The Challenge of ICD10 Adoption

On October 1, 2013, the entire US healthcare system will shift from ICD9 to ICD10.   It will be one of the largest, most expensive and riskiest transitions that healthcare CIOs will experience in their careers, affecting every clinical and financial system.

It’s a kind of Y2k for healthcare.

Most large provider and payer organizations, have a ICD10 project budget of $50-100 million, which is interesting because the ICD10 final rule estimated the cost as .03% of revenue.  For BIDMC, that would be about $450,000.   Our project budget estimates are about ten times that.

CMS and HHS have significant reasons for wanting to move forward with ICD10 including

1) easier detection of fraud and abuse given the granularity of ICD10 i.e. having 3 comminuted distal radius fractures of your right arm within 3 weeks would be unlikely
2) more detailed quality reporting
3) administrative data will contain more clinical detail enabling more refined reimbursement

Large healthcare organizations have already been working hard on ICD10, so they have sunk costs and a fixed run rate for their project management office.   At this point, any extension of the deadline would cost them more.

Most small to medium healthcare organizations are desperate. They are consumed with meaningful use, 5010, e-prescribing, healthcare reform, and compliance.   They have no bandwidth or resources to execute a massive ICD10 project over the next 2 years.

Vendors have told me such things as “I have been amazed at how much we (and our third-party partners) are spending on getting prepared for ICD10 – and it’s not what you would expect (extending data tables, new code lookup tools, etc.)  It’s a whole host of clinician assistance tools, new documentation workflows, new kinds of provider-facing decision support to maximize coding revenue while guarding against RAC audits – all simply for billing!”

In my CIO role, not any state or federal role, I will continue to listen to concerns about ICD10, sharing them broadly on my blog and with government leaders who will listen.

The Wall Street Journal recently published an article about the granularity of ICD10.

One of my staff posted this response, which is very thoughtful:

While nice-to-have, ICD-10 comes at a time when substantial cuts await providers. The “super committee” is deliberating on these now for Medicare and Medicaid. Adding more administrative overhead to the U.S. healthcare system is untimely and will ultimately impact clinical care. Our health care system already has twice the administrative overhead of other advanced nations. We arguably have the most complex medical reimbursement system in the world. ICD-10 makes it worse.

When HHS published the requirement for ICD-10 in the January 16, 2009 Federal Register, they estimated transition costs for health care providers to be 0.03% of patient revenues. For a $1B medical center, this would be $300,000. Based on experience at our hospital and that of my colleagues at other hospitals, they missed it by a factor of 10 or more.

When a regulation of this magnitude is published, various laws and executive orders require a Regulatory Impact Analysis. Some requirements are intended to protect small businesses and non-profits from burdensome, unfunded federal mandates. The marginal cost estimate published in the Federal Register for ICD-10 was $2.966 billion over the period 2011 to 2025. Two-thirds of this was transitional cost. The benefits were estimated at $4.540 billion.

HHS has a tradition of low-balling cost estimates. Further evidence can be seen with recent estimates of HITECH privacy regulations.

If Congress was doing its job of regulatory oversight, they would sponsor hearings to learn what payers and providers are actually spending on ICD-10 conversion. Costs for consulting services alone run into the millions. This does not count the application software conversion, training and education, and other “in-house” costs. At our medical center, we would be paying $380,000 according to HHS estimates. Instead, the marginal cost of ICD-10 will be in excess of $5m. For multi-hospital systems, the costs may exceed $100m.

A Congressional review of transition costs would turn the regulatory impact assessment on its head. Costs could easily become double the estimated benefit savings.

With ICD-10, the government is perpetuating a reimbursement system that is far too complex. We spend more than any other country on healthcare administrative overhead. The Medicare Claims Processing Manual, for example, is over 4,000 pages in length. The reimbursement system needs simplification to bring the cost of this function in line with other industries.

Recently, HHS began promoting a “global payment” initiative. This had the potential for simplifying reimbursement, but they over-laid it on top of the existing system. Instead of substitution, it was additive. You bill as usual and then have a settlement process that adds one more layer of administrative overhead.

Unfortunately, there are too many activities within and outside the government whose livelihood depends on perpetuating this complex system. It is akin to the Internal Revenue Code. There are also groups who promote ICD-10 for its more granular health care research potential. This is laudable, but not affordable. There is no “free lunch”. Every dollar spent on administrative overhead is one less dollar spent on clinical care.

What’s needed is a fresh look at the reimbursement system. While ICD is used in other countries, it is not used for reimbursement purposes. Rather, it is used for health statistics and reporting. Using it for reimbursement adds an entirely different dimension. Because it is used for reimbursement, the U.S. version requires numerous extensions. Read this as more codes and more complexity.

