is absolutely transparent. And approvals are uniform and transactions are automatically transmitted and updated.

Is there anything in what you are suggesting that would prevent that same interchange of information from happening?

Mr. HOUTZ. None whatsoever. We advocate very strongly the usage of standards, the ANSI standards within the industry so that the transmission protocol

Chairman STARK. So nobody is precluded from being in the system because they bought system A rather than system B.

Mr. HOUTZ. Absolutely not. But when they transmit from system A to system B, we are asking that they use a same type of transmission and industry protocols which is consistent with

Chairman STARK. Wouldn't that be best accomplished by having the Federal Government just pick one and say this is what everybody would use?

Mr. HOUTZ. Yes, it would. It would expedite it by about 4 or 5 years.

Chairman STARK. Thank you. I didn't quite understand what you meant by dictating-I mean, the technical words here between standards. So go ahead.

Mr. HOUTZ. In some of the legislative proposals we have read, they have talked about regional data centers or so many centers per State, and we are concerned about that really adversely impacting what you are trying to accomplish.

We support universal identification of

Chairman STARK. Social Security number?

Mr. HOUTZ. That would be adequate we feel for patients, but we need universal numbers for payers and providers.

We support the use of electronic cards if used as an identification card as opposed to the smart card approach. We support the development of an open network access system with all payers and employers participating, and we also

Mr. MCDERMOTT. Please clarify for me the difference between a smart card and any other kind of card?

Mr. HOUTZ. I think the position of AFEHCT and the position of WEDI is that if identification cards are to be used

Mr. MCDERMOTT. That is a card with a picture?

Mr. HOUTZ. Whatever is on it, like a bank card.

Chairman STARK. Let me try this one. The card identifies you in the machine and therefore, if somebody has the code to get your record someplace else, but it doesn't carry your own record in the card itself, all right?

Mr. MCDERMOTT. All right.

Chairman STARK. Is that a fair characterization?

Mr. HOUTZ. Right.

Mr. MCDERMOTT. You favor the former; that is, that you put that card in and you could get the data right then.

Mr. HOUTZ. We feel that the only thing the industry could handle right now is the identification card, because before you can use smart cards you need identification systems installed in all physicians' offices, and we are a decade away from that happening, or maybe two decades.

We support the privacy and confidentiality aspects of the system, and probably, if I left here with one thought that I could share with

you, we strongly support the ANSI standards. That is the American-I am sorry, the American National Standard Institute, and it is a standard that all of us in health care are really working toward.

When people talk to you about standards, there is currently a pharmacy standard, which is good; there is a national standard format, which is good, and used by Medicare. But beyond that, for the other EDI transactions, we support the ANSI standards.

I have a red light on here, but I will make one final comment,

if I may.

In conclusion, we think there are two things that are utmost of importance in the bill. First of all, the system must be universal, allow all participants to compete and enter, and utilize standardized data. And second of all, it must be open. For example, if a participant can meet the standards and pass the accreditation, we feel they should be allowed to compete.

With that, I would like to thank you for being here and appreciate it very much.

[The prepared statement and attachment follow:]

STATEMENT OF ASSOCIATION FOR ELECTRONIC HEALTH CARE TRANSACTIONS

(AFEHCT)

February 1, 1994

"Information Transfer Technology, Administrative Simplification and Health Care Reform"

Mr. Chairman, Ladies and Gentlemen of the Subcommittee: My name is Jim H. Houtz and I chair the Association for Electronic Health Care Transactions (AFEHCT). Thank you for inviting us here today and for this opportunity to offer our thoughts and suggestions as to how the information transfer technology industry may support the nation's effort in simplifying the administrative processing of health care.

AFEHCT is a membership association comprised of companies who are engaged in building that portion of the “electronic highway" that will be used to transmit and process health care data -- both financial and clinical. A list of our member companies is attached to the printed version of my testimony which has been filed with the Subcommittee.

Sometime this year, at a moment and time that perhaps will sneak by uncommemorated and virtually unnoticed except by those whose job it is to track these esoteric figures, spending on all aspects of health care in the United States will pass the annualized threshold of One Trillion Dollars ($1,000,000,000,000.00). By some estimates, as much as 30% of this is being spent on a combination of administrative overhead, duplicated and unnecessary services and administrative waste, fraud and abuse. The companies that comprise AFEHCT believe that they have and are in the process of developing the tools and the systems that will enable the health care industry better manage the delivery of care, reduce redundant and unnecessary or ineffective services, and eliminate much of the paperwork hassle that today comprises a significant portion of that waste.

We are here today to both applaud the efforts that have been underway to promote these efficiencies and administrative simplifications and to encourage the continued support for this activity which has been accelerating in recent years. Without the tools and the systems being developed by AFEHCT members, meaningful health care reform will be virtually impossible to accomplish. Our major concern is that the initiatives already underway not be curtailed by the placing of artificial limits on the private sector or by any decision in structuring the network for information transfer and technology that would somehow stifle the private sector or inhibit free and open competition for new technology and new services.

AFEHCT has adopted as its Mission Statement a basic commitment to the competitive process and to the private sector playing a key role in building this electronic network and processing system. Our companies have already made substantial headway in developing the system and designing the tools to make this vision a reality -- and we have done so entirely without a government mandate and without the "big stick" of government being waved over our heads. We stand ready and are prepared to make the even greater investment in capital equipment and

in the development of computer software that will be necessary to make the future vision of an electronic highway for health care a reality -- but we need to know that the role of the private sector will be preserved and stimulated.

