HIPAA Administrative Simplification: Modification to Medical Data Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS, 49796-49832 [E8-19298]
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49796
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Office of the Secretary
45 CFR Parts 160 and 162
[CMS–0013–P]
RIN 0958–AN25
HIPAA Administrative Simplification:
Modification to Medical Data Code Set
Standards To Adopt ICD–10–CM and
ICD–10–PCS
Office of the Secretary, HHS.
Proposed rule.
AGENCY:
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ACTION:
SUMMARY: This proposed rule would
modify two of the medical data code set
standards adopted in the Transactions
and Code Sets final rule published in
the Federal Register. It would also
implement certain provisions of the
Administrative Simplification subtitle
of the Health Insurance Portability and
Accountability Act (HIPAA) of 1996.
Specifically, the proposed rule would
modify the standard code sets for coding
diagnoses and inpatient hospital
procedures by concurrently adopting
the International Classification of
Diseases, Tenth Revision, Clinical
Modification (ICD–10–CM) for diagnosis
coding, and the International
Classification of Diseases, Tenth
Revision, Procedure Coding System
(ICD–10–PCS) for inpatient hospital
procedure coding. These new codes
would replace the International
Classification of Diseases, Ninth
Revision, Clinical Modification (ICD–9–
CM) Volumes 1 and 2, and the
International Classification of Diseases,
Ninth Revision, Clinical Modification
(CM) Volume 3 for diagnosis and
procedure codes, respectively.
DATES: Comments will be considered if
we receive them at the appropriate
address, as provided below, no later
than 5 p.m. on October 21, 2008.
ADDRESSES: In commenting, please refer
to file code CMS–0013–P. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
four ways (please choose only one of the
ways listed):
1. Electronically. You may submit
electronic comments on this regulation
to https://www.regulations.gov, accessed
8–12–08. Follow the instructions for
‘‘Comment or Submission’’ and enter
the filecode to find the document
accepting comments.
2. By regular mail. You may mail
written comments (one original and two
copies) to the following address ONLY:
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Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, Attention: CMS–0013–
P, P.O. Box 8016, Baltimore, MD 21244–
8016.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments (one
original and two copies) to the following
address ONLY: Centers for Medicare &
Medicaid Services, Department of
Health and Human Services, Attention:
CMS–0013–P, Mail Stop C4–26–05,
7500 Security Boulevard, Baltimore, MD
21244–1850.
4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments (one original
and two copies) before the close of the
comment period to either of the
following addresses:
a. Room 445–G, Hubert H. Humphrey
Building, 200 Independence Avenue,
SW., Washington, DC 20201; or
(Because access to the interior of the
HHH Building is not readily available to
persons without Federal Government
identification, commenters are
encouraged to leave their comments in
the CMS drop slots located in the main
lobby of the building. A stamp-in clock
is available for persons wishing to retain
a proof of filing by stamping in and
retaining an extra copy of the comments
being filed.)
b. 7500 Security Boulevard,
Baltimore, MD 21244–8016.
If you intend to deliver your
comments to the Baltimore address,
please call telephone number (410) 786–
7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses
indicated as appropriate for hand or
courier delivery may be delayed and
received after the comment period.
Submission of comments on
paperwork requirements. You may
submit comments on this document’s
paperwork requirements by following
the instructions at the end of the
‘‘Collection of Information
Requirements’’ section in this
document.
For information on viewing public
comments, see the beginning of the
SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Donna Pickett (301) 458–4434 for ICD–
10–CM, Pat Brooks (410) 786–5318 for
ICD–10–PCS, and Denise Buenning
(410) 786–6711 for other questions.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All
comments received before the close of
the comment period are available for
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viewing by the public, including any
personally identifiable or confidential
business information that is included in
a comment. We post all comments
received before the close of the
comment period on the following Web
site as soon as possible after they have
been received: https://
www.regulations.gov, accessed 8–12–08.
Follow the search instructions on that
Web site to view public comments.
Comments received timely will be
available for public inspection as they
are received, generally beginning
approximately 3 weeks after publication
of a document, at the headquarters of
the Centers for Medicare & Medicaid
Services, 7500 Security Boulevard,
Baltimore, MD, on Monday through
Friday of each week from 8:30 a.m. to
4 p.m. To make an appointment to view
the public comments, please call
telephone number 1–800–743–3951.
Table of Contents
I. Background
A. Statutory Background
B. Regulatory Background: Adoption and
Modification of HIPAA Code Sets
II. ICD–9–CM
A. ICD–9–CM Volumes 1 and 2 (Diagnoses)
B. ICD–9–CM Volume 3 (Procedures)
C. Maintaining/Updating ICD–9–CM
Volumes 1, 2, and 3
III. Limitations of ICD–9–CM
A. Background
B. General
1. Space Limitations
2. Impact of Workarounds on Structural
Hierarchy
3. Lack of Detail
4. Mortality Reporting and Biosurveillance
IV. ICD–10 and the Development of ICD–10–
CM and PCS
A. Overview
B. ICD–10–CM Diagnosis Codes
C. ICD–10–PCS Procedure Codes
D. Statutory Requirements for Adoption of
ICD–10–CM and ICD–10–PCS
V. Comparison of ICD–9–CM versus ICD–10CM and ICD–10–PCS
VI. Discussion of SNOMED CT
VII. Alternatives to Adopting ICD–10 Code
Sets
A. Utilize Unassigned Codes
B. Use CPT–4 for Coding Hospital Inpatient
Procedures
C. Wait and Adopt ICD–11
VIII. Provisions of the Proposed Regulation
A. Use of ICD–10–CM and ICD–10–PCS by
Covered Entities
B. Effective Dates
C. Proposed Compliance Dates
IX. Collection of Information Requirements
X. Response to Comments
XI. Regulatory Impact Analysis
A. Overall Impact
1. Regulatory Flexibility Act (RFA)—
Impact on Small Business
B. Anticipated Effects
1. Objective
2. Background
a. Nolan and RAND Studies: Analysis and
Limitations
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i. Training
ii. Productivity Losses
iii. System Changes
3. Framework for Impact Analysis
a. The Impact Analysis Workgroup
4. Assumptions Underlying the Cost and
Benefit Analysis
5. Impacted Entities
6. Estimated Costs
a. Training
b. Productivity Losses
i. Inpatient
ii. Outpatient
iii. Physician Practices
iv. Improper and Returned Claims
c. Systems Changes
i. Providers and Software Vendors
ii. Payers
iii. Government Systems
d. Distribution of ICD–10 Transition Costs
7. Projected Benefits
a. More Accurate Payments for New
Procedures
b. Fewer Rejected Claims
c. Fewer Improper Claims
d. Better Understanding of New Procedures
e. Improved Disease Management
f. Better Understanding of Health
Conditions and Health Care Outcomes
g. Harmonization of Disease Monitoring
and Reporting Worldwide
C. Alternatives Considered
1. Relation to Other HIT Initiatives
D. Regulatory Flexibility Analysis
1. Alternatives Considered
2. Number of Small Entities
3. Conclusion
E. Accounting Statement
F. Conclusion
Regulatory Text
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I. Background
A. Statutory Background
The Congress addressed the need for
a consistent framework for electronic
transactions and other administrative
simplification issues in the Health
Insurance Portability and
Accountability Act of 1996 (HIPAA),
Public Law 104–191, enacted on August
21, 1996. HIPAA has improved the
Medicare and Medicaid programs and
the efficiency and effectiveness of the
health care system in general, by
encouraging the development of
standards and requirements to facilitate
the electronic transmission of certain
health information.
Through subtitle F of title II of that
statute, the Congress added to title XI of
the Social Security Act (the Act) a new
Part C, titled ‘‘Administrative
Simplification.’’ Part C of title XI of the
Act consists of sections 1171 through
1179. Section 1172 of the Act and the
implementing regulations make any
standard adopted under Part C
applicable to: (1) Health plans; (2)
health care clearinghouses; and (3)
health care providers who transmit any
health information in electronic form in
connection with a transaction for which
the Secretary has adopted a standard.
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Section 1172(c)(1) of the Act requires
any standard adopted by the Secretary
of the Department of Health and Human
Services (the Secretary) to be developed,
adopted, or modified by a standard
setting organization (SSO), except in the
special cases identified under section
1172(c)(2) of the Act. Under section
1172(c)(2)(A) of the Act, the Secretary
may adopt a standard that is different
from any standard developed by an SSO
if it will substantially reduce
administrative costs to health care
providers and health plans compared to
the alternatives, and the standard is
promulgated in accordance with the
rulemaking procedures of subchapter III
of chapter 5 of Title 5 of the United
States Code. Under section 1172(c)(2)(B)
of the Act, if no SSO has developed,
adopted, or modified any standard
relating to a standard that the Secretary
is authorized or required to adopt,
section 1172(c)(1) does not apply.
Section 1172 of the Act also sets forth
consultation requirements that must be
met before the Secretary may adopt
standards. The SSO must consult with
the following Data Content Committees
(DCCs) in the course of the
development, adoption, or modification
of the standard: the National Uniform
Billing Committee (NUBC), the National
Uniform Claim Committee (NUCC), the
Workgroup for Electronic Data
Interchange (WEDI), and the American
Dental Association (ADA). For a
standard that was not developed by an
SSO, the Secretary is required to consult
with each of the above-named groups
before adopting the standard. Under
section 1172(f) of the Act, the Secretary
must also rely on the recommendations
of the National Committee on Vital and
Health Statistics (NCVHS) and consult
with appropriate Federal and State
agencies and private organizations.
Section 1173(a) of the Act requires the
Secretary to adopt transaction standards
and data elements for the electronic
exchange of health information for
certain health care transactions. Under
sections 1173(b) through (f) of the Act,
the Secretary is required to adopt
standards for: unique health identifiers,
code sets, security standards for health
information, electronic signatures, and
the transfer of information among health
plans.
Section 1174 of the Act permits the
Secretary to review the adopted
standards and adopt modifications as
appropriate, but not more frequently
than once every 12 months in a manner
which minimizes disruption and cost of
compliance. The same section requires
the Secretary to ensure that procedures
exist for the routine maintenance,
testing, enhancement, and expansion of
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code sets, along with instructions on
how data elements encoded before any
modification may be converted or
translated to preserve the information
value of any pre-existing data elements.
Section 1175(b) of the Act provides
for a compliance date not later than 24
months after the date on which an
initial standard or implementation
specification is adopted for all covered
entities except small health plans, for
which the statute provides for a
compliance date not later than 36
months after the date on which an
initial standard or implementation
specification is adopted. If the Secretary
adopts a modification to a HIPAA
standard or implementation
specification, the compliance date for
the modification may not be earlier than
the 180th day following the effective
date of the adoption of the modification.
The Secretary may consider the nature
and extent of the modification when
determining compliance dates. The
Secretary may extend the time for
compliance for small health plans. We
are proposing that the compliance date
for the provisions of this proposed rule
for all covered entities, including small
health plans, would be October 1, 2011.
Please refer to the Transactions and
Code Sets final rule (65 FR 50312),
published in the Federal Register on
August 17, 2000, and the Privacy Rule
(65 FR 82462), published in the Federal
Register on December 28, 2000, for
further information about electronic
data interchange and the statutory
background.
B. Regulatory Background: Adoption
and Modification of HIPAA Code Sets
The Transactions and Code Sets final
rule appeared in the August 17, 2000
Federal Register (65 FR 50312). That
rule implemented some of the
requirements of the Administrative
Simplification subtitle of HIPAA, by
adopting standards for eight electronic
transactions for use by covered entities
(health plans, health care
clearinghouses, and those health care
providers who transmit any health
information in electronic form in
connection with a transaction for which
the Secretary has adopted a standard).
We established these standards at 45
CFR parts 160, subpart A, and 162,
subparts A, and I through R. The
Transactions and Code Sets
Modifications final rule, published on
February 20, 2003 (68 FR 8381),
modified the implementation
specifications for several adopted
transactions standards, among other
provisions. (Please refer to the HIPAA
Transactions and Code Sets final rule
and HIPAA Transactions and Code Sets
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Modifications final rule for detailed
discussions of electronic data
interchange and an analysis of the
public comments received during the
promulgation of both rules).
In the Transactions and Code Sets
final rule, we also adopted a number of
standard medical data code sets for use
in those transactions, including:
• International Classification of
Diseases, 9th Revision, Clinical
Modification (ICD–9–CM) Volumes 1
and 2 (including the Official ICD–9–CM
Guidelines for Coding and Reporting) as
maintained and distributed by HHS, for
coding diseases, injuries, impairments,
other health problems and their
manifestations, and causes of injury,
disease, impairment, or other health
problems.
• ICD–9–CM Volume 3 (including the
Official ICD–9–CM Guidelines for
Coding and Reporting) as maintained
and distributed by HHS, for the
following procedures or other actions
taken for diseases, injuries, and
impairments on hospital inpatients
reported by hospitals: prevention,
diagnosis, treatment, and management.
ICD–9–CM Volumes 1 and 2, and 3
were already widely used in
administrative transactions when we
promulgated the Transactions and Code
Sets rule. We decided that adopting
these existing code sets would be less
disruptive for covered entities than
modified or new code sets. In the
Transactions and Code Sets final rule
(65 FR 50327), we discussed comments
on using the ICD–10–CM and ICD–10–
PCS code sets as future HIPAA standard
medical data code sets. Some
commenters praised the accuracy of the
ICD–10–CM and ICD–10–PCS code sets,
others raised concerns about the
differences between the ICD–9–CM and
ICD–10–CM and ICD–10–PCS code sets,
including the increased level of detail in
ICD–10–PCS. We responded that
additional testing and revision were
needed before adopting the ICD–10–CM
and ICD–10–PCS code sets as a
standard. (Please refer to the
Transactions and Code Sets final rule
for details of that discussion (65 FR
50327).)
In addition to standard transactions
and code sets, the final rule adopted a
procedure for maintaining existing
standards, for adopting modifications to
existing standards, and for adopting
new standards. Our process in
proposing the adoption of ICD–10–CM
and ICD–10–PCS, to replace ICD–9–CM
Volumes 1 and 2, and 3, follows that
procedure. The following is a summary
of the consultation requirements for the
Secretary for the adoption of standards
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under sections 1172(b) through (f) of the
Act:
For standards that have been
developed, adopted, or modified by a
standard setting organization, the SSO
must consult with the following
organizations in the course of such
development, adoption, or modification:
• The National Uniform Billing
Committee (NUBC).
• The National Uniform Claim
Committee (NUCC).
• The Workgroup for Electronic Data
Interchange (WEDI).
• The American Dental Association
(ADA).
For any other standards, the Secretary
is required to consult with these same
organizations.
As part of the HIPAA modification
and update process, the NCVHS holds
hearings on proposed changes to HIPAA
transaction and code set standards and
makes recommendations to the
Secretary as appropriate.
Under section 1174 of the Act, the
Secretary must also ensure that
procedures exist for the routine
maintenance, testing, enhancement, and
expansion of code sets, and provide
instructions on how data elements
encoded before any modification may be
converted or translated. As discussed in
section VIII.A of this proposed rule, we
will establish an ICD–10–CM/PCS
Coordination and Maintenance
Committee that is similar to the ICD–9–
CM Coordination and Maintenance
Committee. The ICD–10–CM/PCS
Coordination and Maintenance
Committee will be charged with routine
maintenance, testing, enhancement, and
the expansion of the ICD–10 code sets.
In addition, the National Center for
Health Statistics (NCHS) has recently
completed a crosswalk that maps ICD–
9–CM Volumes 1 and 2 to ICD–10–CM.
CMS also has developed a crosswalk
that maps ICD–9–CM Volume 3 to ICD–
10–PCS. These crosswalks are available
at https://www.cms.hhs.gov/ICD10
(accessed 8–12–08) and https://
www.cdc.gov/nchs/about/otheract/icd9/
icd10cm.htm, (accessed 8–12–08).
These crosswalks are revised in the fall
of each year.
II. ICD–9–CM
The International Classification of
Diseases (ICD) is developed and
maintained by the World Health
Organization (WHO). Originally
designed to classify causes of death
(mortality), the scope of the ICD has
expanded to include non-fatal diseases
(morbidity). The application of the
classification to morbidity has expanded
as the code set has been revised.
Nonetheless, the United States and
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other countries continue to find it
necessary to develop clinical
modifications of the ICD to meet the
needs of their respective health care
systems that include administrative and
clinical protocols, and require more
detail and specificity for reporting
health care.
When the Medicare hospital Inpatient
Prospective Payment System (IPPS) was
implemented in 1983, ICD–9–CM was
used as the basic input for assigning the
diagnosis-related groups (DRGs). All
diagnostic and procedural information
was captured using ICD–9–CM.
A. ICD–9–CM Volumes 1 and 2
(Diagnoses)
NCHS houses the WHO Collaborating
Center for the Family of International
Classifications for North America
(United States and Canada), and has
responsibility for the implementation of
the ICD. NCHS produced a clinical
modification to WHO’s ICD–9 by adding
more specificity to its diagnosis codes
(ICD–9–CM Volumes 1 and 2). ICD–9–
CM maps to ICD to facilitate comparison
of mortality and morbidity statistics.
ICD–9–CM was adopted in the United
States in 1979 for morbidity
applications, and was adopted as a
HIPAA standard in 2000 for reporting
diagnoses, injuries, impairments, and
other health problems and their
manifestations, and causes of injury,
disease, impairment or other health
problems in standard transactions. ICD–
9–CM diagnosis codes are three to five
digits long, and are used by all types of
health care providers, including
hospitals and physician practices. The
code set is organized into chapters by
body system.
B. ICD–9–CM Volume 3 (Procedures)
Inpatient hospital services procedures
are currently coded using ICD–9–CM
Volume 3. The WHO’s ICD does not
include procedure codes. ICD–9–CM
procedure codes are three to four digits
long. The code set was adopted as a
HIPAA standard in 2000 for reporting
inpatient hospital procedures. Current
Procedural Terminology, 4th Edition
(CPT–4) and Health Care Common
Procedure Coding System (HCPCS) are
used to code all other procedures. The
ICD–9–CM procedure code set is
organized into chapters by body system,
and CMS maintains the ICD–9–CM
procedure codes.
C. Maintaining/Updating ICD–9–CM
(Volumes 1 and 2, and 3)
Recognizing the need for ICD–9–CM
to be a flexible, dynamic statistical tool
to meet expanding classification needs,
the ICD–9–CM Coordination and
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Maintenance Committee was created in
1985 as a forum for receiving public
comments on proposed code revisions,
deletions, and additions. The
Committee is co-chaired by the NCHS
and CMS; NCHS maintains ICD–9–CM
Diagnosis Codes (Volumes 1 and 2), and
CMS maintains ICD–9–CM Procedure
Codes (Volume 3).
Although the ICD–9–CM Coordination
and Maintenance Committee is a
Federal committee, suggestions for
updates come from both the public and
private sectors. Interested parties may
submit recommendations for updates
(that is, adding new codes, deleting
codes, and editing descriptive material
related to existing codes) at least 2
months before a scheduled meeting.
Proposals for a new code must include
a description of the code being
requested and rationale for why the new
code is needed. Supporting references
and literature may also be submitted.
This Federal committee meets in
March and September. Decisions on
code title revisions are made by March
for inclusion in the annual IPPS
proposed rule. Updates on codes,
payments, and reporting systems are
finalized after the previous fall meeting
and may become effective October 1 of
the same year.
Section 503(a) of the Medicare
Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub.
L. 108–173, enacted on December 8,
2003) included a requirement for
updating ICD–9–CM codes twice a year,
instead of a single update on October 1
of each year. Section 503(a) of the
MMA, which amended section
1886(d)(5)(K) of the Act, states that the
‘‘Secretary shall provide for the addition
of new diagnosis and procedure codes
in April 1 of each year, but the addition
of such codes shall not require the
Secretary to adjust the payment (or
diagnosis-related group classification)
* * * until the fiscal year that begins
after such date.’’ By adding codes for a
new technology at an earlier date, CMS
can recognize the new technology more
quickly for purposes of payment under
the IPPS.
While section 503(a) of the MMA does
not require the Secretary to adjust the
DRG classification and payments until
the subsequent fiscal year, the DRG
software and other systems must be
updated to recognize and accept the
new codes, and providers must update
their systems mid-year to capture the
new codes. Hospitals must obtain
coding book updates and coding
software updates and make other system
changes to capture and report the new
codes.
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Proposals for new and revised codes,
summaries of meetings, information
about deadlines for comment, scheduled
dates for the next meeting, deadlines for
receipt of maintenance proposals, and
mailing and e-mail addresses are posted
to the CMS Web site at https://
www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes, accessed
8–12–08, and the NCHS Web site https://
www.cdc.gov/nchs/icd9.htm, accessed
8–12–08. Additionally, CMS and NCHS
publish a complete addendum
describing details of all changes to ICD–
9–CM. It is publicized on their Web
sites in May of each year. Many
commenters on the proposed
Transactions and Code Sets proposed
rule commended this open process (65
FR 50343–50344).
III. Limitations of ICD–9–CM
A. Background
In 1997, the NCVHS began to study
the issues related to known
shortcomings of ICD–9–CM and to
assess the need to transition to ICD–10
(or an alternative code set), including
the impact of such a transition. The
NCVHS has conducted more than 8 days
of hearings since 1997. Oral and written
testimony was provided by more than
80 public and private sector groups
representing the health care industry,
Federal and State governments, the
public health and research
communities, health plans, and health
care providers. In addition, the NCVHS
commissioned a RAND Corporation
study on the potential costs and benefits
of transitioning to ICD–10–CM and ICD–
10–PCS. From the testimony received
and the RAND study findings, NCVHS
concluded that ICD–10–CM and ICD–
10–PCS should be adopted as a HIPAA
standard to replace the current standard,
ICD–9–CM Volumes 1 and 2, and 3. In
a letter to the Secretary dated November
5, 2003, NCVHS recommended that
HHS initiate the regulatory process for
the concurrent adoption of ICD–10–CM
and ICD–10–PCS. The NCVHS letter
(https://www.ncvhs.hhs.gov/
031105lt.htm) accessed 8–12–08, an
overview of the development of ICD–
10–CM and ICD–10–PCS (https://
www.ncvhs.hhs.gov/031105a1.htm)
accessed 8–12–08, summaries of the
NCVHS activities (https://
www.ncvhs.hhs.gov/031105a2.htm)
accessed 8–12–08, a list of organizations
that have provided testimonies (https://
www.ncvhs.hhs.gov/031105a3.htm)
accessed 8–12–08, and the RAND
Corporation study (https://
www.rand.org/pubs/technical_reports/
2004/RAND_TR132.pdf) are available
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on the NCVHS Web site (https://
www.ncvhs.hhs.gov) accessed 8–12–08.
B. General
The ICD–9–CM code set has been in
use for over 27 years, and additional
codes have been added during that
period to describe new procedures and
diagnoses that reflect changes in
medical practice. The total number of
codes (approximately 13,000 for
diagnoses and 3,000 for procedures) is
insufficient to continue to respond to
the need for new codes. Moreover, the
code set was never designed to provide
the increased level of detail needed to
support emerging needs, such as
biosurveillance and pay-forperformance programs (P4P), also
known as value-based purchasing or
competitive purchasing. These
limitations are discussed in detail below
and have led to the current industry
debate regarding replacement of ICD–9–
CM. Industry experts have discussed
and commented on these issues during
testimony to the NCVHS, expressing
their belief that the ICD–9–CM code set
is nearing the end of its useful life. We
invite public comment on concerns with
continued use of the ICD–9–CM code
set.
1. Space Limitations
The ICD–9–CM code set that we
adopted in 2000 as a HIPAA standard
had been evolving since 1979. Because
of the new and changing medical
advancements during the past 20 plus
years, the functionality of the ICD–9–
CM code set has been exhausted. This
code set is no longer able to respond to
additional classification specificity,
newly identified disease entities, and
other advances. Many chapters of ICD–
9–CM are full, and the American
Hospital Association (AHA) has
estimated that we will run out of
procedure codes in the appropriate,
logical sections of ICD–9–CM as well as
the overflow chapters in 2009. As a
temporary solution, CMS has already
begun to assign codes to the
inappropriate sections of ICD–9–CM (for
example, codes for heart procedures
being placed in the eye chapter). We
will continue to take this unusual step
of making illogical code assignments in
order to maintain the ability to capture
emerging technologies. This illogical
assignment of codes will lead to
challenges for coders in identifying and
assigning codes, but establishing new
codes to identify new procedures
remains important. The diagnosisrelated group (DRG) system classifies
hospital cases into groups that are
expected to have similar hospital
resource needs. DRGs are assigned
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2. Impact of Workarounds on Structural
Hierarchy
The hierarchical structure of the ICD–
9–CM procedure code set is
compromised. Some chapters can no
longer accommodate new codes, with
the result that any additional codes
must be assigned to other topically
unrelated chapters. For example, new
hip replacement procedures must now
be assigned to an ‘‘overflow’’ chapter for
procedures that are not classified
elsewhere. When those chapters become
full, new procedures would have to be
assigned to a chapter now devoted to
procedures related to the eye. When a
code is isolated in a separate, unrelated
part of the ICD–9–CM book because
there is no available space in the section
where the code normally would be
assigned, coders may not easily find the
code. Researchers and statisticians also
may miss cases in their analyses.
specific conditions and options for
treating them. Accuracy also is a critical
factor in the development of Pay for
Performance (P4P) programs, because
successful programs require detailed
coding of diagnoses and the procedures
performed to treat specific conditions.
The details for advanced technology
procedures currently being performed
today were not available when ICD–9–
CM was being developed. Numerous
ICD–9–CM procedure codes are based
upon technology that is now outdated.
As we move toward more sophisticated
monitoring and quality reporting, this
level of detail when reporting diagnoses
and procedures becomes critical.
Examples are noted below:
• ICD–9–CM has a single diagnosis
code for fracture of the wrist. If a patient
is treated for two successive wrist
fractures, the ICD–9–CM code does not
provide enough detail to determine if
the second fracture is a repeat fracture
of the same wrist, a fracture of the other
wrist, incorrect billing for delayed
healing, or non-union or mal-union of
the original fracture.
• ICD–9–CM contains a single
procedure code that describes the
endovascular repair or occlusion of
head and neck vessels (39.72). It does
not describe the artery or vein on which
the repair is performed, the precise
nature of the repair, or whether the
approach is a percutaneous procedure
or is transluminal with a catheter.
• Four or more ICD–9–CM procedure
codes are needed to delineate a spinal
fusion procedure with sufficient detail
to describe the level of the spine and the
devices inserted.
3. Lack of Detail
Industry experts have pointed out that
in an age of electronic health records, it
does not make sense to use a coding
system that lacks specificity and does
not lend itself well to updates. Another
consideration about the limitations of
ICD–9–CM is that to generate
meaningful research results, researchers
need to have access to comprehensive,
rich data with a level of detail that does
not exist with ICD–9–CM. Emerging
health care technologies, new and
advanced terminologies, and the need
for interoperability amid the increase in
electronic health records (EHRs) and
personal health records (PHRs) require a
standard code set that is expandable and
sufficiently detailed to accurately
capture current and future health care
information. Coding that accurately
describes diagnoses and procedures will
capture information that is critical for
research, and ultimately improves the
quality of health care and cost
containment by enabling the study of
4. Mortality Reporting and
Biosurveillance
The ICD–9 diagnosis code set is no
longer supported or maintained by the
WHO. As of October 2002, 138 countries
have adopted ICD–10 for coding and
reporting mortality data, and 99
countries have adopted ICD–10 or a
clinical modification for coding and
reporting morbidity data. In 1999, the
United States adopted ICD–10, but only
for mortality reporting. Until the United
States implements ICD–10 for morbidity
reporting applications, data
incomparability will continue to
increase throughout the world.
As we become a global community, it
is vital that our health care data
represent current medical conditions
and technologies, and that they are
compatible with the international
version of ICD–10. Because the United
States is capturing morbidity data using
the outdated ICD–9–CM, there are
problems identifying new health threats
such as anthrax, Severe Acute
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based on diagnoses, procedures, age,
sex, and the presence of complications
or co-morbidities.
The technologies included in the
DRGs are identified by ICD–9–CM
procedure codes. ICD–10–PCS allows
the use of DRG definitions that better
define new technologies and devices,
and that could be refined to take
advantage of their additional specificity
through more detailed descriptions.
This critical lack of space for new
procedures and conditions is one
important consideration for proposing
to adopt ICD–10–CM and ICD–10–PCS.
In addition, ICD–9–CM’s space
limitations are creating other problems,
which are discussed below.
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Respiratory Syndrome (SARS), and
Monkeypox.
The lack of specificity in ICD–9–CM
also limits our ability to develop rapid
interventions for emerging diseases
affecting international populations.
Diagnosis and procedure information
are captured from administrative data
that are submitted on health care claims,
and admission and discharge
summaries, but if the codes do not
match the international standard and
are unable to be compared, their
significance is lost. Additionally,
hospitals utilize diagnosis and
procedure codes for utilization review,
disease management, and research.
Therefore, in addition to the need for
precise diagnosis and procedure codes
for payment purposes, detail and
precision in coding are critical to the
national and international health care
community for mortality reporting,
biosurveillance, treatment of patients,
hospital management, and research.
IV. ICD–10 and the Development of
ICD–10–CM and PCS
A. Overview
The WHO developed ICD–10 in 1989,
and it was adopted by the World Health
Assembly in 1990. Currently, the United
States is the only G7 nation (the other
G7 nations are Canada, France,
Germany, Great Britain, Italy and Japan)
continuing to use ICD–9 for morbidity
reporting. Furthermore, Great Britain,
Denmark, Finland, Iceland, Norway,
Sweden, France, Australia, Belgium,
Germany, and Canada use a clinical
modification of ICD–10 for
reimbursement and/or administrative
purposes.
