April 23, 2013

ICD-10 Implementation: Russian Nesting Doll

By Fletcher Lance

Hospitals have long viewed the transition to ICD-10 as a process that will consume a significant amount of resources and time. The ICD-9 code set is expanding from 18,000 to 155,000 codes and the codes will expand, from three to four numbers to seven alpha-numeric characters. As a result, both the number and complexity of codes are increasing.

In the typical hospital setting, approximately five percent of ICD-9 codes drive 80 percent of the revenue. Additionally, our experience shows that between 900 and 1,200 codes actually move the needle. This approach confirms it takes only a small number of codes to impact a hospital’s bottom line, redefining a provider’s approach to ICD-10.

Identifying the Codes that Matter sets off a chain of events. The hospital can identify the Service Lines that Matter, the Physicians that Matter, the Coders that Matter, and the key processes and systems impacted.

What Really Matters: Revenue Neutrality+

In the face of Medicare cuts, Meaningful Use payments are dwindling. More services provided at lower reimbursement and revenue neutrality is a must for hospitals and physicians. If the revenue cycle gets knotted because of issues with coding, a significant number of hospitals and physicians will not only be at financial risk, but at risk of survival. Although the inpatient setting is the area of the largest focus, it’s important to not lose sight of denial management impacts related to the outpatient setting.

Targeted Approach: The Nesting Doll

The first step in breaking down the Nesting Doll is to clearly understand the services and service lines, their volume and dollars associated with those services. In the example below, the top five service lines account for 50 percent of the revenue.

Opening the next doll, the orthopedics service line represents approximately 10 percent of the revenue, but has significant risk in terms of revenue impact. Most hospitals understand their service lines and their contribution, but in the case of ICD-10, the real challenge is predicting the impact of transitioning code set and the resulting DRG shifts.

Given the risk posed by the transition to ICD-10 and the corresponding DRG shifts in orthopedics, it is worth opening the next doll. The example below is related to hip replacement with complication; in this case, hypertension. In the example, the exact same procedure is performed consuming the same amount of time, resources, and effort: the only difference is coding.

As a result of the transition to ICD-10, the Medicare weight is lower, thus shifting the DRG code and reducing the revenue by 18 percent. This example is especially important because hip replacement surgery, DRG 470, is one of the most common procedures performed at hospitals around the country.

The hip replacement is a good representation of the type of shifts providers could be experiencing after the transition to ICD-10. Clearly, these shifts need to be understood and addressed proactively. Like the nesting doll, there will be something valuable at each level, but the real objective is to discover what is at the core; in this case, what’s really an area of impact.


Revenue Neutrality + — Practice Makes Perfect

The example highlights the risk from the shift from ICD-9 to ICD-10. As with many things in life, early identification and practice help remediate the risk posed by DRG shifts. The first step is identifying the Codes that Matter; the next step is to understand the service lines that matter and, finally, to address the codes within each service line that really drive the revenue.

Once these steps have been taken, a comprehensive DRG shift analysis can be done, pinpointing exactly which cases have the most risk as a result of the change to ICD-10. Once the risk is identified, there are a variety of strategies, like dual coding, targeted training, supporting technology, and additional testing, which will reduce the risk significantly.

Reaching Revenue Neutrality+

Hospitals have never been under more pressure, meeting Meaningful Use, implementing ICD-10, and addressing proposed cuts to Medicare payments. In response, hospitals will have to take a proactive approach to reach budget neutrality. The sooner hospitals identify the service lines and associated cases that drive the revenue and the associated DRG shifts, the better. The hospitals that delay are at significant risk of a tangle of processing issues and denials post-October 2014 that could strangle their operations. The good news is that with a systematic approach as outlined above, hospitals and physicians can reach budget neutrality and identify new opportunities along the way.

About Fletcher Lance

Fletcher Lance serves as vice president and healthcare lead for North Highland, possessing more than 18 years of experience in healthcare management and information technology consulting. He specializes in IT implementations, process improvement, clinical management, patient management and IT evaluation and selection.

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