Our Mission: To promote innovation, cooperation and open competition within the EDI health care industry and to improve the quality of health care and to achieve administrative cost savings -- can only be fulfilled if we approach the matter of health care information transfer technology and administrative simplification as a joint and cooperative effort between the government and the private sector.

With these principles in mind, we have been closely monitoring the national debate over health care reform and have looked at not only the plan that has been proposed by President Clinton (the Health Security Act), but also at the other proposals that have so far been out forth, including the suggestions offered by the Chairman, and the outlines for Administrative Simplification contained in the plans suggested by Senator Chafee, incorporating the work in this area done by Senator Bond and his staff, Representative Cooper and Senator Breaux, and the suggestions put forward by several other organizations including the Work Group on Electronic Data Interchange (WEDI) and by others.

The following are the guiding principles which we would hope will be included in any health care reform legislation:

Governance and Regulation

AFEHCT does not believe that an additional regulatory bureaucracy needs to be established in order to assure that the electronic highway for health care information can be safely navigated. While the Health Care Financing Administration (HCFA) and the Secretary of Health and Human Services have had considerable experience in these areas, we believe that any legislation should require the Secretary to continue to work with the industry and with those who have expertise in health care EDI and in privacy and confidentiality matters in establishing the standards and the guidelines needed for implementation. We suggest that any "Board," "Advisory Panel," or "Commission," established by legislation or by the Secretary, include at least one, but preferably more, representatives from the health care EDI industry.

Networks and Data Systems

In reviewing the several pieces of pending legislation now before this Subcommittee, AFEHCT is concerned that there has been a lack of clarity and specificity regarding the number and operation of the networks, clearinghouses and suggested "regional” data centers and operational systems that may be established or which will be permitted to compete. AFEHCT believes that any legislation in this area should avoid dictating any single system or proposing a limit on the size or number of competing data processing systems. AFEHCT believes that the nation and the health care delivery system will be best served by a freely competitive marketplace wherein each EDI vendor and supplier is allowed to compete openly hospital by hospital, physician by physician, payer by payer, employer by employer, to provide such services competition that will assure both the latest technology and the lowest prices. The Subcommittee should maintain oversight authority and continuously monitor how the health care EDI industry is meeting the nation's need for innovation and value of services.

Universal Identification

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AFEHCT supports and encourages the development of a unique numbering system to identify patients, payers and providers of care.

Electronic Cards

but consistent

AFEHCT suggests that the issuance of "cards" and the content and control of the information contained thereon needs to be fully evaluated and the cost and feasibility of maintaining electronic records through such a medium and the cost of maintaining a back-up central system, needs to be considered.

Health Care Information Transactions

AFEHCT supports the development of an open network access system, with all payers and employers working with EDI network vendors and suppliers to foster interconnectivity for all health care EDI transactions -- administrative, financial and clinical. Payers and employers must make this information available to providers and their support systems without separate fees and charges and this must be made a condition of their participation in the network.

Privacy and Confidentiality

AFEHCT supports the development of comprehensive safeguards for personallyidentifiable patient care records and calls for strong compliance assurances from all participants in the communication network.

We caution, however about controls and limitations which would unnecessarily burden the electronic process by requiring redundant paper back-up and notifications to individuals. The development of standards and protocols for the delivery of health care offers the best hope for improving both the quality of such care and the needed control over utilization and potential waste and duplication of A balance between personal privacy protection and the need for collecting and measuring such data needs to be established. This will not be an easy task and it is one where the government needs to play a pivotal role.

care.

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There must be a fail-safe system for the privacy of individuals but at the same time some protection to participating EDI companies to encourage system developers to continue their work in electronic communications. Proposals for civil monetary damages must be tempered by allowing vendors and service agents to establish as an affirmative defense that they have complied with all disclosure requirements.

ANSI Standards

AFEHCT endorses the use of those standards that have been and are being developed by the X.12 Committee of the American National Standards Institute for implementation throughout the health care information transfer technology industry. While the industry is moving to adopt these standards on its own, there have been roadblocks in this development that may be appropriately addressed by the government. AFEHCT's major concern here is that there may be a tendency to make any initially-adopted standard, a rigid and unchanging mandate. Any mandate for standards needs to allow for their periodic review and revision so that the standards in use may also evolve in tune with new technology and with the innovations and inevitable changes in the EDI networks.

Standards Implementation

While supporting ANSI standards for the industry, AFEHCT suggests to the Subcommittee that merely "proclaiming" a standard does not go far enough and that some oversight needs to be maintained to assure uniformity both in the timing of any standard throughout the whole industry and in the protocols and edits that are incorporated by all of the players into their electronic systems.

Accreditation

AFEHCT supports and has set on the design and implementation of an industry accreditation program for all suppliers, vendors, clearinghouses and value-added network operators. Our members are funding the development of quality and utilization for the network standards and are working with both payers and providers in devising a program to apply these standards to the industry.

Dynamic Software

AFEHCT supports the use of private sector-developed and supplied software to meet the continuously changing and growing requirements of the health care industry in satisfying the nation's need for health care services.