ICD–10–CM and ICD–10–PCS provide
specific diagnosis and treatment
information that can improve quality
measurements and patient safety, and
the evaluation of medical processes and
outcomes. ICD–10–PCS has the
capability to readily expand and capture
new procedures and technologies.
For quality improvement programs to
effectively result in meaningful clinical
outcomes, improved practice
management processes that document
and measure patient care, and sustain
provider investment in services that
improve quality of care, the ability to
modify or add to a list of treatments,
diseases and conditions is essential. The
ICD–10 code sets provide a standard
coding convention that is flexible,
providing unique codes for all
substantially different procedures or
health conditions and allowing new
procedures and diagnoses to be easily
incorporated as new codes for both
existing and future clinical protocols.
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B. ICD–10–CM Diagnosis Codes
The NCHS has developed a clinical
modification of the WHO’s ICD–10
called ICD–10–CM for reporting
diagnosis codes. As in the relationship
between ICD–9 and ICD–9–CM Volumes
1 and 2, ICD–10–CM codes can be
mapped back to the ICD–10 codes. The
NCHS has worked closely with specialty
societies to ensure clinical utility and
input into the process of creating the
clinical modification, with comments
from a number of prominent specialty
groups and organizations that addressed
specific concerns or perceived unmet
clinical needs encountered with ICD–9–
CM. The NCHS also had discussions
with other users of the classification,
specifically nursing, rehabilitation,
primary care providers, the National
Committee for Quality Assurance
(NCQA), long-term care and home
health care providers, and managed care
organizations to solicit their comments
about the classification.
ICD–10–CM diagnosis codes are three
to seven alphanumeric characters; the
number of ICD–10–CM codes is
approximately 68,000. The ICD–10–CM
code set provides much more
information and detail within the codes
than ICD–9–CM, facilitating timely
electronic processing of claims by
reducing requests for additional
information.
ICD–10–CM also includes the
following improvements over ICD–9–
CM:
• Significant improvements in coding
primary care encounters, external
causes of injury, mental disorders,
neoplasms, and preventive health.
• Advances in medicine and medical
technology that have occurred since the
last revision.
• Codes with more detail on
socioeconomic, family relationships,
ambulatory care conditions, problems
related to lifestyle, and the results of
screening tests.
• More space to accommodate future
expansions (alphanumeric structure).
• New categories for post-procedural
disorders.
• The addition of laterality—
specifying which organ or part of the
body is involved when the location
could be on the right, the left, or could
be bilateral.
• Expanded distinctions for
ambulatory and managed care
encounters.
ICD–10–CM codes with the same first
three digits have common traits, and
each additional digit adds more
specificity. For example:
I49. Other cardiac arrhythmias
I49.0 Ventricular fibrillation and
flutter
I49.01 Ventricular fibrillation
I49.02 Ventricular flutter
Post-procedural disorders specific to a
particular body system are located in
categories created at the end of each
chapter. Diseases are arranged according
to an axis of classification based on
etiology, anatomy, or severity, with
anatomy being the primary axis for ICD–
10–CM. (See section V of this proposed
rule for a chart that compares ICD–9–
CM, ICD–10–CM, and ICD–10–PCS
codes).
C. ICD–10–PCS Procedure Codes
CMS developed a procedure coding
system, ICD–10–PCS. ICD–10–PCS has
no relationship to the basic ICD–10
diagnostic classification, which does not
include procedures, and has a totally
different structure from ICD–10–CM.
ICD–10–PCS is sufficiently detailed to
describe complex medical procedures.
This becomes increasingly important
when assessing and tracking the quality
of medical processes and outcomes, and
compiling statistics that are valuable
tools for research. ICD–10–PCS has
unique, precise codes to differentiate
body parts, surgical approaches, and
devices used. It can be used to identify
resource consumption differences and
outcomes for different procedures, and
describes precisely what is done to the
patient.
ICD–10–PCS codes have seven
alphanumeric characters and group
together services into approximately 30
procedures identified by a leading alpha
character. There are 16 sections of tables
that determine code selection, with each
character having a specific meaning.
The first character shows the type of
procedure by clinical specialty. Nearly
half of these 16 sections remain
undesignated at this time, leaving room
for future expansion. Each subsequent
place in the code has a specific
function, the meaning of which may
change depending on the section. For
example, the fifth character in the
imaging section identifies the contrast
material used, while the fifth character
in the medical and surgical section
identifies the surgical approach. The
second character defines the body
system with the exception of the
rehabilitation and mental health
sections, in which the second character
defines the type of procedure
performed.
Example: the Medical and Surgical
Section is organized as follows:
CHARACTERS
1
2
3
4
5
6
7
Name of Section
Body System
Root Operation
Body Part
Approach
Device
Qualifier
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D. Statutory Requirements for Adoption
of ICD–10–CM and ICD–10–PCS
Under sections 1172(b), (c), (f), and (g)
of the Act, the Secretary must follow
certain procedures and pursue certain
objectives when adopting a modification
to an initial standard. Under section
1172(b) of the Act, any standard
adopted by the Secretary must be
consistent with the objective of reducing
the administrative costs of providing
and paying for health care. As discussed
in detail in section XI of this proposed
rule, we believe that the costs for
implementing ICD–10–CM and ICD–10–
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PCS would be offset by the benefits
within four years of implementation.
Under section 1172(c)(1) of the Act,
any standard adopted by the Secretary
must be a standard that has been
developed, adopted or modified by a
standard setting organization (SSO).
Under section 1172(c)(2)(B) of the Act,
however, section 1172(c)(1) does not
apply if no SSO has developed,
adopted, or modified any standard
relating to a standard that the Secretary
is authorized or required to adopt under
HIPAA. To our knowledge, no SSO has
developed, adopted, or modified a
standard code set that is suitable for
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reporting medical diagnoses and
hospital inpatient procedures for
purposes of administrative transactions.
Therefore, we are proposing to adopt
ICD–10–CM and ICD–10–PCS under
section 1172(c)(2)(B) of the Act.
We note that the SNOMED Clinical
Terms (CT) code set may initially
appear to be a standard developed by an
SSO for reporting medical diagnoses
and hospital inpatient procedures for
purposes of administrative transactions.
The College of American Pathologists
(CAP), which developed SNOMED CT,
is accredited by the American National
Standards Institute (ANSI) as an
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accredited standards developer. The
scope of the CAP’s accreditation,
however, is limited. The CAP is
accredited for activity relating to
clinical terminology that focuses on
standardizing that terminology across
the breadth of medicine. Consistent
with this scope of focus, SNOMED CT,
which is now supported by the
International Health Terminology
Standards Development Organization
(https://www.ihtsdo.org), is clinical
terminology that is primarily designed
for primary documentation of clinical
care. SNOMED CT is not designed for
carrying out health care transactions. In
fact, part of the CAP’s scope of ANSI
accreditation is deriving mapping
strategies from clinical reference
terminology and medical classification
schemes and codes sets used for
statistical, billing, or user interface
purposes. Thus, in order to be useful for
health care transactions, the SNOMED
CT code set would first have to be
mapped to a classification coding
system, such as ICD–10–CM. (For
further discussion of SNOMED CT and
its potential value to the development of
electronic health records (EHRs), please
refer to section VI of this proposed rule.)
For these reasons, we do not believe that
SNOMED CT qualifies under section
1172(c)(1) of the Act as a standard
developed by an SSO for reporting
medical diagnoses and hospital
inpatient procedures for purposes of
administrative transactions.
Under section 1172(c)(3) of the Act,
the Secretary must consult with the
following organizations before adopting
a standard that was not developed,
adopted, or modified by an SSO:
• The National Uniform Billing
Committee (NUBC).
• The National Uniform Claim
Committee (NUCC).
• The Workgroup for Electronic Data
Interchange (WEDI).
• The American Dental Association
(ADA).
These organizations are members of
the Designated Standard Maintenance
Organization (DSMO) Steering
Committee. The DSMO Steering
Committee considered a January 8, 2003
DSMO Change Request submitted by the
Centers for Disease Control seeking
modification to the transaction code set
to accommodate ICD–10–CM and ICD–
10–PCS. The DSMO Steering Committee
approved the change request and
recommended the adoption of
implementation specifications that
would support the implementation of
ICD–10–CM and ICD–10–PCS to the
NCVHS.
Furthermore, CMS also consulted
with WEDI regarding ICD–10–CM and
ICD–10–PCS after two industry-focused
informational forums they conducted on
ICD–10–CM and ICD–10–PCS during
2006. In a letter to the Secretary dated
May 31, 2006, WEDI outlined
discussions that occurred during an
ICD–10–CM and ICD–10–PCS forum on
April 19th and 20th 2006 in Chicago
that was co-chaired by representatives
of the American Hospital Association,
and Blue Cross and Blue Shield of
South Carolina. The purpose of the
forum was to solicit audience
discussion and input on various
implementation issues surrounding the
possible adoption of the ICD–10–CM
and ICD–10–PCS code sets. The forum
was not intended to debate the issue of
whether these code sets should be
adopted, but rather what would need to
occur if they were adopted. CMS will
further consult directly with NUBC,
NUCC, and the ADA before adopting
any ICD–10 code set as a modification.
Under section 1172(f) of the Act, the
Secretary must rely on the
recommendations of the NCVHS
established under section 306(k) of the
Public Health Service Act and must
consult with appropriate Federal and
State agencies and private organizations.
The Secretary must publish
notification in the Federal Register of
any recommendation of the NCVHS.
The NCVHS has conducted 8 days of
hearings with providers, health plans,
clearinghouses, vendors, and interested
stakeholders on the adoption of ICD–
10–CM and ICD–10–PCS in place of
ICD–9–CM as the HIPAA adopted
standard for reporting diagnoses and
hospital inpatient services in standard
transactions. (A list of organizations that
provided comments to the NCVHS is
available at https://www.ncvhs.hhs.gov/
031105a3.htm, accessed 8–12–08.) In a
letter dated November 5, 2003, the
NCVHS submitted to the Secretary its
recommendation to adopt ICD–10–CM
and ICD–10–PCS. This letter is available
at https://www.ncvhs.hhs.gov/
031105lt.htm, accessed 8–12–08. The
Secretary also has considered input
from Federal and State agencies and
private organizations regarding the
adoption and implementation of ICD–
10–CM and ICD–10–PCS, and has
received input from a number of
professional organizations and other
industry stakeholders. The following
organizations representing providers,
health plans, clearinghouses, and
vendors are among the stakeholders that
have provided input:
• The American Health Information
Management Association (AHIMA).
• The American Medical Association
(AMA).
• The Blue Cross Blue Shield
Association (BCBSA).
• The Medical Group Management
Association (MGMA).
• Health Information and
Management Systems Society (HIMSS).
• America’s Health Insurance Plans
(AHIP).
V. Comparison of ICD–9–CM Versus
ICD–10–CM and ICD–10–PCS
COMPARISON
ICD–10–CM diagnosis codes
3–5 characters in length ...........................................................................
Approximately 13,000 codes. ...................................................................
First digit may be alpha (E or V) or numeric; Digits 2–5 are numeric .....
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ICD–9–CM diagnosis codes
3–7 characters in length.
Approximately 68,000 available codes.
Digit 1 is alpha; Digits 2 and 3 are numeric; Digits 4–7 are alpha or numeric.
Flexible for adding new codes.
Very specific.
Has laterality.
Specificity improves coding accuracy and richness of data for analysis.
Detail improves the accuracy of data used for medical research.
Limited space for adding new codes .......................................................
Lacks detail ...............................................................................................
Lacks laterality ..........................................................................................
Difficult to analyze data due to non-specific codes .................................
Codes are non-specific and do not adequately define diagnoses needed for medical research.
Does not support interoperability because it is not used by other countries.
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Supports interoperability and the exchange of health data between
other countries and the U.S.
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COMPARISON—Continued
ICD–9–CM procedure codes
ICD–10–PCS procedure codes
3–4 numbers in length ..............................................................................
Approximately 3,000 codes ......................................................................
Based upon outdated technology .............................................................
Limited space for adding new codes .......................................................
Lacks detail ...............................................................................................
Lacks laterality ..........................................................................................
Generic terms for body parts ...................................................................
Lacks description of methodology and approach for procedures ............
7 alpha-numeric characters in length.
Approximately 87,000 available codes.
Reflects current usage of medical terminology and devices.
Flexible for adding new codes.
Very specific.
Has laterality.
Detailed descriptions for body parts.
Provides detailed descriptions of methodology and approach for procedures.
Allows DRG definitions to better recognize new technologies and devices.
Precisely defines procedures with detail regarding body part, approach,
any device used, and qualifying information.
Limits DRG assignment ............................................................................
Lacks precision to adequately define procedures ....................................
Both ICD–10–CM and ICD–10–PCS
provide laterality, precise anatomical
descriptions, methods to report the
exact causes of injury in diagnosing
conditions, and approaches used to
perform specific procedures. Laterality
refers to the precision with which ICD–
10–CM and ICD–10–PCS describe
conditions and treatments for the
anatomical right and left side.
Information comparing ICD–10–CM and
ICD–9–CM Volumes 1 and 2 is available
at: https://www.cdc.gov/nchs/about/
otheract/icd9/icd10cm.htm (accessed 8–
12–08). Information comparing ICD–10–
PCS and ICD–9–CM Volume 3 is
available at: https://www.cms.hhs.gov/
icd9providerdiagnosticcodes/
08_icd10.ASP (accessed 8–12–08).
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VI. Discussion of SNOMED CT
SNOMED Clinical Terms (CT) is a
comprehensive clinical terminology that
provides a framework to manage
language dialects, clinically relevant
subsets, qualifiers and extensions, as
well as concepts and terms that are
unique to particular organizations or
localities. It contains over 366,170
concepts with unique meanings and
formal logic-based definitions that are
organized into hierarchies. Some
examples of these hierarchies are:
• Staging and scales—contains
concepts naming assessment scales and
tumor staging systems.
• Social context—contains social
conditions and circumstances
significant to health care.
• Observable entity—concepts
represent a question or procedure
which, when combined with a result,
constitute a finding.
In order to express these clinical
concepts, SNOMED CT contains more
than 993,420 English language
descriptions, and approximately 1.46
million semantic relationships. It would
be impractical to attempt to manually
assign SNOMED–CT codes. The
number of terms and level of detail in
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a reference of clinical terminology such
as SNOMED CT cannot be effectively
managed without automation, and are
not suited for the secondary purposes
for which classifications systems such
as ICD–10–CM and ICD–10–PCS are
used because of their immense size,
considerable granularity, complex
hierarchies, and lack of reporting rules.1
SNOMED CT is a clinical
terminology that is described as an
input system that is primarily designed
for the primary documentation of
clinical care. A clinical terminology
intended to support clinical care
processes should not be manipulated to
meet reimbursement and other external
reporting requirements. Such
manipulation presents the potential to
adversely affect patient care, the
development and use of decision
support tools, and the practice of
evidence-based medicine.
ICD–9–CM, ICD–10–CM, and ICD–10–
PCS are classification coding
conventions that are typically used for
reporting requirements where data
aggregation is advantageous. A
classification system such as ICD
arranges like entities for retrieval. It
aggregates granular clinical concepts
into categories for secondary data
purposes. Examples of current use of
this data include:
• Designing health care delivery
systems.
• Setting health policy.
• Tracking public health and risks.
• Monitoring resource utilization.
• Processing claims for
reimbursement.
The benefits of using SNOMED CT
increase if it is linked to a classification
1 ‘‘Coordination of SNOMED–CT and ICD–10:
Getting the Most out of Electronic Health Record
Systems’’ Sue Bowman, RHIA, CCS, director of
coding policy and compliance, AHIMA;
Perspectives in Health Information Management
Spring 2005 (May 26, 2005) https://
library.ahima.org/xpedio/groups/public/
documents/ahima/bok1_027179.html, accessed 8–
12–08.
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system such as ICD–10–CM and ICD–
10–PCS for the purpose of generating
health information that is necessary for
statistical analysis and reimbursement.
The use of both SNOMED–CT and
ICD–10–CM and ICD–10–PCS brings
value to the development of
interoperable electronic health records
(EHR). The linkage of these two
different coding systems for multiple
purposes is accomplished through
mapping.
‘‘Mapping is the process of linking
content from one terminology to another
or to a classification.’’ (https://
library.ahima.org), accessed 8–12–08. It
requires deciding how different
terminologies match, are similar, or
differ. Mapping provides a link between
terminologies to facilitate—
• Use of data collected;
• Retaining the value of data when
migrating to newer databases; and
• Avoiding entering data multiple
times, and the risk of increased costs
and errors.
Using SNOMED CT mapped to ICD–
10–CM and ICD–10–PCS permits the
use of a clinical terminology that could
be the basis for EHRs and the ICD–10–
CM and ICD–10–PCS classification
coding system that is used for reporting
and data trend analysis.
As discussed in section IV of this
proposed rule, we did not consider
adopting SNOMED CT as an
alternative for ICD–10–CM and ICD–10–
PCS because the code sets are designed
for distinctly different purposes. We do
not believe that SNOMED CT qualifies
under section 1172(c)(1) of the Act as a
standard for reporting medical
diagnoses and hospital inpatient
procedures for purposes of
administrative transactions. For similar
reasons, we do not believe that we are
required under the National Technology
Transfer and Advancement Act of 1995
(NTTAA), Public Law 104–113, to
consider adopting SNOMED CT. The
NTTAA and Office of Management and
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Budget (OMB) Circular No. A–119,
which provides some historical
background and interpretation of parts
of the NTTAA, directs Federal agencies
to use voluntary consensus standards in
lieu of government-unique standards,
except where inconsistent with law or
otherwise impractical. Because we do
not believe that SNOMED CT is a
suitable standard for reporting medical
diagnoses and hospital inpatient
procedures for purposes of
administrative transactions, we believe
that neither the NTTAA nor OMB
Circular A–119 requires that we
consider it for adoption.
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VII. Alternatives To Adopting ICD–10
Code Sets
In deciding to propose adoption of
ICD–10–CM and ICD–10–PCS, we
considered a number of alternatives. We
invite public comment on the following
discussion of those alternatives and our
rationale:
A. Utilize Unassigned Codes
It would be possible to extend the life
of ICD–9–CM by assigning codes to new
diagnoses and procedures without
regard to the hierarchy of the code set.
This hierarchy groups procedures by
body systems, and then groups similar
procedures that apply to a specific body
system into categories. For example,
ICD–9–CM Volume 3 was examined to
identify any open series of codes that
could be used for new procedures and
technologies. Codes 17.00–17.99
(located between Chapter 3: Operations
on the Eye, and Chapter 4: Operations
on the Ear) were not being used. This
series of 100 codes could be used for a
wide range of new procedures and
technologies, adding additional space
for expansion within the existing
structure of the ICD–9–CM procedure
volume. Additionally, codes 00.00—
00.99 were not in use. The ICD–9–CM
Coordination and Maintenance
Committee decided to create a chapter
in this unused location. This decision
enabled the creation of 100 new codes
to identify procedures that could not be
assigned a code within the existing, and
more appropriate, chapters because of
space limitations. CMS departed from
the current organizational structure of
ICD–9–CM procedures when we created
a variety of procedure codes in a new
chapter 00, Procedures and
Interventions NEC (NEC means Not
Elsewhere Classified). CMS has created
new codes in all 10 categories within
chapter 00. Details on CMS coding
changes are available on the CMS Web
site at: https://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes, accessed
8–12–08.
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While this approach of placing codes
in a non-hierarchically-created structure
does extend the ability to assign ICD–9–
CM codes to new diagnoses and
procedures, it does not represent a longterm solution to the code shortage. It
will only be an effective solution as long
as there are empty code slots. Moreover,
it does not address the remaining
shortcomings of ICD–9–CM discussed
above, such as the critical lack of detail
that is required to support evolving
business needs, for example, in the
areas of biosurveillance and quality
monitoring. While there have been
space issues in ICD–9–CM Volumes 1
and 2, they have not been as pressing as
the space needs in ICD–9–CM Volume
3. New categories/codes have been
added within the chapters (body
systems) of the classification, but not
necessarily within the appropriate
section within the chapter. New
concepts have been incorporated into
the existing structure, and in some
instances this has meant not fully
representing the concept as proposed
because of space limitations. Some
issues have been deferred and
incorporated into ICD–10–CM because
the concepts were inconsistent with the
existing structure of ICD–9–CM. Unlike
the procedures in ICD–9–CM Volume 3,
which is a United States-developed
system, the ICD–9–CM diagnosis codes
are based on the WHO codes and must
be consistent with the established
structure.
The disadvantage of this solution is
that it destroys the natural hierarchy
inherent in the code set. This hierarchy
assists a coder or health care
professional in choosing the most
appropriate code since one can quickly
review closely-related codes. Common
coding practices do not require searches
for unrelated procedures in a separate
part of the coding book. However, these
new chapters capture a very diverse
group of unrelated procedures that
affect a variety of body systems and are
not logically placed in the chapters to
which they relate. This creates
considerable confusion for coders and
difficulty locating the new codes,
raising the likelihood of coding errors
and negatively affecting productivity.
B. Use CPT–4 for Coding Hospital
Inpatient Procedures
The American Medical Association
(AMA) developed and maintains the
Physicians’ Current Procedural
Terminology (CPT) coding system to
capture physician services. CPT also has
been used to capture services performed
in outpatient and ambulatory care
settings, and is the HIPAA-adopted
standard code set for reporting
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physician and certain other health care
services. While evaluating the need to
replace ICD–9–CM, the AMA
recommended that CPT be used for
coding inpatient services. A letter from
the AMA’s medical organizations
supporting the use of CPT for inpatient
coding was sent to the Secretary on
September 23, 2002. A copy of this
letter is included in the Summary
Report of the ICD–9–CM Volume 3
Coordination and Maintenance
Committee, December 6, 2002 meeting
at https://www.cms.hhs.gov/
ICD9ProviderDiagnosticCodes (accessed
8–12–08). The AMA was concerned
about industry suggestions that a
uniform procedure coding system be
identified for use in all health care
settings. If this were to be the case, the
AMA wanted CPT to be considered as
that uniform procedure coding system.
The NCVHS had previously evaluated
ICD–9–CM Volume 3 and CPT as
potential coding systems that could be
used to capture services in all health
care settings. After extensive hearings
and discussions, the NCVHS issued a
‘‘Report of the National Committee on
Vital and Health Statistics Concerning
Issues Relating to the Coding and
Classification Systems’’ in November
1990. It found structural problems and
serious flaws with both CPT–4 and ICD–
9–CM Volume 3. During 1993, an
NCVHS subcommittee held three
meetings and three working sessions
which addressed the creation of a single
procedure classification system for
multiple purposes in the United States.
It was felt that neither system could
capture services in all health care
settings. Despite continuing NCVHS
hearings, there has been no
endorsement of the use of CPT for
hospital inpatient procedure coding.
The Government Accountability
Office (GAO) undertook a study on the
use of multiple procedure coding
systems, issuing a final report in August
2002 entitled, ‘‘HIPAA Standards, Dual
Code Sets Are Acceptable for Reporting
Medical Procedures’’ (GAO–02–796).
The report concluded that ICD–9–CM
Volume 3 and CPT do not meet all of
the criteria for standard code sets under
HIPAA and the procedural code set
requirements recommended by NCVHS,
including the criteria for adequate levels
of detail for data analysis, and a
capacity to add new codes in response
to new technology. GAO sought advice
from industry experts such as the
American Hospital Association (AHA)
and the American Health Information
Management Association (AHIMA) as to
whether CPT could be used for inpatient
coding. AHA and AHIMA reported that
CPT ‘‘does not adequately capture
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facility-based, non-physician services.’’
The GAO report states that CPT has not
been shown to be acceptable or
comprehensive enough to serve as a
single procedure code set for reporting
both hospital inpatient and outpatient
physician services. Therefore, GAO did
not recommend the use of CPT–4 to
capture inpatient services. Additional
criticisms of CPT are that it does not
include laterality, it has no predictable
syntax, and the detail provided is
inconsistent across procedures.
The AHA, Federation of American
Hospitals, and AdvaMED wrote a letter
to the NCHVS on November 19, 2002
regarding the implementation of ICD–
10–CM and ICD–10–PCS. The letter
endorsed the implementation of ICD–
10–CM and ICD–10–PCS as a national
standard, and opposed the use of CPT
for hospital inpatient services because it
was designed for services more
commonly provided in physicians’
offices, not services provided in a
hospital inpatient setting.
C. Wait and Adopt ICD–11
One possible option is to forego
adoption of ICD–10 and wait until ICD–
11 is ready for implementation. The
WHO, the developer of the ICD
classification, has begun preliminary
work on ICD–11. However, no firm
timeframes for the completion of
developmental work or testing have
been identified, and no firm
implementation date has been
designated. Work has not yet begun on
developing the companion procedure
codes needed to implement ICD–11 in
the United States. This means that the
earliest projected date for
implementation would be 2020,
assuming that no clinical modification
is needed for the ICD–11 and that the
companion procedure code set could be
completed in time. We project that we
could not implement ICD–11 until 2016
because it is still in development,
testing would be required, and there are
no firm timeframes for completion of
developmental work.
In addition, ICD–11 will follow the
same alphanumeric structure as ICD–10,
which differs from that of ICD–9. Since
ICD–11 would build upon ICD–10,
many of the costs and much of the work
associated with upgrading to ICD–11
will be mitigated by ICD–10
implementation. This option of waiting
for ICD–11 was eliminated because
there are no confirmed dates for ICD–11
readiness or adoption, ICD–11 will not
include a procedure classification
system and without ICD–10 to build
upon, use of ICD–11 is likely to take
longer to implement. ICD–9–CM would
still have to be used in the interim, and
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ICD–9–CM is not the pathway to ICD–
11 because it has a different structure
than both ICD–10 and the anticipated
ICD–11.
IPPS and other proposed rules that
impact payment decisions and
applications.
VIII. Provisions of the Proposed
Regulation
The effective date of revised
§ 162.1002 would be 60 days after a
final rule is published in the Federal
Register.
A. Use of ICD–10–CM and ICD–10–PCS
by Covered Entities
In this proposed rule, we propose to
adopt the ICD–10–CM and ICD–10–PCS
code sets to replace the ICD–9–CM
Volumes 1 and 2 code sets for reporting
diagnoses and Volume 3 code set for
reporting procedures when conducting
standard transactions. We would revise
§ 162.1002(b) and § 162.1002(c), and
adopt ICD–10–CM and ICD–10–PCS in
place of ICD–9–CM, Volumes 1 and 2,
and 3. We would adopt ICD–10–CM to
replace ICD–9–CM Volumes 1 and 2,
including the official coding guidelines,
for coding diseases, injuries,
impairments, other health problems and
their manifestations, and causes of
injury, disease, impairment, or other
health problems. Additionally, we
would adopt ICD–10–PCS to replace
ICD–9–CM Volume 3, including the
official coding guidelines, for the
following procedures or other actions
taken for diseases, injuries, and
impairments on hospital inpatients
reported by hospitals: prevention,
diagnosis, treatment, and management.
HIPAA covered entities would be
required to use these codes when
diagnoses and hospital inpatient
procedures need to be coded in HIPAA
transactions. Because ICD–10–PCS
codes are only used for inpatient
hospital procedures, the ICD–10–PCS
codes would not be used in outpatient
transactions.
In arriving at this proposal, we
considered myriad input from the
public, NCVHS, professional
organizations, and others. Our
deliberations centered around two sets
of issues: the limitations of ICD–9–CM
(Volumes 1 and 2, and 3), as discussed
above, and the adoption of alternatives
to ICD–10–CM and ICD–10–PCS code
sets.
We will establish an ICD–10–CM/PCS
Coordination and Maintenance
Committee. This committee will follow
the same procedures currently used by
the ICD–9–CM Coordination and
Maintenance Committee to consider
new codes and revisions to existing
codes.
We acknowledge that this proposed
rule does not specifically address
impacts on prospective payment
systems that currently use ICD–9–CM
codes. We determined that these issues
can best be addressed through the usual
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B. Effective Dates
C. Proposed Compliance Dates
Under section 1175 of the Act, the
compliance date of a modification to a
HIPAA standard may not be earlier than
the 180th day following the effective
date of the adoption of the modification.
The Secretary may consider the nature
and extent of the modification when
determining the compliance date. If the
Secretary determines an extension is
appropriate for small health plans, he
may extend the time for their
compliance. NCVHS testimony and
subsequent industry input clearly
indicate that the implementation of
ICD–10 will be a significant
undertaking. The activities involved in
this implementation are discussed in
detail in the impact analysis section of
this proposed rule.
Many covered entities have stated that
they will need at least 2 years from the
publication of a final rule to implement
ICD–10. Some have argued that 3 years
will be needed, noting that the original
2-year implementation period for the
initial HIPAA transaction standards
proved to be insufficient. Others note
that ICD–10 implementation should be
viewed in the context of other HIPAA
requirements (including the
implementation of the National Provider
Identifier and the claims attachment
transaction standard) and other
information technology initiatives,
including IT initiatives integral to the
Department’s transparency activities,
and that ICD–10 compliance should not
be required until 2012 or later.
Coordination with these other health
information technology (HIT) initiatives
is discussed in the impact analysis of
this proposed rule.
HHS and industry health information
technology initiatives include
interoperability specifications,
certification criteria, and standards
developed under HIPAA and the
Medicare Modernization Act. We
describe these initiatives and associated
known or projected publication,
delivery, or compliance dates below:
• Beginning in September 2006 (and
annually thereafter)—Delivery of
Healthcare Information Technology
Standards Panel (HITSP)
interoperability specifications
supporting specific use cases.
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• May 2007—Compliance date for all
covered entities other than small health
plans, implementing the HIPAA
National Provider Identifier (NPI) in all
HIPAA transactions.
• June 2007—Publication of the
Certification Commission for Healthcare
Information Technology (CCHIT)
criteria for certifying inpatient
electronic health record products.
• November 2007—Publication of
Electronic Prescribing Standards for
Medicare Part D Notice of Proposed
Rulemaking.
