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10. What does the law require of state Medicaid programs?

Section 1171(5)(E) of the Social Security Act, as enacted by HIPAA, identifies the State Medicaid programs as health plans, which therefore must be capable of receiving, processing, and sending standard transactions electronically. There is no requirement that internal information systems maintain data in accordance with the standards. However, Medicaid programs will need the capacity to process standard claim, encounter, enrollment, eligibility, remittance advice, and other transactions. In addition, as health plans, the State Medicaid programs will be required to comply with other HIPAA standards two years after adoption of the standards.

The standards should benefit Medicaid programs in multiple areas. Here are a few examples:

• A national standard for encounter transactions will provide a much-needed method for collecting encounter data on Medicaid beneficiaries enrolled in managed care. Because of the standards, it will be possible to combine encounter data from managed care with similar claims data from fee-for-service, thus enhancing the ability to monitor utilization, costs, and quality of care in managed care and to compare managed care with fee-for-service.
• The standard transactions will include methods for electronic exchange of enrollment information between the Medicaid program and private managed care plans enrolling Medicaid beneficiaries. This will reduce administrative costs of exchanging such information and enhance the reliability of such information.
• The conversion to national standards provides an opportunity for Medicaid programs to shift to commercial software or clearinghouses and to stop the expensive maintenance of old, customized transaction systems.

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