[Federal Register Volume 73, Number 164 (Friday, August 22, 2008)]
[Proposed Rules]
[Pages 49796-49832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-19298]



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Part III





Department of Health and Human Services





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Office of the Secretary



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45 CFR Parts 160 and 162



HIPAA Administrative Simplification: Modification to Medical Data Code 
Set Standards To Adopt ICD-10-CM and ICD-10-PCS; Proposed Rule

Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / 
Proposed Rules

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Parts 160 and 162

[CMS-0013-P]
RIN 0958-AN25


HIPAA Administrative Simplification: Modification to Medical Data 
Code Set Standards To Adopt ICD-10-CM and ICD-10-PCS

AGENCY: Office of the Secretary, HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule would modify two of the medical data code 
set standards adopted in the Transactions and Code Sets final rule 
published in the Federal Register. It would also implement certain 
provisions of the Administrative Simplification subtitle of the Health 
Insurance Portability and Accountability Act (HIPAA) of 1996. 
Specifically, the proposed rule would modify the standard code sets for 
coding diagnoses and inpatient hospital procedures by concurrently 
adopting the International Classification of Diseases, Tenth Revision, 
Clinical Modification (ICD-10-CM) for diagnosis coding, and the 
International Classification of Diseases, Tenth Revision, Procedure 
Coding System (ICD-10-PCS) for inpatient hospital procedure coding. 
These new codes would replace the International Classification of 
Diseases, Ninth Revision, Clinical Modification (ICD-9-CM) Volumes 1 
and 2, and the International Classification of Diseases, Ninth 
Revision, Clinical Modification (CM) Volume 3 for diagnosis and 
procedure codes, respectively.

DATES: Comments will be considered if we receive them at the 
appropriate address, as provided below, no later than 5 p.m. on October 
21, 2008.

ADDRESSES: In commenting, please refer to file code CMS-0013-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov, accessed 8-12-08. Follow the 
instructions for ``Comment or Submission'' and enter the filecode to 
find the document accepting comments.
    2. By regular mail. You may mail written comments (one original and 
two copies) to the following address ONLY: Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, Attention: 
CMS-0013-P, P.O. Box 8016, Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments (one 
original and two copies) to the following address ONLY: Centers for 
Medicare & Medicaid Services, Department of Health and Human Services, 
Attention: CMS-0013-P, Mail Stop C4-26-05, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments (one original and two copies) before the 
close of the comment period to either of the following addresses:
    a. Room 445-G, Hubert H. Humphrey Building, 200 Independence 
Avenue, SW., Washington, DC 20201; or (Because access to the interior 
of the HHH Building is not readily available to persons without Federal 
Government identification, commenters are encouraged to leave their 
comments in the CMS drop slots located in the main lobby of the 
building. A stamp-in clock is available for persons wishing to retain a 
proof of filing by stamping in and retaining an extra copy of the 
comments being filed.)
    b. 7500 Security Boulevard, Baltimore, MD 21244-8016.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Donna Pickett (301) 458-4434 for ICD-
10-CM, Pat Brooks (410) 786-5318 for ICD-10-PCS, and Denise Buenning 
(410) 786-6711 for other questions.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov, accessed 8-12-08. Follow the search instructions 
on that Web site to view public comments.
    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at the headquarters of the Centers for 
Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, MD, 
on Monday through Friday of each week from 8:30 a.m. to 4 p.m. To make 
an appointment to view the public comments, please call telephone 
number 1-800-743-3951.

Table of Contents

I. Background
    A. Statutory Background
    B. Regulatory Background: Adoption and Modification of HIPAA 
Code Sets
II. ICD-9-CM
    A. ICD-9-CM Volumes 1 and 2 (Diagnoses)
    B. ICD-9-CM Volume 3 (Procedures)
    C. Maintaining/Updating ICD-9-CM Volumes 1, 2, and 3
III. Limitations of ICD-9-CM
    A. Background
    B. General
    1. Space Limitations
    2. Impact of Workarounds on Structural Hierarchy
    3. Lack of Detail
    4. Mortality Reporting and Biosurveillance
IV. ICD-10 and the Development of ICD-10-CM and PCS
    A. Overview
    B. ICD-10-CM Diagnosis Codes
    C. ICD-10-PCS Procedure Codes
    D. Statutory Requirements for Adoption of ICD-10-CM and ICD-10-
PCS
V. Comparison of ICD-9-CM versus ICD-10-CM and ICD-10-PCS
VI. Discussion of SNOMED CT[supreg]
VII. Alternatives to Adopting ICD-10 Code Sets
    A. Utilize Unassigned Codes
    B. Use CPT-4 for Coding Hospital Inpatient Procedures
    C. Wait and Adopt ICD-11
VIII. Provisions of the Proposed Regulation
    A. Use of ICD-10-CM and ICD-10-PCS by Covered Entities
    B. Effective Dates
    C. Proposed Compliance Dates
IX. Collection of Information Requirements
X. Response to Comments
XI. Regulatory Impact Analysis
    A. Overall Impact
    1. Regulatory Flexibility Act (RFA)--Impact on Small Business
    B. Anticipated Effects
    1. Objective
    2. Background
    a. Nolan and RAND Studies: Analysis and Limitations

