WILL THE DEADLINE BE EXTENDED?

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1 ICD-10 Deadline Approaching: The 5 Key Questions Organizations are Asking The Navigant Center for Healthcare Research and Policy Analysis Washington, D.C. July 2015 CONTACTS» Bruce Hallowell Navigant Healthcare - Outsourcing & Technology Management Dave Hampshire Navigant Healthcare - Outsourcing & Technology Management Breaking News: On July 6, 2015 CMS announced the following: 1. For the first 12 months, Medicare will not deny Part B claims solely on an incorrect ICD-10 code if it is a valid code from the right family; 2. For program year 2015, CMS will not penalize providers under the Physician Quality Reporting System, Value Based Modifier, or Meaningful Use auditing if an ICD-10 code is from the correct family of codes; 3. Advanced payments may be available if there is an implementation challenge preventing timely claims processing; and 4. CMS will create an ICD-10 Ombudsman to triage physician and provider issues. The deadline for the U.S. transition to ICD-10 is less than 90 days away, questions remain about its implementation. WILL THE DEADLINE BE EXTENDED? No. Despite three previous delays (see sidebar, page 2), all evidence suggests that the ICD-10 transition will occur on October 1, At that time, all entities covered by the Health Insurance Portability and Accountability Act (HIPAA) of 1996 must cease using ICD-9 to document patient diagnoses and inpatient procedures. Only claims using ICD-10 will be accepted. What s the Evidence? An ICD-10 delay could be authorized by either the Obama Administration or Congress, but the Administration opposes an extension and few Members of Congress support an extension. About Navigant Center for Healthcare Research and Policy Analysis Navigant Center for Healthcare Research and Policy Analysis is Navigant Healthcare s research center that focuses on trends and issues relevant to each of the industry s major sectors. The Center s role is to monitor signals from the market, identify innovative solutions and facilitate implementation in this fastchanging environment. The Center, headquartered in Washington, D.C., is led by Paul Keckley, a healthcare industry analyst, policy expert and at Navigant. The Obama Administration supports maintaining the October 1, 2015 deadline citing that ICD-9 is outdated and uses terms inconsistent with current medical practices. An upgrade to ICD- 10 will increase the information physicians capture leading to better patient care, improve care coordination, advance public health research, support quality-based payment models, and enhance fraud detection capabilities. i HHS Secretary Burwell expressed support for ICD-10 at an April 2015 Congressional hearing and stated that CMS and the majority of hospitals and physician practices are prepared for the transition. ii 1

