At the Margins

CMS confirms one-year ICD-10 delay

Josh Gray and Ed Hock

 The Centers for Medicare and Medicaid Services (CMS) today finalized a one-year delay, until October 1, 2014, for ICD-10 compliance. The delay, which affirms a proposal from April, applies to all covered entities for both inpatient and outpatient coding and offers some relief to the many small providers and provider groups that were not on track to meet the October 1, 2013 deadline.

CMS reiterated its stance that the number of providers unable to meet a 2013 deadline would be “significant enough to cause a disruption in health care claim payments.” CMS also noted unanticipated delays in Version 5010 adoption—upon which a successful transition to ICD-10 depends—and that other mandates have strained health system resources.

CMS concedes that a one-year delay will impose additional implementation costs for providers and payers alike, amounting to as much as $6.6 billion in new costs. However, the agency estimates that this amount is less than the expected cost of payment disruptions for unprepared providers if the 2013 deadline had remained. Modeling in the final rule also suggests that a one-year delay would be less costly than a delay of two years or longer. In their decision, CMS resisted suggestions to stagger implementation by provider entity or code set or to skip ICD-10 altogether in favor of the emerging ICD-11 standard.

Today’s announcement brings a measure of certainty, and we expect many providers to approach their preparations with a renewed sense of purpose.

This delay provides an opportunity to make up for lost time—but not a full reprieve—for providers that were unlikely to be prepared for the earlier compliance date. Providers that were on track for 2013 will benefit from additional time for full end-to-end testing to avoid potential revenue disruptions.

Five Imperatives for Providers

We see five key imperatives for providers, regardless of their current readiness, including several “no-regrets” investments that will pay off before ICD-10 adoption and after the transition:

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 yesterday’s 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%-50% 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. (Visit our ICD-10 resources 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.