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    i. Training
    ii. Productivity Losses
    iii. System Changes
    3. Framework for Impact Analysis
    a. The Impact Analysis Workgroup
    4. Assumptions Underlying the Cost and Benefit Analysis
    5. Impacted Entities
    6. Estimated Costs
    a. Training
    b. Productivity Losses
    i. Inpatient
    ii. Outpatient
    iii. Physician Practices
    iv. Improper and Returned Claims
    c. Systems Changes
    i. Providers and Software Vendors
    ii. Payers
    iii. Government Systems
    d. Distribution of ICD-10 Transition Costs
    7. Projected Benefits
    a. More Accurate Payments for New Procedures
    b. Fewer Rejected Claims
    c. Fewer Improper Claims
    d. Better Understanding of New Procedures
    e. Improved Disease Management
    f. Better Understanding of Health Conditions and Health Care 
Outcomes
    g. Harmonization of Disease Monitoring and Reporting Worldwide
    C. Alternatives Considered
    1. Relation to Other HIT Initiatives
    D. Regulatory Flexibility Analysis
    1. Alternatives Considered
    2. Number of Small Entities
    3. Conclusion
    E. Accounting Statement
    F. Conclusion
Regulatory Text

I. Background

A. Statutory Background

    The Congress addressed the need for a consistent framework for 
electronic transactions and other administrative simplification issues 
in the Health Insurance Portability and Accountability Act of 1996 
(HIPAA), Public Law 104-191, enacted on August 21, 1996. HIPAA has 
improved the Medicare and Medicaid programs and the efficiency and 
effectiveness of the health care system in general, by encouraging the 
development of standards and requirements to facilitate the electronic 
transmission of certain health information.
    Through subtitle F of title II of that statute, the Congress added 
to title XI of the Social Security Act (the Act) a new Part C, titled 
``Administrative Simplification.'' Part C of title XI of the Act 
consists of sections 1171 through 1179. Section 1172 of the Act and the 
implementing regulations make any standard adopted under Part C 
applicable to: (1) Health plans; (2) health care clearinghouses; and 
(3) health care providers who transmit any health information in 
electronic form in connection with a transaction for which the 
Secretary has adopted a standard.
    Section 1172(c)(1) of the Act requires any standard adopted by the 
Secretary of the Department of Health and Human Services (the 
Secretary) to be developed, adopted, or modified by a standard setting 
organization (SSO), except in the special cases identified under 
section 1172(c)(2) of the Act. Under section 1172(c)(2)(A) of the Act, 
the Secretary may adopt a standard that is different from any standard 
developed by an SSO if it will substantially reduce administrative 
costs to health care providers and health plans compared to the 
alternatives, and the standard is promulgated in accordance with the 
rulemaking procedures of subchapter III of chapter 5 of Title 5 of the 
United States Code. Under section 1172(c)(2)(B) of the Act, if no SSO 
has developed, adopted, or modified any standard relating to a standard 
that the Secretary is authorized or required to adopt, section 
1172(c)(1) does not apply.
    Section 1172 of the Act also sets forth consultation requirements 
that must be met before the Secretary may adopt standards. The SSO must 
consult with the following Data Content Committees (DCCs) in the course 
of the development, adoption, or modification of the standard: the 
National Uniform Billing Committee (NUBC), the National Uniform Claim 
Committee (NUCC), the Workgroup for Electronic Data Interchange (WEDI), 
and the American Dental Association (ADA). For a standard that was not 
developed by an SSO, the Secretary is required to consult with each of 
the above-named groups before adopting the standard. Under section 
1172(f) of the Act, the Secretary must also rely on the recommendations 
of the National Committee on Vital and Health Statistics (NCVHS) and 
consult with appropriate Federal and State agencies and private 
organizations.
    Section 1173(a) of the Act requires the Secretary to adopt 
transaction standards and data elements for the electronic exchange of 
health information for certain health care transactions. Under sections 
1173(b) through (f) of the Act, the Secretary is required to adopt 
standards for: unique health identifiers, code sets, security standards 
for health information, electronic signatures, and the transfer of 
information among health plans.
    Section 1174 of the Act permits the Secretary to review the adopted 
standards and adopt modifications as appropriate, but not more 
frequently than once every 12 months in a manner which minimizes 
disruption and cost of compliance. The same section requires the 
Secretary to ensure that procedures exist for the routine maintenance, 
testing, enhancement, and expansion of code sets, along with 
instructions on how data elements encoded before any modification may 
be converted or translated to preserve the information value of any 
pre-existing data elements.
    Section 1175(b) of the Act provides for a compliance date not later 
than 24 months after the date on which an initial standard or 
implementation specification is adopted for all covered entities except 
small health plans, for which the statute provides for a compliance 
date not later than 36 months after the date on which an initial 
standard or implementation specification is adopted. If the Secretary 
adopts a modification to a HIPAA standard or implementation 
specification, the compliance date for the modification may not be 
earlier than the 180th day following the effective date of the adoption 
of the modification. The Secretary may consider the nature and extent 
of the modification when determining compliance dates. The Secretary 
may extend the time for compliance for small health plans. We are 
proposing that the compliance date for the provisions of this proposed 
rule for all covered entities, including small health plans, would be 
October 1, 2011.
    Please refer to the Transactions and Code Sets final rule (65 FR 
50312), published in the Federal Register on August 17, 2000, and the 
Privacy Rule (65 FR 82462), published in the Federal Register on 
December 28, 2000, for further information about electronic data 
interchange and the statutory background.