2 ICD-10: THE BASICS» ICD-10 is the tenth revision of the International Statistical Classification of Disease and Related Health Problems (ICD), a medical classification developed by the World Health Organization to classify diseases and other health problems recorded on health and mortality records. ICD-10 adoption began in 1994 and approximately 70% of the world s health expenditures (USD $3.5 billion) are allocated using ICD for reimbursement and resource allocation. US TRANSITION» The United States has been using versions of ICD-9 since 1979 for both medical diagnoses (ICD-9-CM) and inpatient procedures (ICD-9- PCS). There are 3,824 procedure codes and 14,025 diagnosis codes. ICD-10 offers more granular health status information through 71,924 procedural codes and 68,823 diagnosis codes. To improve clinical decision making, quality measurement, and disease research, HHS supports transition of all HIPAA-covered entities to ICD-10. Originally in 2008 HHS proposed an October 1, 2011 effective date, but finalized an October 1, 2013 deadline. In September 2012 HHS delayed implementation until October 1, In April 2014 the Protecting Access to Medicare Act of 2014 prohibited implementation before October 1, 2015 and HHS established the October 1, 2015 deadline. Congressional support for an ICD-10 delay is limited and recent postponement efforts have been ineffective. In the House, 20 representatives support bills banning or delaying ICD-10, iii but the only action has been inclusion of non-binding report language encouraging the HHS Secretary to work with medical providers on hardship exemptions. iv In the Senate, Senator Cassidy is the most outspoken ICD-10 opponent, but he has not gathered the support needed to delay implementation. v The primary reasons Congress will not delay the October 1, 2015 deadline: Timing There is a limited window for Congress to pass a bill that gives the industry ample time to respond. Between July 1st and the ICD deadline the House is in session 26 days vi and the Senate 49 days. vii Cost A one-year ICD-10 delay is estimated to cost between $1.2 - $6.9 billion with 80% born by commercial health plans and provider organizations. The Republican-controlled Congress is not likely to require the private sector to shoulder this financial burden. Divided Constituent Groups Members of Congress get conflicting viewpoints regarding preparedness from constituent groups. Hospitals and health systems express support for the current deadline, viii but physician organizations express concern. ix What about a Transition Period? A transition period during which both ICD-9 and ICD-10 would be allowed is not feasible. It could gain Congressional support, but the Administration warns that Medicare and many commercial health plans are not capable of processing claims using both classifications. x HOW MANY ORGANIZATIONS ARE PREPARED? The degree of ICD-10 preparedness varies by organization and sector: SECTOR PREPAREDNESS COMMENTS PAYERS Medicare Prepared CMS reports positive end-to-end testing results for its upgraded claims system. State Medicaid Agencies Likely Prepared States self-report they will be ready, but preparation on-going in some. Commercial Insurers Prepared Industry fully prepared and tested, per national trade group. PROVIDERS Hospitals and Health Systems Large Facilities Prepared; Smaller Facilities May Lag Health systems and larger hospitals typically are complete or in advanced stages, but smaller hospitals may have delayed efforts due to capital or financial constraints. Physician Practices Few Prepared AMA reports a lack of industry-wide preparation and 15-20% are estimated not to have started. VENDORS Clearinghouses, EHR Providers, Coding Services and Revenue Cycle Managers Most Prepared, but Many Not Tested Most vendors offer ICD-10 compliant capabilities, but not all have tested them. 2

3 Payers Medicare Prepared The Centers for Medicare and Medicaid Services (CMS) reports that Medicare, which insured 55 million Americans and paid $597 billion in medical benefits in 2014, xi has updated its claims processing systems for ICD-10 codes, xii has conducted months of acknowledgement testing for all electronic submitters, xiii and will conduct three rounds of end-to-end testing with Medicare Fee-for- Service providers, clearinghouses, and billing agencies. During the second end-to-end testing round, CMS processed 23,138 claims: 88% accepted; 3% rejected for coding errors, and 9% rejected for other data issues. xiv State Medicaid Agencies Likely Prepared CMS reports that as of October 2014, all states self-reported they will be able to process claims by October In January 2015, the Government Accountability Office concluded that while CMS is working closely with State Medicaid agencies, work remains to complete testing by the transition deadline. xv Commercial Insurers Prepared The commercial insurance industry is fully prepared for and supports the October 1, 2015 ICD-10 implementation according to America s Health Insurance Plans (AHIP), the national trade association representing the health insurance industry. xvi UnitedHealthcare, Aetna, the Blue Cross and Blue Shield system, and Humana report being prepared to process ICD-10 claims for the last year s deadline. xvii Providers Hospitals and Health Systems Large Facilities Prepared; Smaller Facilities May Lag Most large hospitals and health systems are prepared for the ICD-10 transition, but smaller facilities may not be. CMS reported in 2014 that most large providers were ICD-10 ready and a coalition of 22 health systems from 14 states (representing 130 hospitals, 1,475 clinics, 20,000 providers, and 260,000 support professionals) lobbied Congress to maintain the 2015 deadline. xviii Smaller and rural facilities, which often have capital and resource constraints, are reported to lag behind in implementation due to the complexity and financial requirements. For example, only 37% of 50 rural hospitals in the southeast report being on track for the October 2015 deadline. xix Physician Practices Few Prepared ICD-10 preparedness varies by physician practice, but nearly 100 physician organizations led by the American Medical Association attest to a lack of industry-wide preparation and advocate for a delay. xx A 2015 claims clearinghouse survey of 350 physician practices found that 21% are on track to meet the 2015 ICD-10 deadline, 64% are in various stages of implementation and 15% have not started preparing. xxi In the Workgroup for Electronic Data Interchange (WEDI) s 10th annual ICD-10 preparedness survey, less than 10% of 260 physician practices were in the final ICD-10 claims testing phase as of February 2015, and less than 20% had not started preparing. Vendors Clearinghouses, EHR Providers, Coding Services, and Revenue Cycle Managers Most Prepared, but Many Not Tested Despite multi-year delays, not all healthcare vendors are offering ICD- 10 compliant capabilities. xxii WEDI reports that only 60% of clinical and billing software and solutions vendors have ICD-10 solutions in the marketplace with an additional 25% anticipating solutions available prior to October. A Healthcare Billing & Management Association survey found that 18 of 80 (23%) billing companies do not have software to process ICD-10 claims and 46 (57%) have not conducted internal capabilities testing. xxiii 3

