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.


Increased and Decreased Utilization: The Recession Driven Paradox and Behavioral Economics

by Clive Riddle, April 23, 2009

Here’s two headlines from the past week:

So how does one reconcile the Thomson Reuters report that “20 percent of U.S. households postponed or cancelled care in the past year,” with the International Foundation of Employee Benefit Plans (IFEBP) survey that found “plan participants, perhaps fearing an impending layoff, are increasing utilization of their benefits”?

It’s quite easy actually, when you overlay the employees “fearing an impending layoff” from the IFEHBP survey with this finding from the Thomson Reuters study: “the percentage of households with employer-sponsored insurance showed a notable decline since the start of the recession, declining from 59 percent in early 2008 to 54.6 percent in early 2009.” We have one sector, fueled by those without coverage, that are delaying care greatly influenced by cost concerns, and another sector, fueled by covered employees uncertain about their future employment, that are accelerating their care while they still have coverage.

Behavioral economics would kick in here as we reconcile this on-the-surface paradox. Let’s consider a few Behavioral Economics concepts:

  • Status Quo (Default) Bias: People have a strong ‘status quo’ bias and often fail to take pro-active action to change the default
  • Hot vs Cold States: People’s decisions under aroused or ‘hot’ states tend to be significantly different from ‘cold’ calculated decisions
  • Loss Aversion: People prefer avoiding losses rather than acquiring gains. Studies suggest that losses are as much as twice as psychologically powerful as gains
  • Hyperbolic Discounting: Consumption now and in the near future is preferred to consumption into the farther future; The greater the uncertainty about this future the less the preference

One could argue that the Status Quo default is to receive a service when it is prescribed by a doctor, and to not receive a service when it hasn’t been prescribed or referred by a provider. One could also argue that a person that has lost, or perceives they will lose their health coverage, is in a ‘hot state’, and that persons told by their doctor they require services are in a ‘hot state.’

We can apply these assumptions in the following table of how consumer decisions fit the two survey scenarios, along with another scenario of those lucky enough not to be worried about their health care coverage. We would imply that “self referred” means you are contemplating a service that hasn’t been prescribed, maybe triggered by some direct to consumer advertising, advice from a friend, internet research or other such information.

Lack Coverage
Fear Losing Coverage
Stable Coverage
Self referred elective potential service
Default: No service
State: Hot
Decision: Won’t move from default due to dollar/time loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit
Default:No service
State: Hot
Decision: Will move from default due to covered benefit loss aversion and hyperbolic discounting that value of covered benefit and health service today is greater than future considerations
Default: No service
State: Cold
Decision: Won’t move from default because there are low loss aversion considerations and value of health benefit is no greater now than in the future
Provider referred/ prescribed elective potential service
Default: Receive service
State: Hot
Decision: Will move from default due to dollar/time loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit
Default: Receive service
Decision: Won’t move from default due to covered benefit loss aversion and value of covered benefit and health service today is greater than future considerations
Default: Receive service
State: Hot (health need)
Decision: Won’t move from default because there are low loss aversion considerations and value of health need is greater now than future considerations
Any service perceived or actually considered to be non-elective
Default: Receive service
State: Hot
Decision: Will move from default only if dollar/time loss aversion exceeds health loss aversion and hyperbolic discounting that dollar savings today is greater than future health benefit
Default: Receive service
Decision: Won’t move from default due to covered benefit loss aversion, health loss aversion and value of covered benefit and health service today is greater than future considerations
Default: Receive service
State: Hot (health need)
Decision: Won’t move from default because of high health loss aversion and value of health need is greater now than future considerations


The Thomson Reuters Study validated that many people will postpone care for other reasons than cost, but cost has moved to the top of the list: They found that: “One in five U.S. households postponed or cancelled medical care over the past year, up from 15.9 percent in 2006 when the survey last addressed this issue. Among 2009 respondents who postponed or cancelled care, 24.1 percent said cost was the primary reason. In 2006, the primary reason cited was lack of time......The majority of postponed services (54.7 percent) were for physician visits, followed by imaging (8 percent), non-elective procedures (6.3 percent), and lab or diagnostic tests (5.7 percent).”

The full Thomson Reuters Study is available on the Thomson Reuters website.




Rx Increases: The Price is Wrong?