B. Regulatory Background: Adoption and Modification of HIPAA Code Sets

    The Transactions and Code Sets final rule appeared in the August 
17, 2000 Federal Register (65 FR 50312). That rule implemented some of 
the requirements of the Administrative Simplification subtitle of 
HIPAA, by adopting standards for eight electronic transactions for use 
by covered entities (health plans, health care clearinghouses, and 
those health care providers who transmit any health information in 
electronic form in connection with a transaction for which the 
Secretary has adopted a standard). We established these standards at 45 
CFR parts 160, subpart A, and 162, subparts A, and I through R. The 
Transactions and Code Sets Modifications final rule, published on 
February 20, 2003 (68 FR 8381), modified the implementation 
specifications for several adopted transactions standards, among other 
provisions. (Please refer to the HIPAA Transactions and Code Sets final 
rule and HIPAA Transactions and Code Sets

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Modifications final rule for detailed discussions of electronic data 
interchange and an analysis of the public comments received during the 
promulgation of both rules).
    In the Transactions and Code Sets final rule, we also adopted a 
number of standard medical data code sets for use in those 
transactions, including:
    <bullet> International Classification of Diseases, 9th Revision, 
Clinical Modification (ICD-9-CM) Volumes 1 and 2 (including the 
Official ICD-9-CM Guidelines for Coding and Reporting) as maintained 
and distributed by HHS, for coding diseases, injuries, impairments, 
other health problems and their manifestations, and causes of injury, 
disease, impairment, or other health problems.
    <bullet> ICD-9-CM Volume 3 (including the Official ICD-9-CM 
Guidelines for Coding and Reporting) as maintained and distributed by 
HHS, for the following procedures or other actions taken for diseases, 
injuries, and impairments on hospital inpatients reported by hospitals: 
prevention, diagnosis, treatment, and management.
    ICD-9-CM Volumes 1 and 2, and 3 were already widely used in 
administrative transactions when we promulgated the Transactions and 
Code Sets rule. We decided that adopting these existing code sets would 
be less disruptive for covered entities than modified or new code sets. 
In the Transactions and Code Sets final rule (65 FR 50327), we 
discussed comments on using the ICD-10-CM and ICD-10-PCS code sets as 
future HIPAA standard medical data code sets. Some commenters praised 
the accuracy of the ICD-10-CM and ICD-10-PCS code sets, others raised 
concerns about the differences between the ICD-9-CM and ICD-10-CM and 
ICD-10-PCS code sets, including the increased level of detail in ICD-
10-PCS. We responded that additional testing and revision were needed 
before adopting the ICD-10-CM and ICD-10-PCS code sets as a standard. 
(Please refer to the Transactions and Code Sets final rule for details 
of that discussion (65 FR 50327).)
    In addition to standard transactions and code sets, the final rule 
adopted a procedure for maintaining existing standards, for adopting 
modifications to existing standards, and for adopting new standards. 
Our process in proposing the adoption of ICD-10-CM and ICD-10-PCS, to 
replace ICD-9-CM Volumes 1 and 2, and 3, follows that procedure. The 
following is a summary of the consultation requirements for the 
Secretary for the adoption of standards under sections 1172(b) through 
(f) of the Act:
    For standards that have been developed, adopted, or modified by a 
standard setting organization, the SSO must consult with the following 
organizations in the course of such development, adoption, or 
modification:
    <bullet> The National Uniform Billing Committee (NUBC).
    <bullet> The National Uniform Claim Committee (NUCC).
    <bullet> The Workgroup for Electronic Data Interchange (WEDI).
    <bullet> The American Dental Association (ADA).
    For any other standards, the Secretary is required to consult with 
these same organizations.
    As part of the HIPAA modification and update process, the NCVHS 
holds hearings on proposed changes to HIPAA transaction and code set 
standards and makes recommendations to the Secretary as appropriate.
    Under section 1174 of the Act, the Secretary must also ensure that 
procedures exist for the routine maintenance, testing, enhancement, and 
expansion of code sets, and provide instructions on how data elements 
encoded before any modification may be converted or translated. As 
discussed in section VIII.A of this proposed rule, we will establish an 
ICD-10-CM/PCS Coordination and Maintenance Committee that is similar to 
the ICD-9-CM Coordination and Maintenance Committee. The ICD-10-CM/PCS 
Coordination and Maintenance Committee will be charged with routine 
maintenance, testing, enhancement, and the expansion of the ICD-10 code 
sets. In addition, the National Center for Health Statistics (NCHS) has 
recently completed a crosswalk that maps ICD-9-CM Volumes 1 and 2 to 
ICD-10-CM. CMS also has developed a crosswalk that maps ICD-9-CM Volume 
3 to ICD-10-PCS. These crosswalks are available at http://www.cms.hhs.gov/ICD10 (accessed 8-12-08) and http://www.cdc.gov/nchs/about/otheract/icd9/icd10cm.htm, (accessed 8-12-08). These crosswalks 
are revised in the fall of each year.

