On July 24, 2003, the Centers for Medicare and Medicaid Services ("CMS") provided guidance regarding how it will enforce the HIPAA Transaction and Code Set Standards (the "Transaction Standards") as of the October 16, 2003 deadline. CMS indicated that as long as a covered entity makes a good faith effort to comply with the Transaction Standards, the covered entity may also put in place a contingency plan to avoid potential cash flow or other operational problems that might arise from a rocky transition.

On September 4, 2003, CMS sent another message to the health care community. In its new message, CMS explained its concern that its trading partners might still be working through issues relating to implementing the Transaction Standards. Consequently, CMS has established a contingency plan for Medicare that, if implemented, would allow Medicare to accept legacy claims (in addition to HIPAA-compliant claims) from Medicare fee-for-service providers until Medicare's trading partners are fully compliant. CMS will decide whether to implement its contingency plan by September 25, 2003.

Medicare's contingency plan applies only to providers who are Medicare fee-for-service contractors and only to the fee-for-service claims that these providers submit to Medicare. If the plan is implemented, these providers will be able to submit either HIPAA-compliant or legacy claims to Medicare after October 16, 2003. If the plan is not implemented, they will be required to submit HIPAA-compliant claims.

This announcement does not change the requirement that all claims submitted to Medicare (except for those meeting the small practice or another exception) must be submitted electronically as of October 16, 2003. This announcement also does not provide any guidance or comfort about whether other payers will be prepared to accept and make payments on HIPAA-compliant claims by October 16, 2003. Hopefully, though, CMS's announcement of Medicare's contingency plan will serve as a useful example for other payers who may be struggling with creating contingency plans of their own. In any case, physicians should continue to document their own efforts to comply with the Transaction Standards, and should have in place their own contingency plans in case their payers are not ready.

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