Reimbursement Impact of ICD-10: Should You Be Concerned?

Don’t be overly concerned about DRG reimbursement changes. Instead, focus on all impacted areas of your organization.

A Google search on the topic of “reimbursement impact of ICD-10” brings up a whole host of articles, white papers, and opinions about what to expect come October 1, 2014. Thoughts range from doomsday predictions of huge changes in payment for cardiovascular and other services, to opinions that there will be little impact to reimbursement on the ICD-10 implementation date, but  suggest CMS will make changes in the years to come.

With such a wide spectrum of opinions – and a lot of published misinformation – how can your organization know what’s real?

Let’s start with this: CMS has indicated that the MS-DRG payment calculation under ICD-10 will be a replication of the current system.  Although CMS has not indicated that this change will be budget neutral, as there will be some payment redistribution based on the differences between ICD-9 and ICD-10, the shifts in reimbursement may not be as drastic as some organizations believe. In a recently published study1, the results of this type of review indicated that 99% of the cases showed no change in DRG when comparing ICD-9 MS-DRGs to ICD-10 MS-DRGs.  The remaining 1% had identified higher-weighted DRG’s in 45% of the cases and lower-weighted DRG’s in 55% of the cases, with a net change of all MS-DRG shifts calculated at -0.04%.

If the major reimbursement for your hospital is based on a DRG, it is possible to determine the differences between ICD-9 and ICD-10 (questions remain regarding non-DRG-based reimbursement).  The most accurate way to evaluate differences between the MS-DRG calculations in ICD-9 and ICD-10 is to actually code the discharge record in ICD-9 and ICD-10 using the medical record and compare the resultant DRGs.  Once the differences in MS-DRG, relative weight, and reimbursement are identified, then the mitigation, if there is any, can be determined. This is a labor-intensive process that will almost double the coding time for a record.

An alternate way to determine DRG changes is to simulate or estimate the changes using the entire claims data file by translating the ICD-9 codes to ICD-10 codes and calculating the ICD-10 MS-DRG. This would be a similar process to the CMS study identified above.  If an organization uses this translation method to calculate the MS-DRG, it is important to understand that the findings can be a guide but are not specific, as they are based on a translation rather than actual coded clinical information.

So how much financial impact can organizations expect to see? Using the -0.04% variance identified in the CMS study, an organization with a current Medicare revenue of $150 million would have a $600,000 loss, which is still a substantial amount. Given these figures, even recognizing that this is an estimate, it will likely gain the attention of the C-suite. Since the CMS study is an average based on all of MedPAR data, however, the results proceeding from it cannot be directly compared to individual hospital results. In actuality, the amounts of reimbursement shifts vary based on the case mix of the hospital as well as the unique blend of DRG cases. In some cases, the results indicated a slight increase in reimbursement.

Once a financial impact analysis has been conducted (using either of the methods mentioned above) and the reimbursement change identified, the results of the analysis should be scrutinized for accuracy before making future decisions based on the findings. The variance cases need to be evaluated to determine if natively coding the record would produce the same results. In some cases, the specificity identified in the medical record will eliminate the DRG shift. In other cases, a review of the record can identify educational opportunities and focus documentation areas for physicians. One of the most discussed DRG shifts, for example, happens due to a change in the coding of esophageal hemorrhage. While the specific code for esophageal hemorrhage has been eliminated, or rather included in the “other diseases of the esophagus” category, the reality is that if the underlying cause of the hemorrhage is identified, there is no DRG change. Paying close attention to details such as these can make a great difference in whether a DRG shift – and its corresponding reimbursement impact – occurs or not.

The overall financial impact of ICD-10 is not identified just in the reimbursement changes. In fact, the larger financial impact will be in productivity losses, slowdown in submission of final coded claims, and denials or rejections based on inaccurate codes.  Yes, there will be differences at the DRG level, as the two coding systems are not entirely the same. Any mitigation strategy should include simulation of the reimbursement impact, along with careful review of the process variances.  With the implementation deadline less than 18 months away, planning activities should be in full swing to identify all the potential risk areas, both financial and operational, with a carefully planned strategy for each.

Bottom line: Don’t be overly concerned about DRG reimbursement changes. Instead, focus on all impacted areas of your organization. Use the results of these evaluations to establish comprehensive ICD-10 implementation plans, and you will be well on your way.


  1. Mills, Ronald E., et al, Estimating the Impact of the Transition to ICD-10 on Medicare inpatient Hospital Payments: (First zipped documents under Downloads)

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