Rand Study Details Costs and Benefits of switching from ICD-9 to ICD-10 Medical Coding

The American Recovery and Reinvestment Act (ARRA) provides incentives to modernize health care, including the upgrade to a new medical coding standard, ICD-10. Despite both incentives and mandates, health insurance companies, hospitals, and others want more data on the cost and benefits of the change over. We felt this data provided a good independent view of these issues.

The RAND Corporation was asked to provide research to answer these questions:

  • What are the costs and benefits of switching from ICD-9’s diagnostic codes to those of ICD-10-CM?
  • What are the costs and benefits of switching from ICD-9’s procedure codes to those of ICD-10-PCS?

The research was conducted by the Science and Technology Policy Institute (operated by RAND from 1992 to November 2003) for the Department of Health and Human Services, under contract ENG-9812731.

Summary

Statistical models led to these conclusions

Cost (March 2004 dollars)

Our best guess is that the cost of conversion will run $425 million to $1.2 Billion in one-time costs plus somewhere between $5 million and $40 million a year in lost productivity.

Benefits

  • More-accurate payments for new procedures – between $100 million and $1.2 Billion
  • Fewer miscoded, rejected claims – between $200 million and $2.5 Billion
  • Reduced “improper” or exaggerated claims (including fraud ) – between $100–$1 Billion
  • Better understanding of the value of new procedures – between $100 million to $ Billion.
  • Improved disease management –between $200 and $1.5 Billion

Conclusion

It is likely that switching to both ICD-10-CM and ICD-10-PCS has the potential to generate
more benefits than costs.

Methodology

RAND estimated the cost of systems reprogramming by sampling payers, providers, and software vendors; dividing their answers by membership (in the case of payers) or revenue (in the case of providers and software vendors); and extrapolating to the entire population.

Their anecdotal comment was that Most observers believe that ICD-10-CM and ICD-10-PCS are technically superior to their ICD-9-CM counterparts. If nothing else, they represent the state of knowledge of the 1990s rather than of the 1970s. They have also been deemed more logically organized, and they are unquestionably more detailed—by a factor of two in diagnoses (and twenty for injuries) and by a factor of fifty in procedures.

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Michael F. Arrigo

Michael Arrigo brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health IT, and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations who provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and medical billing, fraud damages, as well as electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, medical malpractice, insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software SA (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls IT audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and is published in Healthcare IT News.

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