its business associates in violation of its privacy policies and procedures or the Privacy Rule.
  • Data Safeguards. A covered entity must maintain reasonable and appropriate administrative, technical, and physical safeguards to prevent intentional or unintentional use or disclosure of protected health information in violation of the Privacy Rule and to limit its incidental use and disclosure pursuant to otherwise permitted or required use or disclosure.
  • Complaints. A covered entity must have procedures for individuals to complain about its compliance with its privacy policies and procedures and the Privacy Rule. The covered entity must explain those procedures in its privacy practices notice. Among other things, the covered entity must identify to whom individuals at the covered entity may submit complaints and advise that complaints also may be submitted to the Secretary of HHS.
  • Retaliation and Waiver. A covered entity may not retaliate against a person for exercising rights provided by the Privacy Rule, for assisting in an investigation by HHS or another appropriate authority, or for opposing an act or practice that the person believes in good faith violates the Privacy Rule. A covered entity may not require an individual to waive any right under the Privacy Rule as a condition for obtaining treatment, payment, and enrollment or benefits eligibility.
  • Documentation and Record Retention. A covered entity must maintain, until six years after the later of the date of their creation or last effective date, its privacy policies and procedures, its privacy practices notices, disposition of complaints, and other actions, activities, and designations that the Privacy Rule requires to be documented.

The HIPAA security rule requires covered entities to conduct a risk assessment, and to adopt policies and procedures governing two dozen or so security parameters.

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