August 10, 2014

No ICD-10 Delay: Move to Take the Pulse of Financial Metrics Now

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Transitioning to ICD-10 has been an ongoing challenge to providers due to resource demands and time and monetary restraints. Various providers have performed an initial assessment and until recently had been proceeding to do the following:

  • Determine what is needed to be compliant on Oct. 1, 2014; and
  • Determine how to ensure a smooth transition and financial neutrality following implementation.

Effective July 31, 2014, the U.S. Department of Health and Human Services (HHS) signed off on a new deadline for ICD-10: Oct. 1, 2015. Until the deadline was finalized, reactions from various stakeholders had varied, to include the following:

  • Scramble and revise strategy;
  • Sustain what we built;
  • Slow down until the compliance date arrives; or
  • Wait until a new direction is voiced by the Centers for Medicare & Medicaid Services (CMS) or other healthcare organizations.

How to proceed now?

As we move to the latter half of 2014 and beyond to 2015, the relatively cheap funding available now (due to low interest rates) may or may not remain available. What if the prime rates rise in late 2014 or in 2015?

As many provider organization(s) are holding onto thin margins, any rise in interest rates could have a negative effect on the financials and the availability of credit. The goal of every provider organization should be to remain financial neutral – i.e., maintaining the same results from a financial perspective under ICD-9 as with ICD-10. However, the single most overlooked factor associated with adjusting to the looming transition is benchmarking current key metrics associated with the revenue cycle and taking actions to improve.

While provider organizations are deploying various strategies to implement ICD-10, a key recommended action is to benchmark the current revenue cycle functions. The steps involved in doing so are:

  1. Identify key functions (below is a sample list for discussion purposes only).

Function

Description

Risk areas

Patient access

Prior authorization and referrals

No-show areas; insurance verification rate

Claims/ Backend management

Submission of claims/ Claims management

Denied claims; Payor turnaround time

Financial services

Cash on hand and the AR/ payor

AR per payor; AR greater than 90 days

Clinical documentation

A tremendous amount of literature has been written to address these two functions.

Training


(HFMA has a reference guide to measure revenue cycle performance).

  1. Evaluate key benchmark metrics  for each function
    (for example, current no-show rate should be less than 5 percent; insurance verification rate should be greater than 95 percent, and by  payor; claims denial should be less than 7 percent, etc.).
  2. Analyze the current metrics and issue a flag based on the severity.
    For example, if the current rate of claims denied with Payer A is 15 percent, issue a yellow/red flag for the metrics and perform an internal audit as to the reasoning.
  3. Readjust key benchmarks metrics.
  4. Set an interim goal regarding the benchmarks metrics for post-ICD-10 implementation. A smooth transition may be difficult to achieve due to various reasons such as payer issues, clinical documentation issues, etc., so setting an interim goal is what organizations should strive for.
  5. Set a contingency budget for the fiscal year based on the probability of occurrence and the total risk of mitigation for each issue. For example, consider claims constituting over/underpayment (for discussion purposes):

Risk #

Risk Name

Probability of Occurrence

Mitigation Cost

Planned Contingency Cost

RM – 1

Remittance – posting (over/under payment)

Moderate

Overtime for billing; issue resolution with the payers, etc

$ 10,000


 

  1. Create an XL grid as follows:

Functions

Risk

Current Status

Post ICD10

Industry Avg

Patient access/insurance verification

Low

85 percent

90 percent

95 percent

(Note: the current status can be improved upon prior to ICD-10 implementation to bring it to 90 percent or greater.)

Benchmarking key financial management functions is a continuous process by which an organization can measure and compare its own processes with those of organizations that are leaders in a particular area.

What does the benchmarking reveal?

Such benchmarking will reveal the current inefficiencies in an organization. For example:

If the claims denial rate with a payer is 20 percent, going forward, the denial rate post-ICD-10 could remain the same or worsen. On further analysis, the reason could be missing referrals to a benefit issue regarding eligibility. The patient access workflow needs to be modified to handle patient eligibility.
If the payment received from a payor arrives after 90 days, going forward, post-ICD-10 implementation, the payment received could remain the same or worsen. The current payer contract needs to be reviewed as to the gray areas, the payer’s financial status, and whether to pursue a full disclosure with the payer.

Currently available electronic health record/billing software has reports that produce the data needed. What should be done is to combine data from the various reports and create an XL grid (as mentioned above) indicating the current benchmarks and how the organization compares itself against the industry.

This exercise will help provider organizations improve their current financial metrics, so going forward and post-ICD-10 areas of concern are identified and addressed.

Again, the goal of every provider organization should be is financial neutrality. And such organizations have two choices – either do things the same way as always, assuming it is the default, or do things in the best possible way and improve current benchmark metrics.

The cost of preparation of benchmarks is cheap now, and it is important to note that if an organization does nothing, then the cost of the borrowing could be higher later.

About the Author

Paresh K. Shah is president of MindLeaf Technologies, Inc., and a member of HIMSS –ICD-10 Taskforce as well as the co-chair for HIMSS Playbook.

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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.
Paresh K. Shah

Paresh K. Shah is president of MindLeaf Technologies, Inc., and a member of HIMSS –ICD-10 Taskforce as well as the co-chair for HIMSS Playbook.