Bundle: (GenIC 1) Medicaid Buy In, (GenIC 2) CNIPRA Cycle II, and (GenIC 3) PIE Transaction

Department of Health & Human Services
Centers for Medicare & Medicaid Services
7500 Security Boulevard, Mail Stop S2-26-12
Baltimore, Maryland 21244-1850

Center for Medicaid, CHIP, and Survey & Certification
SMDL # 10-011

June 21, 2010
Re: Third Party Liability
Dear State Medicaid Director:
This letter is to provide additional guidance to State Medicaid agencies on the implementation of
section 6035 of the Deficit Reduction Act (DRA) of 2005. This legislation provides tools to
strengthen States‟ ability to identify and collect payments from liable third parties. This letter
addresses the DRA requirement that the Secretary of Health and Human Services specify a
manner in which State Medicaid agencies and health plans may exchange eligibility and
coverage data.
Health insurers, including self-insured plans, often contract with other entities (e.g., third party
administrators (TPAs) and pharmacy benefit managers (PBMs)), for the purpose of verifying
plan eligibility, authorizing benefits, and paying claims. While we recognize that entities such as
TPAs and PBMs do not necessarily have ultimate financial liability, to the extent that they are
required -- by contract or otherwise -- to pay medical claims, these entities are included in the
definition of a health insurer for purposes of complying with the DRA. For purposes of this
guidance, we refer to health insurers as „plans.‟ When used in the context of verifying eligibility
and/or processing claims, the term „plans‟ includes entities that are under contract to perform
such activities.
This guidance announces recommended transmission formats for sharing eligibility and benefit
information between the State, or its agent, and health plans. These recommended formats will
serve as a tool to enable States to comply with the DRA data exchange requirements. The
transmission formats are:
Payer Initiated Eligibility/Benefit (PIE) Transaction
Accredited Standards Committee (ASC) X12 270/271 Health Care Eligibility/Benefit
Inquiry and Response Standard Transactions (“270/271 Transactions”)
CMS is seeking formal approval for the use of these formats through the Paperwork Reduction
Act. In the meanwhile, we strongly recommend that States begin using these formats. One
major concern is that plans avoid the need to provide data in a variety of different formats in
order to accommodate multiple States‟ requirements. Use of these formats will help to ensure

Page 2 – State Medicaid Director
standardization among plans, particularly those that operate in multiple States, as well as
minimize administrative cost and burden on States and plans.
The enclosed questions and answers explain in more detail the specific DRA changes to the
Medicaid statute governing third party liability. These questions and answers also supplement
the guidance the Centers for Medicare & Medicaid Services provided in State Medicaid Director
Letter #06-026 issued on December 15, 2006, which can be accessed at:
http://www.cms.hhs.gov/SMDL/SMD/.
We hope you will find this information helpful. If you have any questions regarding this
guidance, please contact Ms. Barbara C. Edwards, Director, Disabled and Elderly Health
Programs Group, at 410-786-7089 or by e-mail at [email protected].
Sincerely,
/s/
Cindy Mann
Director
Enclosure
cc:
CMS Regional Administrators
CMS Associate Regional Administrators
Division of Medicaid and Children‟s Health
Ann C. Kohler
NASMD Executive Director
American Public Human Services Association
Joy Wilson
Director, Health Committee
National Governors Association
Matt Salo
Director of Health Legislation
National Governors Association
Debra Miller
Director for Health Policy
Council of State Governments
Christine Evans, M.P.H.
Director, Government Relations
Association of State and Territorial Health Officials

Page 3 – State Medicaid Director
Alan R. Weil, J.D., M.P.P.
Executive Director
National Academy for State Health Policy

Page 4 – State Medicaid Director
Enclosure
Third Party Liability Provisions of the Deficit Reduction Act of 2005
Questions and Answers #14 – 35
(For Qs and As #1 – 13, see SMD letter dated December 15, 2006 at:
http://www.cms.hhs.gov/smdl/downloads/SMD121506QandA.pdf)