By Clive Riddle, April 17, 2009

If there was a pharmaceutical version of the CBS game show The Price Is Right, you might not fare well after you were told to “come on down.” Your guesses might not hit the mark given the recent round of increases throughout the prescription drug industry.

The Wall Street Journal this week ran a story by Barbara Martinez and Avery Johnson, “Drug Makers, Hospitals Raise Prices,” in which they noted “the prices of a dozen top-selling drugs increased by double digits in the first quarter from a year earlier” illustrated by the following increases using Credit Suisse data:

  • Bristol-Myers Squibb Sprycel (Luekemia) up 32.7%,
  • Pfizer Sutent (Kidney Cancer) up 14.3%.
  • Pfizer Viagra (Erectile-dysfunction) up 20.7%
  • Eli Lilly Cialis (Erectile-dysfunction) up 14.2%.
  • Eli Lilly Strattera (ADHD) up 15.6%

Credit Suisse data by pharmaceutical company included:

  • Johnson & Johnson averaged 10.0% increases
  • Pfizer averaged 9.9% increases
  • Eli Lilly averaged 7.9% increases

The Journal cites Express Scripts claims experience of 10 – 15% price increases on brand products over the past year, and quotes Credit Suisse's Catherine Arnold: “I don't think I have ever seen anything quite like this," as she attributes the increases to positioning higher prices before the government starts demanding greater discounts.

Also this week, AARP released their annual “Rx Watchdog Report”, a 71 page study on Trends in Manufacturer Prices of Prescription Drugs Used by Medicare Beneficiaries. They found these prices increased 8.7% during the past year, while increases during the past six years ranged between 5.3% and 7.4%. Prices increased for all but 7 of the 219 brand name drugs included in the study.

Meanwhile, AARP found that prices for the 185 generic drugs most widely used by Medicare beneficiaries fell 10.6% on average, during the past year. Maybe “The Price Is Right” needs to start featuring generic products.


Insider’s View on the Direction of Consumerism and Consumer Driven Plans

By Clive Riddle, April 9, 2009

The Eighth Annual Consumer Driven Web Summit was held a few weeks ago, which included a survey of the professional attendees on a couple of key questions regarding the direction of consumerism and consumer driven plans.

What is the industry insiders’ view the main components of consumerism? Last year and this year they were asked to rank five components according to the value of the component from their perspective:

  • Account Based Plans (HSA/HRA/FSA)
  • Price and Quality Transparency
  • Retail Medicine (Convenient Care, etc)
  • Web Based Consumer Patient Health Records
  • Wellness Incentive Programs

Price and Quality Transparency continues to be ranked far in front of the five components being rated, and Wellness Incentive Programs continue to be ranked second. The mean score improved for Wellness Incentive Programs and for Retail Medicine, while the mean scores declined for the other three components:

Respondents were asked to rank each component 1 through 5, with 1 = highest value and 5=lowest value, and only use each ranking once; i.e. only rate one item a 1, one item a 2, etc.

Here’s the results for the past two years:











Price and Quality Transparency





Account Based Plans (HSA/HRA/FSA)





Wellness Incentive Programs





Web Based Consumer Patient Health Records





Retail Medicine (Convenient Care, etc)





It’s interesting to see that web based consumer patient health records aren’t prioritized a little higher, given their priority in policy circles and elsewhere. It’s also interesting to see account based plans lose ground. Many pundits have already pronounced the decline and fall of the account based plan, given the direction that the Democratic congress, Obama administration, and influential policy organizations have taken.

But not so fast. Insiders seem to feel what a number of recent surveys have shown, that employer interest in account based plans in rising as a tool to address cost related issues in this economic meltdown.

Respondents were asked to predict enrollment change for such plans. Here’s how they answered: “As a result of the Recession, will Consumer Driven Plan enrollment/ market share (compared to traditional managed care plan designs):”

· Increase significantly 26.4%

· Increase somewhat 42.5%

· Not materially change 14.9%

· Decrease somewhat 11.5%

· Decrease significantly 4.6%

Thus 66.9% felt enrollment would increase as a result of the recession, while 16.1% felt enrollment would decrease.

As health care reform takes shape over the next months (or years), the economy will undoubtedly weigh large in the discussions. The pundit’s reported death of consumer driven plans may prove to be premature.


