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Fact Sheet

Read Me First

February 28, 2020


In the early 1990s, health plans attempted to standardize the claim payment life cycle – claims submission, processing and payment – in the health care system. This effort sought to gain efficiencies, improve quality and reduce costs. At the time, electronic health information was shared in a multitude of formats with varying industry-imposed requirements.[i] Realizing that industry needed federal action to mandate standardization, Congress passed the Health Insurance Portability and Accountability Act of 1996, Public Law 104-191 (HIPAA), in 1996. One of HIPAA’s primary objectives is to achieve “administrative simplification” in the claim payment life-cycle.

HIPAA mandates that the U.S. Department of Health and Human Services adopt national standards for the electronic transactions that take place between health plans and health care providers in the claim payment life cycle. It also regulates the exchanges of information that occur with health care clearinghouses, that often sit between health plans and health care providers. Health care clearinghouses standardize and reformat electronic transactions, making them readable to the recipient organization.

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