Our health care system needs to change. If we are going to cut cost, let it be overhead, not clinical care.

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15 replies »

  1. @ Dr. Mike

    I’m confused about your comment that:

    “I and hundreds of thousands of docs like me will find a way to make the data mined from the codes of less value to the wonks and beaurocrats (sic) than they ever thought possible. Just like we do now with ICD9.”

    What do you really mean? …that you and the majority of physicians in the United States have been and will continue to expend extra effort to intentionally misrepresent administrative/financial and care management diagnoses data you submit to payers, researchers and/or government organizations ?

    Dr. Mike, you can’t possibly mean that; a short clarification would be appreciated. And I apologize in advance if I wasn’t able to discern your true intention.


    Steve S.

  2. ICD10 nor any other code adds nothing of value to a patient’s visit or to their health. Nothing. Zero. It does, however, increase the cost of their visit by a not insignificant amount.

    And as stated in the article, no other nation is using ‘our’ ICD10. But no matter, I and hundreds of thousands of docs like me will find a way to make the data mined from the codes of less value to the wonks and beaurocrats than they ever thought possible. Just like we do now with ICD9.

  3. The Wall Street Journal did indeed blog about the ‘Y2K’ problem in health care. See http://on.wsj.com/fJOnqG

    One statistic I derived form independent sources about the risk of ICD-10 hasn’t been discussed.

    According to HHS an CMS, Healthcare is almost a $3 trillion economy today. If ICD-10 causes a one percent (1%) shift in reimbursements [0.01 times $3 trillion], the redistribution of funds will equal the near $30 billion the Federal Government lost in the mortgage crisis via bad loans from Freddie and Fannie (source: Wall Street Journal).

    In reality, I think most people in the know believe the reimbursement risk is greater than one percent.

    See: http://bit.ly/r8zEJO

  4. Well, hmmm… there’s a “zero degrees of freedom” problem here? Maybe we should let all 50 states decide what coding standards to use individually. Or, just let the “free market” decide via “industry consensus standards.”

    Or just let each payor have its own “proprietary standards.”

    ICD-10 doesn’t seem to have itself “crippled” other nations’ health care systems that use it.

  5. The same people who are arguing that ICD-10 was vastly mis-estimated and is a crippling regulation will turn right around tomorrow and argue that more government control of healthcare will simplify and streamline this or that. It is like the minds of health wonks are compartmentalized: every past regulation is unexpectedly expensive and complicated, even absurd, and can only be fixed by a future regulation that will certainly be “efficient” and sensible.

    It’s like a weird and perpetual childhood.

  6. Not “limited value,” not no value, but actual negative value.

    And, inevitably, docs will develop their own work-arounds so they can continue to care for patients, and coding data will be less accurate than ever.

  7. Halamka describes the health IT’s perfect storm. ICD10, EMRs, e-prescribing, Medicare RAC audits, and Medicaid payment reductions are driving physicians into the arms of hospital employment (not that hospitals have a handle on this electronic transformation either) or to retirement. It is the last straw. Current IT capacity at most practices can’t support these new requirements. The practices need new hardware to operate the new software and do their billing. Many practices can’t secure the financing to acquire the new IT equipment and software. Work at the Doc in the box look more and more attractive.
    My advice to patients is to start your own paper record by getting and keeping copies of your super bills and discharge summaries when you check out.

  8. I think they also over estimated the value by at least a factor of 10. ICD-10 is just a new version and still is focused on morbidity and mortality. It is not focused on health care and wellness.

    More granularity + limited clinical value to the coder = decreased accuracy

  9. ICD-10 is one piece of a much larger picture. What is the common denominator of: meaningful use, value based purchasing, the March ACO regs, Medicare’s hospital and physician quality reporting initiatives? They all impose “nice to have” documentation requirements which subtract clinician time from direct patient care in the name of “transparency” and “accountability”.

    Health care providers added one million jobs since 2007, despite declining utilization in virtually every category of service (hospital admissions, physician visits, etc.). A lot of those jobs were to cope with the escalating complexity of reporting requirements in the payment transaction.

    Halamka is exactly right: we need to be simplifying and consolidating payment transactions, and reducing the documentation burden on caregivers. And it isn’t for provider convenience (or enabling them to hide quality defects) , but for the impact on cost and the patient’s experience of care. The micromanagement of medical practice has reached crisis stage.

  10. Is your point that we should go ahead with the transition (and thus put off starting the work on implementing better prevention and publicn health initiatives)? Or is it that we have more important things to do and should ditch the ICD10 conversion?

  11. This transition to ICD10 is truley trivial compared to the transition that Medicine must really make to prevention and public health and dealing fairly and ethically with death and dying in America.