• April 2008—Publication of Final
rule regarding standards for Electronic
Prescribing under Medicare Part D and
adoption of NPI in Electronic
Prescribing transactions.
• May 2008—Publication of CCHIT
criteria for certifying health information
technology networks and systems.
• May 2008—Compliance date for
small health plans implementing the
HIPAA National Provider Identifier
(NPI) in all HIPAA transactions.
• April 2009—Projected compliance
date for new e-prescribing standards for
the Medicare drug program, and use of
NPI in e-prescribing transactions,
pursuant to the Medicare Modernization
Act. Medicare Part D Sponsors are
required to support the standards.
Prescribing providers and pharmacies
are required to use them only if they
choose to engage in e-prescribing.
• 2010—Projected compliance date
for the updated retail pharmacy drug
claim, which will facilitate processing
of Medicare drug claims and affects all
pharmacies and plans that process
pharmacy claims.
• 2010—Projected compliance date
for updated non-pharmacy HIPAA
financial and administrative
transactions which affects all HIPAAcovered entities. These transactions
include the claim, remittance advice,
eligibility, and claim status query and
response transaction, plan enrollment,
and referral authorization. Version
4010/4010A1 of the American
Standards Committee X12 group is the
currently adopted standard. Version
4010/4010A1 transactions cannot
accommodate the larger size of ICD–10
code set; therefore, the new version,
5010, must be implemented in order to
implement ICD–10 code sets. Industry
representatives have recommended that
the compliance date for these standards
be at least 18 months before the
compliance date for ICD–10 to allow for
needed testing and to reduce risk. CMS
is currently working on regulatory
action regarding the transition to 5010
in order to accommodate the ICD–10
code set.
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• 2011—Projected compliance date
for the new HIPAA standard for the
claims attachment transaction, which
would affect all HIPAA-covered entities
that are not health plans. This standard
addresses the communication of
additional information, often of a
clinical nature, that may be needed in
order to adjudicate a claim.
• 2012—Projected compliance date
for small health plans conducting
HIPAA claims attachment transactions.
We acknowledge that implementing
ICD–10 code sets will require significant
effort on the part of covered entities and
their vendors. We also recognize the
need to transition to a new code set
before ICD–9–CM becomes unworkable.
Moreover, the enhanced functionality
that ICD–10–CM and ICD–10–PCS code
sets bring to quality assessment,
research, and biosurveillance argue for
an earlier implementation. We have
weighed all these factors in arriving at
our proposal.
We propose October 1, 2011 as the
compliance date for ICD–10–CM and
ICD–10–PCS code sets for all covered
entities. It is important to note that the
compliance date must occur on October
1 in order to coincide with the effective
date of annual Medicare inpatient PPS
updates. We believe that a 2011
compliance date permits adequate time
for covered entities and their vendors to
complete the necessary implementation
activities. As shown above, our
projected compliance dates for other
health IT initiatives have been
sequenced in a manner that will allow
covered entities to concentrate their
efforts on ICD–10 implementation
(including the implementation of the
5010 transactions) during the relevant
period.
CMS believes it is in the industry’s
best interest (including small health
plans) to have a single compliance date
for ICD–10–CM and ICD–10–PCS. This
will reduce burden on both providers
and insurers who will be able to edit on
a single new coding system for claims
received for encounters and discharges
occurring on or after October 1, 2011.
The proposed compliance date, we
believe, is also sufficiently far in the
future to provide all sectors of the
industry, including small health plans,
adequate time to implement the code
sets. A single compliance date also will
significantly reduce confusion in
processing claims and analyzing data.
Historically, all previous versions of the
ICD coding systems, such as ICD–7 and
ICD–8, have been implemented on a
single date. The health care industry has
come to expect this consistent approach
to updating ICD coding systems. To
allow two different compliance dates
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would create problems for all sectors of
the health care industry. Examples of
problems that would arise if both ICD–
9–CM and ICD–10 codes were allowed
to be reported for the same date of
service include:
• Increased errors—ICD–9–CM and
ICD–10–CM have codes that can include
the same number of digits and similar
codes. Allowing both code systems to be
used and reported will create confusion
in processing and interpreting coded
data. Claims may be denied for services
if the edits are established for ICD–10–
CM codes, but ICD–9–CM codes are
reported. Claims may be returned as
errors if edits indicate there are too
many or too few digits, when in fact a
different coding system is being used.
• Provider burden—Maintaining both
ICD–9–CM and ICD–10–CM will place a
significant burden on providers.
Providers would have to maintain both
coding systems for a year because of
different reporting requirements by
some payers or entities if there were two
implementation dates. This will not
only increase burden, but would also
lead to additional error messages and
returned claims if the provider does not
select the required coding system when
claims are coded. Coders would be
burdened by having to recall and apply
codes from different coding systems for
a year. It is much easier to simply learn
and move to the new coding system for
encounters occurring on a single fixed
date.
• Systems problems—if providers,
insurers, and other entities are required
to report and accept both coding
systems for encounters occurring during
a year, there would be significant
system implications in trying to
determine which coding system was
being used to report the coded data. As
indicated above, this may lead to denied
and returned claims.
• Payment update challenges—coded
data are used to update payment
systems such as the inpatient
prospective payment system. If codes
are reported in both ICD–9–CM and
ICD–10–CM during a given year, it will
be difficult to assess the need to update
and refine the payment system based on
coded data.
• Problems with national health care
data—by allowing the use and reporting
of two different payment systems, the
national data will be difficult to analyze
and interpret. This not only creates
problems with updating payment
systems, as indicated above, but also
creates problems in interpreting trend
data on health care conditions. It will be
problematic to make national
projections on quality of care and
outcomes when two different coding
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industry will begin documenting the
requirements for both ICD–10 and
Version 5010 system changes, initiate
and/or complete any gap analyses, and
then undertake design and system
changes, with Version 5010 progressing
first, based on the need to have it in
place prior to ICD–10 implementation to
accommodate the increase in the size of
the fields for the ICD–10 code sets. In
the case of Version 5010, system
building and testing could commence
approximately 12 months prior to a
Version 5010 compliance date. We
anticipate that ICD–10 external testing
could start approximately 15 months
prior to the October 2011 compliance
date.
Upon publication of these proposed
rules for both ICD–10 and Versions
5010/D.0 in the Federal Register, the
Department, through CMS, plans on
proactively conducting outreach and
education activities, as well as engaging
industry leaders and other stakeholder
organizations to provide education and
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other resources to their respective
constituencies. These activities would
include roundtable conference calls
with the industry, including Medicare
contractors, fiscal intermediaries and
carriers; hospitals; physicians; other
providers; and other stakeholders.
CMS will also develop and make
available ‘‘Frequently Asked Questions’’
documents, fact sheets, and other
supporting education and outreach
materials for partner dissemination.
Other potential activities will be
identified and developed based on
stakeholder input. The draft proposed
timeline shown below is for preliminary
planning purposes, and represents our
best estimate, given our current
knowledge, of what an implementation
timetable might look like. It is subject to
revision as updated information
becomes available. We solicit industry
and other stakeholder comments on our
timeline assumptions and our proposed
education and outreach strategy.
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systems are used for encounters during
the same time period. This is further
amplified when single providers report
with two different coding systems to
small entities, but with ICD–10 to large
entities. Comparing national data and
assessing outcomes will be challenging.
We solicit public comment on the
proposed compliance date of October 1,
2011.
We anticipate that upon publication
of this proposed rule in the Federal
Register, both the industry and CMS
will actively initiate and/or complete
planning for implementation of ICD–10.
While not included under the auspices
of this proposed rule, we also
acknowledge the impact of the
implementation of the ASC X12
Technical Reports Type 3, Version
005010, hereinafter referred to as
Version 5010, on ICD–10
implementation timelines. Once the
ICD–10 and Version 5010/NCPDP
Version D.0 final rules are published,
we estimate that both CMS and the
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IX. Collection of Information
Requirements
This document does not impose
information collection and
recordkeeping requirements.
Consequently, it need not be reviewed
by the Office of Management and
Budget under the authority of the
Paperwork Reduction Act of 1995 (44
U.S.C. 3501 through 3520).
X. Response to Comments
Because of the large number of items
of correspondence we normally receive
on Federal Register documents
published for comment, we are not able
to acknowledge or respond to them
individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this preamble, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble to that document.
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XI. Regulatory Impact Analysis
A. Overall Impact
We have examined the impacts of this
rule as required by Executive Order
12866 on Regulatory Planning and
Review (September 30, 1993, as further
amended), the Regulatory Flexibility
Act (RFA) (September 19, 1980, Pub. L.
96–354) (as amended by the Small
Business Regulatory Enforcement
Fairness Act of 1996, Pub. L. 104–121),
section 1102(b) of the Social Security
Act, section 202 of the Unfunded
Mandates Reform Act of 1995 (Pub. L.
104–4), Executive Order 13132 on
Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C.
804(2)).
Executive Order 12866 (as amended
by Executive Order 13258 and Executive
Order 13422, which modifies the list of
criteria used for regulatory review)
directs agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). A regulatory impact analysis
(RIA) must be prepared for major rules
with economically significant effects
($100 million or more in any 1 year). We
consider this proposed rule to be a
major rule, as it will have an impact of
over $100 million on the economy. The
RIA section of this proposed rule
explains our calculations for costs and
benefits. We attempt to provide
information for the impact analysis,
focusing on savings projections and cost
estimates. Tables 13 and 14 summarize
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cost benefit projections. We solicit
comments on these data during the
comment period for this proposed rule.
Section 202 of the Unfunded Mandates
Reform Act of 1995 also requires that
agencies assess the anticipated costs and
benefits before issuing any rule whose
mandate requires spending in any 1 year
of $100 million in 1995 dollars, updated
annually for inflation in any 1 year by
State, local, or tribal governments, in the
aggregate, or by the private sector. That
threshold level is currently
approximately $130 million. Based on
our analysis, we anticipate that the
private sector would incur costs
exceeding $130 million per year in the
first 2 years following publication of the
final rule. Our analysis indicates that
States would not experience costs
exceeding $130 million.
The anticipated benefits and costs of
these proposed modifications to the
medical data code sets, and other issues
raised in section 202 of the UMRA, are
addressed later in this document. In
addition, under section 205 of the
UMRA (2 U.S.C. 1535), having
considered at least three alternatives
that are referenced in the RIA section of
this proposed rule, HHS has concluded
that the provisions in this proposed rule
are the most cost-effective alternative for
implementing HHS’ statutory objective
of administrative simplification.
Executive Order 13132 establishes
certain requirements that an agency
must meet when it promulgates a
proposed rule (and subsequent final
rule) that imposes substantial direct
requirement costs on State and local
governments, preempts State law, or
otherwise has Federalism implications.
Executive Order 13132 requires the
opportunity for meaningful and timely
input by State and local officials in the
development of rules that have
Federalism implications. The
Department consulted with appropriate
State and Federal agencies, including
tribal authorities and Native American
groups, as well as private organizations.
These private organizations included
WEDI and the Designated Standard
Maintenance Organization (DSMO)
coordinating committee according to
section 1178(c)(3) of the Social Security
Act.
In order to validate the fiscal and
operational impact of this rule on State
Medicaid agencies, current data on costs
for States to implement a new code set
would be necessary. We reference in the
RIA of this proposed rule industry
studies that were conducted and that
may provide some insight into this
information for States. In addition,
during the comment period, we hope
that State Medicaid agencies will
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provide any additional and/or updated
information.
The Department has examined the
effects of provisions in this proposed
rule as well as the opportunities for
input by the States to the proposed rule.
The Federalism implications of the
proposed rule are consistent with the
provisions of the Administrative
Simplification subtitle of HIPAA by
which the Department is required by the
Congress to promulgate standards for
the interchange of certain health care
information via electronic means. Under
section 1178(a)(1) of the Act, these
standards preempt contrary State law.
The States are invited to comment on
this section and all sections of this
proposed rule. The Department
concludes that the policy in this
proposed rule has been assessed in
accordance with the principles, criteria,
and requirements in Executive Order
13132; that this proposed rule is not
inconsistent with that Order; that this
proposed rule would not impose
significant additional costs and burdens
on the States; and that this proposed
rule would not affect the ability of the
States to discharge traditional State
governmental functions.
1. Regulatory Flexibility Act—Impact on
Small Businesses
The Regulatory Flexibility Act (RFA)
requires agencies to analyze options for
regulatory relief of small entities. For
purposes of the RFA, small entities
include small businesses, nonprofit
organizations, and small governmental
jurisdictions. Most hospitals and most
other providers and suppliers are small
entities, either by nonprofit status or by
qualifying as small businesses under the
Small Business Administration’s
(SBA’s) size standards (revenues of $6.5
million to $31.5 million in any 1 year).
For details, see the SBA’s Web site at
https://sba.gov/idc/groups/public/
documents/sba_homepage/serv_
sstd_tablepdf.pdf (refer to Sector 62)
(accessed 8–12–08).
We discuss the impact of the
proposed rule on small entities in
section XI.D of this document.
Section 1102(b) of the Act requires us
to prepare a regulatory impact analysis
if a rule may have a significant impact
on the operations of a substantial
number of small rural hospitals. This
analysis must conform to the provisions
of section 603 of the RFA. For purposes
of section 1102(b) of the Act, we define
a small rural hospital as a hospital that
is located outside of a Metropolitan
Statistical Area and has fewer than 100
beds. (See the discussion at section XI.D
for our discussion of the expected
impact on small rural hospitals.)
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B. Anticipated Effects
1. Objective
The objective of this regulatory
impact analysis is to summarize the
costs and benefits of moving from ICD–
9–CM to ICD–10–CM and ICD–10–PCS
code sets in the context of the current
health care environment.
The following are the three key issues
that we believe necessitate the need to
update from ICD–9–CM to ICD–10–CM
and ICD–10–PCS:
• ICD–9–CM is out of date and
running out of space for new codes.
• ICD–10 is the international standard
to report and monitor diseases and
mortality, making it important for the
U.S. to adopt ICD–10 classifications for
reporting and surveillance.
• ICD codes are core elements of
many HIT systems, making the
conversion to ICD–10 necessary to fully
realize benefits of HIT adoption.
For a more detailed discussion of the
limitations of ICD–9–CM, please refer to
section III.B in the preamble of this
proposed rule. No other viable
alternatives to adopting ICD–10 were
identified. The costs and benefits for
moving from ICD–9–CM to ICD–10–CM
and ICD–10–PCS were assessed within
the requirements of the Executive
Orders and Acts cited in section XI.B of
this regulatory impact analysis.
2. Background
Two major papers analyzed the costs
and benefits of adopting the ICD–10
codes: (1) a March 2004 RAND study,
https://www.rand.org/pubs/
technical_reports/2004/
RAND_TR132.pdf (accessed 8–12–08)
and (2) an October 2003 study by the
Robert E. Nolan Company
commissioned by the Blue Cross and
Blue Shield Association, https://
www.renolan.com/healthcare/
icd10study_1003.pdf (accessed 8–12–
08). Both studies agreed that the basic
elements driving the cost of
implementing the ICD–10 code sets
were training, productivity losses, and
system changes. Table 6 summarizes the
differences in cost and benefit estimates
between the two studies.
In considering the studies, HHS
evaluated both on the basis of the
following criteria:
• The depth and completeness of the
analysis and supporting evidence for the
conclusions;
• Data sources and a presentation of
the data limitations;
• The perceived objectivity of the
analysis as demonstrated by the
discussion of data sources and the rigor
of the analysis;
• The point of view the analysis
adopted—whether from the general
societal perspective or from a specific
point of view (for example, from the
payer or provider view point); and
• HHS’ ability to explain and justify
in a Regulatory Impact Statement the
findings and conclusions presented in
each of the studies.
49809
a. Nolan and RAND Studies: Analysis
and Limitations
ICD–10 code sets would likely
represent the most complex of all the
HIPAA code sets. Also, because the
ICD–9–CM code set is used for reporting
diagnoses, adoption of the new codes
will likely touch every provider who
submits diagnostic codes, and every
payer that processes health care claims.
Given the lack of quantifiable data, both
studies were compelled to make
numerous assumptions as to the
possible behavioral changes resulting
from the new codes. The key differences
are how each study justifies its
assumptions and seeks to provide
detailed and plausible scenarios.
As the Nolan and RAND reports were
the only studies available at the time
that outlined the costs and benefits for
transitioning from ICD–9 to ICD–10, we
employ them for purposes of this impact
analysis along with their associated
assumptions and limitations. We later
discuss HHS’ analysis based on our
selected model. Overall, NOLAN
estimates that it will cost providers and
payers between $5.5 billion and $13.5
billion to implement ICD–10–CM and
PCS code sets. In addition, Nolan
expects there to be an additional $150
million to $380 million in lost
productivity.
i. Training
Nolan expects the following number
of individuals would require training on
the new codes:
TABLE 1—NOLAN STUDY—TRAINING ESTIMATES
Number of
staff
* Category
Full-time coders ...........................................................................................................................
Physicians/practitioners ...............................................................................................................
Part-time coders and other clinicians ..........................................................................................
Other hospital ..............................................................................................................................
Payer plans ..................................................................................................................................
142,170
754,636
1,455,015
44,207
117,020
Hours
24–40
4–12
4–40
4–40
4–80
Training cost
in millions $
(including
follow-up)
94–141
332–499
456–684
30–45
54–80
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* Nolan adapted from chart 6 on page 17.
The Nolan study estimates that
142,170 coders would need training at
a cost of $94 million to $141 million.
But the study does not differentiate
between hospital-based coders and
those working in physician offices and
clinics. In addition, Nolan identifies
another set of 44,207 coders as ‘‘other
hospital’’ coders, but there is no
explanation as to which hospitals are
included under this category versus
‘‘full-time coders,’’ nor does the Nolan
study document the sources of its
numbers. According to the American
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Health Information Management
Association Web site (https://
www.ahima.org, accessed 8–12–08),
there are more than 51,000 AHIMA
members. As AHIMA is the leading
professional association representing
specially educated and certified health
information management professionals
throughout the healthcare industry, we
assume, as does the RAND study, that
this represents the majority of the
number of full-time coders employed in
hospitals. Without supporting
documentation, we cannot accept
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Nolan’s estimate of 142,000 full-time
coders.
The Nolan study estimates that
754,000 physicians would require
between 4 to 12 hours of training at a
cost of $332 million to $500 million, or
$440 to $663 per physician. Given the
wide use of ‘‘super-bills’’ (forms with
codes for diagnosis and procedure codes
with their descriptions that are most
frequently used by physician practices,
and that may or may not include
specific charges) to document
encounters in office-based practices,
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and familiarity with the few codes for
which they routinely bill, it seems
unlikely that most physicians would
require or desire training on the new
code sets. We believe that only some
physicians would have an interest in
learning the new system. Also, it seems
likely that large practices would have
sufficient need to hire either a part-time
or full-time coder. In comparison,
RAND estimates that only one out of ten
(45,000) physicians would want up to 8
hours of training, and these would most
likely be emergency room physicians
and surgeons. For these reasons, we
believe the RAND numbers more
accurately reflect the number of
physicians likely to seek training.
Nolan predicts that some 1.5 million
clinicians, including nurses and
physician assistants, would seek
training in the ICD–10 codes at a cost
ranging between $313 and $470 per
clinician. As in the case of physician
training, the Nolan study does not
present any explanation for why over a
million nurses and physician assistants
would want or require training. In some
offices, clinicians may perform coding
along with their clinical duties, but in
most cases, we again expect that superbills or similar forms would be used
which require minimal knowledge of
the coding structure. On this basis, we
rejected Nolan’s estimates of clinician
training.
Training would be necessary for
insurance and health plans that make
payments to providers based on the
submitted codes. The Nolan study
estimates that 117,000 coders working
for health plans would require between
4 to 80 hours of training at a cost of
between $54 million to $80 million. In
this regard, both studies are close on
their estimate of the number of
personnel and time required for
training, with RAND estimating 150,000
personnel requiring 4 to 8 hours of
retraining.2 However, the Nolan study is
rather opaque in providing evidence or
rationale for its conclusions.
ii. Productivity Losses
The Nolan study distinguishes
between short-term (6 months to a year)
and permanent productivity loss.
TABLE 2—SHORT-TERM PRODUCTIVITY LOSS
Payer and provider productivity losses resulting from claims rework ..........................................................
Coder productivity loss for first 3 months .....................................................................................................
$300–600 (million) in first year.
$300–440 (million).
Nolan, adapted from Chart 8, page 20.
TABLE 3—LONG-TERM PRODUCTIVITY LOSS
Coder productivity loss resulting from the greater number of codes and more complex coding structure ............................
$152–380 million.
Nolan, adapted from Chart 9, page 21.
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The Nolan study concludes that the
extra time ICD–10 requires for coding is
largely the result of initial unfamiliarity
with the code structure and
terminology. However, because of the
intrinsic greater complexity of coding
and vastly greater number of codes,
Nolan assumes there would be a
permanent loss of productivity of $152
million to $380 million.
The American Health Information
Management Association (AHIMA) and
the American Hospital Association
(AHA) conducted a field test of the ICD–
10–CM codes and issued their report in
September 2003. The full report is
available at https://www.AHIMA.org. The
study imposed certain limitations that
may have contributed to the extended
times in using the new code system (the
principal limitation being the absence of
digital documents which would enable
faster searching for codes).3 However,
overall, the study found that with
adequate training and proper coding
tools, there should be no loss in coder
2 RAND
page 10.
Field Testing Project’’ AHIMA/
AHA; September 2003 (https://www.ahima.org/
3 ‘‘ICD–10–CM
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productivity in the long-run (AHIMA/
AHA study, page 25).
Nolan also cites Canadian sources
who reported productivity losses during
the first 6 months after ICD–10 was
implemented, but according to its
source, production rebounded to preICD–10 levels.4
iii. System Changes
Nolan’s analysis of the cost to make
system changes rests largely on
statements made by various executives
who cited the costs of preparing for Y2K
and HIPAA. The Nolan study analysis
consisted of adjusting those figures for
factors such as avoiding hardware
purchases, or the inclusion of security
and privacy costs in the HIPAA
estimates. Nolan estimates the system
changes based on an aggregate number
that includes privacy and security, and
then backs out the cost for
implementing the code portion of the
costs, concluding that 50 to 70 percent
of the costs would be attributable to
icd10/documents/FinalStudy_000.pdf), accessed 8–
12–08 page 11; ICD–10 not available in electronic
format.
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code changes.5 However, there is no
explanation for how Nolan determined
this number. The following table
summarizes Nolan’s estimates for the
cost of implementing system changes in
the various affected health care sectors.
The estimates are drawn from tables in
the Nolan report.
TABLE 4—NOLAN STUDY ESTIMATES
OF
SYSTEM CHANGES COSTS
ACROSS HEALTH CARE SECTORS
In billions
Facilities and physician offices ...................................
Health plans and insurers ....
Medicaid/Medicare ................
$2.6–$8.2
0.4–1.0
0.7–1.4
Nolan report, pages 8, 9, 11, 24.
In estimating the costs of the system
changes, Nolan compared the
implementation of the codes sets to the
implementation of the HIPAA sets and
broke down the activities into the
following tasks:
4 Nolan,
5 Nolan,
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49811
TABLE 5—NOLAN STUDY ESTIMATES OF SYSTEM CHANGES COST BY TASK
Project steps
Sub-steps
FTEs
* Team Formation and Analysis ........
Assign project leader .......................
Assemble project team and develop
plan.
Perform gap and systems analysis ..
HIPAA
FTEs
ICD–10
0.25–1.0
0.5–2.0
$25–$70,000
50–140,000
0.25–1.0
0.5–4.0
$25–$70,000
50–280,000
0.25
5–25,000
0.5–3.0
50–210,000
* Nolan, page 5, chart 2.
HIPAA required a number of system
changes and adoption of a number of
new code sets. In the final HIPAA
transaction rule, we estimated the cost
to implement the Administrative
Simplification provisions to be
approximately $7.1 billion (65 FR
50356).
Nolan estimates that system changes
in hospitals would cost between $2
billion and $6 billion, and $645 million
to $2.2 billion for implementing the
ICD–10 codes in physician and group
practice offices. Nolan, however, does
not take into account that hospitals
would need to implement both ICD–10–
CM and ICD–10–PCS, whereas
physician and group practice offices
will only need to implement ICD–10–
CM. Payers would incur $400 million to
$1 billion in costs to implement the
ICD–10 code sets. The total cost of
$3.045 billion to $9 billion represents
from 43 to 127 percent, respectively, of
the $7.1 billion estimated for
implementing the HIPAA provisions for
both provider and plan costs. In
addition, the Nolan study separately
identifies the system change costs for
government programs, including
Medicaid and Medicare, at between
$700 million and $1.4 billion.6 In
analyzing the cost of implementing
ICD–10 code sets for Medicaid State
plans, Nolan cites several sources that
refer to the costs of modifying the
Medicaid Management Information
Systems (MMIS), which may require
some modifications to accept payments
based on the new codes.
Nolan did not estimate any
quantitative benefit which is a serious
shortcoming of the study, given the
Office of Management and Budget’s
(OMB’s) guidance on preparing cost/
benefit analyses for major rules.
Based on the studies’ designs, it
appears that the RAND and Nolan
reports had different target audiences;
therefore, their respective
methodologies differed. RAND
considered costs and benefits from the
perspective of the general public, while
the Nolan study focused on major health
care sectors. A key result of this
difference is that potential winners and
losers in each health care sector are not
clearly highlighted in the RAND report.
RAND’s methodology is more
analytical than Nolan’s methodology,
albeit there are still limitations to the
RAND report. Both RAND and Nolan
express the uncertainty in their
estimates through presenting ranges for
their estimates. RAND, however,
provides more detailed scenarios and
offers a qualitative analysis of the
uncertainty in the variables it uses in its
scenarios. Nolan does not offer any
explanation for its ranges. Both studies
conducted extensive literature reviews.
In conducting the cost and benefit
analysis, both reports dissected the
estimates into a one-time cost and onetime and recurring benefits in the RAND
study. In both the Nolan and RAND
studies, nursing homes, clinical labs,
Durable Medical Equipment suppliers
(DMEPOS), third party administrators,
clearinghouses, and small/medium
insurers were excluded from their
analysis. Table 6 below provides a highlevel comparison between the RAND
and Nolan studies.
Although RAND does not explicitly
break down its analysis beyond the
broad categories of ‘‘payer’’, ‘‘hospital’’,
‘‘physician’’, for costs of coding,
productivity losses, returned and
improper claims, by examining the costs
of the generic categories of training,
administration, and claims processing,
RAND’s approach cuts across the
subcategories of providers and payers.
Only in the analysis of system change
costs is there a defect in RAND’s
method. From the documentation
provided, RAND conducted interviews
with executives of health care systems
of various sizes as measured by
membership.7 It is not clear, however,
the span of the interviewed health
systems in terms of the types of
providers. Without more details, we
cannot conclusively determine the
extent of the system conversion costs of
long-term care facilities, home care
providers and other non-hospital
organizations. It may be that the system
conversion costs for these types of
health providers are underrepresented.
Similarly, it is not clear how far-ranging
is RAND’s examination of the various
types of payer organizations. It is
possible that third party administrators,
clearinghouses, and small health plans
may be underrepresented in the
analysis.
TABLE 6—COMPARISON OF COST AND BENEFIT ESTIMATES IN RAND AND NOLAN STUDIES
[In $ millions]
RAND
Nolan
Difference
Comments
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Costs Training:
One-time ..........................
$200–450
$950–1,500
$750–1,050
• 35 to 50 percent difference attributable to the assumption
of part-time coders: RAND assumed 200,00 compared to
1.5 million in the Nolan report.
• 25 to 40 percent difference attributable to the number of
physicians: RAND assumed 1:10 physicians would be
trained compared to most physicians in the Nolan report.
Productivity Losses:
One-time ..........................
50–350
600–1,040
550–690
• The Nolan report treated re-work and short-term losses
separate from productivity losses—which may account for
the Nolan Report figures.
6 Nolan,
page 7.
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TABLE 6—COMPARISON OF COST AND BENEFIT ESTIMATES IN RAND AND NOLAN STUDIES—Continued
[In $ millions]
RAND
Recurring .........................
System Changes:
One-time ..........................
Contract Negotiations ......
Benefits: (in millions)
More accurate payments
for new procedures.
Fewer rejected claims .....
Fewer fraudulent claims ..
Better understanding of
new procedures.
Improved disease management.
Nolan
Difference
0–30
152–380
152–350
225–700
3,700–10,600
3,475–9,900
0
82–416
82–416
100–1,200
(1)
........................
200–2,500
100–1,000
100–1,500
(1)
(1)
(1)
200–1,500
Comments
(1)
• The Nolan report compared ICD–10 code set implementation to other large scale system changes such as Y2K
and HIPAA.
• The Nolan report claims that vast majority of benefits cannot be achieved without a standard clinical vocabulary.
Also, the report states that the benefits asserted by proponents are uncertain and unproven based on literature
reviews.
rwilkins on PROD1PC63 with PROPOSALS
1 Uncertain.
Finally, Nolan also argues that
implementing ICD–10 codes would lead
to increased incidences of fraud and
abuse in its introductory period. We
agree with this view since we anticipate
that people may take advantage of the
initial ambiguity of the new codes, but
we also believe that the greater
precision of the coding requirements
would eventually lead to lower
incidences of abuse.
Both studies presented valuable input
and relevant information, but based on
questions regarding the methods and
assumptions presented in each report,
we believe that neither should be used
as the sole basis for an ICD–10–CM and
ICD–10–PCS impact analysis. To
address these shortcomings, HHS
convened a workgroup to develop a
framework consistent with OMB’s
requirements for an impact analysis.
The framework extracted relevant points
from both the RAND and Nolan studies,
and also identified new internal and
external data sources.