II. ICD-9-CM

    The International Classification of Diseases (ICD) is developed and 
maintained by the World Health Organization (WHO). Originally designed 
to classify causes of death (mortality), the scope of the ICD has 
expanded to include non-fatal diseases (morbidity). The application of 
the classification to morbidity has expanded as the code set has been 
revised. Nonetheless, the United States and other countries continue to 
find it necessary to develop clinical modifications of the ICD to meet 
the needs of their respective health care systems that include 
administrative and clinical protocols, and require more detail and 
specificity for reporting health care.
    When the Medicare hospital Inpatient Prospective Payment System 
(IPPS) was implemented in 1983, ICD-9-CM was used as the basic input 
for assigning the diagnosis-related groups (DRGs). All diagnostic and 
procedural information was captured using ICD-9-CM.

A. ICD-9-CM Volumes 1 and 2 (Diagnoses)

    NCHS houses the WHO Collaborating Center for the Family of 
International Classifications for North America (United States and 
Canada), and has responsibility for the implementation of the ICD. NCHS 
produced a clinical modification to WHO's ICD-9 by adding more 
specificity to its diagnosis codes (ICD-9-CM Volumes 1 and 2). ICD-9-CM 
maps to ICD to facilitate comparison of mortality and morbidity 
statistics. ICD-9-CM was adopted in the United States in 1979 for 
morbidity applications, and was adopted as a HIPAA standard in 2000 for 
reporting diagnoses, injuries, impairments, and other health problems 
and their manifestations, and causes of injury, disease, impairment or 
other health problems in standard transactions. ICD-9-CM diagnosis 
codes are three to five digits long, and are used by all types of 
health care providers, including hospitals and physician practices. The 
code set is organized into chapters by body system.

B. ICD-9-CM Volume 3 (Procedures)

    Inpatient hospital services procedures are currently coded using 
ICD-9-CM Volume 3. The WHO's ICD does not include procedure codes. ICD-
9-CM procedure codes are three to four digits long. The code set was 
adopted as a HIPAA standard in 2000 for reporting inpatient hospital 
procedures. Current Procedural Terminology, 4th Edition (CPT-4) and 
Health Care Common Procedure Coding System (HCPCS) are used to code all 
other procedures. The ICD-9-CM procedure code set is organized into 
chapters by body system, and CMS maintains the ICD-9-CM procedure 
codes.

C. Maintaining/Updating ICD-9-CM (Volumes 1 and 2, and 3)

    Recognizing the need for ICD-9-CM to be a flexible, dynamic 
statistical tool to meet expanding classification needs, the ICD-9-CM 
Coordination and

