August 4, 2014

Estimated Cost of up to $6.8 Billion for Delay Was Key Factor in Formulation of ICD-10 Final Rule

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Estimated costs ranging from $1.1 to $6.8 billion for HIPAA-covered entities, sums associated with delaying the adoption of ICD-10 beyond October 2015, appear to have played a significant role in the formulation of the final rule that was posted yesterday in the Federal Register by the U.S. Department of Health and Human Services (HHS).

 

The final rule establishes Oct. 1, 2015 as the new ICD-10 compliance date and also requires the continued use of ICD-9 through Sept. 30, 2015.

In promulgating the final rule, HHS estimated that the one-year delay of the compliance date for ICD-10 would add a range of 10 to 30 percent to the total cost that healthcare entities had already spent or budgeted for the transition to ICD-10.

“We use the same rationale and methodology in our analysis of costs and benefits in the Regulatory Impact Analysis (RIA) of this final rule, and conclude that a delay of one year, as opposed to a longer delay, will be the least costly and most fiscally responsible way to implement the requirements of Section 212 of Protecting Access to Medicare Act of 2014 (PAMA),” the rule states. “We estimate the cost of a one-year delay to HIPAA-covered entities will be $1.1 to $6.8 billion.”

ICD-10 Preparedness

From the time that PAMA was passed, a frequent lament of providers was that they, as well as payers and vendors, had invested considerable time and resources in preparing for the October 2014 implementation date. In fact, ICD10monitor recently ran an exclusive story, “ICD-10 Implementation: Where Do We Really Stand?” on a readiness survey conducted by the AAPC. In that story, as reported by Rhonda Buckholtz, director of the association’s ICD-10 education and training, “nearly 75 percent of the survey respondents reported that they are making significant progress toward preparing for ICD-10 implementation.”

“The survey also indicated that about 25 percent of those surveyed had completed all of the necessary ICD-10 training; 13 percent indicated that they were prepared for the Oct. 1, 2014 implementation date; and 23 percent were actively testing with their ICD-10 vendors when PAMA was signed into law,” the final rule indicated. “In order to preserve this momentum and encourage continued compliance efforts, we are establishing the shortest delay permitted by law, which is one year.”

Final Rule, Final Analysis

The final rule notes that a one-year delay, as opposed to a longer delay, would be the least expensive option for the healthcare industry. Using cost estimates from the 2012 rule that delayed ICD-10, the new final rule also provides a range of low, high and mean cost estimates associated with a one-year delay.

 

2015 COSTS

LOW

(MILLIONS)

HIGH

(MILLIONS)

MEAN

(MILLIONS)

COMMERCIAL PAYERS

$547

$2,786

$1,667

MEDICARE

$21

    $32

$27

STATE MEDICAID AGENCIES

       $169

$182

$176

HOSPITALS; LARGE PROVIDER ORGANIZATIONS

$422

$3,849

$2,136

TOTAL COSTS

$1,161

$6,850

$4,000

The final rule additionally included a regulatory impact analysis (RIA) to determine the costs and benefits of adopting ICD-10. In so doing, a baseline was established by HHS as to what costs likely would have been incurred absent this final rule, and then the baseline was compared to the costs of the delay. (The RIA in this final rule also relied largely on the estimates in the RIA of the 2012 ICD-10 delay final rule because that rule also estimated the cost of a one-year delay).

The RIA did not analyze the impact on other providers, such as nursing and residential care facilities, dentists, or durable medical equipment (DME) suppliers. Nor did the RIA include an analysis of costs or benefits to healthcare clearinghouses and transaction vendors. Also, although self-insured group health plans meet the HIPAA definition of a "health plan," they were not included in the impact analysis.

The final rule also acknowledged a lack of “statistically valid data regarding the resources small providers have expended.” Nonetheless, the assumption is being made that the change in the compliance date will “negatively impact some percentage of small providers in terms of cost.” The final rule concludes by saying “the one-year delay may also give relief to small providers that were not prepared by affording them another year in which to spread costs and resources.”

The Bottom Line

To reiterate, with the exception of estimates of the impact on Medicare and state Medicaid agencies, the final rule uses the cost estimates from the 2012 ICD-10 delay final rule to conclude that “a one-year delay would add a range of 10 to 30 percent to the total cost that these entities have already spent or budgeted for an Oct. 1, 2014 implementation date, for an additional cost to commercial entities of approximately $1 billion to $6.8 billion.”

We shall see.

 

Disclaimer: Every reasonable effort was made to ensure the accuracy of this information at the time it was published. However, due to the nature of industry changes over time we cannot guarantee its validity after the year it was published.
Chuck Buck

Chuck Buck is the publisher of ICD10monitor and is the executive producer and program host of Talk Ten Tuesdays.