Administrative Waste

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Cost Containment >> Administrative Waste

 

Overview

See Reduce Administrative Waste under Cost Containment for evidence on the benefits and costs of various approaches to reducing administrative waste incurred by health insurers, health providers, and payers for which there is real-world evidence of net cost savings. This section is restricted to discussion of federal and state health reform policy proposals related to reducing administrative waste that are  under discussion and not yet adopted or implemented. This includes ideas that may have been adopted in other countries or other settings (e.g., large health plans, VA health system), but that have been proposed to be significantly expanded to other U.S. populations under comprehensive health reform.

Medical Coding

Overview

• The U.S. has 186,000 medical coders who work in the back offices of hospitals.
• Current Policy Regarding Coding
  • ICD-9. The U.S. adopted ICD-9 in 1979, two years after it was published by World Health Organization (WHO).
  • ICD-10. The U.S. will switch to ICD-10 on October 1, 2014. Most other industrialized nations transitioned to ICD-10, which the  published in 1992, more than a decade ago. Canada adopted ICD-10 in 2001.
  • ICD-11. WHO began work on ICD-11 in 2007. Christopher Chute, a professor at the Mayo Clinic and expert on medical classification, expects that to come into use in the United States sometime around 2022.

Change to ICD-10

• Number of Codes will Nearly Quintuple. There are 14,000 medical codes used in the ICD-9 coding system. The Tenth Edition of the International Classification of Diseases (ICD-10) system will have 68,000 much more granular codes.  Two key factors help explain the explosion in medical codes:
  • First, ICD-10 adds in the ability to differentiate between left and right sides of the body. This can help insurers, for example, to root out fraud. A hip replacement on both the left and right side might not raise any red flags — but two hip replacements on the left side probably would.
  • Second, the new codes categorize whether a trip to the hospital was the first round of treatment or a subsequent encounter. This is important for reimbursement purposes, as first visits to the doctor tend to require more resources.
• The ICD-10 manual is thick, about the size of a phone book. Printed in minuscule type on newsprint-thin paper, it weighs five pounds and includes more than 1,100 pages of medical procedures and ailments. The index alone — the guide to figuring out where to find the right code — is 421 pages.
• According to the Washington Post (2.14.14): “The prospect of quadrupling the number of medical codes used in those calculations has touched off a heated debate over whether more specificity is an onerous layer of bureaucratic red tape — or a valuable chance to better understand and treat complex medical conditions.”
  • Potential Benefits. A 2004 RAND study authored by Martin Libicki estimated the potential benefits of switching to ICD-10 outweighed the costs by as much as $4.5 billion.  Much of this comes from increased specificity in coding, which both makes it easier to accurately pay hospitals for the care they provide — and reduces opportunity for fraudulent billing.
  • Potential Costs. One study funded by the American Medical Association (which is lobbying the federal government to delay introduction of ICD-10) estimated that it could cost doctors’ offices $56,000 to $8 million to transition to ICD-10, depending on the size of the practice.

  • Canadian Experience. When Canada adopted ICD-10 in 2001, one study of a Toronto hospital system showed that productivity fell by half. Before ICD-10, medical coders could get through 4.62 charts in an hour. Right after the transition, that fell to 2.15 charts per hour. One year later, productivity had partially rebounded to 3.75 charts per hour.

    “If you look at Canada’s transition, there were some longer term cost impacts that went well beyond the transition itself,” said Michael Nolte, chief operating officer of technology firm MedAssets. “There’s some evidence that there will be a long-term effect” (Washington Post 2.14.14).

• ICD-9 Has Run Out of Space. According to the Washington Post (2.14.14): “Nearly everyone agrees that there is at least one compelling reason to switch to ICD-10: As new medical technologies have come online and demanded new codes, ICD-9 has run out of space. The capacity for noting cardiology procedures (assigned, in ICD-9, by codes that begin with “37”) was exhausted in the early 2000s. That created a patchwork scenario, where new cardiology codes show up elsewhere in the code set, with little rhyme or reason.”

Resources

• American Health Information Management Association

General Resources

• Administrative Waste (Health Affairs search)
• See Excess Administrative Costs under Administrative Complexity at Waste (U.S. Health Policy Gateway)
• See Single Payer under Health Reform, National Health Reform Plans for a discussion of net administrative savings attainable under various forms of single payer.