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Maintenance Committee was created in 1985 as a forum for receiving 
public comments on proposed code revisions, deletions, and additions. 
The Committee is co-chaired by the NCHS and CMS; NCHS maintains ICD-9-
CM Diagnosis Codes (Volumes 1 and 2), and CMS maintains ICD-9-CM 
Procedure Codes (Volume 3).
    Although the ICD-9-CM Coordination and Maintenance Committee is a 
Federal committee, suggestions for updates come from both the public 
and private sectors. Interested parties may submit recommendations for 
updates (that is, adding new codes, deleting codes, and editing 
descriptive material related to existing codes) at least 2 months 
before a scheduled meeting. Proposals for a new code must include a 
description of the code being requested and rationale for why the new 
code is needed. Supporting references and literature may also be 
submitted.
    This Federal committee meets in March and September. Decisions on 
code title revisions are made by March for inclusion in the annual IPPS 
proposed rule. Updates on codes, payments, and reporting systems are 
finalized after the previous fall meeting and may become effective 
October 1 of the same year.
    Section 503(a) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) (Pub. L. 108-173, enacted on December 
8, 2003) included a requirement for updating ICD-9-CM codes twice a 
year, instead of a single update on October 1 of each year. Section 
503(a) of the MMA, which amended section 1886(d)(5)(K) of the Act, 
states that the ``Secretary shall provide for the addition of new 
diagnosis and procedure codes in April 1 of each year, but the addition 
of such codes shall not require the Secretary to adjust the payment (or 
diagnosis-related group classification) * * * until the fiscal year 
that begins after such date.'' By adding codes for a new technology at 
an earlier date, CMS can recognize the new technology more quickly for 
purposes of payment under the IPPS.
    While section 503(a) of the MMA does not require the Secretary to 
adjust the DRG classification and payments until the subsequent fiscal 
year, the DRG software and other systems must be updated to recognize 
and accept the new codes, and providers must update their systems mid-
year to capture the new codes. Hospitals must obtain coding book 
updates and coding software updates and make other system changes to 
capture and report the new codes.
    Proposals for new and revised codes, summaries of meetings, 
information about deadlines for comment, scheduled dates for the next 
meeting, deadlines for receipt of maintenance proposals, and mailing 
and e-mail addresses are posted to the CMS Web site at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes, accessed 8-12-08, and the 
NCHS Web site http://www.cdc.gov/nchs/icd9.htm, accessed 8-12-08. 
Additionally, CMS and NCHS publish a complete addendum describing 
details of all changes to ICD-9-CM. It is publicized on their Web sites 
in May of each year. Many commenters on the proposed Transactions and 
Code Sets proposed rule commended this open process (65 FR 50343-
50344).

III. Limitations of ICD-9-CM

A. Background

    In 1997, the NCVHS began to study the issues related to known 
shortcomings of ICD-9-CM and to assess the need to transition to ICD-10 
(or an alternative code set), including the impact of such a 
transition. The NCVHS has conducted more than 8 days of hearings since 
1997. Oral and written testimony was provided by more than 80 public 
and private sector groups representing the health care industry, 
Federal and State governments, the public health and research 
communities, health plans, and health care providers. In addition, the 
NCVHS commissioned a RAND Corporation study on the potential costs and 
benefits of transitioning to ICD-10-CM and ICD-10-PCS. From the 
testimony received and the RAND study findings, NCVHS concluded that 
ICD-10-CM and ICD-10-PCS should be adopted as a HIPAA standard to 
replace the current standard, ICD-9-CM Volumes 1 and 2, and 3. In a 
letter to the Secretary dated November 5, 2003, NCVHS recommended that 
HHS initiate the regulatory process for the concurrent adoption of ICD-
10-CM and ICD-10-PCS. The NCVHS letter (http://www.ncvhs.hhs.gov/031105lt.htm) accessed 8-12-08, an overview of the development of ICD-
10-CM and ICD-10-PCS (http://www.ncvhs.hhs.gov/031105a1.htm) accessed 
8-12-08, summaries of the NCVHS activities (http://www.ncvhs.hhs.gov/031105a2.htm) accessed 8-12-08, a list of organizations that have 
provided testimonies (http://www.ncvhs.hhs.gov/031105a3.htm) accessed 
8-12-08, and the RAND Corporation study (http://www.rand.org/pubs/technical_reports/2004/RAND_TR132.pdf) are available on the NCVHS Web 
site (http://www.ncvhs.hhs.gov) accessed 8-12-08.

B. General

    The ICD-9-CM code set has been in use for over 27 years, and 
additional codes have been added during that period to describe new 
procedures and diagnoses that reflect changes in medical practice. The 
total number of codes (approximately 13,000 for diagnoses and 3,000 for 
procedures) is insufficient to continue to respond to the need for new 
codes. Moreover, the code set was never designed to provide the 
increased level of detail needed to support emerging needs, such as 
biosurveillance and pay-for-performance programs (P4P), also known as 
value-based purchasing or competitive purchasing. These limitations are 
discussed in detail below and have led to the current industry debate 
regarding replacement of ICD-9-CM. Industry experts have discussed and 
commented on these issues during testimony to the NCVHS, expressing 
their belief that the ICD-9-CM code set is nearing the end of its 
useful life. We invite public comment on concerns with continued use of 
the ICD-9-CM code set.
1. Space Limitations
    The ICD-9-CM code set that we adopted in 2000 as a HIPAA standard 
had been evolving since 1979. Because of the new and changing medical 
advancements during the past 20 plus years, the functionality of the 
ICD-9-CM code set has been exhausted. This code set is no longer able 
to respond to additional classification specificity, newly identified 
disease entities, and other advances. Many chapters of ICD-9-CM are 
full, and the American Hospital Association (AHA) has estimated that we 
will run out of procedure codes in the appropriate, logical sections of 
ICD-9-CM as well as the overflow chapters in 2009. As a temporary 
solution, CMS has already begun to assign codes to the inappropriate 
sections of ICD-9-CM (for example, codes for heart procedures being 
placed in the eye chapter). We will continue to take this unusual step 
of making illogical code assignments in order to maintain the ability 
to capture emerging technologies. This illogical assignment of codes 
will lead to challenges for coders in identifying and assigning codes, 
but establishing new codes to identify new procedures remains 
important. The diagnosis-related group (DRG) system classifies hospital 
cases into groups that are expected to have similar hospital resource 
needs. DRGs are assigned

