Health Information Management

Begin budgeting now for the costly transition to ICD-10

JustCoding News: Outpatient, December 30, 2009

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Do you ever wonder how much the transition to ICD-10 will cost?

Individual hospital expenses are difficult to predict, but the overall price tag for industry conversion could be $425–$1,125 million in one-time costs, according to the RAND Corporation, a nonprofit company that aims to help improve policy and decision-making through research and analysis. Factor in training expenses and lower productivity, and the numbers really start to add up.

Recall Y2K, and multiply that cost by three or four, says Stanley Nachimson, principal of Nachimson Advisors in Reisterstown, MD. “Y2K was an organizationwide effort, but there was no change in the meaning of the data. In [ICD-10], you’re not only expanding the codes, but you’re actually changing meaning,” Nachimson says.

Partnering with other departments to share the financial burden is the most important strategy an HIM director can employ, says Tori Sullivan, RHIA, MHA, PMP, manager of Capgemini Government Solutions in Reston, VA. “This project has to be an organizationwide effort because it impacts every department,” Sullivan says.

The RAND Corporation divides overall ICD-10 costs into three categories:

  • Training costs
  • Productivity losses
  • System changes

Categorizing cost is helpful because it highlights the enormity of potential short- and long-term implications of the transition, says Nachimson. “I think folks will be surprised at the breadth of the effort,” he says. “There’s a lot that needs to be thought about and put into that budget.”

Budget for training
A large share of the HIM department’s ICD-10 budget most likely will be for coder training, says Debbie Mackaman, RHIA, CHCO, regulatory specialist at HCPro, Inc., in Marblehead, MA. Estimated costs will depend largely on the number of coders who require training, Mackaman says.

The RAND Corporation estimates full-time coder training costs at $2,500 per person. This amount assumes $500 in training expenses and $2,000 in lost work time. (The latter amount is based on an average annual income of $45,000, or 1,800 hours at $25 per hour.) Using a standard ratio of 2:1 for fully burdened employment costs (i.e., yearly cost of salary and benefits per employee) yields a cost of $50 per hour, or $2,000 for a 40-hour workweek.

CEOs and CFOs probably don’t understand how difficult it will be for coders to learn ICD-10, says Mackaman. “It’s not going to be about sending them to a one- or two-day workshop. It’s going to be education for the long haul, which is always expensive,” she says. Even new graduates embarking on careers in HIM and coding today still will need ICD-10 training, she adds.

The American Health Information Management Association estimates that initial coder training may require several days to a week or more to complete. The association currently offers three-day training workshops to help coding professionals become proficient in ICD-10.

Finding continuing education funds is no easy task in difficult economic times, says Mackaman. This is especially true for critical access hospitals (CAH), she says.

CAHs should work together to pool funds and train employees, says Mackaman. “Get a group together and bring in a trainer to share the cost. Work with your hospital association to organize some of the education and carry some of the cost,” she says.

Turnover may be a hidden expense that occurs when experienced employees retire before implementation to avoid extensive training, says Mackaman. HIM directors should anticipate this trend and have frank discussions with employees now regarding their plans for the future, she says. “Three years are going to fly by. I think it’s realistic to have those conversations, especially if you have an older workforce,” she says.

Anticipate decreased productivity
HIM directors should anticipate and prepare for decreased productivity, says Mackaman. “When [coders] are learning a new system, your Discharged Not Final Billed is going to go up. All of those hidden costs are there,” she says.

Don’t forget to budget for overtime costs associated with the time coders may need to get back on track, says Marci MacDonald, director of clinical information services and privacy officer at Halton Healthcare Services in Oakville, Ontario. The province of Ontario completed its ICD-10 implementation in 2002. Canada used a phased-in approach with the last province going live in 2004.

Backlogs due to lower productivity and technical glitches were the biggest problem, says MacDonald. As a result, Halton Healthcare incurred approximately $35,000 in overtime during the five months after implementation so coders could catch up. “We had a lot of software crashes because our abstracting vendor was new. We also had a lot of interface and reporting challenges,” she says.

Plan for systems changes
Converting to a system that can accommodate ICD-10 will be no small feat, and HIM directors need to know how much of the conversion will come out of their own department’s budget, says Sullivan. For example, the HIM department may be responsible for maintaining certain software or technology that other departments use. “If their budget includes maintaining the software, then I would assume that it includes the replacement, too,” she says.

Some contracts may require vendors to support any federally required regulatory upgrade, but many do not, says Nachimson. Free upgrades sometimes are contingent on purchasing a certain version of the software, he explains. 

Hardware also can be costly because most organizations lack the organizationwide testing applications necessary to properly test ICD-10, says Sullivan. Many hospitals will need to purchase additional servers or server space to accommodate the two coding systems (i.e., ICD-9-CM and ICD-10-CM) during the testing process, she says.

“You’ll need to do some parallel processing to continue your normal business at the same time you’re doing all of this testing,” says Nachimson. And simply testing one claim is not sufficient. “You can’t take one claim, run it through the system, and assume that it works,” he says. “Create enough situations to test it internally to ensure that you’re handling 90%–95% of the situations you deal with every day.”

Hospitals also must determine whether they will continue to maintain a dual system that includes legacy ICD-9-CM data. These legacy data may be helpful when responding to recovery audit contractors, says Sullivan. However, the cost associated with doing so includes licensing fees and database maintenance. At a minimum, hospitals must maintain a dual system initially to submit ICD-9-CM codes for patients discharged before October 1, 2013, she says.

Legacy systems could be another hidden cost, says Sullivan. These are systems that individuals developed in-house and that may need to be redeveloped or reengineered to link to vendor source applications. Hospitals may need to either seek a replacement system or hire a software developer to create a new system.

Prepare for miscellaneous costs
Despite an HIM director’s best efforts to prepare for a smooth transition to ICD-10, there may be unforeseen challenges along the way, says Sullivan. Having money in reserve is always a good idea. “Set aside money in case you don’t get reimbursed or can’t process claims for a period after go-live,” she advises. Use your hospital’s highest average daily reimbursement and multiply that amount by five. Set aside this amount for reserve in the event of claims submission errors or denials, she says.

One potential challenge for CAHs is the likelihood that ICD-10 will require an encoder, an extra expenditure for hospitals that don’t have one, says Mackaman. “[An encoder] will make things so much easier for coders who are trying to work out of books because it will do an automatic crosswalk for them,” she says.

Editor’s note: E-mail Nachimson at

E-mail Sullivan at

E-mail MacDonald @

This story was originally published in the December issue of Medical Records Briefing.

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