Updated on: March 16, 2016

Revenue at Risk: Financial Realities of ICD-10 Conversion

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Original story posted on: November 11, 2011

Have you conducted an ICD-10 financial-readiness assessment? How will your facility pay for the new system? Do you know how the conversion will impact your cash reserves, and how you will protect and manage those reserves?

 

During the October 12 HIMSS virtual briefing, the two speakers listed below addressed those questions and others during their presentation entitled Engage Your Bottom Line: Understanding the Financial Implications of ICD-10.

  • Denise Hall, RN, BSN, Pershing, Yoakley & Associates, P.C. Shareholder
  • June St. John, CTP, Senior Vice President, Wholesale Banking Healthcare Product Manager, Wells Fargo

Hall launched the presentation with a dose of reality by saying, "All aspects of the revenue cycle will be affected." To ease the transition, she and St. John offered the following advice for managing the big changes ahead.

Revenue at Risk

Hall quoted several eye-opening findings from the HealthLeaders Media 2011 Industry Survey1. For starters, almost 50 percent of the financial leaders who took the survey expect to lose revenue over the next five years. Interestingly, 47 percent of the number identified incomplete physician documentation as the top reason for the expected loss.

The also expect the following to cause revenue decline although, as you can see, the percentages are significantly lower.

  • Payers will not be ready in time: 15 percent;
  • Coding staff mistakes: 12 percent;
  • Shift in MS-DRGs: 11 percent;
  • Delays in submission of bills: 7 percent; and
  • Our technology won't be ready in time: 4 percent.

The HealthLeaders Media survey also collected responses to this question: "What is your organization's projected cost to be ICD-10 ready by 2013 (including labor, hardware, software, training consultants, etc.)?" The majority (38 percent) expect costs of less than $500,000. Next in line are the 20 percent that expect it to cost between $500,000 and $1 million, and 18 percent are "not sure". Just 5 percent believe it will cost somewhere between $5.1 million and more than $20 million.

Another estimate quoted by Hall came from the American Society of Clinical Oncology, which determined organization cost by bed size. For example, a 400-plus facility may need to spend between $1.5 million and $5 million, while a facility with less than 100 beds may spend between $100,000 and $250,000.

By the looks of these numbers, it's clear to see why healthcare leaders should be concerned about the cost of transition and should, as recommended by Hall and St. John, be working diligently to prepare for it and consider the following.

Start with the Basics

As Hall explains, there are several very basic reasons for decreased cash flow. For example, the average claims-error rate is expected to increase from the current 3 percent to between 6 percent and 10 percent.

In addition, the Centers for Medicare & Medicaid Services (CMS) and the American Health Information Management Association (AHIMA) estimate that accounts receivable (A/R) days will increase between 20 percent and 40 percent. They also advise healthcare organizations to expect payment declines for more than two years after the implementation date.

1Minich-Pourshadi, Karen: ICD-10 Puts Revenue at Risk, HealthLeaders Media Intelligence, July 2011. This report may be downloaded at http://www.healthleadersmedia.com/intelligence/071/industry-insight-report.html.


Adopting the risk-mitigation strategies like those below may help to slow the financial drain.

  • Generate ongoing awareness about the impact of the upcoming ICD-10 transition at all levels of your organization.
  • Evaluate organizational structure and departmental responsibilities and assess all levels of readiness, or lack thereof, for the upcoming transition.
  • Determine operational needs, such as software and technology upgrades, and/or new software, reports, forms, interfaces, etc. needed.
  • Make sure you have the appropriate number of staff to handle the increased work volume. In addition to ensuring that current coding staff has the training needed, you may need to hire additional staff in information technology, health information management (HIM) and/or the revenue cycle. Consider outsourcing if needed.
  • Focus on ensuring that physicians realize the need for comprehensive documentation, which will directly impact payment and, as noted above, may cause revenue decline. Identify specific documentation gaps and provide focused education in those areas after reviewing the new ICD-10 documentation guidelines.

Advance the More Complex

Calculating the potential financial impact of the ICD-10 conversion is an essential task that should be completed as soon as possible. Without the assessment, organizations cannot budget accordingly, which is why, as Hall and St. John emphasized, now is the time to begin this planning if it isn't already underway.

Start by reviewing expenses and identifying ways to save money in facility operations. According to Hall and St. John, the operative word here is aggressively. For example, aggressively manage inventory levels to avoid overstock costs and reduce other administrative overhead where possible. If you don't already, be sure to begin managing your aging A/R more aggressively, and minimize charge-offs and denied payments. Work all denials and rejections aggressively to eliminate their occurrence, and focus on receiving third-party-payer payments the first time you submit claims.

Move then from internal investigations to external, and prepare the questions you want to ask your financial institutions. According to St. John, the questions, which are listed below, are the same for all types of healthcare providers.

  • Can you help me forecast my working capital?
  • What steps can I take now to manage some of this myself?
  • What additional products and services can the bank offer the accelerate days in AR and extend supplier's terms and days in accounts payable?
  • What credit products can help with unexpected negative impacts to working capital during the initial period of the ICD-10 transition (late 2013 and early 2014)?

Work Closely with All Payers

Last but not least, says St. John,  "Engage in active and candid discussions with your primary third-party payers."

In order to minimize disruption, identify shared goals and objectives. Start by telling payers about your plans for the transition, including system changes and timing, staff training, and any additional oversight you will be implementing. Ask them about their plans and whether they intend to implement any new rules, policies or procedures for claims submission or resubmission.

Most importantly, providers should remember that their payers need to be ready for the implementation for them to be ready. When they can say that their systems are in place and they've tested with payers and can process ICD-10, that's the definitive ready.

 

Janis Oppelt

Janis keeps the wheel of words rolling for Panacea®'s publishing division. Her roles include researching, writing, and editing newsletters, special reports, and articles for RACMonitor.com and ICD10Monitor.com; coordinating the compliance question of the week; and contributing to the annual book-update process. She has 20 years of experience in topics related to Medicare regulations and compliance.