HIPAA Transaction Rules: What Happens When a Health Plan Rejects a Standard Transaction? (45 CFR § 162.925)

Executive Summary

Standardized electronic healthcare transactions are at the heart of HIPAA’s administrative simplification goals. Under § 162.925, health plans are required to accept standard transactions when submitted by covered entities in a compliant format. If a health plan refuses or rejects such a transaction without valid reason, it may be in violation of HIPAA and providers may face delays in payment or administrative burdens as a result. This guide explores what constitutes a valid rejection under § 162.925, the practical consequences for small practices, and how to handle unlawful transaction rejections.

Introduction

The HIPAA Administrative Simplification Rules require covered entities including healthcare providers, health plans, and clearinghouses to use standard formats for certain electronic transactions. These transactions include eligibility inquiries, claim submissions, payment remittances, and coordination of benefits.

To promote uniformity and reduce administrative cost, HIPAA mandates that if a healthcare provider sends a compliant standard transaction, the receiving health plan must accept it and may not request that it be resubmitted in a different format or through alternative channels.

But what happens when a health plan refuses to process a transaction that is, in fact, properly formatted? Under 45 CFR § 162.925, such a rejection may be prohibited and potentially subject to enforcement.

What § 162.925 Requires of Health Plans

Section 162.925 of the HIPAA regulations sets out a clear expectation:

“A health plan may not delay or reject a standard transaction, or otherwise adversely affect the transaction or the person who conducted the transaction, because the transaction is a standard transaction.”

Put simply, if a healthcare provider sends an electronic transaction (e.g., a claim or eligibility request) that meets all applicable standards, the health plan must:

• Accept the transaction
• Not impose alternative submission methods
• Not delay processing due to the format
• Not take retaliatory action for using the standard format

Covered transactions include those defined in Subparts K through R of Part 162, such as:

• Eligibility for a health plan (270/271)
• Health claims and equivalent encounter information (837)
• Claim payment/advice (835)
• Referral certification and authorization (278)
• Coordination of benefits

When Is Rejection Permitted?

Section 162.925 does not prohibit all rejections. A health plan can reject a transaction if:

• The transaction fails to comply with HIPAA format standards (e.g., wrong structure, invalid fields)
• The provider is not authorized or credentialed with the plan
• The information is incomplete or inconsistent with records
• The transmission contains viruses or violates system security policies

In these cases, the rejection must be specific and communicated back to the provider with a clear explanation of the deficiency.

A Case Study: Invalid Rejection, Delayed Care

In 2022, a behavioral health provider submitted a compliant 837 claim transaction to a regional Medicaid managed care plan through a certified clearinghouse. The submission met all applicable standards as required under HIPAA, including correct patient identifiers, coding, and format.

The plan rejected the claim with a vague message: “Please fax paper claims for behavioral services.” The provider, assuming an internal error, complied, but the claim was eventually denied for being outside the timely filing window.

The provider contacted HHS's Center for Medicare and Medicaid Services (CMS), which initiated an inquiry. CMS determined the provider had properly submitted a HIPAA standard transaction, and that the plan's refusal to accept it violated § 162.925(a).

Although CMS did not publicly impose penalties, the plan was required to revise its transaction intake procedures and reprocess affected claims. The provider ultimately received back pay but only after months of delay and staff burden.

This example shows that unlawful rejection of HIPAA-compliant transactions can have serious operational impacts, especially when rejections are masked as “policy” or “workflow preferences.”

Steps to Take If a Health Plan Rejects a Standard Transaction

Step 1: Confirm Compliance

Ensure that your transaction adheres to the standards adopted under HIPAA. Check the following:

• Correct version of transaction set (e.g., 837P for claims)
• All required data elements included
• Use of valid code sets (e.g., ICD-10, CPT, NPI)
• Submitted via an accredited clearinghouse, if applicable

Step 2: Request Written Justification for Rejection

If the rejection is ambiguous, request a specific reason. Ask:

• Was the transaction rejected for non-compliance with formatting or data?
• Is this a preference or a requirement by the plan?
• Can the issue be reproduced or confirmed technically?

Step 3: Involve Your Clearinghouse or Billing Vendor

Your clearinghouse can assist in analyzing the rejection, validating the transaction file, and confirming that it met standards. They may also escalate the issue on your behalf.

Step 4: File a Complaint If Necessary

If you believe a compliant transaction was unlawfully rejected, you can:

• File a complaint with HHS’s Administrative Simplification Enforcement Tool (ASET)
• Notify your state’s Medicaid agency if a public plan is involved
• Submit documentation (rejected transaction, EDI reports, plan communication)

Complaints must be supported with evidence of standard compliance and the rejection message from the plan.

Common Pitfalls for Small Practices

• Assuming the payer has the right to dictate format: If you’re submitting HIPAA standard transactions, the format cannot be rejected simply for being electronic or unfamiliar.
• Accepting vague rejection messages: Plans often provide generic codes or messages; always request a precise reason.
• Delaying appeals or resubmissions: Timely filing deadlines still apply even when rejections are invalid.
• Not using a certified clearinghouse: While optional, a clearinghouse can provide compliance validation and a documented trail of submissions and rejections.

Expert Tips to Avoid Transaction Problems

• Work with billing vendors and clearinghouses that are HIPAA-certified and updated with all current EDI versions.
• Use software that generates compliance reports showing the exact format and elements of each transaction.
• Document all communications with payers, especially around ambiguous or repeated rejections.
• Periodically test transaction files for compliance using CMS’s EDI Validation Tools or similar resources.
• Educate your front desk and billing staff about your right to submit electronic transactions and that health plans must accept them.

Checklist: Responding to a Rejected Standard Transaction

Regulatory References and Official Guidance

• 45 CFR § 162.925 – Prohibition on rejection of standard transactions
• 45 CFR Part 162 Subparts K–R – Standards for electronic transactions
• CMS Administrative Simplification Guidance
• ASET Complaint Tool
• HIPAA EDI Implementation Guides – ASC X12
• HHS Office of E-Standards and Transactions

Concluding Recommendations and Next Steps

Health plans cannot lawfully reject HIPAA-compliant standard transactions under § 162.925 simply because they prefer another method, dislike the format, or want you to fax paper forms. If your practice experiences such a rejection:

• Validate your transaction format
• Demand clarity on the rejection basis
• Escalate within the payer and through CMS if needed

For small practices, every delay in claims or eligibility verification has downstream effects on revenue and care delivery. Knowing your rights under § 162.925 empowers you to stand firm against improper payer behavior and protect the operational integrity of your practice.