December 19, 2011

ICD-10’s Potential Impact on Provider Reimbursement

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By now you all have heard about the transition to ICD-10-CM/PCS, particularly the increase in the volume of codes, the change in code structure and the predicted impact on productivity. Interestingly enough, however, there has been very little available information regarding the predicted impact of ICD-10 on provider reimbursement.

Based on recent projections, the cost to transition to ICD-10 will be approximately $80 million more than the benefit savings—at least during the first 15 years. As a result, there will be “winners” and “losers” in the transition. Given the transition costs that both providers and payers must bear, it is even more imperative to understand ICD-10’s predicted impact on reimbursement to ensure adequate preparation and, ultimately, success. So with one goal in mind, to determine the potential impact of ICD-10 on facility-based provider reimbursement, I’d like to share what I’ve uncovered.

Determining the Impact on Reimbursement

The first step in determining the potential impact of ICD-10 on facility-based reimbursement is to consider which payers will be required to use ICD-10 codes. Often when we talk about ICD-10 we tend to focus on CMS and its MS-DRG payment methodology, however based on the fact that all HIPAA-covered entities are required to transition to ICD-10, all payers will utilize ICD-10 codes, with the exception of liability payers. (The liability payers would benefit from ICD-10’s granularity, so it is likely just a matter of time before they transition as well.)

The next step requires us to consider the current use of ICD-9-CM codes and their impact on all the major payment methods used to reimburse facility-based providers. Examining the number of payment methods that currently utilize ICD-9-CM codes to determine payment reveals that there are a number of payers, provider settings and payment methodologies that will be impacted by the transition to ICD-10 – not just acute-care inpatient Medicare stays.

The likelihood of some payment methodologies to be impacted by ICD-10 to a greater degree than others is a function of both inherent and intentional impact.

Inherent impact represents compromises a payer must make in converting to the new code sets in an attempt to remain revenue neutral that result purely from the differences between the three code sets (ICD-9-CM, ICD-10-CM and ICD-10-PCS).

Intentional impact, however, is the conscious effort to take advantage of the granularity in ICD-10 to change reimbursement (either up or down). Inherent and intentional impacts will affect both payers and providers to some degree, primarily based on each payment methodology’s dependence on ICD codes to determine payments. Certainly, not all payment methods are based on diagnosis and procedure codes, but those that are will be the most vulnerable to manipulation by payers and providers.

This financial risk could be favorable for a payer, for example, and unfavorable for a provider (or vice versa) depending on who is better prepared to use ICD-10 granularity as a strategic advantage.

So, what payment methodologies have the greatest opportunities for manipulation with ICD-10? Table 1 provides a list of various methodologies used to reimburse facility-based providers and their vulnerabilities to both compromises and manipulations as they pertain to ICD-10.

 


 

Table 1.

Reimbursement Scheme

Inherent Impact

Intentional Impact


 

 

 

 

Case Rate

Moderate

Potentially significant

 

MS-DRGs

Moderate

Potentially significant

 

CMS-DRGs

Moderate

Potentially significant

 

AP-DRGs, APR-DRGs, MS-LTC-DRGs

Moderate

Potentially significant

 

IPF-PPS

Moderate

Potentially significant

 

Inpatient Rehab PPS (IRF-PPS)

Skilled Nursing (RUGs)

Home Health (HHRGs)

Risk Adjustment (HCC/RXHCC)

Moderate

Minimal

Moderate

Moderate

Moderate

Minimal

Potentially significant

Potentially significant

 

Case Rate Carve-outs

Minimal to moderate

Moderate

 

Episode-based Reimbursement

Minimal to moderate

Moderate

 

Performance-based (HEDIS)

Moderate

Moderate

 

Hospital-billed Charges

Usual and Customary Reimbursement

Minimal to none

 

Minimal to none

 

Professional Services

Inpatient Billed Charges

Inpatient MS-DRG Rate

Minimal to none

Minimal to none

Moderate

Minimal to none

Minimal to none

Potentially significant

 

 

 

 

 

Source: Compiled based on ICD-10 Impact on Provider Reimbursement, Patricia Zenner, RN, Milliman, March 2010

 


 

For Medicare, the ICD-10 versions of MS-DRGs were developed with the goal of revenue neutrality in the short term, or within the first two years. For this reason, CMS use of MS-DRGs is unlikely to cause a significant redistribution of payments across hospitals. However, once sufficient ICD-10 data becomes available, CMS likely will use the increased specificity of ICD-10 to stratify payments using MS-DRGs further. If hospitals are losing money under the current ICD-9 version of MS-DRGs, inadequate clinical documentation will continue to result in underpayments and flawed data under ICD-10.

Commercial payers have about an 18-month lead in preparing and planning for ICD-10. As a result, they are in a better position to be strategic with ICD-10 and utilize what they have learned to manipulate payments to their advantage. As a provider, the goal of revenue neutrality requires coding accuracy with ICD-10: certainly no small feat. The goal of strategic advantage, however, requires both clinical documentation improvement and accurate coding. In the end, depending on the payer’s chosen payment method and its dependence on coded data for reimbursement, accurate payment will be dependent on a robust clinical documentation improvement program and accurate code assignment.

About the Author

Angela Carmichael, MBA, RHIA, CCS, CCS-P, is director of HIM compliance for J.A. Thomas & Associates. Angela earned a Bachelor of Science degree, in Health Services Administration from Barry University and a MBA from Nova Southeastern University. She is a Registered Health Information Administrator and also has achieved the designations of Certified Coding Specialist, and Certified Coding Specialist-Physician and AHIMA Approved ICD-10-CM/PCS Instructor.

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