Standards for Transmitting Eligibility and Coverage Information
Q14: What Electronic Data Interchange (EDI) transactions are being recommended by
the Secretary of Health and Human Services for transmitting plan eligibility and
coverage information to State Medicaid agencies?
A14: Section 1902(a)(25)(I)(i) of the Social Security Act directs States to enact laws requiring
health insurers to provide the requisite information “in a manner prescribed by the
Secretary.” CMS collaborated with States and representatives of the health care industry
to determine the most efficient way to transmit the required data elements. As a result of
this collaboration, CMS is recommending the following transmission formats for
exchanging eligibility and benefit information between the State, or its agent, and the
health plans or their agent(s) that are under contract to maintain eligibility records and
process claims.
Payer Initiated Eligibility/Benefit (PIE) Transaction
Accredited Standards Committee (ASC) X12 270/271 Health Care
Eligibility/Benefit Inquiry and Response Standard Transaction (herein referred to
as a 270/271 Transaction or referenced separately as a 270 inquiry and a 271
response)
In the December 15, 2006, guidance, we referred to the method of transmission as the
“eligibility transmission format (ETF)”. We have decided not to continue to use this
terminology, but instead we will refer to the specific name of the transaction as indicated
above.
Q15: What is the PIE Transaction?
A15: The PIE Transaction is a cumulative listing to be used as a one-way transaction to
identify plan members‟ eligibility for health coverage and their associated benefits. The
PIE Transaction was developed to transmit benefit and membership information from the
plan to the State (or a designated contractor) in one single, unsolicited transaction. It is
not necessary for the State to generate an inquiry to obtain a PIE Transaction. The PIE
Transaction is not an adopted Health Insurance Portability and Accountability Act
(HIPAA) standard. However, it uses some of the same identifiers as the 271 Response
Transaction and, therefore, mirrors the format of the 271 standard.

Page 5 – State Medicaid Director
Prior to enactment of the DRA, Medicaid agencies had difficulty obtaining information
about eligibility from plans using the 270/271 Transaction because the Medicaid agencies
did not have information that plans required for eligibility inquiries. Most plans require
plan identifiers (i.e., group or Member ID) be supplied on eligibility inquiries. Medicaid
agencies do not often have plan identifiers. The PIE Transaction allows the Medicaid
agency to match the plans‟ subscribers and dependents with their Medicaid database
recipients, thereby capturing plan identifiers as well as coverage information. These
identifiers can then be used to request subsequent updates and to submit claims when
appropriate.
Q16: What is the 270/271 Transaction and how will it be used?
A16: The 270/271 Transaction is an adopted HIPAA standard that was developed by the
American National Standards Institute (ANSI) ASC for use in exchanging eligibility
information. The 270 is used to transmit Health Care Eligibility Benefit Inquiries from
health care providers to health plans, and from one health plan to another. The 271 is a
response to the 270 inquiry.
HIPAA mandates use of Version 4010/4010A1 of the 270/271 Transaction for capturing
eligibility and coverage information exchanged among plans, as well as between
providers and plans. Version 4010A1 represents an addendum to Version 4010. The
ASC X12 Version 5010 will replace the 4010/4010A1 version. Covered entities must be
in compliance with Version 5010 no later than January 1, 2012. The compliance date for
small health plans is January 1, 2013.
In today‟s environment, Version 4010/4010A1 of the 270/271 Transaction is used among
providers and plans for patient eligibility and benefit inquiries. However, much of the
potential value of the 270/271 Transaction is not being utilized among plans, partially
because the 271 requires only a „yes‟ or „no‟ response, indicating whether individuals are
eligible. Although plans are not restricted from providing additional information, the
Version 4010/4010A1 270/271 does not require additional benefit coverage information.
Therefore, use of the 270/271 Transaction has produced different levels of information
ranging from a „yes‟ or „no‟ response to a full explanation of coverage. While limited
information is permitted under HIPAA, it often necessitates manual follow-up, using the
telephone to ascertain more specific eligibility information that is needed to bill
appropriately. This results in significant administrative costs to providers and plans.
In the future, because the 270/271 can supplement the PIE Transaction, Medicaid
agencies will be able to use the plan identifiers provided by the PIE Transaction when
sending a 270 inquiry. This will produce more successful matches and provide States
with additional eligibility information. The 271 responses will still vary with respect to
the types of information provided. Plans will still have the option of providing additional
benefit coverage information. When the Version 5010 of the 270/271 is implemented,
coverage information will no longer be optional. It will become required by the standard.
The 270 standard queries can be used to support prior approval of services, request
updated information prior to submitting claims, or verify non-coverage when a provider
reports that a claim has been denied. The combined eligibility and coverage information