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based on diagnoses, procedures, age, sex, and the presence of 
complications or co-morbidities.
    The technologies included in the DRGs are identified by ICD-9-CM 
procedure codes. ICD-10-PCS allows the use of DRG definitions that 
better define new technologies and devices, and that could be refined 
to take advantage of their additional specificity through more detailed 
descriptions. This critical lack of space for new procedures and 
conditions is one important consideration for proposing to adopt ICD-
10-CM and ICD-10-PCS. In addition, ICD-9-CM's space limitations are 
creating other problems, which are discussed below.
2. Impact of Workarounds on Structural Hierarchy
    The hierarchical structure of the ICD-9-CM procedure code set is 
compromised. Some chapters can no longer accommodate new codes, with 
the result that any additional codes must be assigned to other 
topically unrelated chapters. For example, new hip replacement 
procedures must now be assigned to an ``overflow'' chapter for 
procedures that are not classified elsewhere. When those chapters 
become full, new procedures would have to be assigned to a chapter now 
devoted to procedures related to the eye. When a code is isolated in a 
separate, unrelated part of the ICD-9-CM book because there is no 
available space in the section where the code normally would be 
assigned, coders may not easily find the code. Researchers and 
statisticians also may miss cases in their analyses.
3. Lack of Detail
    Industry experts have pointed out that in an age of electronic 
health records, it does not make sense to use a coding system that 
lacks specificity and does not lend itself well to updates. Another 
consideration about the limitations of ICD-9-CM is that to generate 
meaningful research results, researchers need to have access to 
comprehensive, rich data with a level of detail that does not exist 
with ICD-9-CM. Emerging health care technologies, new and advanced 
terminologies, and the need for interoperability amid the increase in 
electronic health records (EHRs) and personal health records (PHRs) 
require a standard code set that is expandable and sufficiently 
detailed to accurately capture current and future health care 
information. Coding that accurately describes diagnoses and procedures 
will capture information that is critical for research, and ultimately 
improves the quality of health care and cost containment by enabling 
the study of specific conditions and options for treating them. 
Accuracy also is a critical factor in the development of Pay for 
Performance (P4P) programs, because successful programs require 
detailed coding of diagnoses and the procedures performed to treat 
specific conditions.
    The details for advanced technology procedures currently being 
performed today were not available when ICD-9-CM was being developed. 
Numerous ICD-9-CM procedure codes are based upon technology that is now 
outdated. As we move toward more sophisticated monitoring and quality 
reporting, this level of detail when reporting diagnoses and procedures 
becomes critical. Examples are noted below:
    <bullet> ICD-9-CM has a single diagnosis code for fracture of the 
wrist. If a patient is treated for two successive wrist fractures, the 
ICD-9-CM code does not provide enough detail to determine if the second 
fracture is a repeat fracture of the same wrist, a fracture of the 
other wrist, incorrect billing for delayed healing, or non-union or 
mal-union of the original fracture.
    <bullet> ICD-9-CM contains a single procedure code that describes 
the endovascular repair or occlusion of head and neck vessels (39.72). 
It does not describe the artery or vein on which the repair is 
performed, the precise nature of the repair, or whether the approach is 
a percutaneous procedure or is transluminal with a catheter.
    <bullet> Four or more ICD-9-CM procedure codes are needed to 
delineate a spinal fusion procedure with sufficient detail to describe 
the level of the spine and the devices inserted.
4. Mortality Reporting and Biosurveillance
    The ICD-9 diagnosis code set is no longer supported or maintained 
by the WHO. As of October 2002, 138 countries have adopted ICD-10 for 
coding and reporting mortality data, and 99 countries have adopted ICD-
10 or a clinical modification for coding and reporting morbidity data. 
In 1999, the United States adopted ICD-10, but only for mortality 
reporting. Until the United States implements ICD-10 for morbidity 
reporting applications, data incomparability will continue to increase 
throughout the world.
    As we become a global community, it is vital that our health care 
data represent current medical conditions and technologies, and that 
they are compatible with the international version of ICD-10. Because 
the United States is capturing morbidity data using the outdated ICD-9-
CM, there are problems identifying new health threats such as anthrax, 
Severe Acute Respiratory Syndrome (SARS), and Monkeypox.
    The lack of specificity in ICD-9-CM also limits our ability to 
develop rapid interventions for emerging diseases affecting 
international populations. Diagnosis and procedure information are 
captured from administrative data that are submitted on health care 
claims, and admission and discharge summaries, but if the codes do not 
match the international standard and are unable to be compared, their 
significance is lost. Additionally, hospitals utilize diagnosis and 
procedure codes for utilization review, disease management, and 
research. Therefore, in addition to the need for precise diagnosis and 
procedure codes for payment purposes, detail and precision in coding 
are critical to the national and international health care community 
for mortality reporting, biosurveillance, treatment of patients, 
hospital management, and research.

