ICD-10 Jangles Financial Leaders' Nerves

With expenses such the implementation of electronic medical record, HIPAA 5010 system changes, and the ICD-10 coding transition, healthcare organizations need to change their systems. To do that they need a lot of capital in a short period. And there are only so many ways hospitals and health systems can fund these:

1. If financially stable, it could borrow from a lender.
2. With a healthy operating margin, it could free up funds from the existing budget
3. Put other capital projects on hold and use its capital budget on these initiatives.
4. Pass costs on to patients and insurance companies by increasing cost of care.
5. Use a combination of several of these.  

Regardless of which financial option healthcare leaders opt for, the fact remains that not getting all these initiatives completed on time will be costly. With the average healthcare organization operating with about a 2%-3% margin, as reported in the HealthLeaders Media 2011 Industry Survey, there's little room for financial losses and missing any of these mandates could be financially devastating.

In fact, in the HealthLeaders ICD-10 survey, 46% of respondents anticipate a revenue loss of some kind as a result of the ICD-10 transition and nearly half of those respondents believe their organizations will lose revenue of between 1%–10%, and 13% project a loss of between 11%–20%.

Moreover, 25% of survey respondents expect it to take 1–2 years before they'll see a return on investment for ICD-10, while 27% of healthcare leaders responded that they didn't anticipate recouping the outlay for this initiative. Certainly sobering findings for any organization just beginning the process, and there are more than a few organizations in that boat.

With less than two years to go before the mandatory ICD-10 coding transition in October 2013, just over half (51%) of organizations have completed their initial ICD-10 readiness assessment, according to the survey.

Of those respondents that have begun the assessments, nearly 73% have completed the system/vendor readiness portion, while 64% have completed their training assessment, 57% have completed their documentation gap analysis, and 48% have completed the financial impact assessment.

Albert Oriol, lead advisor for the survey and vice president and chief information officer at Rady Children's Hospital and Health Center in San Diego says without the assessment, organizations cannot budget accordingly. "The cost is higher than they may think. We did our financial assessment and now we're discovering that it's double what we estimated," he said.

So what's the hold up? More pressing matters, in fact, were cited by 41% of respondents as to why they had not even completed an ICD-10 readiness assessment, while 39% said that efforts were scheduled but had not yet begun. Basically, there's too much to do and too little time, money, and manpower to do it.

"It's not surprising [so few people have started], just the sheer magnitude of the number of projects and the amount on people's plates already has slowed people down," said Oriol.

Regardless of the reason behind why these preliminary steps to prepare for ICD-10 haven't been taken, financial leaders need to push hard to complete the financial assessment as soon as possible. With so many initiatives competing for dollars that are in short supply, CFOs need to have a reasonable estimate of the kind of capital they'll need to get this initiative done on time.