Page 6 – State Medicaid Director
derived from the PIE Transaction and the 270/271 Transactions will be used by State
Medicaid programs to determine the correct payer sequence and whether a claim
submission is appropriate.
Q17: Can States use formats other than the PIE Transaction?
A17: Yes. Although we strongly recommend that States utilize the PIE Transaction,
particularly with plans that operate in multiple States, States and plans may implement, or
continue to use, alternate “proprietary” formats to share eligibility information.
Q18: Are there guides available to assist in implementing the PIE and the 270/271
Transactions?
A18: Yes. CMS has developed a DRA Companion Guide to assist State Medicaid agencies and
plans in implementing the PIE Transaction. This will enable plans to use the same
implementation to construct the PIE Transaction for each Medicaid agency. The official
version of the DRA Companion Guide can be found at:
www.cms.hhs.gov/ThirdPartyLiability/DRA/CompanionGuide. States may download
and reproduce the Guide to use as a technical reference for plans. However, the language
in the official Guide must not be altered, except to include State-specific information
where permitted.
The DRA PIE Transaction Companion Guide is written to support both Version 4010/4010A1
and Version 5010 270/271 standards. The Implementation Guides for the 4010/4010A1 and 5010
are available for a fee from X12 at www.X12.org.
Q19: How were specific data elements determined for inclusion in the PIE transaction?
A19: CMS collaborated with States and industry representatives to determine what information
is needed by States as well as the most effective method for transmitting the information.
All of the transaction-specific information, including the data elements, can found in the
Companion Guide.
In the December 15, 2006, guidance, we indicated that we would identify specific data
elements and we would refer to them as the Plan Eligibility Data Elements (PEDE).
Subsequently, we identified the elements and have incorporated them into the DRA PIE
Companion Guide. We have determined that it is not necessary to make a specific
reference to the elements. Rather, it is sufficient to simply refer to the data elements
included in the PIE Companion Guide. We will no longer refer to the elements as the
PEDE.

Page 7 – State Medicaid Director
Q20: Entities that are responsible for paying pharmacy claims (e.g., pharmacy benefit
managers (PBMs)), use standards developed by the National Council of Prescription
Drug Programs (NCPDP) which are different from the 270/271 Transaction. How
will these entities provide information to States?
A20: States may negotiate with plans to utilize an agreed upon method to acquire updates.
Alternatively, PBMs and other payers of pharmacy claims may provide PIE Transactions
to States as well as providing subsequent updates.
Entities that have responsibility for paying pharmacy claims generally use the 5.1
Eligibility (E1) Transaction developed by the NCPDP for transmitting eligibility
information. As of January 2012, Version D.0 will replace the Version 5.1 Standard.
The NCPDP standard is designed as a point of sale transaction and therefore, does not
supply historical information or the date range of coverage. Since Medicaid agencies
need access to historical information, the E1 Transaction is not sufficient to meet their
needs.
Although there is some utilization of the 270/271 Transaction by the pharmacy industry
(e.g., e-prescribing programs), it is not widely used by PBMs and other payers of
pharmacy claims. In order to minimize financial burden on those payers, States should
work with payers to adopt a viable method of acquiring eligibility updates. Examples of
other methods could include the use of a proprietary file, through a PC-based transaction
or a clearinghouse. Alternatively, payers and States may agree to adopt the 270/271
standard.
A21: How will the passage of the Affordable Care Act impact the 270/271 and the PIE
Transactions?
Q21:

The Affordable Care Act (ACA) includes a number of changes that will impact health
information technology. For instance, the Administrative Simplification provisions of the
ACA are designed to accelerate the standardization of transactions. Such standardization
could necessitate revisions of existing standards such as the 270/271 Transaction. Since
the PIE Transaction is built on the 271 Response Transaction, any forthcoming changes
made to the 271 as a result of the ACA may necessitate changes to the PIE Transaction in
the future.

