HIPAA Updates

This section offers a continuous update on M/D Systems, Inc. efforts to meet all pertinent HIPAA regulations. The page will be updated periodically so come back and visit it every few weeks or so.

OCTOBER 27, 2003

Dear Clients:

As additional elements of the HIPAA transactions standards are implemented by M/D Systems, Inc. and insurance payers, we would like to draw your attention to new data restrictions that may cause some of your claims to be rejected.

Current CPT and HCPCS Codes Will Be Required Exclusively
The HIPAA transactions standards require the most current CPT and HCPCS procedure codes and modifiers. "Local codes" will be eliminated. Many payers have not yet implemented these tighter requirements because they are still transitioning to the new standards. However, this grace period will be short and the new requirements will be put in place with little or no warning. If you then submit claims with deleted or invalid procedure codes and modifiers your claims will be denied by the insurance payer.

A quick audit of claims which we recently processed show that many of you are still using the YB modifier, which has been deleted. After the new restrictions are implemented, claims with the YB modifier will be rejected by the payer.

To avoid claim rejects for invalid codes:

• Make sure you have current CPT and HCPCS guides. If you don't have them, M/D Systems, Inc. in conjunction with the AMA Press have made them available for purchase. (See attached document)
• Audit your fee schedules against the most current coding books.
• Update the codes you use now.

Medi-Cal Referring Physicians Require Medi-Cal ID Number
If you've entered a referring physician name on an electronic Medi-Cal claim, you must also enter the Medi-Cal referring physician ID number or your claim will be rejected to paper. Make sure that in your M/D Systems, Inc. Referring Physician Library, the Medi-Cal ID number field contains either the nine-digit Medi-Cal ID or the physician's state license number. The Medicare UPIN is not allowed by Medi-Cal.

Medi-Cal requires a referring physician for these specialties only (see "hcfa comp" in the Medi-Cal Manual):

Our goal is to achieve the transition to the HIPAA transactions standards not only ahead of all deadlines, but in a manner that is as seamless and effortless as possible for you. Please let us know if there is anything with which we can be of assistance regarding HIPAA or anything else.

Sincerely,

Jeff Fleishman
Vice President, Sales & Service

--------------------------------------------------------------------------------

OCTOBER 17, 2003

Dear Clients:

We'd like to announce upcoming enhancements to your M/D System that will fulfill the newest aspects of the HIPAA transaction standards that payers are now implementing.

Elimination of Medicare Paper Claims
In the not-too-distant future, Centers for Medicare and Medicaid Services (CMS) will require all Medicare claims to be submitted electronically. However, our sources in NHIC Medicare indicate CMS will continue to accept paper claims for a period of time after 10/16/03 to maintain provider cash flow and minimize operational disruption.

We at M/D Systems, Inc. are in the process of enhancing our software to enable 100% electronic Medicare claims. These enhancements will be released shortly:

Production of electronic Medicare Secondary Payer (MSP) claims that include adjudication information from the primary payer.

Elimination of Medicare claims "bouncing" to paper as a result of incomplete data. Claims will still be edited and "bounced" as necessary, but you will be required to remedy the problem on-screen and electronically submit the claim.

Generation of secondary payer claims only after the primary has paid. This feature will apply to all insurances, not just Medicare.

Important: Because MSP claims require primary payer adjudication information, if you are not currently distributing payments to individual service lines within M/D Systems, Inc. Deposit Entry, we strongly recommend that you begin doing so. Otherwise, the System will not have sufficient information to properly complete an MSP claim.

Production of Medi-Cal ANSI 837 Claims
M/D Systems, Inc. is proud to announce that we have been approved to submit Medi-Cal production claims in the HIPAA-mandated ANSI 837 electronic format. As with all our prior conversions of claim production to the ANSI format, this change will be invisible to you.

Expanded Electronic Remittance
We will soon be offering electronic remittances from Medi-Cal and Blue Cross.

M/D Systems, Inc. remains ahead of the curve on the HIPAA transaction standards. Industry surveys still indicate that less than 50% of providers are submitting claims in the ANSI format. We will continue to implement new HIPAA transaction standards as soon as soon as insurers are ready to accept them.

If you have any questions, please don't hesitate to call Customer Support.

