ICD-10 and Its Impact on the Healthcare Industry

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1 Point of View ICD-10 and Its on the Healthcare Industry Written by Stacy Swartz, RHIA, CCS, CPC Vice President of Coding for Sutherland Healthcare Solutions On January 16, 2009, the U.S. Department of Health and Human Services published its final rule for the adoption of the ICD-10 code sets, created by the World Health Organization. The International Statistical Classification of Diseases and Related Health Problems (ICD), an official medical classification list, is set for its tenth revision. As shown below, two alpha-numeric ICD-10 code sets will replace the outdated numeric ICD-9 code sets, as per the Health Insurance Portability and Accountability Act of 1996 (HIPAA). Differences Between ICD-9 and ICD-10 ICD-10 is far from a simple update to ICD-9. The structural changes throughout the entire coding system are substantial, and the increased level of complexity requires coders to be even more thoroughly trained than before. ICD-9 ICD-10 DIAGNOSIS CODES ~13,000 ~68,000 PROCEDURE CODES ~11,000 ~72,000 CODE LENGTH 3 TO 5 DIGITS 3 TO 7 DIGITS CODE FORM NUMERIC PRIMARILY ALPHA-NUMERIC The ICD-10 Regulatory Timeline to Date The latest compliance date for ICD-10 has been set as October 1, 2015, according to new regulation published by the Department of Health and Human Services (HHS) on August 4, This one-year delay in the implementation of ICD-10 came from language inserted into the Protecting Access to Medicare Act of 2014, which was signed into law on April 1, The new regulation clarifies that ICD-9 will continue to be required until September 30, 2015, one day prior to the implementation of ICD-10. 1

2 of Delay is Wide Reaching and the Next Steps Are Unclear The impending delay of ICD-10 raises many questions for coding professionals, provider administrators, education entities, and the federal government The Centers for Medicare and Medicaid Services (CMS) has estimated that this one-year delay of ICD-10 will likely cost the healthcare industry an extra 1 billion to 6.6 billion dollars, in addition to the already incurred costs from the previous o ne-year delay. This estimate does not include the lost opportunity costs for failing to move to a more effective code set. Financial impact of ICD-10 The mandated implementation of the ICD-10 code set will be more expensive for most physician practices than previously estimated, according to an updated cost study initiated by the American Medical Association (AMA) and conducted by Nachimson Advisors. Nachimson Advisors, a healthcare strategic planning firm, has conducted multiple studies focused on estimating costs by the size of each practice. The most recent study from February 2014 demonstrates variability in costs and confirms the need to assess the ICD-10 impact on a practice basis in a number of key categories. The American Medical Association-funded report was based on interviews with practices, vendors, and consultants. The new projections take into account how moving to ICD-10 will require changes to codes and systems embedded in a practice's practice management systems or the PMS included in its electronic health record. Typical Small Practice Typical Medium Practice Typical Large Practice Pre-Implementation Costs Training $2,700 - $3,000 $4,800 - $7,900 $75,100 Assessment $4,300 - $7,000 $6,545 - $9,600 $19,320 Vendor / Software Upgrades $0 - $60,000 $0 - $200,000 $0 - $2,000,000 Process Remediation $3,312 - $6,701 $6,211 - $12,990 $14,874 - $31,821 Testing $15,248 - $28,805 $47,906 - $93,098 $428,740 - $880,660 Total Pre - Implementation Costs $25,560 - $105,506 $65,452 - $323,588 $538,034 - $3,006,901 Post-Implementation Costs Productivity Loss $8,500 - $20,250 $72,649 - $166,649 $726,487 - $1,666,487 Payment Disruption $22,579 - $100,349 $75,263 - $334,498 $752,630 - $3,344,976 Total Post - Implementation Costs $31,079 - $120,599 $147,912 - $501,147 $1,479,117 - $5,011,463 Total Costs $56,639 - $226,105 $213,364 - $824,735 $2,017,151 - $8,018,364 *Three physicians and two administrative staff **10 providers, one full-time coder, and six administrative staff ***100 providers, with 64 coding staff compromised of 10 full-time coders and 54 medical records staff Source: Nachimson Advisors, LLC 2

3 Other Estimates: Department of Health and Human Services (HHS) In 2011, the U.S. Department of Health and Human Services estimated that the overall cost of transitioning from ICD-9 diagnosis and medical procedure codes to ICD-10 codes would be $1.64 billion. This estimate includes $357 million for staff training, $572 million for losses in productivity, and $713 million for system changes. The good news is the HHS' savings prediction is greater too, estimating that health care entities will save more than $87.7 million annually and as much as $3.95 billion by RAND Corporation RAND Corporation predicted the conversion to ICD-10 could cost the healthcare industry between $475 million and $1.5 billion over 10 years. Costs would come from staff training, loss of productivity, and changing systems. On the plus side, the study also predicted great financial gain as a result of the change-over, assuming that over the same 10 years, the industry would gain between $700 million and $7.7 billion in cost savings. This is an estimate that cannot be ignored in the complicated world of medical billing and medical billing codes. of ICD-10 on Key Business Processes The worries of many healthcare entities go beyond the financial ramifications of the transition. Some are concerned about the overall impact of converting to ICD-10 diagnosis and medical procedure codes, including the operational hassle, time spent on training, and the necessary changes to systems. High Medium Low People Training Process Systems Technology Regulatory Compliance Pricing Contract Agreement - Pricing - Contract / Reimbursement Modeling - Contract / Payment Analysis Patient Acess - Scheduling / Medical Necessity - Pre- Service / Registration - Financial Counseling Clinical Documentation Integrity - Charge Capture / Reconciliation - Coding / DRG Assignment - Physician / Nursing Documentation - Clinical Data / Quality Reporting Patient Financial Services - Claim Edits / Claims Processing - Remittance / Denial Posting - Account Resolution Source: Sutherland Insights Outsourced Coding vs. In-house Coding The management of medical practices is evolving with the introduction of new technologies, government requirements, and financial limitations. Healthcare stakeholders need to adapt to these changes constantly and decide which operations methods will both save expenses and generate revenues. Medical billing is one such prominent operations method that can save a great deal of money for the stakeholders. With this being said, should it be done in-house or outsource keeping in view the impending ICD-10 implementation? 3

