Standard Unique Employer Identifier

VIII. Final Impact Analysis of the Employer Identifier

We have examined the impacts of this rule as required by Executive Order 12866 (September 1993, Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132. Executive Order 12866 directs agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). A regulatory impact analysis (RIA) must be prepared for major rules with economically significant effects ($100 million or more in any 1 year). We estimate the total maximum annual costs for all health plans to modify their computer systems software to implement the employer identifier standard to be $51 million per year, for 3 years. Therefore, we do not believe that this rule is a major rule under Executive Order 12866 or 5 U.S.C. 804(2).

Section 1102(b) of the Act requires us to prepare a regulatory impact analysis if a rule may have a significant impact on the operations of a substantial number of small rural hospitals. This analysis must conform to the provisions of section 604 of the RFA. For purposes of section 1102(b) of the Act, we define a small rural hospital as a hospital that is located outside of a Metropolitan Statistical Area and has fewer than 100 beds. We have determined that this final rule will not have a significant impact on the operations of a substantial number of small rural hospitals.

We note that the costs and savings for the administrative simplification standards were presented in the final Transactions Rule (65 FR 50350). Due to a lack of data that would permit an analysis of each individual standard, the Department chose to analyze the impact of all of the standards in total, with the exception of the privacy standards. As the effect of any one standard is affected by the implementation of other standards, it can be misleading to discuss the impact of one standard by itself. Therefore, we have done an impact analysis on the total effect of all the standards in the final Transactions Rule (65 FR 50350). This employer identifier rule is expected to represent a minor portion of the costs or savings expected from the administrative simplification standards, because of the voluntary nature of the use of this identifier by employers and the limited use of an employer identifier in standard transactions conducted by covered entities.

A. Unfunded Mandates

This final rule has been reviewed in accordance with the Unfunded Mandates Reform Act of 1995 (UMRA) (2 U.S.C. 1501 et seq.) and Executive Order 12866. Section 202 of UMRA requires that agencies assess anticipated costs and benefits before issuing any rule that may result in expenditure in any 1 year by State, local, or tribal governments, in the aggregate, or by the private sector, of $110 million. As discussed in the combined impact analysis published at 65 FR 50350, HHS estimates that implementation of the administrative simplification standards overall will require the expenditure of more
than $110 million by the private sector. However, we do not believe the implementation of the employer identifier standard to be a significant regulatory action under UMRA.

B. Regulatory Flexibility Analysis

The Regulatory Flexibility Act (RFA) of 1980, Pub. L. 96-354, requires us to prepare a regulatory flexibility analysis if the Secretary certifies that a regulation would have a significant economic impact on a substantial number of small entities. On November 17, 2000, the Small Business Administration (SBA) published a final rule (65 FR 69432) changing the small business size standards for the health care industry. This SBA final rule became effective December 18, 2000. The size standards that the SBA now uses are those defined by the North American Industry Classification System. Prior to that, the SBA used size standards as defined by the Standard Industrial Codes. The size standard is no longer a uniform $5 million in annual revenues for
all components in the health care sector. Rather, the size standard now ranges from $6 million to $29 million. The regulatory flexibility analysis for the employer identifier is linked to the aggregate regulatory flexibility analysis for all the administrative simplification standards that appeared in the final Transactions Rule published on August 17, 2000, which predated the SBA change. It is appropriate, for the purposes of this rule, to continue to use the $5 million small business size standard that was in effect at the time of publication of the final Transactions Rule. Nonprofit organizations are considered small entities. Small government jurisdictions with a population of less than 50,000 people are also considered small entities. Individuals and States are not considered small entities.

We do not believe that this regulation will have a significant economic impact on a substantial number of small entities. The EIN is already one of the identifiers most frequently used to identify the employer in electronic health care transactions. Most clearinghouses, including small clearinghouses, already have the ability to accept and transmit the EIN when an employer identifier is required. Many health plans and health care providers already use the EIN to identify the employer in any transactions that require an employer identifier. Their current practice is to obtain the EIN from the employer, if they are the initiator of the transaction and they do not already know the EIN. We believe these entities will incur few conversion costs as a result of this regulation. There are few situations when an employer identifier is required in standard transactions initiated by health plans and no such situations for those initiated by health care providers. Converting from other employer identifiers to the EIN primarily involves the database administration task of substituting one record identifier for another in a limited number of records, which is not a costly activity. Therefore, we believe this regulation will not impose a significant economic impact on small health plans or small health care providers that convert their systems to use the EIN to identify the employer in those few situations. As stated in the Collection of Information Requirements section in this rule, we estimate the total maximum annual costs for all health plans to modify their computer systems software to be $51 million per year, for 3 years. Employers are not bound by the Act to use the standards; therefore, any use of the EIN by employers will be voluntary. Most of the use of the employer identifier in transactions will be voluntary
use by employers in transactions they initiate. Therefore, we believe this regulation will not impose a significant economic impact on small employers.

C. Executive Order 12866

In accordance with the provisions of Executive Order 12866, this final rule was reviewed by the Office of Management and Budget.

This portion of the impact analysis relates specifically to the standard that is the subject of this regulation--the employer identifier. This section describes specific impacts that relate to the employer identifier. As we indicated in the introduction to this impact analysis, however, we do not associate the specific costs and savings to the specific standards.