Sincerely,

Jeff Fleishman
Vice President, Sales & Service

--------------------------------------------------------------------------------

SEPTEMBER 15, 2003

Dear Clients:

M/D Systems is pleased to announce that we are in the process of converting our Medi-Cal electronic claims processing system to create HIPAA-compliant claims and remittances. As part of their HIPAA conversion, Medi-Cal is requiring minor changes to their paper claims.

On Medi-Cal paper claims with service dates 9/22/03 and after:

• Modifiers will be printed following the procedure code without spaces. Here's an example using procedure code 99999 and modifiers 11 and AA.
• Paper claims with service dates 9/21/03 and before will print like this: 99999 11AA.
• Paper claims with service dates 9/22/03 and after will print like this: 9999911AA.
• Place of service codes 91 (Subacute Care Facility), 96 (Pediatric Subacute Care Facility), and 97 (Transitional Care Facility) will be translated to 99. This change affects both paper and electronic claims.
• Paper claims will split between service dates of 9/21/03 and before and 9/22/03 and after.

A note about the HIPAA transactions standards "deadline":

As the 10/16/03 deadline to implement the HIPAA transactions approaches, there has been a flurry of activity and agitation on the part of insurers and providers. Know that as an M/D Systems, Inc. client, we (and therefore you) have been in front of the HIPAA transactions standards, implementing the ANSI 4010A1 format as soon as insurers were ready to accept it.

We were submitting ANSI claims to three Medicare carriers (NHIC North, NHIC South, and Florida Medicare) in September, 2002 - beating their original deadline of 10/16/02. We are now receiving remittances from Medicare in the ANSI format.

We converted all Blue Cross claims to ANSI by 8/30/03, beating their deadline of 9/15/03. They began accepting test files only in April, 2003. We will soon be receiving Blue Cross ANSI remittances.

We are currently testing ANSI Medi-Cal claims. Medi-Cal was ready to accept test files in August, 2003 and will not be ready to accept production claims until 9/22/03. They have stated that their conversion to ANSI will extend beyond the 10/16/03 deadline.

WebMD, our clearinghouse for private insurance electronic claims, will translate our files in their current format into ANSI by 10/16/03.

We don't want to break our arms patting ourselves on the back, but recent industry surveys have shown that less than 50% of providers are submitting claims in the ANSI format. The fact that our work has been largely invisible to you means we've been doing our job.

If you have any questions, please don't hesitate to call Customer Support.

Sincerely,

Jeff Fleishman

Vice President, Sales & Service

--------------------------------------------------------------------------------

JUNE 19, 2003

Dear Client:

M/D Systems is migrating Blue Cross of California (BCC) electronic claims to the HIPAA-mandated ANSI format according to Blue Cross' schedule. We have passed the testing phase and will start to move clients into ANSI production beginning July 1, completing the transition by September 30. This government-mandated change is, as always, provided to you as part of your M/D Systems, Inc. service.

With the ANSI format, BCC has put into place more rigid data edits. This memo describes edits M/D Systems has implemented in response to the new BCC requirements. Also described here are some of the patient, procedure, and diagnostic information that you should carefully review for accuracy to avoid having electronic claims rejected by BCC.

New M/D Systems, Inc. Edits -- Claims Bounced to Paper

You can prevent claims being rejected to paper by running the Electronic Claims Pre-Edit and fixing the problematic data before running Weekly Processing.

• Group number can not be blank and must equal 10 or less digits. If the group number is unknown, you may submit 999999. For other non-Blue Cross of California Blue plans, you may submit ITSPPO.
• Insured's ID number can not be blank.
• Referring physician must have UPIN.

Review This Data for Accuracy to Avoid Claims Rejected by BCC

• Patient birth date must match BCC files.
• If the patient is not the insured (e.g., the patient is the spouse or the child of the insured), the Patient Information "Relationship to Insured" field must be coded accurately in order for the correct subscriber information to be passed to BCC.
• If a referring physician is not a doctor (e.g., you've entered "Friend" or "Self-Referral" as the referring physician name), you must check the "Suppress from Insurance" box in the Library record to prevent this invalid referring physician information from being passed to BCC.
• Procedure codes and modifiers should be valid 2003 CPT and HCPCS codes.
• Diagnostic codes should be valid ICD-9 codes and should be used at the highest level of specificity.