Also taken under consideration for
purposes of this impact analysis, is a
report authored by the Hay Group, Inc.,
‘‘Examining the Cost of Implementing
ICD–10’’, commissioned by America’s
Health Insurance Plans (AHIP)
(hereinafter referred to as the AHIP
report’’) in October 2006. 8 This report,
a white paper based on the previouslyreferenced RAND and Nolan reports on
ICD–10 implementation, is intended to
identify the primary sources of ICD–10
8 ‘‘Examining the Cost of Implementing ICD–10’’
White Paper prepared by Thomas F. Wildsmith,
FSA, MAAA of HayGroup, Inc. on behalf of the
America’s Health Insurance Plans, October 12,
2006. https://www.ehcca.com/presentations/
hithipaa414/3_04_1.pdf.
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implementation costs. It includes a
review of existing cost estimates from
RAND and Nolan and uses those
estimates to develop preliminary
estimates of the likely cost to the U.S.
health system as a whole. Its scope
includes health care providers, private
payers, and government payers. The
types of costs considered are systems
implementation, training, and provider
contract renegotiations. Only direct
implementation costs are considered.
The report does not include the cost of
work that must be re-done due to error
rates or other forms of lost productivity.
For purposes of this regulatory impact
analysis, we used the AHIP report as a
litmus test in that it was authored a full
2 years after the RAND and Nolan
reports, and held the potential for
providing more updated cost estimates.
However, it again relies on RAND and
Nolan data, and notes that its cost
estimates would still have to be adjusted
for inflation, which we have already
done for this impact analysis. The AHIP
report also lacks discussion regarding
the monetary benefits that would occur
once ICD–10 is implemented. It also
does not specifically reference how their
estimates were calculated or the sources
for many of their assumptions.
We agree with selected segments of
the AHIP report, namely its conclusion
that implementation of ICD–10 for
Medicare and Medicaid would run
between $250 and $370 million; we
estimate an average of $315 million.
Where our analysis and the AHIP report
differ is in the cost for the training of
physicians on the ICD–10 codes sets,
and in the cost of re-negotiating
contracts. In the case of the former, we
continue to believe that there will be a
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minimum number of physicians who
will desire such training, leaving it
instead to their staff coders, or the use
of ‘‘super-bills’’ to update their coding
information. In the case of the latter, we
continue to believe that contract renegotiation costs are considered for
purpose of this analysis to be a cost of
doing business, and would take place
whether or not the transition to ICD–10
took place. We believe that the level of
effort to re-negotiate contracts for the
purposes of implementing ICD–10
would not be significantly different
from other policy-related changes
requiring contract renegotiations. We
also do not account for AHIP’s increase
in system implementation costs of
between $115 to $416 million due to an
accelerated implementation of the ICD–
10 code sets versus an orderly, staged
rollout as we have proposed.
3. Framework for Impact Analysis
a. The Impact Analysis Workgroup
HHS created a workgroup from a
cross-agency, multidisciplinary team
with actuarial, economic and coding
subject matter expertise from HHS’
Office of the Assistant Secretary for
Planning and Evaluation (ASPE);
Centers for Disease Control (CDC)/
National Center for Health Statistics
(NCHS); Centers for Medicare &
Medicaid Services (CMS); and the Office
of the National Coordinator for Health
Information Technology (ONC). The
workgroup sought guidance from the
Department of Defense (DoD), the
Department of Veterans Affairs (VA),
and contacts from other countries that
have implemented ICD–10, to lead the
cost-benefit analysis for transition from
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ICD–9–CM to ICD–10–CM and ICD–10–
PCS. Also, Actuarial Research
Corporation (ARC) was hired to help the
team evaluate and update the data
sources and available information. The
team critically reviewed several costbenefit studies and international
experiences with ICD–10
implementation. Data were drawn from
the RAND study (sponsored by NCVHS),
the Nolan study (sponsored by the Blue
Cross Blue Shield Association), the
American Health Information
Management Association (AHIMA), and
CMS.
In 2005, the workgroup began the
analysis of the costs and benefits by
examining and comparing the RAND
and the Nolan studies. While both
contain useful information, the
requirements for regulatory impact
estimates demand a somewhat different
framework. The workgroup
incorporated the basic results from both
studies, as well as the Secretary’s vision
of health care information technology,
and reflected costs and benefits by year
based on assumed implementation
schedules.
The workgroup’s analysis assumes
that the implementation of ICD–10 code
sets would be coordinated with existing
HHS health information technology
initiatives, and include the required
changes to dependent regulations and
standards. HHS health initiatives, such
as public health/biosurveillance, disease
registries, quality monitoring, utilization
review, and pay for performance, could
employ either ICD–9–CM or ICD–10–
CM and ICD–10–PCS code sets.
Conversion costs from ICD–9–CM to
ICD–10 code sets are unavoidable and
do not include costs associated with the
American Standards Committee (ASC)
X12N version 5010 standard. ICD–9–CM
is an adopted HIPAA code set and the
adopted HIPAA Transaction standard
(ANSI ASC X12N version 4010/4010A1)
does not support ICD–10–CM and ICD–
10–PCS code sets. Also, the CMS IPPS
uses ICD–9–CM-based Diagnostic
Related Groups (DRGs), and the annual
regulatory IPPS update would require
conversion to ICD–10-based DRGs.
Regulatory and standards changes,
including implementation of Version
5010 must occur before, or parallel to,
conversion to ICD–10–CM and ICD–10–
PCS code sets, with sufficient notice to
the industry to reconfigure systems,
policies and methodologies. For
initiatives in the early stages of
development, costs to implement ICD–
9–CM now, with conversion to ICD–10
code sets later, could be avoided by
direct conversion to ICD–10 code sets
concurrently with the initiatives.
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The following is a detailed discussion
of the workgroup’s approach, method,
and assumptions underlying its costs/
benefit analysis.
First, we present an overview of HHS’
approach to estimating the costs and
benefits based largely on the RAND
study but also drawing from the Nolan
study and the AHIMA/AHA study.9 The
second part of this section describes in
detail the assumptions and models that
RAND developed for its estimates and
which were adapted for this analysis.
The workgroup’s calculations began
with the RAND 10 estimates,
incorporating additional information
from CMS, and some input from
Nolan.11 For each category for which
RAND provided a range of high and low
costs, a point estimate was generated.
When RAND did not include a specific
estimate, HHS’ point estimate was based
on the midpoint of their high and low
estimates. RAND’s descriptions and 10year numbers were used to create a yearby-year spread of both costs and
benefits. Modifications were made after
reconsideration of the RAND study
regarding their calculations. These
modifications included the addition of
productivity losses for outpatient
claims; the separation of costs from the
benefits for rejected and improper
claims; and reconciliation of what were
considered inconsistencies in the RAND
study. We selected the computed values
from the text of the RAND report rather
than relying on the values presented in
the tables.
HHS also examined estimates from
the Nolan study. Nolan specifically
estimated outpatient productivity
losses, a cost that RAND did not
estimate. For outpatient productivity,
the Impact Analysis Work group
assumed the short-term impact may be
very small in terms of extra time per
claim, but because of the large number
of claims, the loss was judged to be
significant. In its analysis, Nolan
identifies potential productivity and
other losses for physician and facilities.
RAND did not examine the possible loss
of productivity for physician and other
outpatient claims. We believe that there
may be a productivity loss of outpatient
and physician office-based services. The
loss per claim may be very small, but
because of the huge volume of physician
9 ‘‘ICD–10–CM Field Testing Project.’’ AHIMA/
AHA; September 2003 (www.ahima.org/icd-10/
documents/FinalStudy/pdf.), accessed 8–12–08
10 ‘‘The Costs and Benefits of Moving to the ICD–
10 Code Sets.’’ Martin Libicki and Irene
Brahmakulaum, The RAND Corporation. MHHSh
2004.
11 ‘‘Replacing ICD–9–CM with ICD–10–CM and
ICD–10–PCS: Challenges, Estimated Costs and
Potential Benefits.’’ Robert E. Nolan Company.
October 2003.
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and outpatient facility claims, the
productivity loss may be significant.
To allow analysis of longer-term
conversion impacts, HHS’ estimates are
moved to a year-by-year basis. Also,
since we expect new procedures to be
introduced each year, the savings from
the introduction of the new codes are
estimated to increase annually over the
period for which the analysis was
conducted.
For two benefit categories, ‘‘fewer
rejected’’ and ‘‘improper claims,’’ RAND
estimated a net cost of zero over the first
5 years, expecting that there would be
some short-term losses before benefits
materialized. For the purpose of
calculating both year-by-year estimates
and 10-year estimates, these categories
are included on the cost side as well as
on the benefit side. This is reflected by
including costs of rejected and improper
claims for the first 2 years.
The next section details the
assumptions used to estimate the costs
and benefits, and the models used to
estimate the benefits. Upper and lower
bound estimates are also presented.
4. Assumptions Underlying the Cost and
Benefit Analysis
The estimates for the impact of
replacing ICD–9–CM with ICD–10–CM
and ICD–10–PCS code sets as the
HIPAA standard code sets is based
primarily on the RAND analysis
previously cited. After reviewing that
report versus other reports (for example,
Nolan), comments from other entities,
experience from other countries, and
conversations with government
analysts, we adapted the RAND results
as the base for developing the regulatory
impact estimates. As noted above, we
adopted the RAND approach and results
but made several modifications to the
underlying RAND estimates.
5. Impacted Entities
Entities covered under HIPAA would
be required to comply with the
provisions of this proposed rule once
finalized. Covered entities include all
health plans, all health care
clearinghouses, and health care
providers that transmit health
information in electronic form in
connection with a transaction for which
the Secretary has adopted a standard. In
the sections that follow, we attempt to
outline the ICD–10 transition cost
impacts to various covered entities;
however, we acknowledge that the cost
analysis for training, productivity loss,
and system changes are impacts of
varying degrees on all covered entities.
There are multiple ways to implement
the ICD–10 code sets. As the codes will
be integrated into systems and
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processes, some providers, plans, and
vendors may decide to populate the new
codes throughout their entire system at
once, or translate the codes on a flow
basis as they are used. Integration of the
codes in many cases will be determined
by the extent to which the available
granularity is needed in transactions.
Many small and specialty practices
may continue to submit paper claims as
well, using preprinted forms that
include all of the appropriate codes
required for use in such offices. In most
instances small practices and direct
billing practitioners may assign the
diagnosis themselves and may include
the ICD–10 code on the paper billing
form. As time goes on, we anticipate
that the industry will migrate to the full
use of the more robust codes to realize
the full benefit potential of ICD–10.
We solicit industry and other
stakeholder comments on ICD–10
integration and use of workarounds.
6. Estimated Costs
As identified in both the Nolan and
RAND studies, HHS estimates the
following three basic categories of costs:
• Training.
• Productivity Losses.
• Systems Changes.
In general, costs may be categorized
into one-time costs and recurring costs.
In our analysis, some costs are
considered one-time costs associated
with conversion and training, which
will be expended within less than a
year. Other costs, such as the cost for
additional claims processing resulting
from errors and delays in implementing
system changes, are projected to extend
out for several years and are considered
recurring costs. (see Table 13a) Both
RAND and Nolan identify short-term (6
months or less) and long-term
productivity losses (extending beyond
the initial 6-month period).
For purposes of this analysis, we
consider a primary estimate to include
all estimated costs, and estimated
benefits incorporating both one-time
and recurring costs, extended over a 15year period based on the data provided
from the RAND and Nolan studies.
(Please refer to Table 13a and b for more
information on costs and benefits as
well as primary estimates).
In developing our estimates for both
the costs and benefits of converting to
the ICD–10 codes, we developed ranges,
intended to express the uncertainty in
our point estimates. The low point of
each range represents for the most part,
half of the point estimate, with the high
point of the range representing a
doubling of the point estimate.
For some of the cost estimates, we use
the higher end of the scale to be more
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conservative. For example, when we
suggested that training would take four
to eight hours, we based our
calculations on eight hours. Also, we
use a 15-year timeframe to show the
point at which benefits exceed costs.
For purposes of this impact analysis, in
some instances we base our ranges on
that of the RAND study and extend
them out over 15 years. Also, because
our analysis shows that costs will be
expended within the first 3–5 years, in
most cases we use the midpoint of our
ranges for the primary estimate.
We also estimate that there will be a
phase-in of costs. In most cases, costs
begin showing in the 2 years prior to
implementation and zero out the year
after implementation. The only
exception is the costs for improper and
returned claims, which we estimate will
not be incurred until after
implementation since claims using ICD–
10 will not be submitted until after the
implementation date.
In terms of a phase-in of benefits, we
do this in order to show that benefits
will increase the more the industry
becomes familiar with using the new
codes. We do not expect benefits to
begin until the year after
implementation, but will continue to
increase each year thereafter with 100
percent of the benefit being realized 5–
6 years after implementation.
Since we base our figures on 2004
dollars, for purposes of this analysis, we
account for inflation by increasing the
cost estimates by the Consumer Price
Index (CPU–I) figures from 2004 to 2007
and the benefit estimates by the growth
rate in the National Health Expenditure
accounts for 2005 to 2007.
For estimation of the costs estimates,
we divide the CPI–U annual index for
2007 by 2004’s index to determine the
adjustment factor in which to apply to
each cost estimate and range. This
adjustment factor equals approximately
1.098.12 Since the cost estimates for
implementing ICD–10 are not tied to
medical services, we feel that the CPI–
U is reasonable to use for adjusting for
inflation. That is, most of the costs are
so heavily allocated to the first few
years, the inflation adjustment does not
have a significant effect.
For the benefit growth factor preimplementation, we use the growth in
national health care expenditures for
years 2005–2007, with year 2007 having
an estimated growth rate of 1.212. For
the growth projections for years 2012
and beyond, we use the compounded
12 From
the Consumer Price Index 2004 and 2007,
https://www.bls.gov/CPI/, accessed 8–12–08.
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growth in the U.S. population which is
projected to grow at 0.008 per year.13
Although we base most of our
assumptions on the RAND study, we
take into account the concerns
expressed by the Nolan study that
RAND did not raise:
• Cash flow.
• Contract renegotiations.
We agree with Nolan’s assumption
that the slowdown associated with the
implementation of the new code sets
may cause serious cash flow problems
for providers. The risk of a payment
slowdown always exists whenever a
new payment system or policy is
implemented. However, even with
major policy changes, plans have
learned over time to anticipate these
problems and have instituted measures
to provide periodic interim payments
(PIP) for providers who may be affected
by the processing slowdown. Most
payers have learned through experience
the cash flow needs of their providers
and can easily set up PIPs and perform
reconciliation at the end of the fiscal
year.
With respect to contract renegotiation,
this is an activity that providers and
payers must perform on a regular basis,
and every time a new policy is issued.
The implementation of the new codes
would require contract renegotiations.
However, we do not see the level of
effort to be significantly greater than
with other renegotiation efforts,
especially in the recent past with the
initiation of a number of prospective
payment systems for long-term care,
psychiatric, rehabilitation, and
outpatient services.
Therefore, for purposes of this impact
analysis, we do not address the
concerns of Nolan as stated above.
a. Training
For training costs associated with the
ICD–10 transition, we account for both
full-time and part-time coders. We
surmise that full-time coders are
primarily dedicated to hospital
inpatient coding while the part-time
coders work in outpatient ambulatory
settings. The classifying of hospital
inpatient coders as full-time may
roughly represent the employment
status of this group of coders. However,
we believe it is more accurate to
categorize coders based on their job
location as inpatient or ambulatory
setting coders. The difference in
categorizing coders based on the job
setting rather than full- or part-time has
to do with the need to learn ICD–10–
13 National Health Expenditures and Selected
Economic Indicators, Levels and Annual Percent
Change: Calendar Years 2002–2017.
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PCS in addition to ICD–10–CM. All
coders will need to learn ICD–10–CM
while the coders working in the hospital
inpatient setting will also need to learn
ICD–10–PCS. This will apply to
inpatient coders regardless of their
status as part-time or full-time coders.
For full-time/inpatient coder training,
we use the estimation calculated by
AHIMA and others that getting full-time
coders to proficiency on both ICD–10–
CM and ICD–10–PCS could take as little
as a few days or up to a full 40 hours.14
Based on AHIMA membership, we
assume that 50,000 full-time hospital
coders would need one week of training,
at $2,750 per coder, which includes
$2,200 for lost work time and $550 for
training expenses, for a total of $137.51
million.15
Therefore, we estimate that the
training costs for full-time coders
associated with adopting ICD–10 is
approximately $137.51 million with a
low range estimate of approximately
$110 million and a high of
approximately $165 million.
As explained previously, we expect
training of full-time coders to start in
2010 (the year before ICD–10
implementation). We assume that 15
percent of training costs will be
expended in this year. In the following
year (the year ICD–10 implementation
occurs), we assume 75 percent of
training cost will be expended in 2011
and 10 percent of training costs in 2012.
Estimating the distribution of coders
in ambulatory settings is more
complicated because not every
ambulatory setting may employ a coder.
In many physician and practitioner
offices, the use of ‘‘super-bills’’—
preprinted forms that include all of the
49815
appropriate codes required for use in
such offices—minimizes the need for a
coder. Based on our knowledge of the
industry, in most instances physicians
and direct billing practitioners will
assign the diagnosis themselves and
may include the ICD code on the billing
form. Yet we believe that all but the
smallest practices will have someone
whose responsibilities either formally as
part of their job description or
informally include handling coding
issues.
Table 7 below summarizes the
number of part-time coders by North
American Industry Classification
System (NAICS) code for ambulatory
entities (https://www.census.gov/csd/
susb/susb05.htm, accessed 8–12–08).
TABLE 7—AMBULATORY ENTITIES ASSUMED TO EMPLOY PART-TIME CODERS BASED ON THE 2005 STATISTICS OF U.S.
BUSINESSES
Total number
of entities (establishments)
and employees 16
NAIC
code
Type of entity
6211 ....
Office of Physicians ................
Employees ..............................
Office of Other Health Practitioners.
Employees ..............................
Outpatient Care Centers .........
Employees ..............................
Medical and Diagnostic Laboratories.
Employees ..............................
Home Health Care Services ...
Employees ..............................
6213 ....
6214 ....
6215 ....
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6216 ....
15 RAND,
page 8.
page 8.
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10–19
employees
100–499
employees
Total number
of part-time
coders
44,457
286,741
19,357
25,178
316,111
7,654
21,500
555,259
5,043
7,062
256,996
11,774
........................
100,875
........................
553,658
26,901
658,507
11,856
121,527
1,897
12,510
1,324
88,196
1,907
24,766
1,324
96,754
4,190
109,237
1,492
47,155
5,440
186,883
928
30,962
........................
17,941
........................
222,651
20,184
913,514
8,577
1,426
9,558
13,194
1,569
22,111
41,707
4,109
171,704
40,221
2,445
245,827
6,080
........................
........................
179,267
administrative complexities and the
types and volume of services provided,
that facilities with 500 or more
employees would require full-time
coders. Thus, we did not include
ambulatory practices with 500 or more
employees in our analysis of part-time
coders.
We also assumed that very small
providers with between 5–10 employees
would have someone responsible to
manage coding issues, who would need
some amount of training. We assume
that the 179,000 coders would have
training costs per coder of $550. This
includes $440 for lost work time and
$110 for training expenses, for an
estimate total of $98.5 million.17
For purposes of this impact analysis,
we estimate the cost associated with
part-time coder training in adopting
16 https://www.census.gov/csd/susb/susb05.htm,
accessed 8–12–08.
Jkt 214001
20–99
employees
213,611
2,041,704
115,378
Based on the 2005 Statistics of U.S.
Businesses data, our analysis suggests
that there are approximately 179,000
part-time coders who will require
training on the ICD–10 CM codes, but
not on the ICD–10–PCS codes. Based on
contacts with industry and our own
experience, we assumed that for every
20 employees employed in an
ambulatory setting, there would be one
part-time coder. Using the size
categories that the Office of Advocacy in
the U.S. Small Business Administration
created with the Statistics of U.S.
Businesses data, we calculated the
number of part-time coders in
outpatient ambulatory practices with 20
to 499 employees. (https://
www.census.gov/csd/susb/susb05.htm,
accessed 8–12–08) We further assumed,
that based on their size, the
14 RAND,
5–9
employees
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ICD–10 is approximately $98.50 million,
with a low range of approximately $55
million and a high range of $165
million.
Code users can include people
outside of health care facilities—
researchers, epidemiologists,
consultants, auditors, claims
adjudicator, etc. Users could also
include people within health care
facilities in areas such as senior
management, clinicians, quality
improvement, utilization management,
accounting, business office, clinical
departments, data analysis, performance
improvement, corporate compliance,
data quality, etc. AHIMA defines a user
of coded data as anyone who needs to
have some level of understanding of the
coding system, because they review
coded data, rely on reports that contain
17 RAND,
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coded data, etc., but are not people who
actually assign codes.
We estimate that there are
approximately 250,000 code users.18 We
assume that of these 250,000 only
150,000 work directly with codes and
would require eight hours of training at
approximately $250 ($31.25 per hour ×
8 hours). We estimate training costs for
code users at $37.50 million with a low
range estimate of $27 million and the
high range is $55 million.19
For physicians, we assume that only
1 in 10 physicians, or 150,000 (there
were a total of 1.5 million physicians in
the U.S. as of 2005 20), would require
training. Based on our experiences and
the testimonies of various providers, we
estimate physicians would only need 4
hours of training, which is half of what
RAND assumes, at $137 per hour. 21
However, after conversations with
industry experts and various physician
types, we believe that since it is likely
that physicians will obtain ICD–10
training through hospital-sponsored
staff in-services, county medical society
in-services, continuing physician
education programs, etc., which they
would attend nonetheless, physician
ICD–10 training costs will be even less.
Based on the assumptions above, we
estimate the cost associated with
physician training for adopting ICD–10
is $82.20 million with range estimates
including a minimum of $0 and a
maximum of $165 million.
We invite the public to comment on
our assumptions and to provide any
data that may improve the accuracy of
our analysis.
b. Productivity Losses
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Productivity loss refers to the cost
resulting from a slow-down in coding
bills and claims because of the need to
learn the new coding systems. 22 One
can think of productivity loss as the
number of additional staff hours that
would be required to code the same
number of bills and claims per hour
before the code conversion. With the
adoption of a new code set, there would
be an initial loss in productivity. All
personnel, including coders and
practitioners, would be affected to some
degree. Coders would be directly
affected because of the need to learn
new codes and definitions. Time would
be lost, and undoubtedly some claims
would require resubmission to payers as
18 RAND,
page 9.
page 9.
20 World Health Organization, https://
www.who.int/en/, accessed 8–12–08.
21 RAND, page 9.
22 RAND, page 10.
19 RAND,
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both providers and payers adjust to the
new codes.
i. Inpatient
We assume that there would be a
significant amount of short-term losses
during the first 6 months after
implementation. Beyond that point, we
believe that productivity would return
to its previous level. Studies from
Canada and Australia have shown that
the productivity losses disappeared
within 6 months after transition to their
versions of ICD–10.
According to a field test conducted by
the American Health Information
Management Association (AHIMA) and
the American Hospital Association
(AHA) in 2003 (https://www.ahima.org/
icd10/documents/FinalStudy_000.pdf),
coders reported no difference in the
time it took to code the claims in 58
percent of the cases. Ninety-one percent
of the remaining records took more than
five additional minutes over the ICD–9
coding in part due to:
• Unfamiliarity with the index
structure of ICD–10;
• Use of different main terms and
sub-terms in ICD–10 versus ICD–9;
• Spending more time reviewing the
medical record; and
• Having greater familiarity with
ICD–9 than with ICD–10, as many
coders had common codes memorized.
AHIMA concluded that the
availability of much-improved coding
tools, more training, and increased
familiarity with ICD–10–CM would
significantly reduce the amount of time
needed to code records in ICD–10–CM,
possibly to the point where ICD–10–CM
actually may require less coding time
than ICD–9–CM.23
Although the field study suggests a
larger initial loss of coder productivity,
the lack of training, the unavailability of
user-friendly coding tools, and other
limiting factors, it did not represent the
‘‘real-world’’ conditions under which
coding would be performed. Because of
the restrictions and the absence of the
‘‘real world’’ conditions under which
we believe coders will be working once
the ICD–10 code system is
implemented, we did not base the
estimate of productivity loss on the field
study.
For purposes of this impact analysis,
we estimate that it would take coders
1.7 additional minutes in the first
month to code an inpatient claim that
includes an inpatient procedure.24 We
estimate that the first month’s
productivity loss at 1.7 minutes per
23 ICD–10
Field Testing Project Summary Report,
September 23, 2003; AHIMA, p. 25.
24 RAND, page 10.
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claim and applying this to 1.8 million
inpatient claims requiring procedures
per month (20,000,000 claims per year
divided by 12 months) at $50 per hour
or $1.41 per claim will result in
productivity losses equaling $2.7
million in the first month. For purposes
of this analysis, we assume that
resumption of productivity will increase
the same amount each month over the
next five months. Dividing $2.7 million
by 6 gives a monthly increase in
productivity of $450,000. Thus, within
5 months following implementation of
the ICD–10 codes for inpatient services,
coding productivity will return to their
pre-conversion levels and there will be
no long-term impact on coding
efficiency. After subtracting the
$450,000 from each month’s lost
productivity, we add the residual
monthly amount of lost productivity.
The total cost due to reduced inpatient
productivity resulting from introduction
of the ICD–10–CM and PCS codes is
projected to be $8.90 million incurred
within the first year, with a low estimate
of approximately $0 and a high estimate
of approximately $55 million.
Further support for the view that
long-term productivity will not be
adversely affected came in a July 2007
conversation CMS had with AHIMA.25
AHIMA further reiterated that long-term
productivity losses would not be
significant. The learning curve for ICD–
10 in an inpatient setting may be longer
due to the need for coders to learn both
ICD–10–CM and ICD–10–PCS. However,
ICD–10–PCS has proven to be easier for
coders to learn than ICD–9–CM
procedures with its many
inconsistencies. Within 2 months,
inpatient coders would understand
ICD–10–CM and rapidly gain a
proficiency in its use. Within 6 months,
inpatient coders would be highly
proficient in its use. After 6 months,
there would be extremely small degrees
of loss of productivity, if any at all.
ii. Outpatient
In analyzing the cost of productivity
loss in the outpatient/ambulatory setting
we had to determine the amount of
additional time coders would need to
code a claim with the ICD–10–CM
codes, and the number of claims
processed within a given period.
In selecting a source for the number
of outpatient/ambulatory claims, we
examined data from the National
Ambulatory Medical Care Survey, the
National Hospital Ambulatory Medical
25 This was an informal conversation between Pat
Brooks from the Hospital and Ambulatory Policy
Group within the Centers for Medicare Management
at CMS and Sue Bowman from AHIMA.
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Care Survey and the Nolan report. These
surveys collect data on patient visits to
physicians and visits to hospital
outpatient departments and emergency
rooms. In 2005, the NAMCS reported
964 million physician visits. In the same
year, the NHAMCS reported 115 million
patient visits to emergency rooms and
90.4 million visits to hospital outpatient
departments. The total number of
patient visits to outpatient medical
settings based on the two surveys was
1,169 million visits.
Because we are inclined to adopt a
conservative approach to estimating the
costs of converting to the ICD–10 codes,
we are using the estimate of outpatient
claims that the Nolan report used in its
calculation. While the NAMCS and
NHACS surveys probably accurately
reflect the number of patient visits, the
number of visits may understate the
number of claims submitted. As we
discuss below in section iv., Improper
and Returned Claims, a certain
percentage of claims will be processed
more than once. We believe that the two
billion claim estimate accounts for the
multiple processing of claims in
addition to the initial processing of
claims.
For purposes of the analysis, we
assume the average time to code an
outpatient claim could take onehundredth of the time for a hospital
inpatient claim. The average time to
code an outpatient claim takes into
account the wide variety of outpatient
settings and coding forms. For example,
physician offices may use preprinted
forms or touch-screens that require
virtually no time to code. Clinics and
hospital outpatient units using
outpatient claim forms, however, may
require more time and some may require
as much time as inpatient claims.
Applying the estimate of 0.017
minutes per outpatient claim (one
hundredth of 1.7 minutes for inpatient
claims) to the monthly number of claims
of 166.7 million and $50 per hour or
$0.014 per claim, we estimate the first
month’s productivity loss will be $2.6
million. Applying a straight line
assumption for the recovery or
productivity over the next five months,
we divided $2.6 million by six to arrive
at $433,000. That is, productivity will
recover from a low of $2.6 million at a
rate of $433,000 per month for the next
five months. Over the following 5
months, we expect productivity to
return to its pre-conversion level.
In the same July 2007 CMS
conversation referred to in the
discussion of inpatient productivity
loss, AHIMA noted that the productivity
losses in an outpatient setting would be
less than inpatient due to the need of
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18:09 Aug 21, 2008
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coders to learn only ICD–10–CM rather
than both ICD–10–CM and ICD–10–PCS.
Within a few weeks, coders would
understand most of the differences
between ICD–9–CM and ICD–10–CM.
Within 6 months, coders would be quite
proficient in ICD–10–CM.
For purposes of this impact analysis,
we estimate the cost associated with
outpatient productivity losses with
adopting ICD–10, is approximately
$8.56 million with a range of a $0
minimum and a $55 million maximum.
iii. Physician Practices
We assume that physician practices
will sustain an initial loss of
productivity loss. Each practice will
have to convert their current ‘‘superbills’’ to an updated version that
includes ICD–10 codes. AHIMA
estimates that it will take approximately
two hours for this conversion, with a
one-time cost estimate of $55 per
practice. Assuming there are 200,000
practices nationwide, this cost equates
to a one-time total cost of approximately
$10.98 million, with a low range of $5.5
million and a high range of $27 million.