1. Affected Entities

a. Health Care Providers

In all standard transactions conducted by the health care provider, the employer identifier is not used or is situational. The employer identifier is used only if the data condition described in the implementation guide occurs. In the instances when an EIN could be used by a health care provider, the EIN is situationally required only if the entity being identified is an employer and the identifier is known to the health care provider. We expect health care providers will obtain the EIN from the employer in these limited cases. However, if the health care provider cannot obtain the EIN, then the data condition
has not been met and its use is not required. There are no situations in which an employer identifier is required in a standard transaction initiated by a health care provider. Any negative impact on health care providers generally will be related to the initial implementation period for health care providers that currently use an identifier other than the EIN to identify the employer in electronic health transactions. Those health care providers will incur implementation costs for converting systems from use of other employer identifiers to use of the EIN. Some health care providers will incur those costs
directly and others will incur them in the form of fee increases from billing agents and health care clearinghouses.

b. Health Plans

Health plans that engage in electronic commerce will have to modify their systems to use the EIN if they do not currently use the EIN to identify the employer in standard electronic health transactions that require an employer identifier. In most cases, health plans currently obtain and use the EIN of the employer in those standard transactions that require an employer identifier. Health plans currently using an employer identifier other than the EIN will have a one-time cost impact. We estimate the total maximum cost for all health plans to be $51 million per year, over 3 years, to make these systems modifications.

c. Health Care Clearinghouses

Health care clearinghouses will have to modify their systems to use the EIN if they do not currently use the EIN to identify the employer in standard electronic health transactions that require an employer identifier. In most cases, health care clearinghouses currently use the EIN of the employer in those standard transactions that require an employer identifier. Health care clearinghouses currently using an employer identifier other than the EIN will have a one-time cost impact.

2. Effects of Various Options

a. Guiding Principles for Standard Selection

The implementation teams charged with designating standards under the statute have defined, with significant input from the health care industry, a set of common criteria for evaluating potential standards (see 65 FR 50351-50352). These criteria are based on direct specifications in HIPAA, the purpose of the law, and principles that support the regulatory philosophy set forth in Executive Order 12866 of September 30, 1993, and the Paperwork Reduction Act of 1995.

We assessed the various options for an employer identifier against those criteria with the overall goal of achieving the maximum benefit for the least cost. We found that the EIN met all the criteria. No other alternative employer identifier is in widespread use. No other alternative met a majority of the criteria, especially those supporting the regulatory goal of cost-effectiveness. We assessed the costs and benefits of the EIN, but we did not assess the costs and benefits of other identifier options, because they did not meet the criteria.

b. Need To Convert

All covered health care providers, health plans, and health care clearinghouses that do not currently use the EIN to identify the employer in electronic health transactions that require an employer identifier would have to convert. Because the EIN is currently in widespread use as an employer identifier throughout the industry, adopting the EIN would not require conversion for most health care providers, health plans or health care clearinghouses. The selection of the EIN imposes a far smaller burden on the industry than any nonselected option and presents significant advantages in terms of
cost-effectiveness, universality, and flexibility.

c. Complexity of Conversion

The first two digits of the EIN reflect the issuing Internal Revenue district. However, the EIN does not rely significantly on embedded intelligence (coded information that is part of the identifier) to identify the specific employer. For those health care providers, health plans, and health care clearinghouses that must convert to use the EIN, the complexity of the conversion would be significantly affected by the degree to which their processing systems currently rely on employer identifiers that contain embedded intelligence. Converting from one identifier that contains no embedded intelligence to another is less complex than modifying software logic to obtain needed information from other data elements. However, the use of an identifier that does not contain embedded intelligence meets the guiding principle of assuring flexibility.

In general, the shorter the identifier, the easier it is to implement. It is more likely that a shorter identifier, such as the EIN, would fit into existing data formats.

The selection of the EIN does not impose a greater burden on the industry in terms of the complexity of conversion than the nonselected options.

Executive Order 13132 of August 4, 1999, Federalism, published in the Federal Register on August 10, 1999 (64 FR 43255) requires us to ensure meaningful and timely input by State and local officials in the development of rules that have Federalism implications. Although the proposed rule (63 FR 32784) was published before the enactment of this Executive Order, the Department consulted with State and local officials as part of an outreach program early in the process of developing the proposed regulation. The Department received comments on the proposed rule from State agencies and from entities who conduct transactions with State agencies. Many of the comments referred to the costs incurred by State and local governments that will result from implementation of the HIPAA standards. We assume that government entities will have these costs offset by future savings, consistent
with our projections for the private sector (see the combined impact analysis (65 FR 50350)). A Congressional Budget Office analysis made the following points: States are already in the forefront of administering the Medicaid program electronically, Medicaid State agencies can compensate (for these costs) by reducing other expenditures, and the Federal Government pays a portion of the cost of converting State Medicaid Management Information Systems.

Other comments regarding States expressed the need for clarification as to when State agencies were subject to the standards. Responses to omments from States and State organizations regarding the employer identifier standard are found elsewhere in this preamble.

In complying with the requirements of part C of title XI, the Secretary established interdepartmental implementation teams that consulted with appropriate State and Federal agencies and private organizations. These external groups consisted of the NCVHS' Subcommittee on Standards and Security, the Workgroup for Electronic Data Interchange (WEDI), the National Uniform Claim Committee (NUCC), the National Uniform Billing Committee (NUBC) and the American Dental Association (ADA). The teams also received comments on the proposed regulation from a variety of organizations, including State Medicaid agencies and other Federal agencies.

List of Subjects

45 CFR Part 160

Electronic transactions, Health, Health care, Health facilities, Health insurance, Health records, Medicaid, Medical research, Medicare, Reporting and recordkeeping requirements.

45 CFR Part 162

Administrative practice and procedure, Electronic transactions, Health facilities, Health insurance, Hospitals, Incorporation by reference, Medicaid, Medicare, Reporting and recordkeeping requirements.