The Health Insurance Portability and Accountability Act of 1996, commonly referred to as (HIPAA), is a result of efforts by the government to reform healthcare. The purpose of HIPAA is to improve efficiency in healthcare delivery by standardizing electronic data interchange, and offer protection of confidentiality and security of health data through setting and enforcing standards. HIPAA offers a unique health identifier for individuals, employers, health plans and health care providers.

More specifically, HIPAA allows for standardization of electronic patient health, administrative and financial data. HIPAA also sets security standards protecting the confidentiality and integrity of "individually identifiable health information," past, present or future.

All healthcare organizations must be in compliance with the HIPAA regulations. This includes all health care providers, even one-physician offices, health plans, employers, public health authorities, life insurers, clearing houses, billing agencies, information systems vendors, service organizations, and universities.

There are severe penalties for non-compliance and compliance dates started on October 16, 2002. For many healthcare organizations, HIPAA compliance is and will be a daunting task in the months and years ahead.

An overview of HIPAA :

The Health Insurance Portability and Accountability Act of 1996 Public Law 104-191 (HIPAA) was passed by Congress to reform the insurance market and simplify health care administrative processes.

The administrative simplification part of HIPAA is aimed at reducing administrative costs and burdens in the health care industry by adopting and requiring the use of standardized, electronic transmission of administrative and financial data.

HIPAA will have a significant impact on the health care industry over the next several years.

HIPAA requires the Department of Health and Human Services (DHHS) to adopt national uniform standards for the electronic transmission of certain health information.

Administrative simplification is a method of making business practices (the billing, claims, computer systems and communication) uniform in order that providers and payers do not have to modify the way in which they interact with each other through each other's proprietary systems.

An average of 26 cents of each health care dollar is spent on administrative overhead, including such tasks as:

Enrolling an individual in a health plan.

Paying health insurance premiums.

Checking eligibility.

Obtaining authorization to refer a patient to a specialist.

Processing claims.

Notifying a provider about the payment of a claim.

The administrative simplification provisions of HIPAA are intended to reduce the number of forms and methods of completing claims, and other payment-related documents, and to use a universal identifier for providers of health care. Another goal is to increase the use and efficiency of computer-to-computer methods of exchanging standard health care information.

The five specific areas of administrative simplification addressed by HIPAA are:

Electronic Data Interchange ( EDI ) - the electronic transfer of information in a standard format between trading partners. It allows partners to exchange information and transact business in a fast and cost-effective way. The transactions that are included within HIPAA consist of standard electronic formats for enrollment, eligibility, payment and remittance advice, claims, health plan premium payments, health claim status, and referral certification and authorization.

Code Sets - includes data elements used to uniformly document the reasons why patients are seen and what is done to them during their health care encounters (procedures).

Identifiers - numbers used in the administration of health care to identify health care providers, health plans, employers, and individuals (patients). Over time, this is intended to simplify administrative processes, such as referrals and billing, improve accuracy of data and reduce costs.

Security - standards need to be developed and adopted for all health plans, clearinghouses, and providers to follow and to be required at all stages of transmission and storage of health care information to ensure integrity and confidentiality of the records at all phases of the process, before, during and after electronic transmission.

Privacy - standards to define what are appropriate and inappropriate disclosures of individually Identifiable health information and how patient rights are to be protected.

Significant resources need to be invested over the next several years to achieve compliance with HIPAA legislation and to realize the long-term benefits. The benefits of HIPAA include lowering administrative costs, enhancing accuracy of data and reports, increasing customer satisfaction, reducing cycle time and improving cash management.