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ICD 10 – uncertainty around provider reimbursement

CMS has used the opportunity brought in by the increased specificity of ICD-10 codes to increase the granularity of DRG codes. This will help CMS streamline Medicare payments. Since significant number of Medicare and commercial claims is paid based on DRG codes, the added granularity is bound to cause uncertainty around provider reimbursements. This uncertainty combined with the payment reductions under SGR (Sustainable Growth Rate) has the potential to significantly impact providers’ bottom-line. Payers are not immune to the impact either. It’s crucial that payers and providers simulate claim payments, compare the payouts between I9 and I10, and be better prepared for the change.

Take for example the I9 code 304 (Radical Laryngectomy). 304 now maps to 36 I10 codes that specify whether the procedure is resection or excision, the approach used and the device(s) used. This increased laterality will allow the claim payments to be more aligned to the actual resources consumed during the procedure and the payments could vary significantly among these thirty six I10 codes.

Let’s hypothesize few numbers around negotiated rates, number and distribution of claims to project the potential impact on financials post transition.


As can be seen from the above tables, hospital-A will receive $10,000 less in claim payments for Radical Laryngectomy after transitioning to ICD-10. At the other end, plan-A will pay $400,000 less for Radical Laryngectomy after transitioning to ICD-10. This is a simple hypothetical example of how financials will be impacted. Modeling the organization wide or business line wise impact in a multi-specialty hospital or a large multi-state plan will be very complex.

However complex it might be, given the impact on bottom-line, both payers and providers will need to do some kind of modeling to project the impact of ICD-10 migration on their financials. Impact on financials due to increase in medical costs and inflation will need to be insulated from the impact due to ICD-10. That’s a pretty complex challenge in itself.

Finally, once the impact on financials has been projected, payers and providers will either need to re-negotiate their contracts, find some other way to negate the impact or accept the impact on profit/loss.

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