In October 2013, the US health care system will undergo a dramatic coding change as we transition from ICD-9 to ICD-10. If you are a manager of HIT, this is old news; indeed, you’ve probably had an implementation team running for a couple years.

First, the bad news:  hospital inpatient procedural codes will grow from 3,800 to 72,000; physician diagnostic codes from 14,000 to 69,000. Implementation costs for a three physician practice may average $83,000, with the per-doctor implementation cost dropping to $28,500 in a ten doctor practice. (see Harris Meyer’s reporting in May 2011 Health Affairs). No one reimburses providers for these transition costs.

After implementation, this coding system will be more expensive to operate. Medical practices already spend around $80,000 – $85,000 per physician in administrative interactions with health plans (2006 data), about 10 – 12% of net patient revenue.  This is approximately four times what is spent on this process in Canada.*

Round up the usual suspects?  Not this time – ICD-10 conversion was not a PPACA project, but was approved under President Bush in 2008. Nor should this contribute to uniquely high US administrative costs, since the US is among the last OECD countries to make the conversion.  Canada converted beginning in 2001 and completed the process in 2006. The dysfunction in the US system runs much deeper than ICD-10. I’m still trying to find the code.


*Some good sources on administrative costs in US physician practices:

Morra D, Nicholson S, Levinson W, Gans GN, Hammons T, Casalino LP.  US physician practices versus Canadians:  spending nearly four times as much money interacting with payers.  Health Aff. 2011 Aug;30(8):xxx (US costs were $82,975 in 2006 compared to $22,205 in Ontario).

Woolhandler S, Campbell T, Himmelstein DU. Costs of health care administration in the United States and Canada.  N Engl J Med. 2003 Aug 21:349(8):768-75 (total US administrative costs $294.3 billion in 1999; US per capita costs were $1059 compared to $307 in Canada).

Keehan SP, Sisko AM, Truffer CJ, Poisal JA, Cuckler GA, Madison AJ, Lizonitz JM, Smith SD.  National health spending projections through 2020:  economic recovery and reform drive faster spending growth. Health Aff. 2011 Aug;30(8):1594-605 (projecting “net cost of health insurance” [net premiums less benefits paid] in 2020 at $800 per capita and “government administration” costs in 2020 at $211 per capita.  These figures do not include administrative costs by providers and patients).

Casalina LP, Nicholson S, Gans DN, Hammons T, Morra D, Karrison T, Levinson W.  What does it cost physician practices to interact with health insurance plans? Health Aff. 2009;28(4):w533-w543 (July/Aug 2009) (National sample & MGMA  2006 data used to estimate the “national time cost to practices of interactions with plans is at least $23 billion to $31 billion per year.”)

Sakowski JA, Kahn JG, Kronick RG, Newman JM, Luft HS.  Peering into the black box:  billing and insurance activities in a medical group. Health Aff. 2008;28(4):w544-w554 (July/Aug 2009) (using 2006 data from a large CA practice, they estimate billing and insurance-related functions to cost “at least $85,276 per FTE physician (10 percent of revenue).”)

Blanchfield BB, Heffernan JL, Osgood B, Sheehan RR, Meyer GS.  Saving billions of dollars – and physician’ time – by streamlining billing practices. Health Aff. 2010;29(6):1248-1254 (using 2006 data from a large urban academic PHO, they estimate that “physicians end up using nearly 12% of their net patient service revenue to cover the costs of excessive administrative complexity.”  A single set of payment rules would save $7 billion per year, about four hours of physician time and five hours of office support time per week)

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