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November 14, 2011

Everything I need to Know About ICD-10 Revenue Neutrality I Learned from a Cartoon


Do you remember the Warner Bros. cartoon “A Sheep in the Deep” with the sheepdog and the wolf (Sam and Ralph, respectively) who both punch a time clock and begin to wreak havoc upon each other until a whistle blows and they break for a leisurely, collegial lunch?

Eventually the whistle blows again and they proceed to throttle each other some more; the halcyon lunch break was nice, but it was gone shortly thereafter and replaced with a harsher reality.

We think ICD-10 revenue neutrality will follow the same path. At present our payer and provider clients are all on the revenue neutrality bandwagon. Neither side wants the transition to ICD-10 to have a negative material impact on cash flow. Therefore, neither side is driving toward maximizing financial benefit from the mandated transition. As in the cartoon, a (metaphoric) whistle blew and a new dynamic exists.

This mutually beneficial philosophy is likely to last through the ICD-10 “go live” date of Oct. 1, 2013. But we don’t see it surviving for more than six to nine months after.

Rather, come the first or second quarter of the 2014 calendar year, we expect that payers or providers in a dominant market-share position in any given geographic area or market segment will begin to impose their will, to borrow a phrase common to mixed martial arts.

Payers that have the lion’s share of the members for a given provider will try to leverage the increased specificity and power of ICD-10 to reimburse less.

Providers that have a particularly strong negotiating posture in a market will try to leverage the change to be reimbursed more. Revenue neutrality will become a defunct notion, yielding to Darwinistic survival-of-the-fittest and capitalistic market forces.

We can’t foresee any outcome other than the eventual demise of revenue neutrality. The changes (reductions) in Medicaid and Medicare reimbursement and other market forces are going to suck money out of the system and we anticipate fairly mercenary behavior among trading partners seeking to recoup some of their losses.

So while you participate and cooperate with your trading partners now to achieve revenue neutrality, you should consider how to prepare for the post-implementation period of revenue bias. We think you would do well to be prepared with both offensive and defensive strategies and tactics.

Whether you’re in an offensive or a defensive position, key infrastructural elements will be your ability to model and contract efficiently.

Improved modeling processes and tools will be required to define various financial outcomes based on changes to your or your trading partners’ pricing and contracting strategies (though this is especially true if you find yourself in a defensive posture). Improved contracting processes will be required to capture the new terms and conditions and codify them within your production systems.

Whether you view your organization as the sheepdog or the wolf, we recommend that you evaluate your ability to model (which likely will require the ability to cross-correlate ICD-9 and ICD-10 data) and your ability to price and contract. The lunch-ending second whistle blow is inevitable.

About the Author

John Wollman is the Executive Vice President of Healthcare for HighPoint Solutions, a Management and Information Technology consulting firm focused on Healthcare and Life Sciences.  John is responsible for HighPoint’s Healthcare industry group, catering to Payers and Providers.  John is a recognized expert in several healthcare business domains (Reform, HIPAA 5010, ICD-10, Platform Strategy) and technical domains (Master Data Management, Analytics).  Since graduating from Duke University, John has held executive level positions at consulting and technology companies over his 25 years in business.

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