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ICD10: The Impact on P4P, Global Care, Billing and HIEs

by William DeMarco, April 28, 2009

ICD10 will have a major impact on future planning by providers and health plans. I would like to address examples relating to Pay for Performance, global care initiatives, billing documentation and health Information exchanges.

I was giving a lecture to a wonderful HFMA audience in New Hampshire on pay for performance and this topic came up, asking how will ICD10 affect P4P.

It was clear, in my opinion, that all of the use of severity DRGS and now severity levels within ICD codes that ICD 10 offered, were deliberately trying to get at the kind of detailed reporting that Medicare and many purchasers wanted. This was intended to define what process improvement s could be made to develop a better delivery system.

Benchmarking was too broad with the current system and was not fair because it could not get at the root cause without the examination of charts and abstracted medical records that offered such great detail but were labor intensive to obtain.

This statement produced several hundred nodding heads until another panelist from a well respected billing and systems firm said ICD 10 will not be implemented until 2012. When asked why she just said the insurance companies cannot even do APC reconciliation how will they ever do ICD10.

Well, many heads again nodded, probably the ones sweating bullets right now: hospitals that own PCPs and need to quickly find a way to get into ICD10 billing.

The real challenge here is not so much the electronic billing, there are crosswalks out there, but rather documentation at the physician end.

ICD10 requires a major departure from the two or three categories in an ICD 9, and will demand some documentation from physicians and physician mangers who will need to be adamant about both the precision, to avoid audits and also the electronic billing capability to get paid on time as all Medicare and Commercial will move to this system.

Of equal importance is the traveling executive whose emergency visit in Thailand will be billed using ICD 10 or ICD11. Or the family that is told if they go to India for Johnnie’s surgery ,it will be covered in full, but if they get the surgery done here it will only be 60% covered.

We are not seeing the medical tourism momentum stop, and as Blue Cross South Carolina adds Hospitals to its PPO network in Panama and Costa Rica and other employers demand credentialed professionals to see their employees overseas, the conversion to this new system is also key to success.

What we are all missing is the why?

Why are we making this so complicated?

The current system has a majority of docs using the same codes over and over.

In our work with Pendulum HealthCare Development Corporation we see level 3 office visits for a majority of doctors and patients, and yet when we compare level 1 visits of similar docs in the same region with a case mix adjusted diagnosed population, we see the end result is the same.

Why are we paying more?

In this case there were 12,000 children accessing:780 pediatricians. 1,300 pediatric specialists,60 in network hospitals.

They were generating 21,000 admissions, 190,900 clinic visits, 79,319 ED and 19,785 surgeries. The client’s goals were to integrate financial and clinical reporting capabilities to make good decisions as to how best to manage the plans medical loss ratio. When we extracted data there were many holes such as Misaligned fields for lines of business, and Claim adjustment errors.

Office Visit Level

% Medicaid Claims

% Commercial Claims
















The solution was to reconfigure reports to be useable by departments and management.


For example, by aligning financial and clinic reports into 30 summaries the providers and the health plan received reporting by line of business, specific drugs, service codes, and disease condition by provider. This allowed them to have a real time cost per patient per 1,000 and PMPM by service and set the foundation for implementing HEDIS measures and other custom quality measures for operational improvement and compliance.


What this analysis also found was providers offset lower reimbursement by increasing complexity of office visit level. For example focusing on a single procedure Otitis Media for 62,000 Medicaid patients and 400,000 Commercial patients, we found over-reliance on level 4 and 5 office visits

In looking at outcomes, variances between Commercial and Medicaid is not clinically justified, so the plan allowed physician and hospitals to look at the financial impact of reducing office payments by 21%.

This got EVERYONE’S attention.

By showing drill down reports, the Client was able to look at the practice mix compared to specialty averages for each condition. This led to a timely discussion on proper use of level 1 versus level 5 billing benchmarks

The physicians and hospital were able to identify the providers who billed 90% or greater of their visits at level 5 and show them where they stand next to their peers.

I point this out to demonstrate that having severity adjustment and having risk adjusters for the elderly will all require more and more use of ICD 10 to get at providers who often unknowingly burn more resources with some diagnosis than others.

I also wanted to point out that by sharing this data with providers the health plan allowed the peer pressure of physician and hospital to create AWARENESS of the problem and the potential fee reduction consequences if behavior did not change.

As plans have this data so will Medicare and a scoring process using ICD 10 is underway at the top of the payer’s mindset using tiering and reconfiguring networks.

Finally the discovery that was made at the HIMSS conference last month and that is that the government’s stimulus program checks for EMR are going to go to reimburse providers who create ‘Meaningful User” data.

This means data must be able to be communicated from office to office, hospital to hospital and payer to payer and especially provider to payer.

Many practice management companies will be shut down as their system operates in a vacuum. Many hospitals, we have discovered in our pay for performance work, have a large system but they cannot get their large system to cross over departments and they cannot communicate electronically with payers except for billing information. This is inadequate and ICD10 will require more data fields and therefore more complex billings but also offer the opportunity for payers and providers to construct bridge reports on performance and someday outcomes.

By having a national severity distinction and preparing the data links to both internal and external customers ( A BIG LEAP) we will see regional data bases begin to form and these collections of data will form a local practice pattern form which providers and payers can better evaluate changes and watch change happen.

In all my work with doctors for the past 30 years, I can say once the doctors actually see that improvement needle move, they suddenly feel like they are back in control and this is a wonderful thing.

We have been lacking precise data to see this behavior change, which is always been the source of the argument” my patients are sicker”. We can see this shift to performance based contracting now be supported by physicians and specialty societies using ICD10.

So ICD 10 will be a major change for us as well as the health plans, hospitals and physicians. If payers are demanding value but there is no way to prove it then the data is useless and will not produce needed change. If there is a regional data base of practice patterns that can be used by payers and providers we will have less cause for acrimony and more time spent competing on quality. This was the original intention of health plans in the 1970s. Perhaps this is a second chance to make these local plans flourish.

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