On November 17, the Centers for Medicare & Medicaid Services (CMS) Office of E-Health Standards and Services (OESS) announced that it will offer a 90-day grace period for compliance with HIPAA version 5010 transaction sets. The official CMS statement is available here.

Why the grace period? As of mid-November, with about 45 days remaining until the compliance date, industry feedback indicated less than half of covered entities would be ready by the mandatory compliance date, and many were still awaiting software upgrades from vendors.

What does this grace period mean for covered entities and their trading partners?

The 90-day grace period only means that CMS won’t begin penalizing covered entities for non-compliance with the new 5010 transaction standards until March 31, 2012. But the compliance deadline of January 1, 2012, remains.

Some organizations may view this grace period as an extension of the deadline, giving them an extra 90 days to get ready for 5010. But that is not the case. As of January 1, transactions submitted using HIPAA version 4010 may be rejected by trading partners that are 5010-ready. Getting those rejected transactions resubmitted in 5010 format will have a significant impact on provider cash and operational cost/effort.

Also, according to CMS, covered entities that are the subject of non-compliance complaints after January 1 “must produce evidence of either compliance or a good faith effort to become compliant with the new HIPAA standards during the 90-day period.”

So don’t be misled. The grace period is just a decision to delay enforcement of penalties for non-compliance. There are still serious ramifications to not being 5010-ready on January 1, 2012.