ICD-10 Conversion Costs Underestimated by HHS

Laboratories and physician groups to incur significant expenses when implementing ICD-10

CEO SUMMARY: Criticism of the October 1, 2011 implementation date for ICD-10 is building. Last week, a new study was released that highlights how federal officials underestimated the costs and time required to implement the complex new codes for ICD-10. One large national laboratory company estimates it will spend at least $40 million to prepare for ICD-10 implementation. Officials from groups such as AMA and ACLA are voicing strong concerns on this matter.

IT WAS IN AUGUST WHEN THE FEDERAL Department of Health and Human Services (HHS) declared October 1, 2011, as the date when use of the International Classification of Diseases, Tenth Revision (ICD-10), code sets will begin. Since that announcement, evidence is accumulating that federal health officials have significantly underestimated the costs that providers will incur to meet this mandate. (See TDR, October 6, 2008.)

For example, converting to IDC-10 will cost one large national lab about $40 million. That includes costs for information technology and staff education. This lab company estimated that implementing the new ICD-10 code sets will be twice as expensive as what it spent to prepare for conversion to the new processes for the National Provider Identification (NPI) system. That changeover caused severe cash-flow problems for labs earlier this year. (See TDR, June 16, 2008.)

These costs were disclosed in a new report issued by Nachimson Advisors, LLC. This report was commissioned by a group of organizations that represent physicians and laboratories, including the American Medical Association (AMA) and the American Clinical Laboratory Association(ACLA).

“This study illuminates the fact that adopting ICD-10 will be far more costly for physician practices and clinical labs as well as much more complicated than HHS acknowledges in the proposed rule,” said ACLA President Alan Mertz. “We are hopeful that HHS will review this study closely and revise their compliance strategy to correspond with a more appropriate timeline.”

Huge Costs For Providers

In the report, Nachimson estimated that a typical small physician group (three providers) would incur $83,290 in costs to comply with ICD-10. Those costs climbed to $285,195 for the typical medium physician group (10 providers), and $2,728,780 for a typical large physician practice (100 providers).

The transition date for ICD-10 has caught the attention of the American Medical Association (AMA). Joseph M. Heyman, M.D., Board Chair at the AMA stated, “The AMA is deeply concerned that
HHS is rushing head-first into the transition to a complex coding system without fully recognizing the impact on the healthcare system. Physicians, insurers, medical labs and others are raising the alarm that the costs, documentation, and training required by ICD-10 will be significantly greater than HHS now recognizes.

“We are committed to improving the healthcare system,” continued Heyman, “but we cannot let history repeat itself as CMS attempts to quickly implement yet another major HIPAA change without allowing time for physician education, software vendor updates, coder training, and testing with payers—steps that are needed for a smooth transition and cannot be rushed.”

“We have known this transition was going to be a big problem for a few years,” noted Mertz of the American Clinical Laboratory Association. “The Nachimson study confirms that belief. As well, ACLA has consulted with our members and some of the larger labs tell us the costs for transitioning to the new codes and then the ongoing costs to use the new codes will be quite high. It will be costly for lab billing personnel to have to go back to the referring physicians to get the right diagnosis codes.”

Complicating the transition is another coding deadline: the implementation on April 1, 2010, of the 5010 transaction standards under the Health Insurance Portability and Accountability Act (HIPAA). The 5010 standard must be in place before physicians can use ICD-10. Yet HHS’ advisory group, the National Committee for Vital and Health Statistics, has recommended a minimum of two years is required to test and verify the 5010 standards before work can begin to implement ICD-10.

Nachimson’s Report Looks at Financial Costs For Physician Groups to Comply with ICD-10

TO COMPLY WITH ICD-10 CODE SETS, physician groups will need to devote money and resources in six different areas of their business. In the report prepared by Nachimsom Advisors, LLC, these expense estimates were summarized in the table reproduced below.

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