All of us at M/D Systems, Inc. are working to make this change as smooth as possible; however, as with any transition of this magnitude, "bumps in the road" can always be expected. If you have any questions, please do not hesitate to contact your M/D Systems, Inc. representative.

Sincerely,

Jeff Fleishman
Vice President, Sales & Service

--------------------------------------------------------------------------------

FEBRUARY 10, 2003

Dear Client:

The HIPAA machine continues to roll on and like you we are still trying to stay ahead of the game. As you are aware, we beat the October 16, 2002 deadline for the transmission of electronic claims in the ANSI format. The next scheduled deadline looming is April 14, 2003 which affects patient confidentiality and privacy.

Unlike the October deadline, the April deadline is not one our programmers can magically solve for you. The burden is on you. The confidentiality and privacy deadline affects your handling of patient information.

After extensive research, we are pleased to be able to provide several valuable tools to assist you in becoming compliant. We have aligned ourselves with the American Medical Association to provide these tools at discounted prices.

The attached information sheets provide an explanation of each product. The HIPAA Tool Kit is becoming one of the most popular and useful resources according to the AMA. The HIPAA Policies & Procedures Desk Reference is scheduled for release this month and is also highly recommended by the AMA.

Please call us with any questions you may have or call Customer Support to receive an order form.

Sincerely,

Sandra Madia Jeff Fleishman
President Vice President, Sales & Service

The HIPAA Privacy Tool Kit offers all your medical practice needs to meet HIPAA requirements for privacy training. In easy-to-understand language, the course guides you and your staff through the basics of the privacy rule and teaches the important role medical practice staff plays in protecting patients' rights. It also illustrates how the privacy rule changes the way your practice manages patient information and the importance of following your office's privacy policies and procedures.

The kit includes:

• A 22-minute training video that provides a general overview of the HIPAA privacy rule and more than two dozen examples of oversights and ways to protect your practice from privacy violations.
• An audio CD of interviews with nationally recognized leaders offering real-world perspectives on the privacy rule.
• A 16-page HIPAA Privacy 101 Handbook, which breaks the rule into easy-to-digest nuggets with questions at the end to test understanding.
• A HIPAA Privacy Pocket Guide that provides expanded information about the privacy rule in a concise, informative, 44-page format.
• Sample documents, including a Notice of Privacy Practices and a business associate agreement.
• Wall charts and posters that introduce employees to the new rules and vocabulary.

The course is divided into two training levels. Level 1 provides basic HIPAA understanding in a non-threatening manner to all persons within the organization. Level 2, for mangers and those with direct patient contact, incorporates critical thinking skills as participants apply HIPAA mandates to real life situations.

Tool kit users also will be able to download current privacy information and discussion questions from a dedicated Web site. (PRICE: $589.00 + shipping + sales tax)

HIPAA Policies and Procedures Desk Reference, written by authors of the AMA's Field Guide to HIPAA Implementation, addresses the cultural and regulatory changes regarding patient privacy in today's health care environment and offers a wide range of HIPAA policies and procedures that physicians and privacy officers can customize for their medical practices.

The first section of the book offers an overview of the Privacy Rule with guidelines physicians should follow, a quick reference guide that points to the specific policy for each HIPAA question, a basic overview of HIPAA policies and procedures, and additional in-depth support and answers to more complex questions.

What follows are 39 comprehensive policies and procedures that address the components of topics such as protected health information, patient rights, and privacy management. Because these policies and procedures - plus more than 50 forms - are included on the accompanying CD, medical practices can customize them easily to fit individual needs. (PRICE: $189.95 + shipping + sales tax)

Field Guide to HIPAA Implementation is a turnkey tool for those who want a seamless transition to HIPAA compliance. In a progression from overview, to general knowledge, to specific action items, it reviews the basics of the legislation and provides a wealth of tools, including worksheets and templates for forms and documents. Timelines and to-do checklists for assigned duties help readers track what needs to happen for the practice to achieve compliance, who should do the work, and when each task should be completed. And since the book was co-authored by a physician, an attorney and an individual who helped write the transaction standards, readers can be assured that the information is comprehensive and authoritative. (PRICE: $129.95 + shipping + sales tax)

