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The ICD-10 delay clarified: What it means for you

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  By Josh Gray,  April 16, 2012

Five implications of CMS' proposal to push back compliance to October 2014.

CMS released a proposed rule on April 9 that would delay the ICD-10 compliance date by one year, until October 1, 2014. The agency considers a one-year delay a "reasonable compromise" between the incremental costs that a delay imposes on hospitals already on track for compliance in 2013 and the additional time that many small hospitals and provider groups need to become compliant.

Why the delay?
CMS cites several reasons for pushing back ICD-10 compliance:

  • The ongoing transition to Version 5010 — a necessary precursor to ICD-10 adoption, which has also been delayed;
  • Hospitals, health systems, and physicians' current efforts to comply with Meaningful Use Stage 2 requirements; and
  • The industry's lack of preparation, as 26% of providers and 28% of payers do not expect to be compliant with ICD-10 by October 1, 2013, according to a recent CMS readiness survey.

CMS concedes that the cost of an ICD-10 delay to the industry will be substantial, given that providers already on track for compliance may spend as much as $6.6 billion for extra personnel and IT vendor expenses. That said, CMS believes the cost of adhering to the October 2013 date as planned would be even higher — given cash flow disruptions as well as the need to process claims manually — and maintains that a one-year delay will result in net savings relative to other options.

Five implications of CMS' proposal
For health systems considering how best to spend the extra year before the ICD-10 conversion, we recommend five steps:

1. Maintain momentum
With remaining time for ICD-10 implementation now expanding from 18 to 30 months, some health systems will choose to redeploy staff in an effort to lower their monthly burn rate and reduce overall project costs. While some of these steps may be prudent, we caution against moving too far in this direction. As discussed below, key aspects of ICD-10 preparation represent "no-regrets" investments that yield benefits in both ICD-9 and ICD-10 environments. As health systems finalize their impact analyses and begin testing, they may well find unanticipated challenges, and the extra time will be welcome.

2. Improve revenue cycle operations to generate a cash buffer
One health system we work with is using 2012 to focus on perfecting the revenue cycle, from front-end estimates and collections through coding to claims submissions. Their rationale is compelling: even if health systems are well prepared for ICD-10 implementation, vendors and payers may not be. In fact, most providers can expect a spike in AR and denials beginning October 2014.

Here the 5010 experience provides a sobering precedent: although the move to 5010 was far less complex than the shift to ICD-10, it nevertheless disrupted cash flow for many health systems.  The delayed ICD-10 compliance date provides an additional 12 months to build up a cash buffer through better revenue cycle management, providing a layer of protection against ICD-10-related revenue disruptions.

3. Recalibrate ICD-10 work plans
Most health systems have appropriately refrained from restructuring their ICD-10 preparation efforts too radically before the official announcement. With the extra year to prepare, recalibration of work plans should include an extension of the testing phase and reassessment of coder training and hiring, among other factors. We would suggest beginning testing in October 2013, certainly not long thereafter, in order to surface and resolve any problems.

By now, many health systems have a good understanding of how many of their coders are likely to retire rather than retrain for ICD-10. With a likely coder productivity reduction of 20 to 50 percent in the early phase of ICD-10 implementation, it is important to quantify how many incremental coders should be hired and determine how to recruit them. In doing so, it is better to err on the side of early hiring as a hedge against coder shortages in most markets. Many systems will also use the extra time to take a close look at computer-assisted coding as a potential tactic to reduce adverse impacts resulting from potential coder shortages and reductions in productivity.

4. Pursue strategic clinical documentation improvement
A critical element of ICD-10 preparation is training physicians to use specific documentation terminology in what will be a far more complex environment. The steps to implement an effective clinical documentation improvement program are not altogether new, but the stakes are high and the available resources limited. It is therefore critical to focus on the service lines, DRG families, and physicians with the greatest potential impact on revenue. Fortunately, advanced analytics are now available that can pinpoint ICD-10 exposure; disciplined analysis can highlight the limited number of codes and clinicians that account for the lion's share of risk. Health systems that embrace these analytics are in a better position to focus limited resources where they are likely to have the biggest impact. (Click here for more information). The benefit here is that enhancing documentation specificity will improve ICD-9 coding (and consequent revenue capture) while also preparing physicians for ICD-10.

5. Quantify overall service line impacts
Although ICD-10 conversion is designed to be revenue-neutral for the industry overall, the transition represents a rebasing of professional and facilities reimbursement rates. Depending on diagnosis, some DRGs, professional codes, and even service lines will become more financially attractive at the expense of others. Finance leaders must analyze the impact of ICD-10 on their particular service mix — above and beyond the issue of documentation specificity.

Key caveats
It is important to note that CMS' proposal is still subject to regulatory review. The agency's proposed rule is scheduled to be published in the Federal Register on April 17, 2012. After the rule is published, a 30-day comment period begins, ending on May 17, 2012. CMS must then review all comments received and draft responses to be incorporated in the final rule. Review and approval of a draft of the final rule by the Office of Management and Budget (OMB) is also typically required prior to the publication of the final rule, a process which can take up to 90 days (although the turnaround can be quicker).

Could CMS change the ICD-10 compliance date again in the final rule or thereafter? It is possible, but we doubt it, even if the agency finds itself under continuing political pressure. Given the missteps of the last two months, the agency can ill afford another postponement. We imagine that CMS has likely thought through technical and political issues and will do their utmost to adhere to the newly proposed compliance date.

About the author
Josh Gray is managing director, The Advisory Board Company.


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