We consider this number to be high
considering that some practices will
have their specialty societies perform
the ‘‘super-bill’’ conversion and supply
it to their members.
iv. Improper 26 and Returned Claims
The implementation of the new code
sets is expected to produce a temporary
increase of coding errors especially on
the part of physicians. To determine the
effects of introducing code changes on
the number of claims processing and the
number of Medicare returned claims, we
reviewed returned claims data for FYs
2004, 2005 and 2006. We found that
there appears to be a pattern of a spike
in Medicare returned claims 3 to 6
months following the introduction of
ICD–9 annual code updates. The average
percent increase in returned claims
associated with the annual coding
update is approximately three percent
over the 3-year period.27 Based on our
findings and considering that the annual
coding update affects a relatively small
number of codes compared to the
proposed ICD–10 conversion, which
will affect all diagnostic and procedure
codes, we anticipate that the percent of
returned claims following the
implementation could be more than
double the previous years’ increases. We
expect that the percent of returned
claims may peak at around 6–10 percent
of the pre-implementation levels
Relying on RAND’s estimate that the
average overall cost of claims
adjudication in the U.S. is roughly $22
billion nationwide per year,28 this
represents only a fraction of the $88
billion total health administrative
claims adjudication costs.29 If we
assume that the average claim goes
through two cycles, the overall cost of
claims adjudication divided by the
average number of cycles a claim makes,
results in a cost of approximately $11
billion per cycle per year for all
claims.30 Based on our assumed cost of
claims processing and the additional
initial increase of 3 percent jump in
erroneous claims, we estimate that the
total cost for claims handling for plans
and providers will be $543.29 million.
We assume the annual cost of the
increase in returned claims equals $329
million (3 percent of $11 billion). In the
first year, we expect the full annual cost
for added claims processing. In the
second year, we expect added
processing costs to equal 50 percent or
$164 million. In the third year, we
expect processing costs to equal 15
percent of the annual cost, or
approximately $49.4 million. By the
fourth year, however, we expect claims
processing costs to begin to drop below
their pre-conversion levels (see ‘‘Fewer
Rejected Claims’’ and ‘‘Fewer Improper
Claims’’ in the discussion of Benefits).
In the first year following
implementation, claims processing costs
for the added returned claims are
estimated to be $329.29 million. The
next year, we assume the number of
returned claims will be half of the first
year’s level and will cost $164.64
million to process. By the third year
following implementation, we assume
that returned claims will be 15 percent
of the first year’s number and cost about
$49.39 million.
With the transition to ICD–10, we
assume that eventually there will be
fewer returned claims due to the more
detail and better structure that ICD–10
provides. Costs of returned claims may
include improper claims that reflect an
attempt on the part of suppliers and
providers to ‘‘game’’ the system. That is,
during the period following the
transition, some suppliers and providers
may attempt to abuse and possibly
defraud the payment system, hoping
that improperly coded claims may slip
through plans’ payment edits. In
28 RAND,
26 RAND
defines improper claims as those claims
that could be fraudulent.
27 CMS Medicare Returned Claims Report for FYs
2004, 2005, and 2006; Office of Financial
Management.
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National Health Expenditure accounts for
private health insurance cost of administering
insurance are in claims adjudications.
30 RAND defines a claim cycle as the process a
claim goes through from provider to payer.
29 The
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discussion of the benefits of
implementing ICD–10, we have treated
the benefits for fewer returned claims
and fewer improper claims separately.
In this section, we combine the cost of
the initial increase in returned clams
with the expected increase in improper
claims. Therefore, for purposes of this
impact analysis, we estimate that the
lost productivity costs for improper and
returned claims for transitioning to ICD–
10, is $543.29 million with a range
estimate of a $274 million minimum
and a $1.1 billion maximum.
We invite the public to comment on
our assumptions and to provide any
data that may improve the accuracy of
our analysis.
C. Systems Changes
Although system change requirements
may vary, all would need to support the
expanded number of characters in ICD–
10–CM and ICD–10–PCS, as well as the
number of available codes. Trading
partner agreements and reimbursement
policies would also impact system
changes.
In implementing the ICD–10–CM and
PCS coding systems, large providers and
institutions will probably need to make
changes to their systems as well as
perform software upgrades, while small
providers may require only software
upgrades.
rwilkins on PROD1PC63 with PROPOSALS
i. Providers and Software Vendors
Large provider groups, chain
providers, and institutions, such as large
hospitals, are most likely to require
changes to their billing systems, patient
record systems, reporting systems and
associated system interfaces. For
example, mainframe-based systems will
require changes to accommodate the
longer diagnostic and inpatient
procedure codes which, in turn, will
require changes to interfaces with other
systems such as accounting and medical
records. The new codes may also
require the redesign of standard and
special reports. Small providers who
rely on super-bills, as well as their
home-grown systems for capturing
patient information and claims
submission, may only need to update
their systems to accommodate the
length of the new codes. Given the
information above, we expect that
system changes will incur costs in the
range of $55 million to $220 million.31
Factors that contribute to the range of
costs include: The degree of system
integration; the need for outside
technical assistance; and the number of
31 RAND,
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systems and system interfaces that must
be updated.
We assumed that implementation of
the system changes upgrades would
begin as early as 2 years in advance of
the ICD–10 implementation date. We
expect that large providers especially
would need to begin this far in advance
and that spending on system change in
2009 would equal $20.58 million and
would represent 15 percent of total
provider system change costs. In the
next year, spending would double to 30
percent of provider system change
expenditures and equal $41.16 million.
In FY 2012, the year ICD–10 is to be
implemented, we anticipate spending
for system changes to amount to 50
percent of provider spending on system
changes and equal $68.60 million. The
year following implementation, we
expect providers and suppliers with
small systems and some large
organizations will still be implementing
changes or refining their changes. In
that year, we are assuming that about 5
percent of the provider system change
costs will be expended or $6.86 million.
Thus, for purposes of this impact
analysis, we estimate that from 2009
through 2012, the cost of system
changes to providers for transitioning to
ICD–10, is approximately $137.20
million, with a low range estimate of
$55 million minimum and a $220
million maximum.
For small providers that are PC-based
or have client-server systems that rely
on vendor-supplied software, the
provider may not bear any immediate
costs for the software upgrades. Based
on CMS’s own experience with the
industry, most software maintenance
contracts offer free upgrades to
accommodate regulatory changes. Thus,
the impact on providers that have such
contracts will be postponed until the
contract is renewed. Even if a provider
were to pay for the software upgrade
directly, an ambulatory provider would
only require updating of the diagnostic
codes.
While many providers who use
vendor-supplied software may be able to
defer the costs of software upgrades, the
vendor industry may have to bear, at
least initially, the costs of such
upgrades. In interviews RAND
conducted with industry experts
including association representatives,
providers, payers, software and service
vendors, and government officials, two
major software vendors said it would
take 10 percent of their labor force, one
saying it would be spread out over a 3year period. Another stated that it
would take 50 to 100 person-years.32
32 RAND,
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Several other software vendors that
RAND interviewed, however, stated that
they expect that adaptation to the ICD–
10 codes would only take a few personyears. Thus, based on RAND, we
estimate the cost of system changes for
software vendors of transitioning to
ICD–10, to be approximately $96.05
million with a range of $55 million
minimum and $137 million 33
maximum because of the wide range of
information and billing systems and the
configurations of provider systems.
As in the case with provider and
supplier system change costs, we
assume that beginning in FY 2009,
software vendors will begin developing
new software and continue the
development and refinement through
FY 2013. In FY 2009, vendors are
assumed to spend 15 percent of the cost
of software development or $14.41
million. In FY 2010, we anticipate
vendors will spend 30 percent of the
cost of software development or $28.81
million and in FY 2012, the year of
implementation, we project vendors
will expend 50 percent or $48.02
million. In the next year, spending will
continue mostly for refinement and last
minute upgrades. The expenditures are
calculated to be $4.81 million and
represent 5 percent of the software
development costs.
ii. Payers
We estimate that changing payer
systems to ICD–10 may be one of the
largest cost categories, but the cost is not
clear and the range is variable as payers
represent a widely varied group. System
change costs for payers are based on
interviews that RAND conducted with
eight different payers. (However, the
‘‘List of Interviewees’’ in Appendix B of
the RAND report lists seven different
payers, with a total of nine interviews).
RAND divides the eight payers into
three groups, based on their approach
and estimate for system change. RAND
does not disclose which payers fall into
which of the three groups. The first
group, which consists of three payers,
representing 4 percent of the market,
expects their vendors to supply the
updates. The second group, which
consists of three payers, representing 12
percent of the market, notes they would
invest 40 cents per member. The third
group, which consists of two payers,
representing 3 percent of the market,
estimates costs to be $1 per member.
Using RAND’s basic findings, we
estimate the cost of system changes to
payers for transitioning to ICD–10, is
approximately $164.64 million with a
range of $110 million minimum to $274
33 RAND,
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million maximum, based on the groups’
market share estimates from RAND.34
iii. Government Systems Costs
Government systems change estimates
are expected to occur across a number
of Federal and State agencies and
include Federal transition costs. Also, to
make costs comparable to those of the
private sector system changes, only
costs for logic and format changes are
considered. The examples in this impact
analysis are only illustrative in nature
and are based on limited analysis. They
are presented to illustrate the potential
administrative costs to the Federal
Government.
For purposes of this impact analysis,
we gathered information from various
government agencies to determine total
government systems costs for
implementing ICD–10. Estimates for
State Medicaid Agencies were gathered
from the Center for Medicaid and State
Operations (CMSO) within CMS and
were derived based on the state’s need
to design, develop and implement
changes to their systems to
accommodate ICD–10 codes. Some
government agencies are continuing to
work on their cost estimates. As this
information is still in the process of
being analyzed and compiled, it is not
included for purposes of this impact
analysis. The costs outlined in Table 8,
49819
represent our best estimate based on the
information available from CMS, the
Indian Health Service (IHS), State
Medicaid Agencies, and the Department
of Veteran’s Affairs (VA).
For purposes of this impact analysis,
we estimate costs for the impact on
government systems in transitioning to
ICD–10 include system modifications,
payment modifications, updates to
software applications and training for a
total minimum cost of approximately
$315 million, with a minimum estimate
of $157.5 million and a maximum
estimate of $630 million. Table 8 shows
the cost breakouts by government
agency.
TABLE 8—GOVERNMENT COSTS
Government agency
Cost
(in millions)
CMS .......................
IHS .........................
VA ..........................
$105
8
19.05
................................
132.05
CMS .......................
IHS .........................
VA ..........................
9.5
1.3
47
................................
57.8
CMS .......................
IHS .........................
VA ..........................
4
3
2.5
Subtotal ........................................................................................................................................................
Other ....................................................................................................................................................................
State Medicaid Agencies .....................................................................................................................................
................................
................................
................................
9.5
12.6
102
Total ..........................................................................................................................................................
................................
315
Change
Systems/Software Modifications and Updates:
Subtotal ........................................................................................................................................................
Training:
Subtotal ........................................................................................................................................................
Planning:
We invite public comment on our
assumptions, as well as comments from
affected government agencies herein
identified or those not identified in this
analysis, so they may provide any
additional and/or updated data that may
improve the accuracy of our analysis.
rwilkins on PROD1PC63 with PROPOSALS
(d) Distribution of ICD–10 Transition
Costs
In the Table 9, we show the
distribution of the transition costs to the
ICD–10 codes for providers, suppliers,
payers and software and system design
firms. Entities are grouped by the North
American Industry Classification
System (NAICS) and are presented at
the firm level. The NAICS figures were
adjusted based on the same medical
inflation factor we used for all costs that
are outlined above.
34 RAND,
As indicated earlier in this analysis,
data was collected primarily by
inpatient and outpatient categories (see
Table 9). To allocate the transition costs,
we have to use an available base which
can serve as a proxy for apportioning
the transition costs to the sub-groupings
of inpatient and outpatient providers
and suppliers. For the task of allocating
the transition costs, we are using the
revenue-receipts reported in the
Services Annual Survey and the
National Health Expenditure Accounts.
The first step was to group providers
and suppliers by inpatient and
outpatient groups reflecting the level at
which the data was available. Inpatient
providers included:
• Hospitals,
• Nursing facilities.
The group of outpatient providers and
suppliers included:
• Physicians and other practitioners
(excluding dentists),
• Outpatient care centers,
• Medical and diagnostic imaging
services,
• Home health services,
• Other ambulatory health care
services,
• Durable medical equipment
suppliers.
In column 3, we present the revenuereceipts for each type of providersupplier, insurance carrier-third party
administrator, and computer design firm
expected to bear transition costs. We
summed the revenue-receipts for each of
the inpatient and outpatient.
Column 4 shows the percent of the
two groups’ revenue-receipts each
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provider-supplier type comprises of the
group’s total.
In column 5, we apply the
percentages to the total ICD–10
transition costs for each providersupplier type. Total inpatient transition
costs—including productivity losses—
from Table 9 equal $228.55 million.
Total transition costs—including
productivity losses—for outpatient
providers-suppliers (from Table 9) equal
$165.36 million, including an
adjustment for inflation. It should be
noted that physician costs include a
portion of the coding training costs and
productivity losses in addition to costs
directly allocated to physicians and
practices expenses. This explains the
high percent of implementation costs to
receipts-revenues than for the other
outpatient providers-suppliers.
TABLE 9—ESTIMATED IMPACT OF ICD–10 TRANSITION COST ON INPATIENT AND OUTPATIENT PROVIDERS AND SUPPLIERS
(ADJUSTED FOR INFLATION)
NAICS
Provider/supplier type
622 ..........................
Hospitals (General Medical and
Surgical, Psychiatric and drug
and Alcohol Treatment, Other
Specialty).
Nursing Facilities (Nursing care facilities, Residential mental retardation, mental health and substance abuse facilities, Residential mental retardation facilities,
Residential mental health and
substance abuse facilities, Community care facilities for the elderly, Continuing care retirement
communities).
Revenue/
receipts
($ mil.)
Firms
Percent of revenue receipts
ICD–10 costs
($ mil.)
Percent ICD–
10 costs of
revenue/
receipts
6215 ........................
6216 ........................
6219 ........................
N/A ..........................
524114, 524292 .....
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5415 ........................
81.45
186.16
0.03
22,867
148,716
18.55
42.40
0.03
27,276
189,542
13,624
801,749
330,889
73,966
100
61.60
13.80
228.55
137.62
9.93
0.03
0.04
0.01
7,811
37,253
6.93
5.00
0.01
14,512
5,872
47,007
24,593
8.75
4.58
6.31
3.30
0.01
0.01
404,293
23,709
4.41
3.18
0.01
Subtotal .......................................
Health Insurance Carriers and
Third Party Administrators 4.
Computer System Design and Related Services 6.
636,654
4,578
537,417
723,412
100
100
165.36
164.54
0.03
0.023
97,556
200,695
100
96.50
0.048
102,134
924,107
........................
261.00
0.044
Total ................................................
6211 ........................
6214 ........................
653,033
Subtotal .......................................
623 ..........................
4,409
575,522
2,263,273
........................
655
0.031
Subtotal .......................................
Office of Physicians (firms) .............
Outpatient Care Centers (Family
Planning Centers, Outpatient
Mental Health and Drug Abuse
Centers, Other Outpatient Health
Centers, HMO Medical Centers,
Kidney Dialysis Centers, Freestanding Ambulatory Surgical
and Emergency Centers, All
Other Outpatient Care Centers).
Medical Diagnostic and Imaging
Services.
Home Health Services ....................
Other Ambulatory Care Services
(Ambulance and Other).
Durable Medical Equipment 3 .........
Table notes: Most of the data for this table comes from the Statistics of U.S. Businesses 2005 tables for firms and establishments presented
by employee size, and from the Bureau of the Census Services Annual Survey for 2006 that provides annual receipt-revenues by NAICS. Both
data sets are available from https://www.census.gov/econ/www.index.html. Data on the number of Durable Medical Equipment suppliers comes
from
the
2007b
CMS
Data
Compendium
https://cms/hhs.gov/DataCompendium/17_2007_Data_Compendium.asp#TopOfPage.
Revenue data comes from the National Health Expenditures tables, 1960–2006, available at https://www.cms.hhs.gov/NationalHealthExpendData/
02_NationalHealthAccountsHistorical.asp#TopOfPage. All accessed on 8–12–08. Firms data come from https://www.census.gov/svsd/www/services/sas/sas_data/sas54.htm, accessed 8–12–08.
Revenue and receipts for each industry sector and sub-sector come from the Census Bureau Services Annual Survey for 2006 at B29. Revenue/receipt data for NAICS codes 6211–6219, 622 and 623 come from tables 8.1–8.10. Data for codes 5415 come from tables 6.1–6.21. Revenue/receipts are used to allocate ICD–10 implementation costs. Revenue/receipts were subtotaled by ambulatory provider plus DME suppliers
(NAICS 62111–6219) and inpatient providers (NAICS 622, 623) and the percent of the subtotaled revenue/receipts for the provider/supplier was
computed and applied to the total ICD–10 implementation costs for each of two subtotaled groupings. ICD–10 costs for ambulatory provider do
not include the cost of system changes. Some costs, however, are included with inpatient system changes since large multi-campus, integrated
health care facilities are likely to include their ambulatory care facilities in the cost of upgrading their information systems.
In calculating the impact on provider/
suppliers, payers, third party
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doing so, we deliberately overstate the
expected annual impact of the
transition. In part, we did this because
we cannot be certain that we have
properly allocated implementation costs
to each entity category or that we
accounted for all costs.
The impact on revenue-receipts of the
transition to ICD–10 is shown. For
inpatient providers, the impact will be
an average increase against revenues of
0.03 percent. For outpatient providers
and suppliers, the average increase
against revenues is projected to be 0.03
percent.
The impact on insurance carriers and
third party administrators is expected to
be an increase against revenues of 0.023
percent. For system design firms, the
impact against revenues is projected to
be 0.048 percent.
Because we are not able to determine
the exact number of third party
administrator firms or system design
firms that will be involved or have to
implement the ICD–10 codes, we used
the number of firms and revenuesreceipts shown for the applicable
NAICS. To the degree that fewer firms
are actually involved in the transition to
ICD–10, our estimate of the impact is
understated. The fewer firms
implementing ICD–10, the smaller
49821
number firms over which to spread the
implementation costs. Therefore, we are
specifically requesting comments on
this estimate and how many third party
administrators and computer design
firms will be implementing ICD–10.
Table 10 outlines the approximate
total estimated costs as outlined in the
above sections. Table 10 shows both the
minimum and maximum ranges for each
cost as well as their corresponding
primary estimates. We solicit comments
from industry and other stakeholders on
other potential entities that may be
affected by the transition from ICD–9 to
ICD–10 code sets.
TABLE 10—SUMMARY OF TOTAL ESTIMATED COSTS
[In millions]
Minimum
Training:
Full-time Coders (Inpatient) ..................................................................................................
Part-time Coders (Outpatient) ..............................................................................................
Code Users ...........................................................................................................................
Physicians .............................................................................................................................
Productivity Losses:
Coders (Inpatient) .................................................................................................................
Coders (Outpatient) ..............................................................................................................
Physician Practices ..............................................................................................................
Improper and Returned Claims ............................................................................................
Systems Changes:
Providers ...............................................................................................................................
Software Vendors .................................................................................................................
Payers ...................................................................................................................................
Government Systems ...........................................................................................................
rwilkins on PROD1PC63 with PROPOSALS
7. Projected Benefits
We identified six benefits of
transitioning to ICD–10: 35
• More accurate payments for new
procedures:
• Fewer rejected claims;
• Fewer improper claims;
• Better understanding of new
procedures;
• Improved disease management;
• Better understanding of health
conditions and health care outcomes (no
monetary estimate made); and
• Harmonization of disease
monitoring and reporting world-wide
(no monetary value was included in the
analysis).
In our analysis, benefits begin to
appear in the year following the
implementation date. Therefore, our
total estimated benefits differ slightly
from RAND estimates, which assumed
phased-in benefits prior to
implementation. All benefit estimates,
in addition to having a point estimate
also have a wide high to low range
because of the uncertainties inherent in
35 RAND,
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these estimates. We have also adjusted
benefit figures for the projected growth
in the population using the growth in
national health care expenditures for
years 2005–2007. Year 2007 is an
estimated growth rate of which we used
an adjusted growth factor of 21.2
percent. For the growth projections for
2012 and beyond, we used the
compounded growth in the U.S
population which is projected to grow at
0.8 percent per year.
a. More Accurate Payments for New
Procedures 36
The transition to ICD–10–PCS codes
will allow for more accurate payments
for new procedures. Under the current
ICD–9 Volume 3 procedure codes there
is little room for additional codes. It has
been estimated that at the current rate
of adding additional codes, the capacity
of ICD–9 Volume 3 will reach its
maximum by 2009. The result is that
new and possibly more complex and
expensive procedures are being grouped
in with less expensive procedures. With
36 RAND,
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Primary
estimate
$110
$55
$27
$0
$165
$165
$55
$165
$137.51
$98.50
$37.50
$82.20
$0
$0
$5.5
$274
$55
$55
$27
$1,100
$8.90
$8.56
$10.98
$543.29
$55
$55
$110
$157.5
$220
$137
$274
$630
$137.20
$96.05
$164.64
$315.00
introduction of the PCS codes, it is more
likely that such new procedures will
receive a separate code and more
appropriate payment. We assume that
new procedures that could receive a
separate code under the PCS system are
so expensive they would be unlikely to
be performed unless, through the new
coding, the hospital received adequate
payment.37
Of the approximately 20 million
procedures performed each year,
roughly one percent or 200,000
procedures are new. We estimate that
100,000 of the new procedures would be
paid for by CMS based on the fact that
Medicare pays for approximately one
half of all inpatient procedures.
Examining the historical trend for the
number of new codes assigned each
year, we determine that about one
percent of new procedures received
separate codes. Using this one percent
assumption, the 200,000 new
procedures would be represented by
approximately 36 new codes (one
percent of the 3,600 current procedure
37 RAND,
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codes in the ICD–9 Volume 3). We
assume that three procedures would be
performed frequently enough to be
given their own codes. We also assume
the three procedure codes would
represent about 40 percent of the annual
number of new procedures.38
Subtracting out 40 percent of the
procedures from 100,000 new
procedures that CMS would pay for
each year leaves 60,000 procedures
represented by 33 codes that, under the
current coding structure, may be
inappropriately grouped and paid an
inappropriate amount. For purposes of
this analysis, we recognize that the odds
that hospitals would not perform a
procedure that was seen to have
therapeutic value in spite of being
underpaid are low. For this reason, we
assume that in 10 percent or 6,000 of the
cases involving new inpatient
procedures that are not adequately
reimbursed, hospitals may be
disinclined to admit patients requiring
the procedure.
Finally, we estimate the opportunity
cost of foregoing those procedures that
would be undervalued under the
current coding structure (and
presumably would be properly paid
under the PCS codes). Of 33 procedures
that are undervalued, some may yield
significant health benefits while the
majority will yield small health benefits.
Hospitals are more likely to perform the
high benefit procedures even though
they may be underpaid for the
procedures.
We assume that the average procedure
costs approximately $12,120 and has a
net benefit yield of $6,060. Multiplying
the amount by the 6,000 procedures
yields a benefit of approximately $36
million.39 We also expect that the effects
of the benefit are cumulative for each
year and that every year, 6,000
procedures will be added.
Based on a growth rate of 6,000 per
year, the growth in benefits would equal
50 fold or $1.8 billion in 10 years. This
may overstate the benefits because of
cost reduction over time due to the
learning curve and the introduction of
lower cost alternative procedures.
Rather than an increase of 50 times, a
factor of 25 is used, resulting in an
estimate of $909 million. For purposes
of this impact analysis, we make a more
conservative assumption. After the third
year following implementation of the
code conversion we assume an
opportunity cost that increases $12
million every year, with the fourth year
showing approximately $62 million
benefit (see Table 13b). For purposes of
38 RAND,
39 RAND,
page 22.
page 23.
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this impact analysis, we estimate that
the benefit of more accurate payments
for new procedures would equal
approximately $1,032 million with a
minimum range estimate of $121
million and a maximum estimate of
$1,455 million.
We recognize that many assumptions
underlie our estimates of more accurate
payments and we invite comments on
this analysis.
b. Fewer Rejected Claims
The Workgroup for Electronic Data
Interchange (WEDI) has stated that
‘‘[The] greater detail [of ICD–10–CM and
ICD–10–PCS] may help reduce the
number of cases where copies of the
medical record need to be submitted for
clarification for claims adjudication.’’ 40
For example, in ICD–10–CM, the injury
codes provide excellent detail in
identifying the fracture site of a
malunion or non-union; the ICD–9–CM
codes for malunion and non-union do
not identify fracture site. If the payer
required this information to adjudicate
the claim, the provider would need to
send a claims attachment. Also, in ICD–
10–CM, the injury codes provide
excellent detail in identifying bilateral
fractures. If a patient fractured both
wrists, two codes could be assigned; one
code identifying the left wrist fracture
and a separate code identifying the right
wrist fracture could be reported. ICD–9–
CM does not provide this detail and if
a provider wanted to report fractures of
both wrists and reported the diagnosis
code twice, the claim would be rejected.
Based on the WEDI assumption, we
estimate the average cost per cycle of
processing a claim at a total of $12
billion per year for all claims. RAND
makes the assumption that using ICD–
10 code sets would decrease the amount
of claims sent back by one percent. This
gives a $120 million annual benefit
(0.01 x 12 billion).41
For purposes of this impact analysis,
we estimate approximately $100 million
per year in benefits after phased-in
benefits for the first four years,
compounded annually by a 0.8 percent
growth in the population. We assume an
extended phase-in for this benefit
because of the lag time in receiving
claims data showing the effects of the
new system that will lead to delays in
taking advantage of the improved and
more precise data.
We also assume that returned claims
will temporarily increase in the initial
years. We discussed the temporary
40 ‘‘Issues Surrounding the Proposed
Implementation of ICD–10.’’ WEDI MHHSh 2000,
page 9.
41 RAND, page 23.
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increase of returned claims in section b.
iv., above, under Productivity Losses.
For purposes of this impact analysis,
we estimate that the benefit of fewer
rejected claims would equal
approximately $1,015.41 million with a
minimum range estimate of $242
million and a maximum estimate of
$3,031 million. We invite the public to
comment on our assumptions and to
provide any data that will improve the
accuracy of our analysis.
c. Fewer Improper Claims
The distinction that we are seeking to
make in this section is between claims
that would be returned because of
mistakes in coding resulting from
confusion about the new codes, lack of
training and experience with the new
codes, and those claims that appear to
be deliberately miscoded in an attempt
to defraud or abuse the payment system.
WEDI states that, despite an initial
expectation of increased improper
claims, ‘‘In the longer term, it is possible
that fraud could be reduced since ICD–
10–CM and ICD–10–PCS are more
specific and there are fewer ‘gray’ areas
in the coding.’’ 42 The amount of
improper claims due to abuse is
estimated to be $3.03 billion annually,
approximately 20 percent of the $15.8
billion that GAO estimates are
improperly paid each year.43 GAO
acknowledges that this number may not
represent all improper payments. Given
this, we assume that eight percent of
payment system abuse is perpetrated by
people who capitalize on the ambiguity
of the ICD–9–CM codes.44 We also
assume that half of that eight percent
would feel that the new codes would
eliminate the ambiguity, eliminating
half of these abuses, assuming that new
ambiguities are not created.
We estimate that after phased-in
benefits in the first four years after
implementation, which compounded
annually by an 0.8 percent population
growth factor, 100 percent of the benefit
will be reached in the fifth year after
implementation. We assume an
extended phase-in for this benefit
because of the lag time in receiving
claims data showing the effects of the
new system that would lead to delays in
taking advantage of the improved and
more precise data.
For purposes of this impact analysis,
we estimate that the benefit of fewer
42 RAND
page 26.
page 26 and GAO, Federal Budget,
‘‘Opportunities for Oversight and Improved Use of
Taxpayer Funds,’’ Statement of David M. Walker,
Comptroller General of the United States, GAO–03–
922T, https://www.gao.gov/new.items/d03922t.pdf,
accessed 8–12–08.
44 RAND, page 26.
43 RAND,
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improper claims will equal
approximately $508.22 million, with a
range minimum estimate of $121
million and a maximum estimate of
$1,455 million.
As with rejected claims, this benefit is
also expected to be an initial cost as
people take advantage of the ambiguity
during transition to ICD–10 code sets.
For purposes of this impact analysis,
there may be a greater number of
returned claims as well as an increase
in the percentage of initial improper
payments. In Table 13a, we show the
expected effects of the initial impact of
rejected and improper claims. We invite
the public to comment on our
assumptions and to provide any data
that may improve the accuracy of our
analysis.
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d. Better Understanding of New
Procedures 45
e. Improved Disease Management 47
Benefits are also anticipated due to
better understanding of new procedures
with ICD–10. The rationale is that ICD–
10’s granularity would aid statistical
analysis and provide more information
on disease treatments and outcomes. We
estimate the number of procedures that
would be identified only in ICD–10–
PCS and would provide statistically
significant differences in outcomes.
That is, identification of procedures
through the use of the ICD–10 codes
could presumably enable statistical
analysis of procedures that would not
otherwise be possible and thereby
become the subject of research. Through
a series of assumptions regarding
200,000 occurrences of the ‘‘significant’’
new procedures that would be added
each year (see the discussion above
regarding more accurate payment for
new procedures), we pare the number of
procedures that would actually be
changed as a result of research down to
16,000 procedures.46 The assumptions
apply to the elimination of high volume
procedures (again, see the discussion on
more accurate payment for new
procedures), the probability that
anomalies would be discovered only
through the application of ICD–10 codes
and that finally such anomalies would
result in the change in medical practice.
The results of the research could
indicate that procedures that were
considered appropriate are now found
to be inappropriate for the patients that
underwent the procedure. Similarly, the
research may find that procedures that
45 RAND,
page 28.
is an absolute value concept which
applies to both procedures done and not done.
RAND, page 9.
46 This
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were believed to be inappropriate may
now be thought to be appropriate.
