RESEARCH NOTE THE BUSINESS RAMIFICATIONS OF ICD-10

Transcription

1 RESEARCH NOTE THE BUSINESS RAMIFICATIONS OF ICD-10 THE BOTTOM LINE ICD-10 is scheduled to enter the United States healthcare system in the near future. Although this coding standard is often seen as a compliance issue that should be put off as long as possible, ICD-10 adoption can be a revenue positive project for early adopters who deploy ICD-10 effectively and identify the value propositions explained in this document. BRINGING ICD-10 TO AMERICAN HEALTHCARE The International Statistical Classification of Diseases and Related Health Problems, 10th Revision of 1992, commonly shortened as ICD-10, is used to describe the procedures and diagnoses associated with medical care. The United States has set a deadline of October 1, 2014 to start using the clinical modification codes (ICD-10-CM) for diagnoses and procedure coding system (ICD-10-PCS) for hospital procedures. When this implementation takes place, healthcare organizations will see roughly an order of magnitude increase in the number of CM and PCS codes available to describe medical procedures, which will improve the amount of detail associated with each procedure. However, this change will require companies to train physicians, coders, and other hospital staff while updating medical software and systems both to document and process this change in coding. In speaking with healthcare organizations, Nucleus has found that organizations on pace for an October 1, 2014 ICD-10 update have already completed about 50 percent of their training effort and about 25 percent of their systems and software upgrades at this point. In light of this cost and the effort associated with updating to ICD-10, healthcare organizations may wonder whether the cost is justified by the benefits or whether this is simply a costly compliance effort that will force healthcare organizations to spend thousands of costly man-hours to change simply for the sake of change. By looking at the best practices of organizations that have already started to implement ICD-10 and the business cases that these companies have made for ICD-10, healthcare firms can better understand how they need to approach an ICD-10 deployment to achieve business value. Nucleus Research Inc. 100 State Street Boston, MA Phone:

2 KEY BENEFITS OF ICD-10 When Nucleus Research spoke with medical financial officers, we found that ICD-10 was not seen as simply seen as a compliance exercise. There were several additional business benefits associated adopting ICD-10 on a timely basis that had the potential to improve both top-line and bottom line financial results. REVENUE ENHANCEMENT ICD-10 was perceived to be a standard that both federal reimbursement organizations and large insurance providers would be able to support. However, smaller niche providers were seen as being less prepared to process ICD-10 to start with. These niche insurers, which typically take up less than 5 percent of medical billing, take up a disproportionate amount of administrative time. Much like the challenges with 5010 compliance, these smaller payers may claim compliance, but still be unable to provide payments because of errors in their billing information. If these smaller companies do not move to ICD-10, this may represent an opportunity to consolidate insurance providers by cutting out noncompliant payers and reduce the cost of overhead. This would allow practices to follow up on the estimated percent of medical bills that have errors, which can both lead to inefficient reimbursement and patient churn. Timely ICD-10 conversion will also allow hospitals to renegotiate managed care contracts more quickly and easily, which will provide additional opportunities to reduce costs. In addition, the accuracy associated with ICD-10 should mean that the rate of denial for procedures should decrease, since ICD-10 is more precise than ICD-9. The American Medical Association 2012 National Health Insurer Report Card showed claim denial rates ranging from 1.38 percent to over 5 percent depending on the insurance provider. The Bureau of Labor Statistics estimates that the average general practitioner makes $177,330 per year. Even with this conservative income estimate, which would be higher for specialist practices, a 1 percent reduction in denial rate could be worth about $1,773 per year for each physician on an annual basis assuming an annual denial rate of 2.5 percent. ICD-10 should also provide a potential opportunity to accelerate payment. Currently, most insurance providers pay their first payment associated with a claim within 15 days between 81 and 95 percent of the time. By cutting this rejection rate in half, health care organizations would be able to add an average of 6 percent of accounts payable to their cash flow immediately. IMPROVING CLINICAL DOCUMENTATION The most important benefit for ICD-10 may be in clinical documentation improvement (CDI). By improving the quality of information that is coded into medical systems, healthcare practices will be able to confidently look at electronic health records. Currently, one of the key concerns that physicians have with electronic health records (EHR) is that the primary information (often typed or hand-written) is not available in an electronic Page 2