Scope and Frequency of Sharing Third Party Eligibility and Coverage Information
Q22: Does a health plan’s submission of information from their full eligibility file, for the
purpose of matching that information to the Medicaid eligibility file, violate HIPAA
privacy rules?
A22: No. The disclosure and use, pursuant to State law, of insurer eligibility files containing
private health information (PHI) are permitted under the HIPAA privacy provisions.
Background on this issue can be found at:
www.cms.hhs.gov/ThirdPartyLiability/DRA/SharingPrivateHealthInformation.

Page 8 – State Medicaid Director

Q23: Should States request information on subscribers and dependents
covered in other States?
A23: Yes. There is a significant amount of third party coverage derived from health plans
licensed in a different State than where the Medicaid beneficiaries reside. This can
happen when policyholders work in one State and live in another State. For example,
there may be policyholders who are enrolled in Maryland Medicaid, or have dependents
that are enrolled, who work in Delaware, the District of Columbia, Pennsylvania,
Virginia, or West Virginia and have coverage through their employer in that State. This
points to the need for Medicaid agencies to obtain plan eligibility information from
contiguous States in addition to their respective State.
Another primary example is when Medicaid-eligible children are covered through the
insurance of non-custodial parents who live in a different State than their child(ren). This
would not be limited to contiguous States because non-custodial parents could reside in
any State in the country. Depending on the size of a plan‟s file, it may be beneficial for
the State to obtain the plan‟s entire eligibility file. The specific geographical areas to be
included in the data exchange should be negotiated with the plans. We recommend use
of a Trading Partner Agreement in the exchange of electronic data.
Q24. How far back can States go in requesting eligibility and coverage information?
A24: The DRA requires States to have laws in effect that require health insurers to honor
claims submitted by the Medicaid agency within 3 years of the date of service.
Therefore, it is prudent for Medicaid agencies to request up to 3 years‟ worth of
eligibility information in the initial PIE Transaction in order to bill for older claims.
Plans do not always maintain 3 years‟ worth of eligibility information in their databases.
Most plans maintain one to two years‟ worth of data. As a practical matter, it may be
more beneficial for the Medicaid agency to acquire whatever data is readily available,
rather than wait for the plan to complete complex development efforts needed to access
older data. Where data is available, it should be provided to the State. Medicaid
agencies and plans should negotiate the most feasible approach.
Q25. After States receive an initial PIE Transaction from a plan, should subsequent PIE
Transactions include only updates since the previous PIE, or should it be a full file
replacement?
A25.

States may require plans to provide a full file replacement or States may opt to receive
updates only. The amount of file information should be negotiated between the States
and the plans.

Page 9 – State Medicaid Director
Q26: How often should a third party provide eligibility information to the State?
A26: In accordance with section 1902(a)(25) of the Act, States are required to take all
reasonable measures to ascertain the legal liability of third parties. It would be
reasonable for States to require health plans to share a complete record of eligibility and
coverage information annually, at a minimum. States may opt to require plans to share
information on a more frequent basis.
Administrative Issues
Q27: Are the DRA third party liability requirements applicable to the territories?
A27: Yes. In addition to the 50 States and the District of Columbia, the DRA also applies to
Puerto Rico, the Virgin Islands, and Guam. The other two territories, American Samoa
and the Northern Marianas, have received a waiver of the DRA third party liability
provisions.
Q28: Are third parties allowed to charge transaction fees for electronically transmitting
eligibility and coverage information?
A28: The 270/271 Transaction is a HIPAA standard and covered entities must comply with 45
CFR 162.925(a)(5). This provision requires that “a health plan that operates as a health
care clearinghouse or requires an entity to use a health care clearinghouse to receive,
process, or transmit a standard transaction, may not charge fees or costs in excess of the
fees or costs for normal telecommunications that the entity incurs when it directly
transmits or receives a standard transaction to or from a health plan.”
There is no Federal law that would prohibit a third party from charging a fee for
transmitting the PIE Transaction. States may have laws in effect that prohibit or limit the
charging of fees to Medicaid.
Q29: Is enhanced funding available for States to upgrade their Medicaid Management
Information Systems (MMIS)?
A29: Yes. States that upgrade their MMIS to accommodate the PIE Transaction will be
eligible to receive enhanced Federal funding at the 90 percent match rate under an
approved Advance Planning Document.

