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.


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.


  • 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


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


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 is Managing Partner & CEO of No World Borders, a leading healthcare management and IT consulting firm. He serves as an expert witness in Federal and State Court and was recently ruled as an expert by a 9th Circuit Federal Judge. He serves as a patent expert witness on intellectual property disputes, both as a Technical Expert and a Damages expert. His vision for the firm is to continue acquisition of skills and technology that support the intersection of clinical data and administrative health data where the eligibility for medically necessary care is determined. He leads a team that provides litigation consulting as well as advisory regarding medical coding, medical billing, medical bill review and HIPAA Privacy and Security best practices for healthcare clients, Meaningful Use of Electronic Health Records. He advises legal teams as an expert witness in HIPAA Privacy and Security, medical coding and billing and usual and customary cost of care, the Affordable Care Act and benefits enrollment, white collar crime, False Claims Act, Anti-Kickback, Stark Law, physician compensation, Insurance bad faith, payor-provider disputes, ERISA plan-third-party administrator disputes, third-party liability, and the Medicare Secondary Payer Act (MSPA) MMSEA Section 111 reporting. He uses these skills in disputes regarding the valuation of pharmaceuticals and drug costs and in the review and audit of pain management and opioid prescribers under state Standards and the Controlled Substances Act. He consults to venture capital and private equity firms on mHealth, Cloud Computing in Healthcare, and Software as a Service. He advises ERISA self-insured employers on cost of care and regulations. Arrigo was recently retained by the U.S. Department of Justice (DOJ) regarding a significant false claims act investigation. He has provided opinions on over $1 billion in health care claims and due diligence on over $8 billion in healthcare mergers and acquisitions. Education: UC Irvine - Economics and Computer Science, University of Southern California - Business, studies at Stanford Medical School - Biomedical Informatics, studies at Harvard Medical School - Bioethics. Trained in over 10 medical specialties in medical billing and coding. Trained by U.S. Patent and Trademark Office (USPTO) and PTAB Judges on patent statutes, rules and case law (as a non-attorney to better advise clients on Technical and Damages aspects of patent construction and claims). Mr. Arrigo has been interviewed quoted in the Wall Street Journal, New York Times, and National Public Radio, Fortune, KNX 1070 Radio, Kaiser Health News, NBC Television News, The Capitol Forum and other media outlets. See https://www.noworldborders.com/news/ and https://www.noworldborders.com/clients/ for more about the company.

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