IV. ICD-10 and the Development of ICD-10-CM and PCS

A. Overview

    The WHO developed ICD-10 in 1989, and it was adopted by the World 
Health Assembly in 1990. Currently, the United States is the only G7 
nation (the other G7 nations are Canada, France, Germany, Great 
Britain, Italy and Japan) continuing to use ICD-9 for morbidity 
reporting. Furthermore, Great Britain, Denmark, Finland, Iceland, 
Norway, Sweden, France, Australia, Belgium, Germany, and Canada use a 
clinical modification of ICD-10 for reimbursement and/or administrative 
purposes.
    ICD-10-CM and ICD-10-PCS provide specific diagnosis and treatment 
information that can improve quality measurements and patient safety, 
and the evaluation of medical processes and outcomes. ICD-10-PCS has 
the capability to readily expand and capture new procedures and 
technologies.
    For quality improvement programs to effectively result in 
meaningful clinical outcomes, improved practice management processes 
that document and measure patient care, and sustain provider investment 
in services that improve quality of care, the ability to modify or add 
to a list of treatments, diseases and conditions is essential. The ICD-
10 code sets provide a standard coding convention that is flexible, 
providing unique codes for all substantially different procedures or 
health conditions and allowing new procedures and diagnoses to be 
easily incorporated as new codes for both existing and future clinical 
protocols.

[[Page 49801]]

B. ICD-10-CM Diagnosis Codes

    The NCHS has developed a clinical modification of the WHO's ICD-10 
called ICD-10-CM for reporting diagnosis codes. As in the relationship 
between ICD-9 and ICD-9-CM Volumes 1 and 2, ICD-10-CM codes can be 
mapped back to the ICD-10 codes. The NCHS has worked closely with 
specialty societies to ensure clinical utility and input into the 
process of creating the clinical modification, with comments from a 
number of prominent specialty groups and organizations that addressed 
specific concerns or perceived unmet clinical needs encountered with 
ICD-9-CM. The NCHS also had discussions with other users of the 
classification, specifically nursing, rehabilitation, primary care 
providers, the National Committee for Quality Assurance (NCQA), long-
term care and home health care providers, and managed care 
organizations to solicit their comments about the classification.
    ICD-10-CM diagnosis codes are three to seven alphanumeric 
characters; the number of ICD-10-CM codes is approximately 68,000. The 
ICD-10-CM code set provides much more information and detail within the 
codes than ICD-9-CM, facilitating timely electronic processing of 
claims by reducing requests for additional information.
    ICD-10-CM also includes the following improvements over ICD-9-CM:
    <bullet> Significant improvements in coding primary care 
encounters, external causes of injury, mental disorders, neoplasms, and 
preventive health.
    <bullet> Advances in medicine and medical technology that have 
occurred since the last revision.
    <bullet> Codes with more detail on socioeconomic, family 
relationships, ambulatory care conditions, problems related to 
lifestyle, and the results of screening tests.
    <bullet> More space to accommodate future expansions (alphanumeric 
structure).
    <bullet> New categories for post-procedural disorders.
    <bullet> The addition of laterality--specifying which organ or part 
of the body is involved when the location could be on the right, the 
left, or could be bilateral.
    <bullet> Expanded distinctions for ambulatory and managed care 
encounters.
    ICD-10-CM codes with the same first three digits have common 
traits, and each additional digit adds more specificity. For example:

I49. Other cardiac arrhythmias
I49.0 Ventricular fibrillation and flutter
I49.01 Ventricular fibrillation
I49.02 Ventricular flutter

    Post-procedural disorders specific to a particular body system are 
located in categories created at the end of each chapter. Diseases are 
arranged according to an axis of classification based on etiology, 
anatomy, or severity, with anatomy being the primary axis for ICD-10-
CM. (See section V of this proposed rule for a chart that compares ICD-
9-CM, ICD-10-CM, and ICD-10-PCS codes).

