The proposed switch from ICD-9 codes sets to International Classification of Diseases, 10th Revision, Clinical Modification will be a huge information technology challenge for the U.S. healthcare system at an estimated cost in the billions of dollars that, by way of comparison, far exceeds earlier estimates for the “administrative simplification” requirements of the Health Insurance Portability and Accountability Act of 1996.
Reactions to the formal notice of proposed rulemaking released Aug. 15 are mixed, with some organizations issuing statements of praise and others saying they like the concept but are withholding full support until the text can be digested. Still others are already coming out in protest over the aggressive staging of the rollout and its compliance deadlines, which, they say, are too fast to be achievable.
There is also a mixed bag of estimates on the cost and impact on the healthcare industry that an ICD-10 conversion will have.
The HHS-issued proposed rule would amend regulations to require—for HIPAA-covered transactions such as billing, payment and eligibility inquiries—the use of the ICD-10 codes for diagnosis and the ICD-10 PCS (procedure coding system) codes for inpatient hospital procedures, according to an HHS announcement. They will replace the nearly 30-year-old ICD-9 series of codes still in use in the U.S., but which have long since been replaced in other industrialized countries by ICD-10 codes.
The movement to ICD-10, “the most complex of all the HIPAA code sets,” according to the proposed rule, will “likely touch every provider who submits diagnostic codes and every payer that processes healthcare claims.” The enhanced codes will allow clinical IT systems to record a much more specific and rich diagnosis than ICD-9 codes for use in pay-for-performance programs. The conversion also will better enable the U.S. to run biosurveillance programs and fight medical billing fraud, the government said. According to HHS, the ICD-10 codes contain more than 155,000 codes and can describe far more diagnoses and procedures than the ICD-9 series, which contain about 17,000 codes.
In its proposed rule, HHS devoted 100 of its 162 pages to a required impact analysis on the costs and benefits of the proposed conversion, referencing three previous studies and also its own work to determine that the effort was worth it.
One 2003 study they cited, by consulting firm Robert E. Nolan Co. for the Blue Cross and Blue Shield Association, estimated the implementation cost for the conversion to ICD-10 will run from $5.5 billion to $13.5 billion with additional productivity losses of $752 million to nearly $1.4 billion for hospitals and physician practices. The Nolan study did not count the impact on nursing homes, clinical laboratories, durable medical-equipment suppliers, claims clearinghouses, small and midsize payers and third-party administrators.
Nolan would not estimate potential benefits to society from an ICD-10 conversion, saying conditions were too uncertain, according to HHS. A second study cited by HHS, by the Rand Corp. for the National Committee on Vital and Health Statistics in 2004, estimated implementation costs at $475 million to about $1.53 billion. Rand, which estimated benefits, said the payback would be $700 million to $7.7 billion.
To come up with its own estimate, HHS created a work group with “actuarial, economic and coding subject matter expertise” from HHS, the Centers for Disease Control and Prevention/National Center for Health Statistics, CMS and the Office of the National Coordinator for Health Information Technology, with “guidance” from the Veterans Affairs and Defense departments and data analysis support by Actuarial Research Corp., Annandale, Va. HHS estimates on costs and benefits contained minimum, maximum and “primary estimate” numbers.
Total costs ranged from $849 million to nearly $3.05 billion, with a primary estimate of $1.64 billion. HHS reported that implementation costs will fall into three categories: training, productivity losses and system changes. Training costs will total $356 million, lost productivity will cost $572 million, and system changes will cost $713 million using the primary estimate numbers for each category.
According to the HHS work group estimate, costs will begin to occur in 2009, two years before implementation and “zero out” in 2014. There would be no continuing costs after that, according to HHS. Benefits, however, won’t begin to show until after the first year of implementation, but should be fully realized after five or six years and continue annually through the 2023 study period.
The proposal says the new code sets initially may cause serious cash flow problems for providers because of the increased risk of payment slowdowns triggered by the code changes. Claims-error rates are expected initially to rise to 6% to 10% at the ICD-10 implementation date, compared with a normal 3% error rate that occurs when the rate spikes for a few months each year after the annual updates of ICD-9. Those problems should be fully resolved within six months, HHS rulemakers said, basing that opinion in part on the ICD-10 conversion experiences of other countries.
According to HHS, the cost to providers for IT system changes will run between $55 million and $220 million. Spending by software vendors on ICD-10 system development work should begin next year, the HHS rulemakers said. Depending on contract language and how the software is provided, “the vendor industry may have to bear, at least initially, the costs of such upgrades” but those costs may only be “postponed until the contract is renewed” and passed on to the provider.
Either way, the initial costs to vendors alone was estimated at $55 million to $137 million. According to the HHS proposed rule, two major vendors told HHS they would devote 10% of their workforces to the ICD-10 conversion. Another vendor estimated it would take between 50 and 100 man years of work to ready their systems while yet another said only a few development years would be needed.
For payers, adjustments to their IT systems would cost between $110 million and $274 million, HHS estimates. IT system costs for transitioning government healthcare programs, including Medicare, Medicaid, the Indian Health Service and the VA would run between $157.5 million and $630 million.
Society wins?
Despite the high costs and aggravation, the switch to ICD-10 will be worth the effort, according to HHS. It enumerated six categories in which society would benefit from the conversion to ICD-10: more accurate claims, fewer rejected claims, fewer improper claims, better understanding of new procedures, improved disease management, better understanding of health conditions and outcomes, and harmonization of disease monitoring and reporting worldwide. The financial benefits of the last two categories were not quantified with dollar estimates by HHS, however.
The dollars derived from benefits would begin to trickle in by 2013, two years after the ICD-10 compliance deadline, with about $87.7 million in annual savings coming that first year, according to HHS, an amount that would rise to nearly $467 million by 2023. Amounts of benefits were not allocated to payers, providers and vendors as were costs. But HHS did combine costs and benefits to calculate that, and in time, the agency said, an investment in ICD-10 would pay off for society.
By 2023, the final year of the HHS financial projection, investment in ICD-10 will have generated a cumulative benefit of about $3.95 billion. If the government’s most conservative estimates for costs and benefits obtain, however, the cumulative net benefit after 15 years will be a paltry $47 million. If costs and benefits match the top of both ranges in the HHS estimate, the conversion would generate a cumulative net benefit of nearly $5.88 billion. Under its primary estimate though, HHS estimated that by 2014, net benefits will be “in the black” for the first time, since the implementation costs will have been incurred and the benefits from that investment will begin to flow.
But not until 2018 will society reach the “break even” point on its investment. Not until then will the cumulative net benefit of converting to ICD-10 finally exceed the total cost of conversion.
Costs for ICD-10 transition were broken down by provider type and compared with total revenue for that type from federal data sources, including the National Health Expenditure Accounts. The cost of ICD-10 for hospitals and nursing homes was calculated at 0.03% of revenue while for office-based physicians it was 0.04% of revenue. Outpatient-care facilities, such as ambulatory-surgery centers, and medical-imaging centers, home health and durable medical-equipment providers will pay about 0.01% of revenue for ICD-10; payers will contribute 0.023% of revenue; and IT vendors will be hardest hit at 0.048%, the HHS proposed rule said.
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