What Will the Switch to ICD-10 Cost You?

In 2008, the federal government proposed a new rule that would require all physician practices and clinical laboratories to use a new coding set – the ICD‐10‐CM code set – as the standard code set for coding diagnoses on all HIPAA standard transactions. ICD-10, an update of the ICD‐9 code set, expands diagnosis codes by a factor of five, enabling greater specificity in the coding of diagnoses. It also allows for expansion in future years, and improves the description of current technologies. The U.S. healthcare system will begin transforming from ICD-9 to ICD-10 on October 1, 2014.

 

As with any system upgrade, there are going to be costs in both time and money. Nachimson Advisors estimates that the total cost impact of the ICD‐10 mandate on a small practice will be $83,290; a medium practice will pay $285,195, and a large practice will pay $2.7 million. This upgrade also begs the question of what processes a practice has in place to capture these costs in order to analyze the expense vs. capitalization question.

 

There are a number of costs associated with the system upgrade. These include the cost to modify existing computer systems to accept ICD-10 fields or replace those systems that cannot be made compliant; enhancing electronic medical records; training coders to use the new system; and training clinicians to improve documentation practices in order to contain the detail necessary to support the specificity needed for ICD-10 coding.

 

Before implementing the new system, collaborate with your IT department to understand the costs expected to be included for the conversion and the timeline. Understand what modifications are being performed to your IT system and whether they will result in additional functionality; discuss this with your auditors early. Have a review of the anticipated costs and associated accounting performed to avoid year-end surprises.

 

Don’t neglect conversations with vendors or payers, either. How do you know if they’ll be ready? According to a March 2013 survey by the Aloft Group, three out of four providers are still 25 percent or less complete in ICD-10 preparation, and one-third (of 260 respondents) had not even started the process.

Begin calling your IT vendors and business partners and document the discussions. Some questions to ask include:

• Will the product be compliant and have full functionality?

• What is the anticipated product release date?

• Will the product have dual processing capabilities?

• Will there be any algorithms within the product that map or crosswalk data between ICD-9 and ICD-10 and vice versa?

 

Rate your vendors by risk of non-compliance and develop mitigation and work-around plans.

 

You should follow this same approach for payers. Questions to ask include:

• Will payers fully remediate or ‘map and wrap?’

• Will there be changes to pre-authorization or medical necessity criteria?

• What group and version will be utilized for MS-DRGs?

• Do they anticipate any medical policy changes?

• When will payer systems be available for testing?

• When will they be able to accept ICD-10 coded claims?

• Will they reimburse unspecified codes?

 

Remember that workers’ compensation and auto insurance claims are NOT required to move to ICD-10.

It’s important to prepare your denials team now by shoring up the current state of follow-up activities, write-off criteria and tracking/reporting. Understand through payer discussions how you might be denied (line-item level, batch or claim level), and meet regularly to take action on top denials, resolve issues and develop plans.

 

From an accounting perspective, incurred project costs will need to be segregated among process reengineering activities; activities that develop or modify software; and costs associated with acquisition of fixed assets. Process reengineering activities, which should be expensed as incurred, include assessing the current state of business processes, process redesign or reengineering, or workforce restructuring.

 

Activities that develop or modify software require an assessment of the specific facts and circumstances of your business, but need to answer the question: Will this modification result in additional functionality beyond the original software’s capabilities and qualify as an upgrade or enhancement? If so, these costs should be expensed or capitalized; modifications that do not result in additional functionality are expensed as maintenance costs. Costs associated with the acquisition of fixed assets are accounted for in accordance with your business policy for capitalizing long-lived productive assets; costs associated with training coders and clinicians to comply with ICD-10 requirements will be expensed as incurred.

 

Because the transition to ICD-10 can be challenging, talk to a professional for help.