HIPAA: A Short- and Long-term Perspective for Health Care - the AMA's first book to address the regulations - is a straightforward guide to HIPAA that prepares the reader to take steps to comply. It offers :a thorough review of HIPAA including its genesis, supporters, intentions and impacts;

• guidance in assessing one's readiness for compliance, determining one's risk of non-compliance, and embarking on becoming compliant;
• an understanding of the controversy behind the provisions in the privacy final rule;
• an insight to maximizing the benefits of investing in HIPAA compliance; and
• an examination of how many of HIPAA's goals converge with the emerging transformation of medicine via the Internet.
• Appendices contain model business agreements, sample assessment templates, definitions of terms and other valuable tools. (PRICE: $74.95 + shipping + sales tax)
  

--------------------------------------------------------------------------------

OCTOBER 1, 2002

Dear Clients:

M/D Systems, Inc. is pleased to announce we have been successfully transmitting claims to Medicare in the ANSI 4010 format for the past several weeks. We are very excited to be actively submitting claims prior to the October 16th deadline.

Medicare now requires additional edits which were not part of the prior NSF format. Certain claims that Medicare accepted under NSF, with missing or invalid data are now being rejected under ANSI. As a result, we have extended the M/D Systems, Inc. edits we apply to your claims to determine whether they can be sent electronically. Implementing these edits will assist you in meeting the new specifications.

We have put two new electronic claims edits in place. Your claims will reject to paper if:

1. You've entered a referring physician, but do not have a UPIN number assigned to that physician.
2. You've entered private insurance coverage for a patient, but the insured's birth date and/or sex are missing.

Please audit your system for this missing data and make updates as necessary. Remember, you can avoid having claims reject to paper by running the Electronic Claims Pre-Edit and fixing any errors before transmitting your claims to M/D Systems.

Additionally, we will no longer automatically complete the referring physician fields on Medicare claims with the rendering physician information if no referring physician information has been provided. If a claim requires a referring physician in order to be paid, you must enter that information in Charge Entry or Patient Information.

If you have not yet completed the Practice File Update and Doctor Taxonomy Code Worksheets, please fax us the completed forms as soon as possible so we can transmit the program updates to generate the ANSI format.

If you have any questions, please don't hesitate to call Customer Support.

Sincerely,

Jeff Fleishman

Vice President, Sales & Service

--------------------------------------------------------------------------------

SEPTEMBER 9, 2002

Dear Clients:

As you are aware from our previous communicator, M/D Systems has been approved to send Medicare claims in the required ANSI format. Before we can implement the ANSI format, there is some additional practice information we need from you.

You will find two sheets attached which need to be filled out and returned to us. The first sheet provides us with a practice contact, title and email. The second sheet is for filling in the Doctor Taxonomy Code, a new coding system, required for all Medicare electronic claims describing the physicians' specialty. Once we have obtained and added these fields to your practice, we can then begin transmitting your claims in the ANSI format.

Please don't delay completing this project as October 16, 2002 is the date you must be submitting in this new format.

If you have any questions, please contact Customer Support. Thank you for your continued confidence in M/D Systems, Inc..

Sincerely,

Jeff Fleishman
Vice President, Sales & Service

HIPAA Practice File Update Worksheet

Please complete and mail or fax back to M/D Systems, Inc.. FAX: (818) 907-2719

The new ANSI format requires claims be sent with a contact name for the practice. Please provide us with a contact person and title for your practice.

____________________________________ _____________________
First Name Last Name Title

ANSI also requires we send an email address/or phone number with the claims. Does your practice have an email address? YES NO

If yes, please provide: __________________________

M/D Systems, Inc. would like to start communicating with your practice via email on urgent matters. How often is this email checked?

DAILY 2-3 TIMES A WEEK WEEKLY

Do the physician(s) have a different email address than the one listed in #2?

If yes, please provide: __________________________

The Physician Taxonomy Code is now required. Attached is a worksheet with all the doctor numbers for your practice.

A) If you have internet access, go to www.mdsystems.net, click on HIPAA information. This will take you to our HIPAA page and then click on HIPAA Taxonomy which will bring up the taxonomy codes. Select the taxonomy code for the Physicians and fill it in on the attached list. No code is needed for any doctor number called Historical Adjustment. (We have listed the doctors alphabetically, so you need only fill in the taxonomy code once for each doctor.)