4 Depending on specialty and volume, estimates from sources including the Medical Group Management Association (MGMA) and other industry experts peg the average expense of internal billing to be 8% to 15% of collected revenue. On the other hand, when the same function is outsourced the expenses drop by 6% to 10% of collected revenue. Collections will typically improve by as much as 5% to 10% when billing is outsourced due to improvements in the rate of denied claims, timely follow-up, and appeals for incorrect or no-pay claims. Familiarity and expertise in correct coding also heavily contribute to the success of maximizing reimbursement. Other intangible benefits of outsourcing include eliminating the administrative hassle of managing systems, staff, and expense. This allows providers to spend more time and intellect on the practice of medicine. The ideal procedure would be to make a cost comparison of in-house vs. outsourced medical billing services in some detail and understand the financial gain involved. Assumptions for comparison: A practice of two to three physicians with collections of around $950,000 per year would require a minimum of two full-time equivalent (FTE) staff. Depending on their specialty and volume, estimates from sources including the MGMA and other industry experts peg the average expense of internal billing to be 8% to 15% of their collected revenue. In-House Coding FTE cost (cost including salary and benefits) $36,000 to $48,000 per FTE per year Computer hardware and software expense including support and maintenance ($200/provider/month plus $500 for maintenance and support) $5,300 per year Claims processing costs (clearinghouse fees, billing supplies, office space, office equipment) $15,000 per year Total cost per year of internal billing/collections (assuming 2 FTEs) Assume two physiciansʼ collections Total Cost of Internal Billing ($116,300/$950,000) $116,000 per year $950,000 per year 12% Outsourcing Coding Staff and software expenses $10,000 per year Billing service fee assuming no increase in collected revenue (8% of collected revenue) $76,000 Total cost per year of outsourcing Total Cost of Outsourced Billing ($86,000/$950,000) $86,000/year 9% Source: Sutherland Insights Increase in revenue available for physician distribution due to outsourcing = $30,300 4

5 The Future of ICD-10 On July 31, 2014 the Department of Health and Human Services announced it was delaying the ICD-10 deadline to October 1, This news may have come as a blessing for some organizations, but for a majority it merely added to the mounting list of ICD-10 and CMS frustrations. With billions of dollars already spent on time and resources, organizations are faced with a tough decision to either stay on course and cutover anyway, or halt the implementation all together. Whether the organization is large or small, the complexity of implementing ICD-10 codes significantly impacts current workflow processes and systems. Many industry professionals tend to view ICD-10 codes as impacting only clinical functions; however, the impact spans into all areas within an organization. In conclusion, CMS estimates the one-year delay will cost the healthcare industry an $1 billion to $6 billion and will impact more than 25,000 students entering the healthcare field that have been educated exclusively on ICD-10 codes. Regardless, the ICD-10 compliance date is approaching. Therefore, it s better to be prepared and forge ahead with an effective strategy, than hope for another delay, risk being out of compliance, or on the brink of financial disaster. Sutherland Healthcare Solutions Sutherland Healthcare Solutions is a leading provider of BPO coding solutions to hospitals and physician groups. Our BPO services give providers customized solutions that increase revenue and decrease costs. Our partnership and outcomes-based approaches help us align our goals with your goals; so a true partnership is formed and you receive the best services possible. To learn more about our offerings, you can contact us at [email protected] or go to our website at Sutherland Healthcare Solution Sutherland Corporation registered in many jurisdictions worldwide. Other product and service names might be trademarks of or other companies. A current list of trademarks is available on the web at Copyright and trademark information at sutherland.com/legal/copytrade.shtml. This document is current as of the initial date of publication and may be changed by Sutherland at any time. Not all offerings are available in every country in which Sutherland operates. The performance data and client examples cited are presented for illustrative purposes only. Actual performance results may vary depending on specific configurations and operating conditions. It is the user s responsibility to evaluate and verify the operation of any other products or programs with Sutherland products and programs. THE INFORMATION IN THIS DOCUMENT IS PROVIDED AS IS WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING WITHOUT ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND ANY WARRANTY OR CONDITION OF NON-INFRINGEMENT. Sutherland products are warranted according to the terms and conditions of the agreements under which they are provided. Statements regarding Sutherland future direction and intent are subject to change or withdrawal without notice, and represent goals and objectives only. 5