Undermining the Health Reform Agenda From Within

Bureaucrats with CMS are determined to pull the plug on a family practice program for bureaucratic reasons, devastating a local government, a local economy in the midst of a recession, an underserved health care population and the Obama Administration’s own health care reform objectives. And if that can happen in one community, it will happen in another and another, with different scenarios but the same results. The administration’s health reform agenda can be undermined from within.

The emerging Medical Home movement is an important component of the Administration’s stated health care agenda. Medical Homes are primary care driven, in an era when the shortage of primary care physicians is accelerating. Thus CMS administrative actions taken to further reduce the supply of primary care physicians is not in the interest of Medical Homes.

Family Practice residency programs not only help develop the supply of community based primary care physicians, they deliver health care services to vulnerable populations, which is again an important component of the Administration’s agenda that CMS is thus undermining.

Where is all of this taking place? As reported in the local paper, the Modesto Bee, in the March 14, 2009 article Stanislaus County doctors program loses its funding: “The Stanislaus Family Medicine Residency Program...has lost its federal funding and that has put its future in doubt. The federal Centers for Medicare and Medicaid Services not only stopped payments to Doctors Medical Center, where the residents are trained, but required the hospital to pay back $19.1 million it received for the program from 2001 to 2008. Because DMC and the county split the costs of the program, the county is on the hook for half that amount.”

A March 30, 2009 California Healthline article, California Medical Residency Program Fights CMS for Funding, elaborates:“Founded in 1935, the program was originally a general practice residency at the public county hospital. It earned family medicine accreditation in 1975. When the county hospital closed in 1997, the residency program was taken over by Doctor's Medical Center, owned by Tenet Healthcare Corporation. The residency program is a key part of the safety net where 22% of county residents rely on Medi-Cal and 16% of the population is unemployed. The 27 residents and 30 primary care doctors who serve as faculty for the program care for about 70,000 patients, handling about 230,000 patient visits annually, according to the California Academy of Family Physicians.”

So why is the plug getting pulled? California Healthline reports that “until 2006, it was business as usual with the residency program training 27 family practice physicians and billing the federal government for support through Medicare reimbursements for education....About 18 months ago, CMS attorneys began questioning the way the program was transferred from the county hospital to the new parent hospital a decade before. Marc Hartstein, deputy director of CMS' hospital and ambulatory policy group, said CMS is following rules laid out in the Balanced Budget Act of 1997. ‘That law puts caps on the numbers of residents in programs," Hartstein said, adding, "This situation arises because of those caps.’ Because Tenet's Doctors Medical Center chose not to take on the assets and liabilities of the county hospital in 1997, ‘that ended the cap that was associated with the previous hospital,’ Hartstein said. In essence, the residency program ceased to qualify for educational funding in 1997 under CMS' interpretation of the regulations. Hartstein attributed the program's funding for several years to errors by unnamed third-party administrative contractors.”

The Modesto Bee adds “when the county hospital closed almost 12 years ago, DMC's parent company, Tenet Healthcare Corp., paid the county $12 million and guaranteed care for patients in the county's indigent health program. The physician training program was transferred to DMC based on a claim that, in effect, it had merged with the county hospital. The federal government provided DMC with $115,000 in annual reimbursements for each of the 27 physician slots, but CMS officials later said they disagreed with the merger theory. The reimbursement was lowered to $75,000 per resident on the premise a new program had been created at DMC. About 18 months ago, CMS attorneys came out with a determination that the program no longer qualified for reimbursements under the Balanced Budget Act of 1997. Some of the act's rules had not been written when the previous determinations were made. CMS also demanded that Doctors Medical Center repay the funding received since 2001. ...The government has said the hospital and the county can apply for reimbursements if they close the program for a year and then reopen with a new program with new faculty, a new director and a new set of residents.”

So CMS initially signed off on the arrangement, reimbursed the program for a number of years, later ruled that the arrangement was not a merger but a new program- so they lowered their reimbursement, and subsequently decided that as a new program, it didn’t qualify for reimbursement at all, and demanded all their money back retroactively. Is it within CMS’ authority to have interpreted this differently? Is CMS’s pulling the plug helping advance their Administration’s health care agenda?Is CMS’s demand of retroactive repayment from a cash starved County government helping their Administration advance their object of economic stimulus?

Yes, No and No.

And watch out in your home town, because CMS oversees such a wide range of health care programs and services. Shuffle the deck a little, and your local community probably has some situation that could be a ticking time bomb for CMS to uncover, and blow up the Administration’s health care and economic stimulus agenda for you too.