4 WHAT LESSONS CAN WE LEARN FROM THESE? HOW D THEY DO IT? ICD-10 implementation is a complex process with nearly every healthcare organization s financial future and clinical reputation on the line. The transition must be well organized and executed. There is no margin for error. Here are a few lessons learned from early adopters: 1. Start Yesterday This transition is more than a coding change; it s a herculean operational redesign requiring clinical and administrative staff to learn new systems, technology upgrades to integrate seamlessly, and all business partners to speak the same language. xxiv 2. You Don t Have to Go It Alone Contractor support can add prior implementation expertise and guide the entire change management process. xxv 3. Train Everyone, Early and Often Education is critical. Organizations can have all the systems and processes ready, but will fail without well-trained staff. xxvi 4. Test, Test, and Retest October 1 is a hard deadline. xxvii Any error exposes your organization to financial and clinical risk. 5. Be Prepared for Slowdowns Staff productivity will diminish as health professionals learn to use five times as many claim codes. xxviii Reimbursement processing time is likely to increase, as are claims rejections. xxix 6. Have a Back-Up Plan Hard-stop transitions are notorious for errors. Be prepared with plans B, C, and D. Have flexible support teams on site, increase the number of coders, and have vendors on speed dial. xxx HOW MUCH DOES IMPLEMENTATION COST? SECTOR PAYERS Commercial Small Plans (<1M members) Medium Plans (1-5M members) Large PLans (>5M members) PROVIDERS ESTIMATED AVERAGE ICD-10 COST PER ENTITY $14 million $42 million $217 million COMMENTS Data based upon AHIP survey of 20 plans covering 139 million lives and only accounts for incremental ICD-10 implementation costs, and excludes claims payments. Hospitals $1-5 million CMS estimates that a 100-bed hospital would incur $1 million of ICD-10 charges (e.g. staff training, systems upgrades, and productivity losses), but media coverage indicates expenses can range up to $5 million due to IT upgrades. Health Systems $20+ million Reports of health system implementation costs vary based upon physician and adnimistrative staff size, need to upgrade medical and billing systems, uncertain productivity disruption, and need for consulting support. Physician Practices $8,167 - $8 million Estimates vary greatly with the low end represented by <6 physician practices using free ICD-10 training material and modern EHRs. On the other end is a 100-physician practice upgrading its EHR, paying for training, and accounting for productivity and payment disruption. 4