Finally, applying the same net
benefits used in the analysis of more
accurate payments of new procedures,
we conclude after phased-in benefits in
the first three years following
implementation, which compounded
annually by an 0.8 percent growth in the
population, 100 percent of the benefit
will be realized in the fourth year.
For purposes of this impact analysis,
we estimate that the benefit of a better
understanding of new procedures with
implementing ICD–10, would equal
approximately $812.54 million with a
minimum range estimate of $121
million and a maximum estimate of
$1,819 million. We invite the public to
comment on our assumptions and to
provide any data that may improve the
accuracy of our analysis.
Disease management programs are
generally used for managing chronic
diseases to prevent or delay serious
complications. The increased
granularity of ICD–10–CM would allow
case management organizations to better
identify candidates for disease
management programs, and to better
adapt the disease management program
to the individual once enrolled. To
estimate improvements in disease
management that the ICD–10 conversion
could bring about, we follow RAND’s
use of diabetes as the sample disease
and their assumption that two-thirds of
all the benefit would come from better
management of this disease.
For purposes of this analysis we
follow the RAND model that divides
diabetics into Type I and Type II not
currently in a disease management plan
and who could benefit from
participating in such a plan; and those
in a disease management plan and who
could benefit from improved
management of their disease. RAND
makes the following assumptions:
• 60 percent of diabetics are currently
enrolled in plans with disease
management programs;
• 50 percent of the patients in such
plans are not in a disease management
program (30 percent);
• 50 percent of plans use a system
other than ICD to identify and classify
their patients. Of the remaining half,
2/3 use (1/3 of the total) use ICD
classifications;
• Use of ICD–10 reveals new
information on 20 percent of Type II
diabetics in plans using ICD
classifications;
47 RAND,
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• 50 percent of these patients elect to
participate in the disease management
program;
• 20 percent of those newly enrolled
in a disease management program,
achieve sufficient improvement to
increase their life expectancy by six
months.
• For patients already in a disease
management program, using ICD–10
will result in an improved program in
50 percent of the patients.
• 10 percent of Type I and Type II
will achieve improvements to the point
of Type I achieving two additional years
of full quality life and Type II six
additional months of full quality life.
We estimate the number of both Type
I and Type II diabetics at 1.2 million
and 22.8 million,48 respectively. Using
these numbers as a base, we can arrive
at an annual estimate of benefits.
Applying RAND’s formulas in this case,
we determine that approximately 45,144
Type II individuals per year who would
gain six months of full quality of life
valued at $100,000 per year.49 This
yields a benefit of $2.257 billion
($50,000 × 45,144) for those Type II
diabetics not currently enrolled in a
disease management plan but who
would be enrolled as a result of the
conversion to the ICD–10 codes.50
The benefit of the greater granularity
that use of ICD–10 codes may offer for
those who are currently enrolled in a
disease management plan is greatly
dependent upon how much the
additional detail helps the enrollee, and
how many enrollees are helped. We
could create an assumption for the
percentage of people who would be
enrolled in a better plan based on the
new information that ICD–10 codes may
provide, and the percentage of those
whose treatment would be adjusted in
response to the new information.51
We could potentially conclude that
adding someone to a diabetes
management program has twice the
benefit of adjusting treatment for
someone already enrolled in a disease
management program. As a result of the
code conversion, it is possible that, for
example, 1,188 individuals with Type I
diabetes would gain 2 years of life while
22,572 individuals with Type II diabetes
48 https://www.cdc.gov/media/pressrel/2008/
r080624.htm, accessed 8–12–08
49 Based on research that Viscoosy and others
have done on the value of a statistical value of life,
$50,000 for a year of full quality of life appears to
be conservative. We have updated the estimated a
statistical life year based on inflation since RAND
examined the issue based on the value that HHS has
used in a number of regulations.
50 RAND, page 30.
51 This is different from RAND’s parameter of 0.1,
but was confirmed through discussions with the
authors.
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would gain 6 months of full quality life.
We attribute the difference in longevity
to the fact that Type I diabetes usually
manifests itself in younger persons.
Changes made earlier in a person’s life
will have a longer deterioration curve by
about two years than changes made later
in a person’s life.
When we combine the parameters, we
could realize an annual benefit of
$237.6 million for Type I diabetes and
$1.1286 billion for Type II diabetes
already in a plan for a total of $1.3662
billion. We could potentially show an
annual benefit for better management of
diabetes to be $3.6234 billion ($2.2572
billion from new Type II patients
enrolled in disease management +
$1.3662 billion from improved disease
management of Type I and Type II
patients already in a plan).
Finally, we could share RAND’s
assumption that the diabetes benefit is
about two-thirds of the total benefit for
improved case management attributable
to converting to ICD–10. Under RAND’s
assumption the total annual benefit for
improved disease management would
be $5.4351 billion. We assume a phasein of benefits prior to the fourth year of
implementation where 100 percent of
the benefit is realized in the fourth year
after implementation.
The aforementioned scenario is based
upon our interpretation of RAND’s
scenario that the benefit of improved
disease management could conceivably
be expected from ICD–10–CM and ICD–
10 PCS code sets applied to the sample
disease, diabetes. However, although we
agree that the potential benefits of
disease management could be large, we
do not necessarily agree with the
calculations used in RAND’s theory
because we believe they assume much
greater benefits than can be directly
attributable to the ICD–10 code set
alone, such as the development of new
and improved diabetes drugs or
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improved patient outreach, monitoring
and communications. RAND also does
not take into account disease
management benefits from across the
full clinical spectrum. For purposes of
this analysis, we very conservatively
claim a one percent benefit of our total
disease management calculations based
on RAND’s formulas, and solicit
feedback from the industry on this
assumption.
Therefore, for purposes of this impact
analysis, we estimate that the total
benefit of improved disease
management may equal approximately
$582.57 million with a minimum range
estimate of $291 million and a
maximum estimate of $1,165 million.
f. Better Understanding of Health
Conditions and Health Care Outcomes
ICD–10–CM and ICD–10–PCS provide
specific diagnosis and treatment
information that can improve quality
measurements and patient safety, and
the evaluation of medical processes and
outcomes. ICD–10–PCS has the
capability to readily expand and capture
new procedures and technologies. For
quality improvement programs to
effectively result in meaningful clinical
outcomes, improved practice
management processes that document
and measure patient care, and sustain
provider investment in services that
improve quality of care, the ability to
modify or add to a list of treatments,
diseases and conditions is essential. The
ICD–10 code sets provide a standard
coding convention that is flexible,
providing unique codes for all
substantially different procedures or
health conditions and allowing new
procedures and diagnoses to be easily
incorporated as new codes for both
existing and future clinical protocols.
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g. Harmonization of Disease Monitoring
and Reporting World-Wide
Another benefit we expect will be
achieved with the implementation of
the ICD–10–CM codes is better
coordination of disease outbreak
reporting with other countries. Most
industrialized countries have adopted
the ICD–10 code structure and, with the
United State’s adoption of the codes, the
time to identify and respond to crossborder disease outbreaks will be
reduced. We will be able to process
public health warnings coming from
other countries faster and be able to
respond more accurately to the threats
because of the greater precision of the
coding compared to ICD–9.
Below is a chart that illustrates the
reduction in response time we expect to
achieve from the implementation of
ICD–10–CM codes. After the outbreak of
an illness occurs, as represented by the
large curve on the left of the chart, there
is a reporting lag and a further delay for
the processing and analyzing of reports
and the mounting of a response. The
sooner outbreaks are reported to public
health officials and the more accurate
the information that is reported, the
faster officials can respond. The two
smaller curves on the right side of the
chart represent the time between
outbreak and response under the current
coding and the enhanced response time.
The shift to the left of the response time
represents the benefit in terms of the
short response time and outbreak.
The following chart was originally
published in an FDA rule,
‘‘Establishment and Maintenance of
Records under the Public Health
Security and Bioterrorism Preparedness
and Response Act of 2002.’’ It was
published in the Federal Register on
December 9, 2004 (Vol. 69, No. 236;
Rules and Regulations 71615) and was
adapted for use in this regulation.
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These benefits would expand
communication and interoperability
capabilities for biosurveillance and
disease reporting at an international
level. As noted in a recent report, The
Effectiveness of ICD–10–CM in
Capturing Public Health Diseases,
‘‘* * * the use of ICD–10–CM has great
implications for our entire nation since
public health diseases, which include
epidemic and other diseases related to
bioterrorism, are generally able to be
captured in a more specific way when
using the ICD–10–CM system.’’ 52
BioSense, CDC’s early event detection
system, currently uses ICD–9–CM.
Improved clinical detail would be a
benefit to a national system designed to
improve the nation’s capabilities for
disease detection, monitoring, and realtime health situational awareness.
As noted in the May 2004 NCVHS
Workgroup on Quality Report, titled
‘‘Measuring Health Care Quality:
Obstacles and Opportunities’’, most
other industrialized nations have
already transitioned to ICD–10,
requiring a painstaking crosswalk of
United States diagnosis codes to make
international comparisons.
However, even with a crosswalk,
comparisons are problematic given that
changes to ICD–10 which represent a
new understanding of disease (such as
the myeloproliferative disorders and
myelodysplastic syndrome now being
49825
recognized as hematologic malignancies
which are classified as neoplasms of
uncertain behavior in ICD–9–CM) affect
data analysis at the State, national and
international level.
Because the U.S. does not currently
use ICD–10–CM and ICD–10–PCS, there
is insufficient data to quantify the
results of these benefits. For additional
discussion of biosurveillance, refer to
section III.
Table 12 below outlines the total
estimated benefits as outlined in the
above sections. The table shows both
the minimum and maximum ranges for
each benefit as well as their
corresponding primary estimates.
TABLE 12—SUMMARY OF TOTAL ESTIMATED BENEFITS
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More accurate payments for new procedures .............................................................................
Fewer rejected claims ..................................................................................................................
Fewer improper claims ................................................................................................................
Better understanding of new procedures ....................................................................................
Improved disease management ..................................................................................................
52 ‘‘The Effectiveness of ICD–10–CM in Capturing
Public Health Diseases.’’ AHIMA, Perspectives in
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$121
242
121
121
291
Maximum
$1,455
3,031
1,455
1,819
1,165
Primary estimate
$1,032
1,015.41
508.22
812.54
582.57
public/documents/ahima/bok1_036019.html,
accessed 8–12–08.
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C. Alternatives Considered
As discussed in detail in section VII
of the preamble of this proposed rule,
we considered a number of options for
replacing ICD–9. We considered
extending the life of ICD–9–CM by
utilizing unassigned codes, use of CPT–
4 for coding inpatient hospital
procedures, and waiting to adopt ICD–
11 as alternatives to the adoption of
ICD–10–CM and ICD–10–PCS. We
determined that adopting ICD–10–CM
and ICD–10–PCS was the only viable
alternative that would meet the longterm coding needs of the health care
industry.
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1. Relation to and Impact on Other HIT
Initiatives
Both Federal and private-sector
stakeholders prefer synchronization of
related Federal HIT initiatives to permit
adequate planning, resources, and
implementation. Because
implementation of ICD–10 is a massive
undertaking, these initiatives should be
queued up as rationally as possible.
Most of the initiatives related to the
adoption of ICD–10 involve
promulgation of regulations and
compliance dates. In this respect, there
is minimal flexibility when some
regulations may be promulgated and
related compliance dates. Under
sections 1860D–4(e)(1), 1860D–4(e)(3)
and 1860D–4(e)(4)(D) of the Act, we
were required to promulgate uniform
standards for e-prescribing not later
than April 1, 2008. Not later than one
year after promulgation of such final
standards, prescriptions and other
prescription-related information for
drugs covered under Medicare Part D
and for individuals eligible for Part D
benefits must be transmitted only in
accordance with such standards. We
anticipate that most of this regulatory
activity will take place in 2008. At the
same time, there are a number of related
Departmental and private sector
initiatives that will be ongoing during
this time period, although specific dates
are not available at this time. During the
next several years, for instance, we
anticipate that the Certification
Commission for Healthcare Information
Technology (CCHIT) will be completing
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and updating certification criteria for
ambulatory EHRs, inpatient EHRs, and
health information networks. CCHIT has
already developed certification criteria
for ambulatory EHRs and inpatient
EHRs and has already begun certifying
both types of products. CCHIT has also
begun developing certification criteria
for networks. Once CCHIT has
established the certification criteria, it
plans to update them on a yearly basis
to align its efforts with the standards
harmonization efforts of the Healthcare
Information Technology Standards
Panel (HITSP).
HITSP seeks to achieve widely
accepted and readily implemented
consensus-based standards that will
enable and support widespread
interoperability among health care
information technology users, especially
as they would interact in a Nationwide
Health Information Network (NHIN) for
the United States. On October 31, 2006,
HITSP presented three sets of
‘‘interoperability specifications’’ to the
American Health Information
Community (AHIC), a Federal advisory
committee chartered to make
recommendations to the Secretary on
methods for accelerating the
development and adoption of health
information technology. The AHIC
considered HITSP’s presentation, and
after reaching consensus, recommended
to the Secretary that he recognize
certain interoperability specifications.
On March 1, 2007, the Department
published a Notice of Availability (72
FR 9339), identifying the recommended
specifications, and indicating the
Secretary’s acceptance and anticipated
recognition of the interoperability
specifications. In January 2008,
following a one-year period of
implementation testing, the Secretary
announced his formal recognition of
HITSP interoperability specifications
(https://www.hitsp.org/government.aspx,
accessed 8–12–08.)
Both CCHIT and HITSP have
developed processes that build industry
consensus and support voluntary
adoption of health information
technology standards. By ‘‘recognizing’’
interoperability standards, the Secretary
is also advancing the adoption of health
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IT standards within the Federal
government and among many of its
contractors (See Executive Order
13410—Promoting Quality and Efficient
Health Care in Federal Government
Administered or Sponsored Health Care
Programs), and for certain entities
seeking to donate EHR software and
training services in compliance with the
Stark EHR Exception and the AntiKickback EHR Safe Harbor (See 71 FR
45140 and 71 FR 45110). Finally, trial
implementations of the Nationwide
Health Information Network (NHIN),
including specifications and testing of
interoperable health information
exchange, are proceeding.
The implementation of ICD–10 will
promote the use of HIT and increase the
overall value of EHRs. Updating a
coding system to a more rigorous and
exact coding system such as ICD–10
results in the ability to more accurately
understand changes in medical
technology, treatment patterns, disease
spread, and outcomes of quality
measures. The detail and precision of
the ICD–10 codes will allow for any
necessary updates to quality measures,
payment systems, fraud prevention and
clinical decision support mechanisms.
ICD–10 is already included in the
HITSP electronic health record (EHR)
use case, and as an administrative
standard it will drive change as it will
be required for use on all claims.
ICD–10 impacts on HIT initiatives
might come in the form of the industry
needing time to become comfortable
with the new codes, resulting in benefits
being reaped 1–2 years after
implementation. While there will be
resource impacts on other HIT
initiatives as a result of the ICD–10
implementation, there will be greater
impacts if ICD–10 is delayed and more
EHR systems need to be retrofitted.
CMS solicits industry and stakeholder
comments on the direct and indirect
impacts to current Health Information
Technology initiatives.
Tables 13a and b below outline the
total estimated benefits and costs as
outlined in the above sections. The table
illustrates in which years we believe
each cost and benefit will be realized.
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D. Regulatory Flexibility Analysis
The Regulatory Flexibility Act (RFA)
of 1980, Public Law 96–354, requires
that the Secretary certify that a proposed
regulation will not have a significant
economic impact on a substantial
number of small entities. In the health
care sector, a small entity is one with
between $6.5 million and $31.5 million
in annual revenues or is a nonprofit
organization. For the purposes of this
analysis (pursuant to the RFA),
nonprofit organizations are considered
small entities; however, individuals and
States are not included in the definition
of a small entity. We have attempted to
estimate the number of small entities
and provide a general discussion of the
effects of the proposed regulation.
Because most medical providers are
either nonprofit or meet the SBA’s size
standard for small business, we treat all
medical providers as small entities.
1. Alternatives Considered
As mentioned in section VII of the
proposed rule, we considered various
policy alternatives to adopting ICD–10–
CM and ICD–10–PCS. One alternative
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that was considered included the use of
unassigned codes. Although it may be
possible to extend the life of ICD–9–CM
by assigning codes to new diagnoses
and procedures without regard to the
hierarchy of the code set, it does not
represent a long-term solution and will
only be effective as long as there are
empty code slots. Moreover, it does not
address the remaining shortcomings of
ICD–9–CM such as the critical lack of
detail that is required to support
evolving business needs and advanced
technology.
Another alternative that was
considered included the use of CPT–4
for coding hospital inpatient
procedures. Both the National
Committee on Vital and Health
Statistics (NCVHS) and GAO found
structural problems and serious flaws
with CPT–4 for coding inpatient
hospital procedures since the system
could not capture all services in all
health care settings.
A final alternative that was
considered was waiting and adopting
ICD–11, which is not a feasible option
since the WHO is in their earliest stages
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49827
of development with the earliest
projection of the completion being 2016.
However, based on past experience with
the development of ICD–10 being
several years late, it is anticipated that
this date will slip. The U.S version
would then need to be developed
requiring additional analysis, which
could take a minimum of 3–5 years
(optimistically). It is not expected that
ICD–11 will be available for use in the
U.S. until at least 2020.
We considered a number of options
for implementing the transition to ICD–
10 but rejected them as being too costly
and too burdensome. One of the options
we considered included phasing in the
implementation of the new codes either
by geographic region as Canada and
Australia did, or by provider/supplier
category. We rejected these alternatives
because it would require plans,
especially national plans and possibly
multi-state chain or national providers/
suppliers or health care entities that
were vertically integrated, to maintain
and operate both the ICD–9 and ICD–10
coding systems for an extended period
of time. Code users in national payer
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plans would have to learn the new ICD–
10 codes at the same time work with the
old ICD–9 codes, which would increase
the chance of errors in payments, create
confusion and uncertainty in the
providers/supplier community and
result in delays in processing claims.
We believe the cost of maintaining two
systems running concurrently would
impose a very significant burden on
plans and providers/suppliers.
Another option for implementing the
transition to the new coding system is
to maintain both the ICD–9 and ICD–10
systems for a period of time. We rejected
this alternative for many of the same
reasons we rejected phasing in the ICD–
10 code sets. Maintaining two systems
imposes a significant burden on payers
and providers/suppliers as well as
creates conditions for increased coding
errors and payment delays. In addition,
because Medicare updates the ICD codes
on October 1 of each year,
implementation of any new codes must
take place on that date. Given the risks
for error and the added costs, there
seems to be little benefit to be gained
from providing the opportunity for
parallel coding systems beyond the
October 1 deadline being proposed in
this rule.
A third option that was considered
and rejected was to delay
implementation for small entities.
However, because we treat all heath care
providers/suppliers as small entities, we
did not see any benefit to be gained
from delaying implementation of the
ICD–10 code sets beyond the four-year
implementation period being proposed
in the rule. Delaying implementation
would only have an adverse effect on
implementation of other standards that
use the ICD codes. Those standards and
the systems built around those
standards would either have to be
pushed off further into the future or
have to be revised and redesigned to
accommodate the ICD–10 code sets. The
costs of such delays could be
substantial. Therefore we rejected this
option for ICD–10 implementation.
2. Number of Small Entities
Two hundred nonprofit health care
organizations that offer 213 plans are
considered small entities because of
their nonprofit status. Practices of
doctors of osteopathy, podiatry,
chiropractors, mental health
independent practitioners with annual
receipts of less than $6.5 million are
considered to be small entities. Solo and
group physicians’ offices with annual
receipts of less than $9 million (97
percent of all physician practices) are
also considered small entities, as are
clinics. Approximately 92 percent of
medical laboratories, 100 percent of
dental laboratories and 90 percent of
durable medical equipment suppliers
are assumed to be small entities as well.
The American Medical Billing
Association (AMBA) (https://
www.ambanet.net/AMBA.htm, accessed
8–12–08) lists 97 billing companies on
its Web site. It notes that these are the
only companies with Web sites. The
Statistics of U.S. Businesses data shows
that there are 97,556 firms involved in
system design and related services
(NAICS code 5415) providing software
services, data processors, computer
facilities management services,
computer system design services,
custom programming services as well as
other computer-related services.
Table 9 above (see section XI.B.6.d)
presents the impact of the ICD–10
implementation costs on all entities we
anticipate will be affected by the rule.
Because we consider all health care
provider-suppliers as small entities,
Table 9 shows that the proposed rule
will not have a significant impact on a
substantial number of small health care
entities. The following table (Table 15)
summarizes the results from Table 9 for
inpatient and outpatient providers/
suppliers.
TABLE 15—IMPACT ON INPATIENT AND OUTPATIENT PROVIDER-SUPPLIERS
Providers/suppliers
Firms
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Inpatient ...........................................................................................................
Outpatient ........................................................................................................
To determine the impact on small
insurance carriers, third party
administrators and system design and
related services firms, we first
determined the number of entities that
meet the SBA size standard. For
insurance carriers and third party
administrators, the SBA size standard is
annual receipts of $6.5 million. For
system design and related services
firms, the SBA size standard is annual
receipts of $23 million.
Using the Statistics for U.S.
Businesses for firm sizes by number of
employees for 2005 (the latest year for
which the Census Bureau reports
payroll), we combined total annual
payroll reported for NAICS 524114 and
524292 for a total of $32.5 billion
(https://www.census.gov/epcd/susb/
2005/us/US—.HTM, accessed 8–21–08)
Taking the total premium payments
made to health insurers reported for
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27,276
635,654
2006 (the latest year for which CMS has
insurance premium data) in the
National Health Expenditure Report of
$723.4 billion (https://www.cms.hhs.gov/
NationalHealthExpendData/
02_NationalHealthAccountsHistorical.
asp, accessed 8–12–08), we divided
total insurance premiums by total
payroll to arrive at a ratio of annual
health insurance receipts to annual
payroll of 22.3.
Applying the ratio to the reported
annual payroll for the employee size
categories and dividing by the number
of firms in each category, we found that
firms with between 10 and 19
employees had average annual receipts
of $8.3 million.
Based on the method for computing
annual receipts for firms by the number
of employees, we estimate that 71
percent of insurers and third party
administrators account for 2.5 percent of
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Revenuereceipts
($ millions)
801,749
537,417
ICD–10 costs
(million $)
228.55
165.36
% ICD–10
cost of
revenue
receipts
0.03
0.03
annual receipts. Applying this percent
to the projected costs of system changes
for payers found in Table 13a, the costs
to small insurers and third party
administrators is expected to be a total
of $4 million for the anticipated fouryear implementation period. Thus, the
annual cost is expected to be
approximately $1 million or 0.01
percent of revenues.
We applied the same approach for
system design and related computer
services firms and used 2006 receipt
data from the Statistics of U.S.
Businesses Annual Survey for NAICS
5415 in place of the National Health
Expenditure data, https://
www.census.gov/svsd/www/services/
sas/sas_data/sas54.htm, accessed 8–12–
08). Dividing total annual receipts by
total annual payroll, we applied a ratio
of 2.4468 to the annual payrolls of the
various employee size categories and
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found that firms with between 100 and
499 employees had average annual
receipts of $27.7 million. Total annual
receipts for all small entities equal $107
billion which represents 53.3 percent of
total annual receipts for the NAICS
category. By comparison, the number of
small entities represents 99.3 percent of
all firms in this category.
Taking the small entity receipt ratio to
total receipts and applying it to the
expected ICD–10 implementation costs,
we find that the cost to small entities
equals $51.5 million over the four year
implementation period or $12.9 million
per year. As a percent of receipts, this
equals 0.1 percent.
As we pointed out in discussing the
effects of the total costs on third party
administrators and system design
computer firms, we do not know how
many firms will actually be involved in
implementing the ICD–10 coding
system. For purposes of the analysis, we
assume that all firms reported in the
Statistics of U.S. Businesses for the
NAICS codes we are examining will be
participating in the implementation of
the codes. Since it is possible we could
be including more firms than will be
implementing the codes, our impact
estimate on small entities may be
understated. To test the sensitivity of
the impact of the implementation costs
on small firms, we assumed that burden
would equal three percent of revenues.
HHS policy states that if a rule imposes
a burden equal to or greater than three
percent of a firm’s revenues, it is
significant (see: ‘‘Guidance on Proper
Consideration of Small Entities in
Rulemakings of the U. S. Department of
Health and Human Services’’ at https://
www.hhs.gov/execsec/smallbus.html,
accessed 8–12–08). We assumed that the
small business share of the market
would remain constant at 53 percent
and that the $12.8 million costs we
expect small firms to incur will be
distributed equally. Using these
assumptions, we computed the amount
of small entity revenue such that the
ICD–10 small entity share would equal
three percent—$429 million. We then
calculated the percent of $429 million
that is the small entity share of the
revenue and multiplied the results by
the number of small entities (see Table
16). From this analysis we estimate that
if only 389 or fewer small firms provide
computer and software services, the
burden could be significant.
We note that the regulation would not
impose any compliance requirements on
system design and related services firms
and, while the firms may have to wait
for some period of time before they are
compensated for their services because
of contract agreements, they should
eventually be able to pass on some or all
of their costs on to their customers. In
order to determine if these estimates are
accurate, we are specifically requesting
comments on our analysis and asking
for any data that will help us determine
the number and sizes of firms
implementing the ICD–10 code sets.
Table 16 below summarizes the
impact of the rule on small insurance
carriers, third party administrators, and
system design and related computer
design firms.
TABLE 16—PAYERS AND COMPUTER DESIGN AND RELATED SERVICES
NAICS
524114,
524292.
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5415 .........
Payers and system
design and related
services
Health Insurance Carriers and Third
Party Administrators.
Computer Systems
Design and Related
Services.
18:09 Aug 21, 2008
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Small entity receipts
(in millions
$)
% Small
entity
receipts
of total
receipts
Annual
ICD–10
costs
(in
millions)
Small entity share of
ICD–10
Costs
(in millions
$)
% Small
entity implementation cost/
revenue
receipts
4,578
3,449
723,412
18,309
2.53
41.13
1.04
0.01
97,556
96,948
200,695
107,048
53.34
24.13
12.87
0.01
It is evident that the conversion to
ICD–10 would have a wide-ranging
impact, affecting almost every health
entity. At minimum, personnel will
have to adjust to the new diagnostic
codes when submitting bills. For a small
enterprise that does business in a
relatively narrow range of services or
supplies relies primarily on paper
records, the change may be minimal
involving no more than a software
upgrade for its billing system and new
super bill forms. Based on a survey
published in the June 18, 2008 New
England Journal of Medicine (Catherine
M. DesRoches, Eric G. Campbell,
Sowmya R. Rao, et al.) found that 83
percent of doctors did not have
electronic records systems (N Engl J
Med 2008;359:50–60). Thus, we expect
that the vast majority of physicians and
practitioners will need to make
relatively small changes in their record
billing systems.
VerDate Aug<31>2005
Small
entities
Firms
Revenue/
receipts
($ millions)
In the same survey the authors found
that only 4 percent of physicians
surveyed had fully functional electronic
health records systems and 13 percent
had a basic electronic health records
system. Of the physicians with fully
functioning electronic health records, 28
percent belong to group practices with
six or more physicians. Nine percent of
physicians with access to electronic
health record systems practice in
hospitals, clinics, and medical centers.
Although the cost to transition to the
ICD–10-CM codes will be more costly
for providers/suppliers with electronic
health records systems, the data
suggests that large practices and
hospitals and medical centers have
invested in the sophisticated record
systems rather than the average medical
practice.
Based upon the previously cited
survey, we assume that in many small
provider practices, electronic health
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record systems likely are not used.
Some may use practice management
systems (most likely for billing
purposes) and these will need to be
updated. However, the costs for these
updates can be attributed to the
implementation of Version 5010, and
not to ICD–10. Very small provider
practices without practice management
systems likely use only paper. In these
instances, there will be minimal costs,
such as revision to their paper records
and the updating of their printed super
bills. We invite industry and
stakeholder comment regarding these
assumptions.
At the other extreme are large
teaching hospitals and health plans that
will not only have to transition to the
new diagnostic codes, but also to the
new procedure codes. The changes
entailed for such large organizations
may involve the reconfiguration of
entire data systems that will require
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hundreds of staff hours in addition to
training time and lost productivity.
Although the previous analysis
indicates that the overall impact on the
health care sector of the economy will
be very small, we acknowledge that
these entities may incur a significant
economic impact. However, we believe
these organizations comprise a small
minority of the total number of health
care entities. We solicit industry and
stakeholder input on this issue.
To further illustrate the impact we
anticipate the rule will have, we
developed a scenario for a typical
community hospital in the Mid-West.
The data for this illustration is drawn
from the American Hospital Directory
(https://www.AHD.com). While based on
an actual hospital in a mid-western
state, the data has been altered to make
calculations simpler. The hospital has
100 beds, 4,000 discharges annually,
and gross revenues of $200 million.
Using the factors presented in the
impact analysis, we estimated training
costs (including the cost of the actual
training as well as lost time away from
the job), productivity loss for the first 6
months resulting from becoming
familiar with the diagnostic and
procedure codes, and the cost of system
changes. For our scenario, we assumed
that the hospital employs three full-time
coders who will require eight hours of
training at $500 per coder for $1,500
($500 × 3). While they are in training,
the hospital will have to substitute other
staff either by hiring temporary coders
if possible or shifting staff. The
estimated cost at $50 per hour is $1,200
(8 hours × 3 staff × $50 per hour).
In estimating the productivity loss, we
are only looking at the initial 6 months
after implementation. Therefore we
divided the annual number of
discharges of 4,000 by 2 to equal 2,000.
We assume that 3/4 of the discharges are
surgical, giving us 1,500 discharges
requiring use of PCS codes. Dividing
this by 6 months yields an average
monthly discharge rate of 250.
We perform a similar calculation for
outpatient claims. Of the 13,000
outpatient claims, the monthly average
is 1,083 (we do not distinguish between
medical and surgical outpatient claims).