3 format. However, as doctors, nurses, coders, and other professionals provide more specific information through ICD-10, they will solve the potential Garbage In, Garbage Out problem of EHR. Healthcare professionals that can learn to accept and trust electronic will have additional benefits associated with sharing information consistently and having a single version of the truth that can be easily shared with colleagues and other relevant parties. As electronic documentation improves through ICD-10, hospitals and medical practices will have greater visibility to past procedures and diagnoses. This visibility will allow health care organizations to predictively prepare and budget for future supplies, skills, and treatment activities more accurately. By improving bottom-line results, ICD-10 can play a role in improving the financial health of the organization. AVOIDING NON-COMPLIANCE FINES The healthcare industry has recently had a similar concern in meeting 5010 standards for Health Insurance Portability and Accountability Act (HIPAA) electronic transactions before July 1st, 2012 when the Department of Health and Human Services (HHS) reserved the right to enforce these electronic standards and penalize organization that were noncompliant. As of now, the Office of E-Health Services and Standards has not set specific penalties for 5010 non-compliance and is not expected to set specific penalties for ICD-10 non-compliance. However, organizations lacking ICD-10 support would still be out of compliance with HIPAA, which has a maximum penalty of $50,000 per violation and is capped at $1.5 million. However, HIPAA non-compliance also has branding and reputation consequences that could affect both the practitioner and the practice or healthcare organization as a whole. THE TRUE COST OF ICD-10 There is significant disagreement concerning the cost of ICD-10. HHS estimates that the cost of moving to ICD-10 is between $650 million and $1.3 billion dollars. Based on the American Medical Association s count of 972,400 physicians in the United States in 2009, this equates to a cost of between $668 and $1,337 per physician. However, when medical organizations are asked about the cost of ICD-10, the costs are often an order of magnitude higher. When Nucleus spoke to one medical organization that managed 1700 physicians, it estimated that the total budget for ICD-10 conversion was $30 million, which equates to over $17,000 per physician. Where does the disconnect come from? Part of the problem comes from the definitions used by each side. For instance, the medical organization in question states that the training and ongoing feedback associated with accurate ICD-10 coding takes up less than 5 percent of the total budget. The estimate for training falls well into the HHS estimate for ICD-10 and could be fully compensated by more accurate medical billing. Page 3

4 However, medical organizations also need to set up billing, diagnostic, and administrative systems to be ICD-10 compliant, which is where much of the additional cost comes in. The cost of retro-fitting old systems with ICD-10 compliant inputs, translating old ICD-9 data into ICD-10 codes, and purchasing new systems that are ICD-10 native differ from organization to organization, but represent the majority of the cost. In addition, some organizations are including the cost of computer-aided coding (CAC) and additional software and hardware upgrades that are peripheral to ICD-10 in the cost of this change. Because hospitals are using ICD-10 as a Y2K-like opportunity to update systems that are peripheral to the actual coding change, these project costs are becoming inflated. Organizations modeling the cost of ICD-10 conversion should be careful to calculate only the cost of hardware and software directly related to coding changes rather than simply assign the entire cost of overhauling the IT department to ICD-10. ICD-10 isn't just a matter of changing the length of a field; it's a change in process and systems. This is an investment like Y2K. Peter Gouws, Interim CFO, Harvard Medical Faculty Physicians at Beth Israel Deaconess Medical Center An additional fear of potential ICD-10 costs comes from the concern that the proliferation of codes will create additional work and delayed costs that will dwarf the cost of implementation. These post-implementation costs are largely dependent on the practice s approach to implementation. Practices that pursue minimal training and a manual approach for ICD-10 coding and reconciliation will see an increase in labor and may see ongoing costs that equal or surpass their initial implementation costs. ICD-10 is a fundamental change in healthcare administration and the enormity of this change should not be trivialized. However, there are a number of ICD-10 conversion and translation solutions that can automate these processes. Healthcare providers that accept ICD-10 and efficiently automate procedural and claims documentation will be able to minimize the ongoing cost of coding while realizing the benefits of improved flowthrough billing, reduced claims denials, and less time needed to diagnose transferred or new patients associated with more accurate documentation. One final note is that the American Medical Association has recently commented on the potential of skipping ICD-10 and moving to the ICD-11 standard. Considering that ICD-10 has been a standard for nearly two decades and has taken this long to run the gamut of governmental and business hurdles in the United States, it is unlikely that ICD-11 would be implemented in the United States before ICD-11 is not scheduled to be finalized until 2015 and will most likely be used only for death and disease counts at first. Given the investment that has already been placed in readying the United States healthcare system for ICD-10, it is unlikely that skipping ICD-10 would be either a realistic or viable course of action. Page 4

5 UNDERSTANDING THE LIFETIME BENEFIT OF ICD-10 Considering both the costs and benefits of ICD-10, what is the likely lifetime benefit of ICD-10 deployment for a healthcare organization? Given the dependencies of current technology investment, current ICD-9 and ICD-10 skills, and your organization s administrative processes, it is difficult to provide a one-size-fits-all equation that will accurately sum up the value that will be realized. However, ICD-10 will likely have a lifespan of at least a decade. While this timeframe is considerably shorter than ICD-9, which will end up having been a United States standard for a quarter-century, it will provide healthcare organizations with a number of opportunities for gaining value. As your organization plans to implement ICD-10 over the next year, it should consider the following potential benefits: Reducing the rate of denial for health claims Increasing the flowthrough rate for standard procedure claims Reducing the number of insurance providers supported Reducing the amount of time spent coding through CAC The cost of HIPAA non-compliance, both as a direct monetary cost and an indirect branding and public relations cost. Ability to renegotiate health care contracts quickly Accurate budgeting of cost of care and business restructuring costs And those benefits must be balanced by the costs and potential challenges: New documentation for coding and practice documentation Training for all healthcare professionals associated with diagnosis, procedure documentation, and billing Updating of all relevant medical systems to fit ICD-10 codes, including software, hardware, training, consulting and installation costs Consistent and timely translation between ICD-9 and ICD-10 codes for all relevant systems and documentation Changing internal business processes to support electronic coding and claims adjustments Increased time to code, especially if the organization is not planning to invest in automated ICD-10 translation tools By taking a holistic approach to the benefits of ICD-10, your organization can more accurately model the impact of ICD-10 in supporting quality healthcare and enhancing ongoing cash flow. Page 5