ICD-10 Benefits Pharmaceutical and Medical Device Companies

ICD-10 (International Classification of Diseases version 10 developed by the World Health Organization or WHO) code set has the potential to bring new analytical capability to pharmaceutical and medical device companies eager to improve efficiency and to differentiate themselves in the new regulatory economy.

Today’s pharmaceutical and medical device company analytic capabilities are not sufficient for the quickly developing world of drug development, device innovation, and health care. Pharmaceutical and med device companies lack the tools and capability to use data to measure the cost and clinical effectiveness of drug products.  Going forward under ICD-10, both negative impacts such as reduced reimbursement and opportunities such as improved population health management lie ahead.  The data to guide DME and Pharma R&D budgets may lie in part in this new coding and reimbursement paradigm.

Historically, managed care organizations (health plans or payors) did not always require detailed diagnosis data before a prescription drug claim was paid.  Similarly, medical device costs were reimbursed without tight linkage to the condition of the patient and the indications for use of the device.

Let’s examine why ICD-10 is going to impact not only health plans and health care providers but DME and pharmaceutical companies and how the ‘Perfect Storm’ of laws work together to create new responsibilities for DME and pharmaceutical products used in healthcare.

  • The 2009 HHS HIPAA Code Set Rule requires use of ICD-10 on all claims on or after October 1, 2014.
  • In ICD-10, characters to the right of the decimal introduce additional “specificity” or components of the patient condition  (meaning complications, comorbidities, discrete parts of the anatomy such as which bone, which side (‘laterality’) etc.).
  • DME providers get codes on their orders from doctors.  They will need to know that they are getting the right codes and documentation from referring physicians.  In particular,   ICD-10 CM diagnosis specificity, especially for Orthopedic and Cardiology DMEs is significantly different. Orthopedic procedures would need to be billed (inpatient) under Medicare Part A and DME under Medicare Part B and this would have to be comprehended in test plans including coordination with Medicare MACs.  Because of the greater specificity in ICD-10 there will be more opportunities for improved disease management.
  • The American Recovery and Reinvestment Act (ARRA) and the HITECH Act of 2009 which is part of ARRA requires use of an electronic health record and ‘discrete data’ storage.  No longer is it acceptable for a physician’s handwritten note to be used.  The specific typewritten documentation including not only the diagnosis but procedures will then be translated into ICD-10 codes.
  • ICD-10 provides more specific information, and the electronic health record needs to show documentation such as which side of the patient’s body is involved, whether this was the first or a subsequent encounter for the problem, what conditions gave rise to a sequela, whether healing is progressing as expected, and other potential documentation that might be needed to code the encounter to its greatest specificity.
  • This creates an audit trail of the documentation of medical necessity back to the device, pharmaceuticals, etc. used.  There will be increased opportunities and imperatives to ensure that the quality of the data and outliers (which may be useful in detecting fraudulent DME and Pharmaceutical claims) are evaluated.  This will require upgrading technology platforms and refreshing policies and procedures to ensure best practices are being used.
  • In certain circumstances, care settings, and medical specialties such as Behavioral health, certain prospective payment systems are used that include a requirement to note whether the patient is on specific types of medications.
  • Therefore, all of these components come together, leading us to believe that ICD-10 will have both favorable and unfavorable consequences for the DME and Pharmaceutical supply chain.

No World Borders has identified data analysis as a key capability for pharmaceutical companies dealing with the rapid and ongoing changes in health care. The upcoming transition to the broader and more detailed ICD-10 code sets offers pharmaceutical and medical device companies a number of benefits including:

  • Reduction of payment errors to providers for pharmaceutical and medical device products used in medical procedures.
  • Increased competitive advantage through the creation of comparative effectiveness analytics programs.
  • Improved understanding of payer strategies.
  • More profitable pricing strategies as a result of data mining more accurate information.
  • Access to population health data to guide future R&D efforts focused on either high volume low dollar or high dollar low value diagnosis groups.

To learn more about how your organization can use ICD-10 migration to improve your efficiency and operational processes, contact us.

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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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