B) If you do not have internet access, please contact Customer Support who can fax you the pages for your specialty.

Practice Name:_____________________________ Practice Number:_________

--------------------------------------------------------------------------------

SEPTEMBER 3, 2002

Dear Clients:

The HIPAA machine is rolling and you, like us, are trying to stay at least a step ahead of it. Hopefully, this update describing M/D Systems, Inc. progress toward HIPAA compliance will give you a little peace of mind.

In Summary

• M/D Systems, Inc. has successfully completed testing with Medicare California of the ANSI Version 4010 837 transaction standards and is approved to send live claims.
• M/D Systems, Inc. is HIPAA compliant, having met the transactions standards effective October 16, 2002.
• You, our M/D Systems, Inc. clients, do not need to file a compliance extension.

More About Implementing the ANSI Transaction Standards
Medicare Claims We will begin transitioning your claims to the ANSI format on a client-by-client basis. This change will be nearly transparent to you. We will guide you in making a few changes to your practice and doctor records (including entering a new taxonomy, or specialty, code for each physician). We will provide you with more detailed information as we move the ANSI format into production.

Medicare Electronic Remittances We will process ANSI Version 4010 835 remittance files as soon as NHIC is able to create them. We are told by NHIC that this may occur in late September 2002.

Medi-Cal and Blue Cross Both of these payers have sent notices of their intentions to file ASCA extensions (more on this below). Since M/D Systems, Inc. can already produce HIPAA-compliant claims, we anticipate easily completing the testing process with Medi-Cal and Blue Cross and will set up testing dates as soon as they indicate they are ready.

WebMD This clearinghouse has indicated that it will continue to accept their existing electronic claims format, which they will translate into a HIPAA compliant format for transmission to payers. Minor programming changes will be required to incorporate new data elements. M/D Systems, Inc. will implement these as they occur.

More About the Compliance Extension
The Administrative Simplification Compliance Act (ASCA) allows covered entities a one-year extension of the October 16, 2002 deadline to comply with the new EDI standards if they file a plan describing the steps they will take to become compliant by the extended deadline of October 16, 2003. Testing of the new standards must begin no later than April 16, 2003.

Who must file? After querying CMS (Centers for Medicare and Medicaid Services), we have received this response.

• If a covered entity is HIPAA compliant, it does not need to submit an extension plan. A covered entity will be considered compliant if it can send and receive compliant transactions by 10/16/02. It may be necessary to communicate with non-compliant trading partners using nonstandard transactions.
• M/D Systems, Inc. can send and receive compliant transactions. Therefore, we are compliant and do not need to submit an extension plan.
• If providers send all their electronic claims exclusively through one clearinghouse (i.e. M/D Systems, Inc.) who submits claims on their behalf and that clearinghouse is compliant, then the providers would be considered compliant by virtue of the clearinghouse compliance and do not need to file an extension plan.
• If providers submit electronic transactions outside of the clearinghouse and will not be compliant by 10/16/02, then they need to submit a compliance extension plan.
• Since you submit claims only through M/D Systems, you do not need to file for an extension.

If you'd like more information, go to the go to the CMS Web site: http://www.cms.hhs.gov/HIPAA/HIPAA2/ASCAFORM.ASP

The Privacy Regulations
The final privacy modifications were published on August 14, 2002. Read about the changes on the U.S. Department of Health and Human Services Web site: http://www.hhs.gov/ocr/hipaa

Covered entities must comply with the privacy rule by April 14, 2003. M/D Systems, Inc. is in the process of developing suitable policies and procedures for our organization. We encourage you to do the same for your organization.

The Security Regulations
The final security rule has yet to be finalized. The Department of Health and Human Services had anticipated publishing the final rule by summer, 2002. As of yet, the rule has not been finalized. Implementation is required within 2 years of publication of the final rule.

We hope this answers your questions about where M/D Systems, Inc. stands in terms of HIPAA compliance. If you have any questions about HIPAA or anything at all, please don't hesitate to contact us. Since 1968, M/D Systems, Inc. has been your partner in change.

Sincerely,

Sandra Madia
President