5 Payers The entire commercial insurance industry spent an estimated $2-3 billion preparing for ICD-10. xxxi Each carrier upgraded software and IT infrastructure, modernized claims processing algorithms, and conducted staff training resulting in one-time transformation charges: small plans $14 million ($38 per member); medium plans $42 million ($13 per member); large plans $217 million ($11 per member). Providers Hospitals $1-5 million Anecdotal evidence suggests that independent hospitals will accrue $2-5 million in ICD-10 implementation expenses based upon staff size, reliance on vendors, and sophistication of IT systems. xxxii In 2009, HHS estimated that the ICD-10 implementation would cost $1 million for a 100-bed community hospital with 4,000 annual discharges and gross revenue of $200 million due to staff and physician training requirements, systems changes and software upgrades, and productivity losses. xxxiii Health Systems $20+ million Reported costs to prepare a health system for ICD-10 start at $20 million xxxiv and increase to $50 million for a 14-hospital system in New York and more than $100 million for a 24-hospital system in California. xxxv Variables influencing the cost include: EHR capabilities, size of clinical and administrative staff, extent of contract support, and organizational change management ability. Physician Practices $8,167 - $8 million There are conflicting reports for a physician practice s ICD-10 implementation costs. At the high end is the American Medical Association, which includes estimated payment disruption and productivity losses. xxxvi Small practice (3 providers) $56,639 - $226,105. Medium practices (10 providers) $213,364 - $824,735. Large practices (100 providers) $2,017,151 - $8,018,364. A recent survey of 276 physician practices with six or fewer providers found the average actual incurred cost (e.g. IT upgrades, staff and physician training, organizational assessment, and testing) was $8,167 per practice or $3,430 per provider. xxxvii A California independent physician association with 3,800 doctors spent $2.1 million or $5,526 per physician. xxxviii Reasons why the actual costs are lower than the AMA s: lower cost education and training materials, new vendor capabilities, greater EHR adoption, and not accounting for payment or productivity impacts. IF NOT PREPARED, IS IT TOO LATE TO START? It s not too late to start, but organizations should act quickly. The October 1 deadline is fast approaching. For those HIPAA-covered entities not prepared, here s a simple process flow to jumpstart implementation: 1. Organize i. Convene an implementation team Determine implementation contractor support need i Formulate an implementation schedule iv. Develop an implementation budget v. Communicate ICD-10 transition with organization and 2. Assess business partners i. Obtain ICD-10 codes Conduct ICD-10 s organizational impact assessment i Evaluate IT system, software, clearinghouses, and billing services readiness iv. Engage vendors and partners (e.g. affiliate providers, health plans) to assess transition support v. Develop project implementation plan 3. Implement i. Develop and roll-out stakeholder specific education modules Modify policies and procedures i Update forms and templates iv. Upgrade IT systems and software 4. Test i. Prepare test cases and generate ICD-10 claims Evaluate accuracy of internal test (claims, system, and processes) i Perform external testing with health plans iv. Develop contingency planning 5

6 ENDNOTES: i ii iii iv v vi vii viii ix x xi Representative Poe sponsored a bill (HR 2126) to ban the ICD-10 transition and Representative Black (HR 2247) sponsored a bill instituting an 18 month transition period xii page 35 xiii xiv SE1435.pdf and xv page 31 FOR MORE INFORMATION ABOUT ICD-10, CONTACT: Bruce Hallowell Navigant Healthcare - Outsourcing & Technology Management Dave Hampshire Navigant Healthcare - Outsourcing & Technology Management xvi xvii xviii xix xx xxi xxii xxiii xxiv xxv and xxvi and icd10watch.com/blog/five-elements-needed-icd-10-training-plan xxvii xxviii xxx xxix xxxi xxxii xxxiii page 3359 xxxiv xxxv xxxvi xxxvii and wp-content/uploads/2015/02/week-2_pahcom-survey-results.final_post.pdf xxxviii Navigant Consulting, Inc. All rights reserved Navigant Consulting is not a certified public accounting firm and does not provide audit, attest, or public accounting services. See navigantconsulting.com/licensing for a complete listing of private investigator licenses. Investment banking, private placement, merger, acquisition and divestiture services offered through Navigant Capital Advisors, LLC., Member FINRA/SIPC. The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects currentimpressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article. About Navigant Healthcare Navigant Consulting, Inc. (NYSE:NCI) provides a wide range of services, spanning from consulting and compliance to litigation and investigative support, to help highly-regulated industry organizations address their most critical business issues. Navigant Healthcare, a Navigant Consulting practice, works collaboratively across a spectrum of clients in the payer, provider and life sciences space. Our professionals consist of industry thought leaders, healthcare executives, clinicians, physicians and seasoned consultants who assist health systems, physician organizations, payers and life sciences companies in designing, developing and implementing integrated, technology-enabled solutions that create high-performing healthcare organizations. Through a unique interdisciplinary approach leveraging the depth and breadth of our experience, Navigant Healthcare enables clients to build their capabilities and achieve sustainable peak performance around quality of care, cost, leadership and culture in today s changing healthcare environment. More information about Navigant Healthcare can be found at navigant.com/healthcare. 6

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