ICD-10 cost estimates increased for most physicians

Feb. 12, 2014
The mandated implementation of the ICD-10 code set will be dramatically more expensive for most physician practices than previously estimated, according to an updated cost study
 initiated by the American Medical Association (AMA) and conducted by Nachimson Advisors.

The 2014 study found that in some cases, the estimated ICD-10 implementation costs are nearly three times what had been predicted by a landmark 2008 study also produced by Nachimson Advisors.

The federal government requires the health care industry to transition to the ICD-10 code set for reporting diagnoses on all health care claims and other transactions as of Oct. 1, 2014. Implementing ICD-10 will result in a five-fold increase in diagnosis codes from the current 13,000 codes to a staggering 68,000 codes. It is a massive administrative and financial undertaking for physicians who are already overwhelmed by overlapping regulatory requirements and uncertainty in a rapidly changing health care landscape.

In the AMA's continuing effort to urge the U.S. Department of Health and Human Services to make good on its commitment to improve the regulatory climate for physicians, the AMA today sent a letter
 to Secretary Kathleen Sebelius asking her to again reconsider the ICD-10 mandate.

“The markedly higher implementation costs for ICD-10 place a crushing burden on physicians, straining vital resources needed to invest in new health care delivery models and well-developed technology that promotes care coordination with real value to patients,” said AMA President Ardis Dee Hoven, M.D. “Continuing to compel physicians to adopt this new coding structure threatens to disrupt innovations by diverting resources away from areas that are expected to help lower costs and improve the quality of care.”

In 2008 the predicted cost to implement ICD-10 ranged from $83,290 for a small practice, $285,195 for a medium practice and $2,728,780 for a large practice. Based on new information, the 2014 study found the following cost ranges for each practice size based on variable factors such as specialty, vendor and software.

Small practice:        $56,639 – $226,105
Medium practice:    $213,364 – $824,735
Large practice:        $2,017,151 – $8,018,364

Two-thirds of physician practices are projected to fall into the upper range of current cost estimates that are considerably higher than the 2008 estimates. These practices are expected to incur major costs associated with software upgrades to accommodate the transition to ICD-10.

In addition to software upgrades, the total costs include the expense of training, practice assessments, testing, payment disruptions and productivity loss for physicians.

  Typical Small Practice Typical Medium Practice Typical Large Practice
Training $2,700-$3,000 $4,800-$7,900 $75,100
Assessment $4,300-$7,000 $6,535-$9,600 $19,320
Vendor/Software Upgrades $0-$60,000 $0-$200,000 $0-$2,000,000
Process Remediation $3,312-$6,701 $6,211-$12,990 $14,874-$31,821
Testing $15,248-$28,805 $47,906-$93,098 $428,740-$880,660
Productivity Loss $8,500-$20,250 $72,649-$166,649 $726,487-$1,666,487
Payment Disruption $22,579-$100,349 $75,263-$334,498 $752,630-$3,344,976
Total Costs $56,639-$226,105 $213,364-$824,735 $2,017,151-$8,018,364

The 2014 estimates include much higher figures due in part to significant post-implementation costs, including the need for testing and the potential risk of payment disruption. The Centers for Medicare & Medicaid Services has estimated that claims denial rates could increase 100 to 200 percent in the early stages of coding with ICD-10.

Costs are not the only challenge facing physicians in implementing ICD-10. Data shows that software vendor readiness for the new code set is significantly lagging. Few practices have therefore been able to conduct appropriate testing or implement workflow changes to ensure the new codes are working as intended.

The AMA will continue to convey the significant financial and administrative burden that the ICD-10 mandate places on physicians to policymakers in Washington. In the meantime, the AMA is devoting considerable effort to educationalprogramsresources and guidance that will help physicians prepare for what is sure to be a very disruptive change.

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