Applying the 1.7 extra minutes per
discharge, we estimate it would take an
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e×tra 425 minutes (1.7 × 250) to code the
discharges in the first month. At $50 per
hour, the cost per minute is $0.83 ($50/
60 minutes) and the cost per claim is
$1.41 ($0.83 × 1.7). For the first month,
the productivity loss for inpatient
coding is $353 ($1.41 × 250). Assuming
for simplicity’s sake that the resumption
of productivity over the 6-month period
would increase in a straight line, we
divide the $353 by six to come up with
$59. We reduce the productivity loss by
this amount each month through the
sixth month. The total loss for the 6month period is $1,233.
We apply the same method to
determine the outpatient productivity
loss. Based on our assumption that
outpatient claims will require onehundredth of the time for hospital
inpatient claims, we applying the .017
extra minutes per claim, we estimate it
would take an extra 18.41 minutes
(0.017 × 1083) to code the discharges in
the first month. At $50 per hour, the
cost per minute is $0.83 ($50/60
minutes) and the cost per claim is
$0.014 ($0.83 × 0.017). For the first
month, the productivity loss for
inpatient coding is $15.28 ($0.014 ×
1083). Assuming for simplicity sake that
the resumption of productivity over the
6-month period would increase in a
straight line, we divide the $15.28 by
six; to come up with $2.55. We reduce
the productivity loss by this amount
each month through the sixth month.
Thus the total loss for the first 6 months
will equal $53.
In estimating the cost of system
changes and software upgrades, we
deliberately chose a value that we think
overstates the cost. We assumed that
hospital will have to spend $300,000 on
its data infrastructure to accommodate
the new codes. Summing the training
costs, productivity losses, and system
upgrades, we estimate the total cost to
the hospital will equal approximately
$303,990. Finally, in order to determine
the percent of the hospital’s revenue
that would be diverted to funding the
conversion to the ICD–10 we compared
the estimated cost associated with the
conversion to ICD–10 to the total
hospital revenue of $200 million. The
costs amount to 0.15 percent of the
hospital’s annual revenues.
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We note that although the impact in
our scenario of 0.15 percent is
significantly larger than the estimated
impact of 0.03 percent for inpatient
facilities in the Table 15 above, it is still
significantly below the threshold the
Department considers a significant
economic impact. As expressed in the
Department guidance on conducting
regulatory flexibility analyses, the
threshold for an economic impact to be
considered significant is 3 percent to 5
percent of either receipts or costs. As is
clear from the analysis, the impact does
not come close to the threshold. Thus
based on the foregoing analysis, we
conclude that some health care
providers or suppliers may encounter
significant burdens in the course of
converting to the ICD–10 codes.
However, we are of the opinion that, for
most providers and suppliers, payers
and computer firms involved in
facilitating the transition, the costs will
be relatively small.
3. Conclusion
Based on the foregoing analysis, we
could certify that this proposed
regulation would not have a significant
economic impact on a substantial
number of small entities. However
because of the substantial uncertainty in
the data and our assumptions we invite
public comments on the analysis and
request any additional data that would
help us determine more accurately the
impact on the various categories of
entities affected by the rule.
E. Accounting Statement
As required by OMB Circular A–4
(available at https://
www.whitehouse.gov/omb/circulars/
a004/a–4.pdf) (accessed 8–12–08), in
Table 12 below, we have prepared an
accounting statement showing the
classification of the expenditures
associated with the provisions of this
proposed rule. This table provides our
best estimate of the costs and benefits
associated with the implementation of
ICD–10–CM and ICD–10–PCS in 2011 as
HIPAA standard code sets to replace
ICD–9–CM. All exclassified as
implementation for HIPAA covered
entities.
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TABLE 17—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FY 2009 TO FY 2023
[In millions]
Primary
estimate
(millions)
Category
Source
citation (RIA,
preamble,
etc.)
Minimum
estimate
(millions)
Maximum
estimate
(millions)
$72.3
82.2
........................
$233.6
265.4
........................
RIA.
RIA.
RIA.
$40.1
34.4
None
$159.4
137.3
None
RIA.
RIA.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Benefits
Annualized Monetized benefits:
7% Discount ......................................................................
3% Discount ......................................................................
Qualitative (un-quantified) benefits ....................................
$212.1 .....................................
241.0 .......................................
Improved biosurveillance and
global disease management.
Costs
Annualized Monetized costs:
7% Discount ......................................................................
3% Discount ......................................................................
Qualitative (un-quantified) costs ........................................
$144.9 .....................................
124.8 .......................................
None .......................................
Transfers
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Annualized monetized transfers: ‘‘on budget’’ ..........................
From whom to whom? ..............................................................
Annualized monetized transfers: ‘‘off-budget’’ ..........................
From whom to whom? ..............................................................
F. Conclusion
Because ICD–9 is the official system
of assigning codes to medical diagnoses
and procedures associated with hospital
and ambulatory utilization, the
changeover to ICD–10 codes will have a
major impact on the entire health care
industry. This transition is needed due
to the space and granularity deficiencies
inherent in the almost three-decade-old
ICD–9 code set, and the increased
procedure and diagnosis detail that
ICD–10 offers, allowing for more
accurate payment of claims.
For hospitals, ambulatory centers,
physician offices, and health plans, this
transition will be multifaceted, but once
adopted, ICD–10 would allow for better
coding of complex conditions and
procedures as well as a more uniform
measure of reimbursement. Providers
and payers are likely to need a crosswalk of ICD–9 codes to ICD–10 codes in
the beginning of the transition, but as
our analysis has shown, in the longterm, the benefits of ICD–10 outweigh
its costs.
This impact analysis references two
reports that outline the costs and
benefits of transitioning from ICD–9 to
ICD–10. These reports include ‘‘The
Costs and Benefits of Moving to the
ICD–10 Code Sets’’ by the RAND
Corporation, and ‘‘Replacing ICD–9–CM
with ICD–10–CM and ICD–10–PCS
Challenges, Estimated Costs, and
Potential Benefits’’ by the Robert E.
Nolan Company. For purposes of this
impact analysis, we also reference field
studies and interviews done by AHIMA,
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N/A
N/A
N/A
N/A
..........................................
..........................................
..........................................
..........................................
which detail first-hand accounts of the
benefits of using the ICD–10 code sets.
If we do not implement ICD–10 codes,
we could continue to use ICD–9 codes;
however, as mentioned in previous
sections of this impact analysis, ICD–9
codes do not capture new
technologically-advanced procedures,
there would be an increased need to add
new codes in illogical locations which
would cause more confusion and
inaccuracy when assigning codes, and
there would possibly be improper
payments for inaccurate diagnoses and
procedures.
Because of the considerable
uncertainty in the data and our
assumptions we invite public comments
regarding whether this proposed
regulation would have a significant
economic impact on a substantial
number of small entities. We request
any additional data that would help us
determine more accurately the impact
on the various categories of entities
affected by the rule.
We have considered the alternatives
specified in section XI of the preamble
of this proposed rule. We welcome
comments on ways to lessen any
burdens from our proposal, on
alternatives that might be more effective
or less costly, and/or any other
improvements we can make before
issuing a final rule.
In accordance with the provisions of
Executive Order 12866, as amended,
this regulation was reviewed by the
Office of Management and Budget.
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List of Subjects in 45 CFR Part 162
Administrative practice and
procedures, Electronic transactions,
Health facilities, Health Insurance,
Hospitals, Incorporation by reference,
Medicaid, Medicare, Reporting and
recordkeeping requirements.
For the reasons set forth in this
preamble, the Department of Health and
Human Services proposes to amend 45
CFR subtitle A, subchapter C, part 162
as follows:
PART 162—ADMINISTRATIVE
REQUIREMENTS
1. The authority citation for part 162
continues to read as follows:
Authority: Secs. 1171 through 1179 of the
Social Security Act (42 U.S.C. 1320d–1320d–
8), as added by sec. 262 of Public Law 104–
191, 110 Stat. 2021–2031, and sec. 264 of
Public Law 104–191, 110 Stat. 2033–2034 (42
U.S.C. 1320d–2(note)).
2. Section 162.1002 is amended by
revising paragraph (b) introductory text
and adding paragraph (c) to read as
follows.
§ 162.1002
Medical data code sets.
*
*
*
*
*
(b) For the period on and after
October 16, 2003 through September 30,
2011:
*
*
*
*
*
(c) For the period on and after October
1, 2011:
(1) The code sets specified in
paragraphs (a)(4), (a)(5), (b)(2), and (b)(3)
of this section.
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(2) International Classification of
Diseases, 10th Revision, Clinical
Modification (ICD–10–CM) (including
The Official ICD–10–CM Guidelines for
Coding and Reporting), as maintained
and distributed by HHS, for the
following conditions:
(i) Diseases.
(ii) Injuries.
(iii) Impairments.
(iv) Other health problems and their
manifestations.
(v) Causes of injury, disease,
impairment, or other health problems.
(3) International Classification of
Diseases, 10th Revision, Procedure
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Classification System (ICD–10–PCS)
(including The Official ICD–10–PCS
Guidelines for Coding and Reporting),
as maintained and distributed by HHS,
for the following procedures or other
actions taken for diseases, injuries, and
impairments on hospital inpatients
reported by hospitals:
(i) Prevention.
(ii) Diagnosis.
(iii) Treatment.
(iv) Management.
(Catalog of Federal Domestic Assistance
Program No. 93.778, Medical Assistance
Program)
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(Catalog of Federal Domestic Assistance
Program No. 93.773, Medicare—Hospital
Insurance; and Program No. 93.774,
Medicare—Supplementary Medical
Insurance Program)
Approved: March 12, 2008.
Michael O. Leavitt,
Secretary.
Editorial Note: This document was
received at the Office of the Federal Register
on August 15, 2008.
[FR Doc. E8–19298 Filed 8–15–08; 3:55 pm]
BILLING CODE 4120–01–P
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]]>Agencies
[Federal Register Volume 73, Number 164 (Friday, August 22, 2008)]
[Proposed Rules]
[Pages 49796-49832]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-19298]
[[Page 49795]]
-----------------------------------------------------------------------
Part III
Department of Health and Human Services
-----------------------------------------------------------------------
Office of the Secretary
-----------------------------------------------------------------------
45 CFR Parts 160 and 162
HIPAA Administrative Simplification: Modification to Medical Data Code
Set Standards To Adopt ICD-10-CM and ICD-10-PCS; Proposed Rule
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 /
Proposed Rules
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Office of the Secretary
45 CFR Parts 160 and 162
[CMS-0013-P]
RIN 0958-AN25
HIPAA Administrative Simplification: Modification to Medical Data
Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS
AGENCY: Office of the Secretary, HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would modify two of the medical data code
set standards adopted in the Transactions and Code Sets final rule
published in the Federal Register. It would also implement certain
provisions of the Administrative Simplification subtitle of the Health
Insurance Portability and Accountability Act (HIPAA) of 1996.
Specifically, the proposed rule would modify the standard code sets for
coding diagnoses and inpatient hospital procedures by concurrently
adopting the International Classification of Diseases, Tenth Revision,
Clinical Modification (ICD-10-CM) for diagnosis coding, and the
International Classification of Diseases, Tenth Revision, Procedure
Coding System (ICD-10-PCS) for inpatient hospital procedure coding.
These new codes would replace the International Classification of
Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) Volumes 1
and 2, and the International Classification of Diseases, Ninth
Revision, Clinical Modification (CM) Volume 3 for diagnosis and
procedure codes, respectively.
DATES: Comments will be considered if we receive them at the
appropriate address, as provided below, no later than 5 p.m. on October
21, 2008.
ADDRESSES: In commenting, please refer to file code CMS-0013-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to https://www.regulations.gov, accessed 8-12-08. Follow the
instructions for ``Comment or Submission'' and enter the filecode to
find the document accepting comments.
2. By regular mail. You may mail written comments (one original and
two copies) to the following address ONLY: Centers for Medicare &
Medicaid Services, Department of Health and Human Services, Attention:
CMS-0013-P, P.O. Box 8016, Baltimore, MD 21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments (one
original and two copies) to the following address ONLY: Centers for
Medicare & Medicaid Services, Department of Health and Human Services,
Attention: CMS-0013-P, Mail Stop C4-26-05, 7500 Security Boulevard,
Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments (one original and two copies) before the
close of the comment period to either of the following addresses:
a. Room 445-G, Hubert H. Humphrey Building, 200 Independence
Avenue, SW., Washington, DC 20201; or (Because access to the interior
of the HHH Building is not readily available to persons without Federal
Government identification, commenters are encouraged to leave their
comments in the CMS drop slots located in the main lobby of the
building. A stamp-in clock is available for persons wishing to retain a
proof of filing by stamping in and retaining an extra copy of the
comments being filed.)
b. 7500 Security Boulevard, Baltimore, MD 21244-8016.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and received after the comment
period.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT: Donna Pickett (301) 458-4434 for ICD-
10-CM, Pat Brooks (410) 786-5318 for ICD-10-PCS, and Denise Buenning
(410) 786-6711 for other questions.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: https://
www.regulations.gov, accessed 8-12-08. Follow the search instructions
on that Web site to view public comments.
Comments received timely will be available for public inspection as
they are received, generally beginning approximately 3 weeks after
publication of a document, at the headquarters of the Centers for
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD,
on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To make
an appointment to view the public comments, please call telephone
number 1-800-743-3951.
Table of Contents
I. Background
A. Statutory Background
B. Regulatory Background: Adoption and Modification of HIPAA
Code Sets
II. ICD-9-CM
A. ICD-9-CM Volumes 1 and 2 (Diagnoses)
B. ICD-9-CM Volume 3 (Procedures)
C. Maintaining/Updating ICD-9-CM Volumes 1, 2, and 3
III. Limitations of ICD-9-CM
A. Background
B. General
1. Space Limitations
2. Impact of Workarounds on Structural Hierarchy
3. Lack of Detail
4. Mortality Reporting and Biosurveillance
IV. ICD-10 and the Development of ICD-10-CM and PCS
A. Overview
B. ICD-10-CM Diagnosis Codes
C. ICD-10-PCS Procedure Codes
D. Statutory Requirements for Adoption of ICD-10-CM and ICD-10-
PCS
V. Comparison of ICD-9-CM versus ICD-10-CM and ICD-10-PCS
VI. Discussion of SNOMED CT[supreg]
VII. Alternatives to Adopting ICD-10 Code Sets
A. Utilize Unassigned Codes
B. Use CPT-4 for Coding Hospital Inpatient Procedures
C. Wait and Adopt ICD-11
VIII. Provisions of the Proposed Regulation
A. Use of ICD-10-CM and ICD-10-PCS by Covered Entities
B. Effective Dates
C. Proposed Compliance Dates
IX. Collection of Information Requirements
X. Response to Comments
XI. Regulatory Impact Analysis
A. Overall Impact
1. Regulatory Flexibility Act (RFA)--Impact on Small Business
B. Anticipated Effects
1. Objective
2. Background
a. Nolan and RAND Studies: Analysis and Limitations
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i. Training
ii. Productivity Losses
iii. System Changes
3. Framework for Impact Analysis
a. The Impact Analysis Workgroup
4. Assumptions Underlying the Cost and Benefit Analysis
5. Impacted Entities
6. Estimated Costs
a. Training
b. Productivity Losses
i. Inpatient
ii. Outpatient
iii. Physician Practices
iv. Improper and Returned Claims
c. Systems Changes
i. Providers and Software Vendors
ii. Payers
iii. Government Systems
d. Distribution of ICD-10 Transition Costs
7. Projected Benefits
a. More Accurate Payments for New Procedures
b. Fewer Rejected Claims
c. Fewer Improper Claims
d. Better Understanding of New Procedures
e. Improved Disease Management
f. Better Understanding of Health Conditions and Health Care
Outcomes
g. Harmonization of Disease Monitoring and Reporting Worldwide
C. Alternatives Considered
1. Relation to Other HIT Initiatives
D. Regulatory Flexibility Analysis
1. Alternatives Considered
2. Number of Small Entities
3. Conclusion
E. Accounting Statement
F. Conclusion
Regulatory Text
I. Background
A. Statutory Background
The Congress addressed the need for a consistent framework for
electronic transactions and other administrative simplification issues
in the Health Insurance Portability and Accountability Act of 1996
(HIPAA), Public Law 104-191, enacted on August 21, 1996. HIPAA has
improved the Medicare and Medicaid programs and the efficiency and
effectiveness of the health care system in general, by encouraging the
development of standards and requirements to facilitate the electronic
transmission of certain health information.
Through subtitle F of title II of that statute, the Congress added
to title XI of the Social Security Act (the Act) a new Part C, titled
``Administrative Simplification.'' Part C of title XI of the Act
consists of sections 1171 through 1179. Section 1172 of the Act and the
implementing regulations make any standard adopted under Part C
applicable to: (1) Health plans; (2) health care clearinghouses; and
(3) health care providers who transmit any health information in
electronic form in connection with a transaction for which the
Secretary has adopted a standard.
Section 1172(c)(1) of the Act requires any standard adopted by the
Secretary of the Department of Health and Human Services (the
Secretary) to be developed, adopted, or modified by a standard setting
organization (SSO), except in the special cases identified under
section 1172(c)(2) of the Act. Under section 1172(c)(2)(A) of the Act,
the Secretary may adopt a standard that is different from any standard
developed by an SSO if it will substantially reduce administrative
costs to health care providers and health plans compared to the
alternatives, and the standard is promulgated in accordance with the
rulemaking procedures of subchapter III of chapter 5 of Title 5 of the
United States Code. Under section 1172(c)(2)(B) of the Act, if no SSO
has developed, adopted, or modified any standard relating to a standard
that the Secretary is authorized or required to adopt, section
1172(c)(1) does not apply.
Section 1172 of the Act also sets forth consultation requirements
that must be met before the Secretary may adopt standards. The SSO must
consult with the following Data Content Committees (DCCs) in the course
of the development, adoption, or modification of the standard: the
National Uniform Billing Committee (NUBC), the National Uniform Claim
Committee (NUCC), the Workgroup for Electronic Data Interchange (WEDI),
and the American Dental Association (ADA). For a standard that was not
developed by an SSO, the Secretary is required to consult with each of
the above-named groups before adopting the standard. Under section
1172(f) of the Act, the Secretary must also rely on the recommendations
of the National Committee on Vital and Health Statistics (NCVHS) and
consult with appropriate Federal and State agencies and private
organizations.
Section 1173(a) of the Act requires the Secretary to adopt
transaction standards and data elements for the electronic exchange of
health information for certain health care transactions. Under sections
1173(b) through (f) of the Act, the Secretary is required to adopt
standards for: unique health identifiers, code sets, security standards
for health information, electronic signatures, and the transfer of
information among health plans.
Section 1174 of the Act permits the Secretary to review the adopted
standards and adopt modifications as appropriate, but not more
frequently than once every 12 months in a manner which minimizes
disruption and cost of compliance. The same section requires the
Secretary to ensure that procedures exist for the routine maintenance,
testing, enhancement, and expansion of code sets, along with
instructions on how data elements encoded before any modification may
be converted or translated to preserve the information value of any
pre-existing data elements.
Section 1175(b) of the Act provides for a compliance date not later
than 24 months after the date on which an initial standard or
implementation specification is adopted for all covered entities except
small health plans, for which the statute provides for a compliance
date not later than 36 months after the date on which an initial
standard or implementation specification is adopted. If the Secretary
adopts a modification to a HIPAA standard or implementation
specification, the compliance date for the modification may not be
earlier than the 180th day following the effective date of the adoption
of the modification. The Secretary may consider the nature and extent
of the modification when determining compliance dates. The Secretary
may extend the time for compliance for small health plans. We are
proposing that the compliance date for the provisions of this proposed
rule for all covered entities, including small health plans, would be
October 1, 2011.
Please refer to the Transactions and Code Sets final rule (65 FR
50312), published in the Federal Register on August 17, 2000, and the
Privacy Rule (65 FR 82462), published in the Federal Register on
December 28, 2000, for further information about electronic data
interchange and the statutory background.
B. Regulatory Background: Adoption and Modification of HIPAA Code Sets
The Transactions and Code Sets final rule appeared in the August
17, 2000 Federal Register (65 FR 50312). That rule implemented some of
the requirements of the Administrative Simplification subtitle of
HIPAA, by adopting standards for eight electronic transactions for use
by covered entities (health plans, health care clearinghouses, and
those health care providers who transmit any health information in
electronic form in connection with a transaction for which the
Secretary has adopted a standard). We established these standards at 45
CFR parts 160, subpart A, and 162, subparts A, and I through R. The
Transactions and Code Sets Modifications final rule, published on
February 20, 2003 (68 FR 8381), modified the implementation
specifications for several adopted transactions standards, among other
provisions. (Please refer to the HIPAA Transactions and Code Sets final
rule and HIPAA Transactions and Code Sets
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Modifications final rule for detailed discussions of electronic data
interchange and an analysis of the public comments received during the
promulgation of both rules).
In the Transactions and Code Sets final rule, we also adopted a
number of standard medical data code sets for use in those
transactions, including:
International Classification of Diseases, 9th Revision,
Clinical Modification (ICD-9-CM) Volumes 1 and 2 (including the
Official ICD-9-CM Guidelines for Coding and Reporting) as maintained
and distributed by HHS, for coding diseases, injuries, impairments,
other health problems and their manifestations, and causes of injury,
disease, impairment, or other health problems.
ICD-9-CM Volume 3 (including the Official ICD-9-CM
Guidelines for Coding and Reporting) as maintained and distributed by
HHS, for the following procedures or other actions taken for diseases,
injuries, and impairments on hospital inpatients reported by hospitals:
prevention, diagnosis, treatment, and management.
ICD-9-CM Volumes 1 and 2, and 3 were already widely used in
administrative transactions when we promulgated the Transactions and
Code Sets rule. We decided that adopting these existing code sets would
be less disruptive for covered entities than modified or new code sets.
In the Transactions and Code Sets final rule (65 FR 50327), we
discussed comments on using the ICD-10-CM and ICD-10-PCS code sets as
future HIPAA standard medical data code sets. Some commenters praised
the accuracy of the ICD-10-CM and ICD-10-PCS code sets, others raised
concerns about the differences between the ICD-9-CM and ICD-10-CM and
ICD-10-PCS code sets, including the increased level of detail in ICD-
10-PCS. We responded that additional testing and revision were needed
before adopting the ICD-10-CM and ICD-10-PCS code sets as a standard.
(Please refer to the Transactions and Code Sets final rule for details
of that discussion (65 FR 50327).)
In addition to standard transactions and code sets, the final rule
adopted a procedure for maintaining existing standards, for adopting
modifications to existing standards, and for adopting new standards.
Our process in proposing the adoption of ICD-10-CM and ICD-10-PCS, to
replace ICD-9-CM Volumes 1 and 2, and 3, follows that procedure. The
following is a summary of the consultation requirements for the
Secretary for the adoption of standards under sections 1172(b) through
(f) of the Act:
For standards that have been developed, adopted, or modified by a
standard setting organization, the SSO must consult with the following
organizations in the course of such development, adoption, or
modification:
The National Uniform Billing Committee (NUBC).
The National Uniform Claim Committee (NUCC).
The Workgroup for Electronic Data Interchange (WEDI).
The American Dental Association (ADA).
For any other standards, the Secretary is required to consult with
these same organizations.
As part of the HIPAA modification and update process, the NCVHS
holds hearings on proposed changes to HIPAA transaction and code set
standards and makes recommendations to the Secretary as appropriate.
Under section 1174 of the Act, the Secretary must also ensure that
procedures exist for the routine maintenance, testing, enhancement, and
expansion of code sets, and provide instructions on how data elements
encoded before any modification may be converted or translated. As
discussed in section VIII.A of this proposed rule, we will establish an
ICD-10-CM/PCS Coordination and Maintenance Committee that is similar to
the ICD-9-CM Coordination and Maintenance Committee. The ICD-10-CM/PCS
Coordination and Maintenance Committee will be charged with routine
maintenance, testing, enhancement, and the expansion of the ICD-10 code
sets. In addition, the National Center for Health Statistics (NCHS) has
recently completed a crosswalk that maps ICD-9-CM Volumes 1 and 2 to
ICD-10-CM. CMS also has developed a crosswalk that maps ICD-9-CM Volume
3 to ICD-10-PCS. These crosswalks are available at https://
www.cms.hhs.gov/ICD10 (accessed 8-12-08) and https://www.cdc.gov/nchs/
about/otheract/icd9/icd10cm.htm, (accessed 8-12-08). These crosswalks
are revised in the fall of each year.
II. ICD-9-CM
The International Classification of Diseases (ICD) is developed and
maintained by the World Health Organization (WHO). Originally designed
to classify causes of death (mortality), the scope of the ICD has
expanded to include non-fatal diseases (morbidity). The application of
the classification to morbidity has expanded as the code set has been
revised. Nonetheless, the United States and other countries continue to
find it necessary to develop clinical modifications of the ICD to meet
the needs of their respective health care systems that include
administrative and clinical protocols, and require more detail and
specificity for reporting health care.
When the Medicare hospital Inpatient Prospective Payment System
(IPPS) was implemented in 1983, ICD-9-CM was used as the basic input
for assigning the diagnosis-related groups (DRGs). All diagnostic and
procedural information was captured using ICD-9-CM.
A. ICD-9-CM Volumes 1 and 2 (Diagnoses)
NCHS houses the WHO Collaborating Center for the Family of
International Classifications for North America (United States and
Canada), and has responsibility for the implementation of the ICD. NCHS
produced a clinical modification to WHO's ICD-9 by adding more
specificity to its diagnosis codes (ICD-9-CM Volumes 1 and 2). ICD-9-CM
maps to ICD to facilitate comparison of mortality and morbidity
statistics. ICD-9-CM was adopted in the United States in 1979 for
morbidity applications, and was adopted as a HIPAA standard in 2000 for
reporting diagnoses, injuries, impairments, and other health problems
and their manifestations, and causes of injury, disease, impairment or
other health problems in standard transactions. ICD-9-CM diagnosis
codes are three to five digits long, and are used by all types of
health care providers, including hospitals and physician practices. The
code set is organized into chapters by body system.
B. ICD-9-CM Volume 3 (Procedures)
Inpatient hospital services procedures are currently coded using
ICD-9-CM Volume 3. The WHO's ICD does not include procedure codes. ICD-
9-CM procedure codes are three to four digits long. The code set was
adopted as a HIPAA standard in 2000 for reporting inpatient hospital
procedures. Current Procedural Terminology, 4th Edition (CPT-4) and
Health Care Common Procedure Coding System (HCPCS) are used to code all
other procedures. The ICD-9-CM procedure code set is organized into
chapters by body system, and CMS maintains the ICD-9-CM procedure
codes.
C. Maintaining/Updating ICD-9-CM (Volumes 1 and 2, and 3)
Recognizing the need for ICD-9-CM to be a flexible, dynamic
statistical tool to meet expanding classification needs, the ICD-9-CM
Coordination and
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Maintenance Committee was created in 1985 as a forum for receiving
public comments on proposed code revisions, deletions, and additions.
The Committee is co-chaired by the NCHS and CMS; NCHS maintains ICD-9-
CM Diagnosis Codes (Volumes 1 and 2), and CMS maintains ICD-9-CM
Procedure Codes (Volume 3).
Although the ICD-9-CM Coordination and Maintenance Committee is a
Federal committee, suggestions for updates come from both the public
and private sectors. Interested parties may submit recommendations for
updates (that is, adding new codes, deleting codes, and editing
descriptive material related to existing codes) at least 2 months
before a scheduled meeting. Proposals for a new code must include a
description of the code being requested and rationale for why the new
code is needed. Supporting references and literature may also be
submitted.
This Federal committee meets in March and September. Decisions on
code title revisions are made by March for inclusion in the annual IPPS
proposed rule. Updates on codes, payments, and reporting systems are
finalized after the previous fall meeting and may become effective
October 1 of the same year.
Section 503(a) of the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December
8, 2003) included a requirement for updating ICD-9-CM codes twice a
year, instead of a single update on October 1 of each year. Section
503(a) of the MMA, which amended section 1886(d)(5)(K) of the Act,
states that the ``Secretary shall provide for the addition of new
diagnosis and procedure codes in April 1 of each year, but the addition
of such codes shall not require the Secretary to adjust the payment (or
diagnosis-related group classification) * * * until the fiscal year
that begins after such date.'' By adding codes for a new technology at
an earlier date, CMS can recognize the new technology more quickly for
purposes of payment under the IPPS.
While section 503(a) of the MMA does not require the Secretary to
adjust the DRG classification and payments until the subsequent fiscal
year, the DRG software and other systems must be updated to recognize
and accept the new codes, and providers must update their systems mid-
year to capture the new codes. Hospitals must obtain coding book
updates and coding software updates and make other system changes to
capture and report the new codes.
Proposals for new and revised codes, summaries of meetings,
information about deadlines for comment, scheduled dates for the next
meeting, deadlines for receipt of maintenance proposals, and mailing
and e-mail addresses are posted to the CMS Web site at https://
www.cms.hhs.gov/ICD9ProviderDiagnosticCodes, accessed 8-12-08, and the
NCHS Web site https://www.cdc.gov/nchs/icd9.htm, accessed 8-12-08.
Additionally, CMS and NCHS publish a complete addendum describing
details of all changes to ICD-9-CM. It is publicized on their Web sites
in May of each year. Many commenters on the proposed Transactions and
Code Sets proposed rule commended this open process (65 FR 50343-
50344).
