Medicare FY 2016 Proposed IPPS Rule Addresses October 1 ICD-10 Implementation

April 28, 2015

McDermott+Consulting

Although the transition to ICD-10 is a major transition for all healthcare providers, hospitals may experience the most significant changes, since both their diagnosis and procedure coding will be affected.

After years of delay, the U.S. health system is replacing the ICD-9 code set with ICD-10. Regulations published by the U.S. Department of Health and Human Services on August 4, 2014, set an ICD-10 compliance deadline of October 1, 2015. ICD-10 will affect diagnosis and inpatient procedure coding for everyone covered by the Health Insurance Portability Accountability Act (HIPAA), not just those who submit Medicare or Medicaid claims. ICD-10-CM (Clinical Modification), which is used for diagnosis coding, will be used in all U.S. health care settings. ICD-10-PCS (Procedure Coding System) will be used in the inpatient hospital setting. The change to ICD-10 does not affect Current Procedural Terminology (CPT®) or Healthcare Common Procedure Coding System (HCPCS) procedure coding for outpatient procedures or procedures performed in physician offices or other non-inpatient settings.

The ICD-9 code set has been used in the United States for more than 30 years. Migration from the current ICD-9 standard to the ICD-10 standard is an enormous transition for hospitals, physicians, health care providers, payors and industry. In the FY 2016 Proposed Inpatient Prospective Payment Systems (IPPS) and Long-Term Care Hospital Prospective Payment System regulations released by the Centers for Medicare and Medicaid Services (CMS) on April 17, 2014, CMS outlines how it plans to manage the final stage of the transition to ICD-10 in the inpatient acute care hospital environment. Specifically, CMS addresses the impact of ICD-10 on Medicare Severity Diagnosis Related Groups (MS-DRGs), the Hospital-Acquired Conditions (HAC) Reduction program and new technology.

MS-DRGs
The MS-DRGs were adopted for use with Medicare’s IPPS for discharges on or after October 1, 2007. One MS-DRG is assigned to each inpatient stay. The MS-DRG is based on the principal diagnosis, additional diagnosis, principal procedure, additional procedure, sex and discharge data. Hospital reimbursement is determined by the assigned MS-DRG. The MS-DRG system has a three-tiered structure: major complication/comorbidity (MCC), complication/comorbidity (CC) and no complication/comorbidity (non-CC). This structure enables CMS to reimburse hospitals serving more severely ill patients at a higher rate. The ICD-10 version of MS-DRGs will be implemented at the same time as ICD-10-CM/PCS. Because the MS-DRG system relies so heavily on diagnosis and procedure coding, the transition to ICD-10 will have a significant impact on the MS-DRG system. In its proposed rule, CMS reviews the work it has done over the years updating the MS-DRG system in preparation for the transition to ICD-10 from 2009 through 2015.

In the FY 2016 IPPS proposed rule, CMS invites public comments on how well the current version of ICD-10 MS-DRGs (Version 32) replicates the logic of the current MS-DRGs based on the ICD-9 code set. CMS proposes to implement next year’s MS-DRG code logic in the ICD-10 MS-DRGs Version 33 on October 1, 2015. Version 33 will reflect any changes made to Version 32 based on public comments. Files are available for download on the CMS website.

New Technology Section “X” ICD-10 Codes
In response to a request submitted to the ICD-10 Coordination and Maintenance Committee, CMS created a new component in the ICD-10-PCS code set, labeled Section “X” codes, to identify new technologies and services. The new Section “X” codes identify new medical services and technologies that are not usually captured by coders, or that do not have the desired specificity within the current ICD-10-PCS structure required to capture the use of these new services and technologies. Examples of these types of services and technologies include specific drugs, biologicals and newer medical devices being tested in clinical trials. Section “X” codes will be used to identify new technologies and medical services approved under the new technology add-on payment policy for payment purposes beginning October 1, 2015.

Hospital-Acquired Conditions Reduction Program
Effective October 1, 2014, CMS implemented the HAC Reduction Program to incentivize hospitals to reduce the incidence of HACs by requiring the Secretary to make an adjustment to payments to applicable hospitals. HACs are a group of reasonably preventable conditions that patients did not have upon admission to a hospital, but which developed during the hospital stay. Hospital performance under the HAC Reduction Program is determined based on a hospital’s Total HAC Score, which can range from 1 to 10. The higher a hospital’s Total HAC Score, the worse the hospital performed under the HAC Reduction Program. As mandated by law, there is a 1 percent reduction in total Medicare payments for hospitals scoring in the top quartile of national HAC rates.

Similar to its efforts around MS-DRGs, in preparation for the October 1, 2015, implementation of ICD-10, CMS proposes that the ICD-10-CM/PCS Version 33 HAC list replace the ICD-9-CM Version 32 HAC list. CMS is soliciting public comments on the new list (Appendix I of the ICD-10-CM/PCS MS-DRG Version 32 Definitions Manual, which is available online).

After years of debate, preparation and last-minute delays, the ICD-10 code set will be implemented in a matter of months. This change from a code set comprising just over 14 thousand codes to a code set comprising more than 70 thousand codes will have a significant impact on all stakeholders.

Although the transition to ICD-10 is a major transition for all healthcare providers, hospitals may experience the most significant changes, since both their diagnosis and procedure coding will be affected. In addition to the transition efforts described in the FY 2016 proposed rule, CMS has been working on parallel efforts to prepare its other payment systems for ICD-10, and has been working with providers and payors to conduct end-to-end systems testing. Individual providers, physicians, payors and other health care stakeholders have sunk enormous resources in preparing for this change. Despite all of these efforts, there is still uncertainty about the capacity of the system to make a smooth transition.

For more information, please contact Paul Radensky at (202) 204-1456 / pradensky@mcdermottplus.com or Sheila Madhani at (202) 204-1459 / smadhani@mcdermottplus.com.

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