Skip to main content

Advanced Search

Advanced Search

Current Filters

Filter your query

Publication Types



Fund Reports


How Medical Claims Simplification Can Impede Delivery of Child Developmental Services

Executive Summary

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) is intended to foster greater efficiency and effectiveness in the health care system by requiring payers and providers to use standardized procedure codes for payment claims. Although HIPAA's goal is to decrease costs and increase health care quality, the law may have unintended consequences on the ability of Medicaid agencies to preserve special rules of coverage. In particular, Medicaid-covered services related to the Early and Periodic Screening, Diagnosis and Treatment (EPSDT) program present challenges in adapting claims and payment codes. If the standardized codes are not adopted or adapted to fulfill special coverage standards, states can lose significant coverage for developmental services for Medicaid-enrolled infants and young children, who as a group have higher-than-average health needs.

This report examines HIPAA administrative standardization and the process of modifying the standardized codes. It assesses the implications of HIPAA standardization for payment of Medicaid-covered early childhood preventive and developmental services, drawing on findings from a 50-state, point-in-time review of readily available state HIPAA compliance documents conducted in December 2004.

Key Findings
  • HIPAA has a significant impact on the translation of benefit designs into medical claims payment standards. HIPAA standardization relies on a national coding scheme, which public and private health insurers have little discretion to adapt to their own coverage standards. This presents challenges for children's Medicaid coverage. Not only does Medicaid cover types of benefits not found in private health insurance, but the program also has a unique definition of medical necessity that ties coverage to childhood growth and development.
  • While HIPAA sets coding standards and has a strict process for modifying codes once they are established, individual insurers can choose which of the standardized billing codes to recognize for reimbursing covered services. Few insurers recognize the full set of national billing codes.
  • All state children's health insurance coverage programs are expected to launch a HIPAA-compliance process, including standardization of codes and communication of new codes to participating providers. Only a slight majority of state Medicaid agencies (n=26) take part in this process via Web posting ("study states"). Study states either: 1) maintain the same level of coverage by "cross-walking" their pre-HIPAA local codes to existing national billing codes deemed equivalent by the agency; 2) reduce the level of coverage by eliminating local codes and not replacing them with national codes, or by replacing local codes with national codes that in effect reduce coverage; or 3) expand coverage by recognizing national codes for which they had no corresponding local code or that they had previously recognized only for a different purpose.
  • HIPAA's national coding system, which is rooted in discrete procedures, may have shortcomings for pediatric care. The system only recently began to take into account child health and developmental services that are nonprocedural in nature. In addition, HIPAA either excludes or fails to appropriately capture a number of behavioral health services, particularly services to follow up on initial detection of a condition.
  • HIPAA's coding system may result in lower levels of service for Medicaid enrollees. Across the 26 study states, changes made to local Medicaid codes tend to affect primary health and patient support services furnished in settings other than private practices, such as county and local agencies. Mental health services, early intervention, physical and speech therapy, home care, case management, and transportation appear to be particularly affected.
To the extent that HIPAA has inadvertently resulted in reduced Medicaid coverage for child development services, it is important to reverse this trend. The findings demonstrate that HIPAA reduces, but by no means eliminates, variation in payment coding. Since some variation among insurers is inevitable, HIPAA should allow payment coding to be customized to accommodate unique coverage standards. State Medicaid agencies could learn from one another about how to modify payment rules to cover child development services.

The continued involvement of pediatric health experts in HIPAA standardization is essential. It is particularly important to include professionals with special expertise in child development and care for children with unique needs related to poverty, culture, language, or other factors. It may be valuable to create a pediatric consensus panel to identify and refine standards of care for preventive and developmental services and translate these standards into HIPAA-compliant codes. Finally, additional research is needed to illuminate distinctions between what health insurance covers and which payment codes apply and to measure the impact of standardized codes on the types of developmental services pediatric physicians choose to provide.

Publication Details



How Medical Claims Simplification Can Impede Delivery of Child Developmental Services, Anne Markus, J.D., Ph.D., M.H.S., Sara Rosenbaum, J.D., Alexandra Stewart, J.D. et al., The Commonwealth Fund, August 2005