III. Limitations of ICD-9-CM
A. Background
In 1997, the NCVHS began to study the issues related to known
shortcomings of ICD-9-CM and to assess the need to transition to ICD-10
(or an alternative code set), including the impact of such a
transition. The NCVHS has conducted more than 8 days of hearings since
1997. Oral and written testimony was provided by more than 80 public
and private sector groups representing the health care industry,
Federal and State governments, the public health and research
communities, health plans, and health care providers. In addition, the
NCVHS commissioned a RAND Corporation study on the potential costs and
benefits of transitioning to ICD-10-CM and ICD-10-PCS. From the
testimony received and the RAND study findings, NCVHS concluded that
ICD-10-CM and ICD-10-PCS should be adopted as a HIPAA standard to
replace the current standard, ICD-9-CM Volumes 1 and 2, and 3. In a
letter to the Secretary dated November 5, 2003, NCVHS recommended that
HHS initiate the regulatory process for the concurrent adoption of ICD-
10-CM and ICD-10-PCS. The NCVHS letter (https://www.ncvhs.hhs.gov/
031105lt.htm) accessed 8-12-08, an overview of the development of ICD-
10-CM and ICD-10-PCS (https://www.ncvhs.hhs.gov/031105a1.htm) accessed
8-12-08, summaries of the NCVHS activities (https://www.ncvhs.hhs.gov/
031105a2.htm) accessed 8-12-08, a list of organizations that have
provided testimonies (https://www.ncvhs.hhs.gov/031105a3.htm) accessed
8-12-08, and the RAND Corporation study (https://www.rand.org/pubs/
technical_reports/2004/RAND_TR132.pdf) are available on the NCVHS Web
site (https://www.ncvhs.hhs.gov) accessed 8-12-08.
B. General
The ICD-9-CM code set has been in use for over 27 years, and
additional codes have been added during that period to describe new
procedures and diagnoses that reflect changes in medical practice. The
total number of codes (approximately 13,000 for diagnoses and 3,000 for
procedures) is insufficient to continue to respond to the need for new
codes. Moreover, the code set was never designed to provide the
increased level of detail needed to support emerging needs, such as
biosurveillance and pay-for-performance programs (P4P), also known as
value-based purchasing or competitive purchasing. These limitations are
discussed in detail below and have led to the current industry debate
regarding replacement of ICD-9-CM. Industry experts have discussed and
commented on these issues during testimony to the NCVHS, expressing
their belief that the ICD-9-CM code set is nearing the end of its
useful life. We invite public comment on concerns with continued use of
the ICD-9-CM code set.
1. Space Limitations
The ICD-9-CM code set that we adopted in 2000 as a HIPAA standard
had been evolving since 1979. Because of the new and changing medical
advancements during the past 20 plus years, the functionality of the
ICD-9-CM code set has been exhausted. This code set is no longer able
to respond to additional classification specificity, newly identified
disease entities, and other advances. Many chapters of ICD-9-CM are
full, and the American Hospital Association (AHA) has estimated that we
will run out of procedure codes in the appropriate, logical sections of
ICD-9-CM as well as the overflow chapters in 2009. As a temporary
solution, CMS has already begun to assign codes to the inappropriate
sections of ICD-9-CM (for example, codes for heart procedures being
placed in the eye chapter). We will continue to take this unusual step
of making illogical code assignments in order to maintain the ability
to capture emerging technologies. This illogical assignment of codes
will lead to challenges for coders in identifying and assigning codes,
but establishing new codes to identify new procedures remains
important. The diagnosis-related group (DRG) system classifies hospital
cases into groups that are expected to have similar hospital resource
needs. DRGs are assigned
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based on diagnoses, procedures, age, sex, and the presence of
complications or co-morbidities.
The technologies included in the DRGs are identified by ICD-9-CM
procedure codes. ICD-10-PCS allows the use of DRG definitions that
better define new technologies and devices, and that could be refined
to take advantage of their additional specificity through more detailed
descriptions. This critical lack of space for new procedures and
conditions is one important consideration for proposing to adopt ICD-
10-CM and ICD-10-PCS. In addition, ICD-9-CM's space limitations are
creating other problems, which are discussed below.
2. Impact of Workarounds on Structural Hierarchy
The hierarchical structure of the ICD-9-CM procedure code set is
compromised. Some chapters can no longer accommodate new codes, with
the result that any additional codes must be assigned to other
topically unrelated chapters. For example, new hip replacement
procedures must now be assigned to an ``overflow'' chapter for
procedures that are not classified elsewhere. When those chapters
become full, new procedures would have to be assigned to a chapter now
devoted to procedures related to the eye. When a code is isolated in a
separate, unrelated part of the ICD-9-CM book because there is no
available space in the section where the code normally would be
assigned, coders may not easily find the code. Researchers and
statisticians also may miss cases in their analyses.
3. Lack of Detail
Industry experts have pointed out that in an age of electronic
health records, it does not make sense to use a coding system that
lacks specificity and does not lend itself well to updates. Another
consideration about the limitations of ICD-9-CM is that to generate
meaningful research results, researchers need to have access to
comprehensive, rich data with a level of detail that does not exist
with ICD-9-CM. Emerging health care technologies, new and advanced
terminologies, and the need for interoperability amid the increase in
electronic health records (EHRs) and personal health records (PHRs)
require a standard code set that is expandable and sufficiently
detailed to accurately capture current and future health care
information. Coding that accurately describes diagnoses and procedures
will capture information that is critical for research, and ultimately
improves the quality of health care and cost containment by enabling
the study of specific conditions and options for treating them.
Accuracy also is a critical factor in the development of Pay for
Performance (P4P) programs, because successful programs require
detailed coding of diagnoses and the procedures performed to treat
specific conditions.
The details for advanced technology procedures currently being
performed today were not available when ICD-9-CM was being developed.
Numerous ICD-9-CM procedure codes are based upon technology that is now
outdated. As we move toward more sophisticated monitoring and quality
reporting, this level of detail when reporting diagnoses and procedures
becomes critical. Examples are noted below:
ICD-9-CM has a single diagnosis code for fracture of the
wrist. If a patient is treated for two successive wrist fractures, the
ICD-9-CM code does not provide enough detail to determine if the second
fracture is a repeat fracture of the same wrist, a fracture of the
other wrist, incorrect billing for delayed healing, or non-union or
mal-union of the original fracture.
ICD-9-CM contains a single procedure code that describes
the endovascular repair or occlusion of head and neck vessels (39.72).
It does not describe the artery or vein on which the repair is
performed, the precise nature of the repair, or whether the approach is
a percutaneous procedure or is transluminal with a catheter.
Four or more ICD-9-CM procedure codes are needed to
delineate a spinal fusion procedure with sufficient detail to describe
the level of the spine and the devices inserted.
4. Mortality Reporting and Biosurveillance
The ICD-9 diagnosis code set is no longer supported or maintained
by the WHO. As of October 2002, 138 countries have adopted ICD-10 for
coding and reporting mortality data, and 99 countries have adopted ICD-
10 or a clinical modification for coding and reporting morbidity data.
In 1999, the United States adopted ICD-10, but only for mortality
reporting. Until the United States implements ICD-10 for morbidity
reporting applications, data incomparability will continue to increase
throughout the world.
As we become a global community, it is vital that our health care
data represent current medical conditions and technologies, and that
they are compatible with the international version of ICD-10. Because
the United States is capturing morbidity data using the outdated ICD-9-
CM, there are problems identifying new health threats such as anthrax,
Severe Acute Respiratory Syndrome (SARS), and Monkeypox.
The lack of specificity in ICD-9-CM also limits our ability to
develop rapid interventions for emerging diseases affecting
international populations. Diagnosis and procedure information are
captured from administrative data that are submitted on health care
claims, and admission and discharge summaries, but if the codes do not
match the international standard and are unable to be compared, their
significance is lost. Additionally, hospitals utilize diagnosis and
procedure codes for utilization review, disease management, and
research. Therefore, in addition to the need for precise diagnosis and
procedure codes for payment purposes, detail and precision in coding
are critical to the national and international health care community
for mortality reporting, biosurveillance, treatment of patients,
hospital management, and research.
IV. ICD-10 and the Development of ICD-10-CM and PCS
A. Overview
The WHO developed ICD-10 in 1989, and it was adopted by the World
Health Assembly in 1990. Currently, the United States is the only G7
nation (the other G7 nations are Canada, France, Germany, Great
Britain, Italy and Japan) continuing to use ICD-9 for morbidity
reporting. Furthermore, Great Britain, Denmark, Finland, Iceland,
Norway, Sweden, France, Australia, Belgium, Germany, and Canada use a
clinical modification of ICD-10 for reimbursement and/or administrative
purposes.
ICD-10-CM and ICD-10-PCS provide specific diagnosis and treatment
information that can improve quality measurements and patient safety,
and the evaluation of medical processes and outcomes. ICD-10-PCS has
the capability to readily expand and capture new procedures and
technologies.
For quality improvement programs to effectively result in
meaningful clinical outcomes, improved practice management processes
that document and measure patient care, and sustain provider investment
in services that improve quality of care, the ability to modify or add
to a list of treatments, diseases and conditions is essential. The ICD-
10 code sets provide a standard coding convention that is flexible,
providing unique codes for all substantially different procedures or
health conditions and allowing new procedures and diagnoses to be
easily incorporated as new codes for both existing and future clinical
protocols.
[[Page 49801]]
B. ICD-10-CM Diagnosis Codes
The NCHS has developed a clinical modification of the WHO's ICD-10
called ICD-10-CM for reporting diagnosis codes. As in the relationship
between ICD-9 and ICD-9-CM Volumes 1 and 2, ICD-10-CM codes can be
mapped back to the ICD-10 codes. The NCHS has worked closely with
specialty societies to ensure clinical utility and input into the
process of creating the clinical modification, with comments from a
number of prominent specialty groups and organizations that addressed
specific concerns or perceived unmet clinical needs encountered with
ICD-9-CM. The NCHS also had discussions with other users of the
classification, specifically nursing, rehabilitation, primary care
providers, the National Committee for Quality Assurance (NCQA), long-
term care and home health care providers, and managed care
organizations to solicit their comments about the classification.
ICD-10-CM diagnosis codes are three to seven alphanumeric
characters; the number of ICD-10-CM codes is approximately 68,000. The
ICD-10-CM code set provides much more information and detail within the
codes than ICD-9-CM, facilitating timely electronic processing of
claims by reducing requests for additional information.
ICD-10-CM also includes the following improvements over ICD-9-CM:
Significant improvements in coding primary care
encounters, external causes of injury, mental disorders, neoplasms, and
preventive health.
Advances in medicine and medical technology that have
occurred since the last revision.
Codes with more detail on socioeconomic, family
relationships, ambulatory care conditions, problems related to
lifestyle, and the results of screening tests.
More space to accommodate future expansions (alphanumeric
structure).
New categories for post-procedural disorders.
The addition of laterality--specifying which organ or part
of the body is involved when the location could be on the right, the
left, or could be bilateral.
Expanded distinctions for ambulatory and managed care
encounters.
ICD-10-CM codes with the same first three digits have common
traits, and each additional digit adds more specificity. For example:
I49. Other cardiac arrhythmias
I49.0 Ventricular fibrillation and flutter
I49.01 Ventricular fibrillation
I49.02 Ventricular flutter
Post-procedural disorders specific to a particular body system are
located in categories created at the end of each chapter. Diseases are
arranged according to an axis of classification based on etiology,
anatomy, or severity, with anatomy being the primary axis for ICD-10-
CM. (See section V of this proposed rule for a chart that compares ICD-
9-CM, ICD-10-CM, and ICD-10-PCS codes).
C. ICD-10-PCS Procedure Codes
CMS developed a procedure coding system, ICD-10-PCS. ICD-10-PCS has
no relationship to the basic ICD-10 diagnostic classification, which
does not include procedures, and has a totally different structure from
ICD-10-CM. ICD-10-PCS is sufficiently detailed to describe complex
medical procedures. This becomes increasingly important when assessing
and tracking the quality of medical processes and outcomes, and
compiling statistics that are valuable tools for research. ICD-10-PCS
has unique, precise codes to differentiate body parts, surgical
approaches, and devices used. It can be used to identify resource
consumption differences and outcomes for different procedures, and
describes precisely what is done to the patient.
ICD-10-PCS codes have seven alphanumeric characters and group
together services into approximately 30 procedures identified by a
leading alpha character. There are 16 sections of tables that determine
code selection, with each character having a specific meaning. The
first character shows the type of procedure by clinical specialty.
Nearly half of these 16 sections remain undesignated at this time,
leaving room for future expansion. Each subsequent place in the code
has a specific function, the meaning of which may change depending on
the section. For example, the fifth character in the imaging section
identifies the contrast material used, while the fifth character in the
medical and surgical section identifies the surgical approach. The
second character defines the body system with the exception of the
rehabilitation and mental health sections, in which the second
character defines the type of procedure performed.
Example: the Medical and Surgical Section is organized as follows:
Characters
--------------------------------------------------------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7
--------------------------------------------------------------------------------------------------------------------------------------------------------
Name of Section Body System Root Operation Body Part Approach Device Qualifier
--------------------------------------------------------------------------------------------------------------------------------------------------------
D. Statutory Requirements for Adoption of ICD-10-CM and ICD-10-PCS
Under sections 1172(b), (c), (f), and (g) of the Act, the Secretary
must follow certain procedures and pursue certain objectives when
adopting a modification to an initial standard. Under section 1172(b)
of the Act, any standard adopted by the Secretary must be consistent
with the objective of reducing the administrative costs of providing
and paying for health care. As discussed in detail in section XI of
this proposed rule, we believe that the costs for implementing ICD-10-
CM and ICD-10-PCS would be offset by the benefits within four years of
implementation.
Under section 1172(c)(1) of the Act, any standard adopted by the
Secretary must be a standard that has been developed, adopted or
modified by a standard setting organization (SSO). Under section
1172(c)(2)(B) of the Act, however, section 1172(c)(1) does not apply if
no SSO has developed, adopted, or modified any standard relating to a
standard that the Secretary is authorized or required to adopt under
HIPAA. To our knowledge, no SSO has developed, adopted, or modified a
standard code set that is suitable for reporting medical diagnoses and
hospital inpatient procedures for purposes of administrative
transactions. Therefore, we are proposing to adopt ICD-10-CM and ICD-
10-PCS under section 1172(c)(2)(B) of the Act.
We note that the SNOMED Clinical Terms (CT)[supreg] code set may
initially appear to be a standard developed by an SSO for reporting
medical diagnoses and hospital inpatient procedures for purposes of
administrative transactions. The College of American Pathologists
(CAP), which developed SNOMED CT[supreg], is accredited by the American
National Standards Institute (ANSI) as an
[[Page 49802]]
accredited standards developer. The scope of the CAP's accreditation,
however, is limited. The CAP is accredited for activity relating to
clinical terminology that focuses on standardizing that terminology
across the breadth of medicine. Consistent with this scope of focus,
SNOMED CT[supreg], which is now supported by the International Health
Terminology Standards Development Organization (https://www.ihtsdo.org),
is clinical terminology that is primarily designed for primary
documentation of clinical care. SNOMED CT[supreg] is not designed for
carrying out health care transactions. In fact, part of the CAP's scope
of ANSI accreditation is deriving mapping strategies from clinical
reference terminology and medical classification schemes and codes sets
used for statistical, billing, or user interface purposes. Thus, in
order to be useful for health care transactions, the SNOMED CT[supreg]
code set would first have to be mapped to a classification coding
system, such as ICD-10-CM. (For further discussion of SNOMED CT[supreg]
and its potential value to the development of electronic health records
(EHRs), please refer to section VI of this proposed rule.) For these
reasons, we do not believe that SNOMED CT[supreg] qualifies under
section 1172(c)(1) of the Act as a standard developed by an SSO for
reporting medical diagnoses and hospital inpatient procedures for
purposes of administrative transactions.
Under section 1172(c)(3) of the Act, the Secretary must consult
with the following organizations before adopting a standard that was
not developed, adopted, or modified by an SSO:
The National Uniform Billing Committee (NUBC).
The National Uniform Claim Committee (NUCC).
The Workgroup for Electronic Data Interchange (WEDI).
The American Dental Association (ADA).
These organizations are members of the Designated Standard
Maintenance Organization (DSMO) Steering Committee. The DSMO Steering
Committee considered a January 8, 2003 DSMO Change Request submitted by
the Centers for Disease Control seeking modification to the transaction
code set to accommodate ICD-10-CM and ICD-10-PCS. The DSMO Steering
Committee approved the change request and recommended the adoption of
implementation specifications that would support the implementation of
ICD-10-CM and ICD-10-PCS to the NCVHS.
Furthermore, CMS also consulted with WEDI regarding ICD-10-CM and
ICD-10-PCS after two industry-focused informational forums they
conducted on ICD-10-CM and ICD-10-PCS during 2006. In a letter to the
Secretary dated May 31, 2006, WEDI outlined discussions that occurred
during an ICD-10-CM and ICD-10-PCS forum on April 19th and 20th 2006 in
Chicago that was co-chaired by representatives of the American Hospital
Association, and Blue Cross and Blue Shield of South Carolina. The
purpose of the forum was to solicit audience discussion and input on
various implementation issues surrounding the possible adoption of the
ICD-10-CM and ICD-10-PCS code sets. The forum was not intended to
debate the issue of whether these code sets should be adopted, but
rather what would need to occur if they were adopted. CMS will further
consult directly with NUBC, NUCC, and the ADA before adopting any ICD-
10 code set as a modification.
Under section 1172(f) of the Act, the Secretary must rely on the
recommendations of the NCVHS established under section 306(k) of the
Public Health Service Act and must consult with appropriate Federal and
State agencies and private organizations.
The Secretary must publish notification in the Federal Register of
any recommendation of the NCVHS. The NCVHS has conducted 8 days of
hearings with providers, health plans, clearinghouses, vendors, and
interested stakeholders on the adoption of ICD-10-CM and ICD-10-PCS in
place of ICD-9-CM as the HIPAA adopted standard for reporting diagnoses
and hospital inpatient services in standard transactions. (A list of
organizations that provided comments to the NCVHS is available at
https://www.ncvhs.hhs.gov/031105a3.htm, accessed 8-12-08.) In a letter
dated November 5, 2003, the NCVHS submitted to the Secretary its
recommendation to adopt ICD-10-CM and ICD-10-PCS. This letter is
available at https://www.ncvhs.hhs.gov/031105lt.htm, accessed 8-12-08.
The Secretary also has considered input from Federal and State agencies
and private organizations regarding the adoption and implementation of
ICD-10-CM and ICD-10-PCS, and has received input from a number of
professional organizations and other industry stakeholders. The
following organizations representing providers, health plans,
clearinghouses, and vendors are among the stakeholders that have
provided input:
The American Health Information Management Association
(AHIMA).
The American Medical Association (AMA).
The Blue Cross Blue Shield Association (BCBSA).
The Medical Group Management Association (MGMA).
Health Information and Management Systems Society (HIMSS).
America's Health Insurance Plans (AHIP).
V. Comparison of ICD-9-CM Versus ICD-10-CM and ICD-10-PCS
Comparison
------------------------------------------------------------------------
------------------------------------------------------------------------
ICD-9-CM diagnosis codes ICD-10-CM diagnosis codes
------------------------------------------------------------------------
3-5 characters in length............... 3-7 characters in length.
Approximately 13,000 codes............. Approximately 68,000 available
codes.
First digit may be alpha (E or V) or Digit 1 is alpha; Digits 2 and
numeric; Digits 2-5 are numeric. 3 are numeric; Digits 4-7 are
alpha or numeric.
Limited space for adding new codes..... Flexible for adding new codes.
Lacks detail........................... Very specific.
Lacks laterality....................... Has laterality.
Difficult to analyze data due to non- Specificity improves coding
specific codes. accuracy and richness of data
for analysis.
Codes are non-specific and do not Detail improves the accuracy of
adequately define diagnoses needed for data used for medical
medical research. research.
Does not support interoperability Supports interoperability and
because it is not used by other the exchange of health data
countries. between other countries and
the U.S.
------------------------------------------------------------------------
[[Page 49803]]
ICD-9-CM procedure codes ICD-10-PCS procedure codes
------------------------------------------------------------------------
3-4 numbers in length.................. 7 alpha-numeric characters in
length.
Approximately 3,000 codes.............. Approximately 87,000 available
codes.
Based upon outdated technology......... Reflects current usage of
medical terminology and
devices.
Limited space for adding new codes..... Flexible for adding new codes.
Lacks detail........................... Very specific.
Lacks laterality....................... Has laterality.
Generic terms for body parts........... Detailed descriptions for body
parts.
Lacks description of methodology and Provides detailed descriptions
approach for procedures. of methodology and approach
for procedures.
Limits DRG assignment.................. Allows DRG definitions to
better recognize new
technologies and devices.
Lacks precision to adequately define Precisely defines procedures
procedures. with detail regarding body
part, approach, any device
used, and qualifying
information.
------------------------------------------------------------------------
Both ICD-10-CM and ICD-10-PCS provide laterality, precise
anatomical descriptions, methods to report the exact causes of injury
in diagnosing conditions, and approaches used to perform specific
procedures. Laterality refers to the precision with which ICD-10-CM and
ICD-10-PCS describe conditions and treatments for the anatomical right
and left side. Information comparing ICD-10-CM and ICD-9-CM Volumes 1
and 2 is available at: https://www.cdc.gov/nchs/about/otheract/icd9/
icd10cm.htm (accessed 8-12-08). Information comparing ICD-10-PCS and
ICD-9-CM Volume 3 is available at: https://www.cms.hhs.gov/
icd9providerdiagnosticcodes/08_icd10.ASP (accessed 8-12-08).
VI. Discussion of SNOMED CT[supreg]
SNOMED Clinical Terms[supreg] (CT) is a comprehensive clinical
terminology that provides a framework to manage language dialects,
clinically relevant subsets, qualifiers and extensions, as well as
concepts and terms that are unique to particular organizations or
localities. It contains over 366,170 concepts with unique meanings and
formal logic-based definitions that are organized into hierarchies.
Some examples of these hierarchies are:
Staging and scales--contains concepts naming assessment
scales and tumor staging systems.
Social context--contains social conditions and
circumstances significant to health care.
Observable entity--concepts represent a question or
procedure which, when combined with a result, constitute a finding.
In order to express these clinical concepts, SNOMED CT[supreg]
contains more than 993,420 English language descriptions, and
approximately 1.46 million semantic relationships. It would be
impractical to attempt to manually assign SNOMED-CT[supreg] codes. The
number of terms and level of detail in a reference of clinical
terminology such as SNOMED CT[supreg] cannot be effectively managed
without automation, and are not suited for the secondary purposes for
which classifications systems such as ICD-10-CM and ICD-10-PCS are used
because of their immense size, considerable granularity, complex
hierarchies, and lack of reporting rules.\1\
---------------------------------------------------------------------------
\1\ ``Coordination of SNOMED-CT[supreg] and ICD-10: Getting the
Most out of Electronic Health Record Systems'' Sue Bowman, RHIA,
CCS, director of coding policy and compliance, AHIMA; Perspectives
in Health Information Management Spring 2005 (May 26, 2005) https://
library.ahima.org/xpedio/groups/public/documents/ahima/bok1_
027179.html, accessed 8-12-08.
---------------------------------------------------------------------------
SNOMED CT[supreg] is a clinical terminology that is described as an
input system that is primarily designed for the primary documentation
of clinical care. A clinical terminology intended to support clinical
care processes should not be manipulated to meet reimbursement and
other external reporting requirements. Such manipulation presents the
potential to adversely affect patient care, the development and use of
decision support tools, and the practice of evidence-based medicine.
ICD-9-CM, ICD-10-CM, and ICD-10-PCS are classification coding
conventions that are typically used for reporting requirements where
data aggregation is advantageous. A classification system such as ICD
arranges like entities for retrieval. It aggregates granular clinical
concepts into categories for secondary data purposes. Examples of
current use of this data include:
Designing health care delivery systems.
Setting health policy.
Tracking public health and risks.
Monitoring resource utilization.
Processing claims for reimbursement.
The benefits of using SNOMED CT[supreg] increase if it is linked to
a classification system such as ICD-10-CM and ICD-10-PCS for the
purpose of generating health information that is necessary for
statistical analysis and reimbursement. The use of both SNOMED-
CT[supreg] and ICD-10-CM and ICD-10-PCS brings value to the development
of interoperable electronic health records (EHR). The linkage of these
two different coding systems for multiple purposes is accomplished
through mapping.
``Mapping is the process of linking content from one terminology to
another or to a classification.'' (https://library.ahima.org), accessed
8-12-08. It requires deciding how different terminologies match, are
similar, or differ. Mapping provides a link between terminologies to
facilitate--
Use of data collected;
Retaining the value of data when migrating to newer
databases; and
Avoiding entering data multiple times, and the risk of
increased costs and errors.
Using SNOMED CT[supreg] mapped to ICD-10-CM and ICD-10-PCS permits
the use of a clinical terminology that could be the basis for EHRs and
the ICD-10-CM and ICD-10-PCS classification coding system that is used
for reporting and data trend analysis.
As discussed in section IV of this proposed rule, we did not
consider adopting SNOMED CT[supreg] as an alternative for ICD-10-CM and
ICD-10-PCS because the code sets are designed for distinctly different
purposes. We do not believe that SNOMED CT[supreg] qualifies under
section 1172(c)(1) of the Act as a standard for reporting medical
diagnoses and hospital inpatient procedures for purposes of
administrative transactions. For similar reasons, we do not believe
that we are required under the National Technology Transfer and
Advancement Act of 1995 (NTTAA), Public Law 104-113, to consider
adopting SNOMED CT[supreg]. The NTTAA and Office of Management and
[[Page 49804]]
Budget (OMB) Circular No. A-119, which provides some historical
background and interpretation of parts of the NTTAA, directs Federal
agencies to use voluntary consensus standards in lieu of government-
unique standards, except where inconsistent with law or otherwise
impractical. Because we do not believe that SNOMED CT[supreg] is a
suitable standard for reporting medical diagnoses and hospital
inpatient procedures for purposes of administrative transactions, we
believe that neither the NTTAA nor OMB Circular A-119 requires that we
consider it for adoption.
VII. Alternatives To Adopting ICD-10 Code Sets
In deciding to propose adoption of ICD-10-CM and ICD-10-PCS, we
considered a number of alternatives. We invite public comment on the
following discussion of those alternatives and our rationale:
A. Utilize Unassigned Codes
It would be possible to extend the life of ICD-9-CM by assigning
codes to new diagnoses and procedures without regard to the hierarchy
of the code set. This hierarchy groups procedures by body systems, and
then groups similar procedures that apply to a specific body system
into categories. For example, ICD-9-CM Volume 3 was examined to
identify any open series of codes that could be used for new procedures
and technologies. Codes 17.00-17.99 (located between Chapter 3:
Operations on the Eye, and Chapter 4: Operations on the Ear) were not
being used. This series of 100 codes could be used for a wide range of
new procedures and technologies, adding additional space for expansion
within the existing structure of the ICD-9-CM procedure volume.
Additionally, codes 00.00--00.99 were not in use. The ICD-9-CM
Coordination and Maintenance Committee decided to create a chapter in
this unused location. This decision enabled the creation of 100 new
codes to identify procedures that could not be assigned a code within
the existing, and more appropriate, chapters because of space
limitations. CMS departed from the current organizational structure of
ICD-9-CM procedures when we created a variety of procedure codes in a
new chapter 00, Procedures and Interventions NEC (NEC means Not
Elsewhere Classified). CMS has created new codes in all 10 categories
within chapter 00. Details on CMS coding changes are available on the
CMS Web site at: https://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes,
accessed 8-12-08.
While this approach of placing codes in a non-hierarchically-
created structure does extend the ability to assign ICD-9-CM codes to
new diagnoses and procedures, it does not represent a long-term
solution to the code shortage. It will only be an effective solution as
long as there are empty code slots. Moreover, it does not address the
remaining shortcomings of ICD-9-CM discussed above, such as the
critical lack of detail that is required to support evolving business
needs, for example, in the areas of biosurveillance and quality
monitoring. While there have been space issues in ICD-9-CM Volumes 1
and 2, they have not been as pressing as the space needs in ICD-9-CM
Volume 3. New categories/codes have been added within the chapters
(body systems) of the classification, but not necessarily within the
appropriate section within the chapter. New concepts have been
incorporated into the existing structure, and in some instances this
has meant not fully representing the concept as proposed because of
space limitations. Some issues have been deferred and incorporated into
ICD-10-CM because the concepts were inconsistent with the existing
structure of ICD-9-CM. Unlike the procedures in ICD-9-CM Volume 3,
which is a United States-developed system, the ICD-9-CM diagnosis codes
are based on the WHO codes and must be consistent with the established
structure.
The disadvantage of this solution is that it destroys the natural
hierarchy inherent in the code set. This hierarchy assists a coder or
health care professional in choosing the most appropriate code since
one can quickly review closely-related codes. Common coding practices
do not require searches for unrelated procedures in a separate part of
the coding book. However, these new chapters capture a very diverse
group of unrelated procedures that affect a variety of body systems and
are not logically placed in the chapters to which they relate. This
creates considerable confusion for coders and difficulty locating the
new codes, raising the likelihood of coding errors and negatively
affecting productivity.
B. Use CPT-4 for Coding Hospital Inpatient Procedures
The American Medical Association (AMA) developed and maintains the
Physicians' Current Procedural Terminology (CPT) coding system to
capture physician services. CPT also has been used to capture services
performed in outpatient and ambulatory care settings, and is the HIPAA-
adopted standard code set for reporting physician and certain other
health care services. While evaluating the need to replace ICD-9-CM,
the AMA recommended that CPT be used for coding inpatient services. A
letter from the AMA's medical organizations supporting the use of CPT
for inpatient coding was sent to the Secretary on September 23, 2002. A
copy of this letter is included in the Summary Report of the ICD-9-CM
Volume 3 Coordination and Maintenance Committee, December 6, 2002
meeting at https://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes (accessed
8-12-08). The AMA was concerned about industry suggestions that a
uniform procedure coding system be identified for use in all health
care settings. If this were to be the case, the AMA wanted CPT to be
considered as that uniform procedure coding system.
The NCVHS had previously evaluated ICD-9-CM Volume 3 and CPT as
potential coding systems that could be used to capture services in all
health care settings. Afte
