Thursday, September 11, 2008

An Even More Costly Prerequisite

In our last post, we mentioned that a standard called 5010 must be in place before ICD-10-CM. The reason is that 5010 replaces a standard that cannot accommodate ICD-10-CM.

5010 is a standard for submitting health care insurance claims.

First, a word about health care insurance. If you have health insurance and receive care from a doctor and/or a hospital, they submit a claim on your behalf to your insurance company. The insurance company pays the doctor and/or hospital directly for the services they provided. You are spared the hassle of receiving a bill, submitting a claim to the insurance company yourself, receiving the check in the mail, then sending it to the doctor and/or hospital to pay the bill. The doctor and hospital benefit as well, since they receive their payment in a more direct, timely, and reliable manner.

This description simplifies things quite a bit. But it and the fact that doctors and hospitals must put billing diagnoses on the claim form is sufficient to explain the need for 5010.

The whole process is even more efficient if doctors and hospitals submit claims electronically from their computer to the insurance company's computer. Because there are over 100,000 physician practices and hundreds of insurance companies--all of whom use computer systems from hundreds of software companies, the process of submitting claims electronically is made even simpler if all these entities use a standard electronic claim form. Any doctor or hospital using any standard-compliant computer system can submit a claim to any insurance company also using a standard-compliant system.

Today, this standard is 4010A. A law passed by the U.S. Congress in 1996 (called the Health Insurance Portability and Accountability Act) gave the Department of Health and Human Services (HHS) the power to mandate that all claims submitted electronically by organizations "covered" by this law (and nearly every doctor and hospital is "covered") use this standard. And HHS did so. And the health care system had to comply.

All told, implementation of 4010A cost the health care industry an estimated $28 billion. Yes, billion with a 'b'. And that's not our estimate, it's the estimate of HHS. Who has a bias towards underestimating the impact of their regulations on the industry so they can keep imposing more regulations. In their impact analysis on the rule to adopt 4010, HHS states: ...Although we cannot determine the specific economic impact of the standards being proposed in this rule
(and individually each standard may not have a significant impact), the overall impact analysis makes clear that, collectively, all the standards will have a significant impact of over $100 million on the economy. $100 million?

Well, 5010 is an 'upgrade' to 4010A. And to use ICD-10-CM as a coding system for billing diagnoses on claim forms, it is a requirement to upgrade to 5010.

Why can't we use ICD-10-CM codes on 4010A?

Because the 4010A form has a limited-length field for diagnosis codes. It limits the length of diagnosis codes to a maximum of 5 digits (warning: pdf, and see page 10 for the limit), the maximum length of an ICD-9-CM code. Why didn't the designers of 4010A allow for longer field lengths, knowing that HHS and others were anticipating an upgrade to ICD-9-CM? We don't know.

However, the maximum length of an ICD-10-CM code is 7 digits. So, there must be a change to the standard electronic claims form or we can't use ICD-10-CM. And that change is 5010, which fixes a number of deficiencies of 4010 in addition to the limit on diagnosis codes.

Which finally brings us to the cost. How much will it cost the industry to upgrade from 4010A to 5010?

By HHS' own estimate in the Notice of Proposed Rulemaking (NPRM) for 5010 (a different NPRM from the one mandating the upgrade to ICD-10-CM), it will cost anywhere from $5.6 to $11.2 billion (yes, with a 'b' again).

Here is a breakdown of the costs to the industry of adopting 4010A and HHS' estimates of the costs for upgrading to 5010 (numbers represent millions of dollars):

Type of organization

Cost to implement 4010A

Low 5010 estimate

High 5010 estimate

















Private plans




Gov’t plans












*Includes conversion to 5010 and another standard called D.0

We agree that it is reasonable to conclude that, because 4010A was the first time the industry implemented a standard electronic claims form, the cost of an upgrade to 5010 will be lower than the costs of adopting 4010A in the first place.

However, is it reasonable to assume a 60-80% reduction in costs?

Well, the Blue Cross and Blue Shield Association has identified approximately 850 complex changes that 5010 makes to 4010A. They also note (warning: ppt) that 5010 is a suite of standards for nine types of electronic claims transactions, and that a 5010 implementation guide for just one of the nine transactions is 700 pages long, with at least one modification made on every single page.

A reasonable estimate for a more modest, first upgrade is probably a 50% reduction.

But a 60-80% reduction for an aggressive, complex upgrade? We don't think so.

The update to 5010 will most likely cost the industry well over $10 billion. Even if the cost of an electronic medical record (EMR) were $100,000 per physician, $10 billion is enough to equip 100,000 physicians with one.

Thus, the prerequisite to ICD-10-CM is over $10 billion and ICD-10-CM itself will cost approximately $1 billion or more to implement, for a total of >=$11 billion to upgrade our diagnosis coding system in the United States.

If we're going to spend that much money upgrading our diagnosis coding system, shouldn't it be state of the art?


Arthur said...

You forgot the cost breakdown...

Spero melior said...

Thanks! Ironically, the table--which I created and copied/pasted in from MS Word--did not display in IE (and the remainder of the post mysteriously did not display either), but everything did display correctly in Firefox.

I have fixed it and can now see it in Firefox 3.0 and IE6.