Clarifying Claims Processing Requirements
Q30: Does the 3-year claim filing period apply to Medicare?
A30: State law requiring plans to honor claims submitted within 3 years from the date on
which the item or service was furnished would apply to Medicare Part C and D plans.

Page 10 – State Medicaid Director
The State law would not apply to the traditional Medicare fee-for-service program,
Medicare fiscal intermediaries and carriers, or other Medicare contractors.
Q31: Are States precluded from having laws that require third parties to accept claims
beyond the 3-year filing period prescribed in the DRA?
A31: No. Section 1902(a)(25)(I)(iv) of the Act requires States to pass laws that would require
health insurers to accept claims submitted by the State within the 3-year period beginning
with the date on which the item or service was furnished. States are not precluded from
having laws or regulations that would require insurers to accept claims for a period of
time longer than 3 years.
Q32: In cases where a Medicaid individual fails to obtain a plan’s required authorization
prior to receiving a service for which Medicaid subsequently pays, are health plans
that are regulated by the Employee Retirement Income and Security Act (ERISA)
permitted to preempt Medicaid’s claim for reimbursement solely on the basis that
the individual failed to receive prior authorization?
A32: No. The plan is to determine if the claim would have met their authorization standards
and consider the claim for Medicaid reimbursement accordingly.
On March 21, 2008, the Department of Labor (DOL) issued Advisory Opinion 2008-03A
addressing the applicability of prior authorization in regard to Medicaid claims. DOL
stated that “it is the Department‟s view that ERISA would not preempt a State cause of
action to recoup Medicaid payments made for covered expenses to the extent that the
private plan would have been liable for those expenses if the participant had followed the
appropriate prior authorization procedures under the plan before the State made the
payment for the items or services.” The Advisory Opinion can be found at:
http://www.dol.gov/ebsa/regs/AOs/main.html#2008.
Q33: Are plans permitted to require a National Provider Identifier (NPI) for transactions
with Medicaid programs?
A33: No. States typically do not meet the definition of a covered health care provider, and
therefore, are not eligible to receive an NPI. If States encounter situations where plans
are requiring them to submit an NPI, they can submit a formal complaint to the Office of
E-Health Standards and Services (OESS) in CMS by using the online Administrative
Simplification Enforcement Tool (ASET). ASET allows individuals or organizations to
electronically file a complaint against an entity whose actions they believe violate an
Administrative Simplification provision of HIPAA.
States may submit a formal complaint electronically at: https://htct.hhs.gov/aset/.
ASET users are required to register with OESS and create a user identification name and
password. States also may submit a paper complaint. The form is available at:
www.cms.hhs.gov/Enforcement/Downloads/HIPAANon-PrivacyComplaintForm.pdf.

Page 11 – State Medicaid Director
Other Clarifications of the DRA Provisions
Q34: When are the provisions of section 6035 of the DRA effective?
A34: These provisions were effective on January 1, 2006. In Question 10 of the December 15,
2006, SMD letter, we noted that a technical error had been made in the law which cited a
specific section in reference to the effective date that was non-existent. On December 20,
2006, the President signed into law the Tax Relief and Health Care Act of 2006 which
included a correction to the technical error.
We are also correcting another error made in the December 15, 2006, letter. We
indicated that States that need to amend their legislation to comply with the DRA
provisions are given until the first day of the first calendar quarter beginning after the
close of the first regular session of the State legislature that begins “after the January 1,
2006, effective date.” This should have read, “after February 8, 2006, the date of
enactment.”
Q35: How long should third parties be given to come into compliance with the DRA
requirements?
A35: Federal law does not address how long States should allow for third parties to upgrade
their systems in order to provide the State with eligibility and coverage data; therefore, it
should be determined by the States. Based on discussions with industry leaders, it would
not be unreasonable to allow 12 to 18 months for a plan to implement the PIE
Transaction once an agreement has been negotiated with the State.