C. ICD-10-PCS Procedure Codes

    CMS developed a procedure coding system, ICD-10-PCS. ICD-10-PCS has 
no relationship to the basic ICD-10 diagnostic classification, which 
does not include procedures, and has a totally different structure from 
ICD-10-CM. ICD-10-PCS is sufficiently detailed to describe complex 
medical procedures. This becomes increasingly important when assessing 
and tracking the quality of medical processes and outcomes, and 
compiling statistics that are valuable tools for research. ICD-10-PCS 
has unique, precise codes to differentiate body parts, surgical 
approaches, and devices used. It can be used to identify resource 
consumption differences and outcomes for different procedures, and 
describes precisely what is done to the patient.
    ICD-10-PCS codes have seven alphanumeric characters and group 
together services into approximately 30 procedures identified by a 
leading alpha character. There are 16 sections of tables that determine 
code selection, with each character having a specific meaning. The 
first character shows the type of procedure by clinical specialty. 
Nearly half of these 16 sections remain undesignated at this time, 
leaving room for future expansion. Each subsequent place in the code 
has a specific function, the meaning of which may change depending on 
the section. For example, the fifth character in the imaging section 
identifies the contrast material used, while the fifth character in the 
medical and surgical section identifies the surgical approach. The 
second character defines the body system with the exception of the 
rehabilitation and mental health sections, in which the second 
character defines the type of procedure performed.
    Example: the Medical and Surgical Section is organized as follows:

                                                                       Characters
--------------------------------------------------------------------------------------------------------------------------------------------------------
          1                     2                     3                     4                     5                     6                     7
--------------------------------------------------------------------------------------------------------------------------------------------------------
  Name of Section           Body System        Root Operation             Body Part              Approach                Device             Qualifier
--------------------------------------------------------------------------------------------------------------------------------------------------------

D. Statutory Requirements for Adoption of ICD-10-CM and ICD-10-PCS

    Under sections 1172(b), (c), (f), and (g) of the Act, the Secretary 
must follow certain procedures and pursue certain objectives when 
adopting a modification to an initial standard. Under section 1172(b) 
of the Act, any standard adopted by the Secretary must be consistent 
with the objective of reducing the administrative costs of providing 
and paying for health care. As discussed in detail in section XI of 
this proposed rule, we believe that the costs for implementing ICD-10-
CM and ICD-10-PCS would be offset by the benefits within four years of 
implementation.
    Under section 1172(c)(1) of the Act, any standard adopted by the 
Secretary must be a standard that has been developed, adopted or 
modified by a standard setting organization (SSO). Under section 
1172(c)(2)(B) of the Act, however, section 1172(c)(1) does not apply if 
no SSO has developed, adopted, or modified any standard relating to a 
standard that the Secretary is authorized or required to adopt under 
HIPAA. To our knowledge, no SSO has developed, adopted, or modified a 
standard code set that is suitable for reporting medical diagnoses and 
hospital inpatient procedures for purposes of administrative 
transactions. Therefore, we are proposing to adopt ICD-10-CM and ICD-
10-PCS under section 1172(c)(2)(B) of the Act.
    We note that the SNOMED Clinical Terms (CT)[supreg] code set may 
initially appear to be a standard developed by an SSO for reporting 
medical diagnoses and hospital inpatient procedures for purposes of 
administrative transactions. The College of American Pathologists 
(CAP), which developed SNOMED CT[supreg], is accredited by the American 
National Standards Institute (ANSI) as an

[[Page 49802]]

accredited standards developer. The scope of the CAP's accreditation, 
however, is limited. The CAP is accredited for activity relating to 
clinical terminology that focuses on standardizing that terminology 
across the breadth of medicine. Consistent with this scope of focus, 
SNOMED CT[supreg], which is now supported by the International Health 
Terminology Standards Development Organization (http://www.ihtsdo.org), 
is clinical terminology that is primarily designed for primary 
documentation of clinical care. SNOMED CT[supreg] is not designed for 
carrying out health care transactions. In fact, part of the CAP's scope 
of ANSI accreditation is deriving mapping strategies from clinical 
reference terminology and medical classification schemes and codes sets 
used for statistical, billing, or user interface purposes. Thus, in 
order to be useful for health care transactions, the SNOMED CT[supreg] 
code set would first have to be mapped to a classification coding 
system, such as ICD-10-CM. (For further discussion of SNOMED CT[supreg] 
and its potential value to the development of electronic health records 
(EHRs), please refer to section VI of this proposed rule.) For these 
reasons, we do not believe that SNOMED CT[supreg] qualifies under 
section 1172(c)(1) of the Act as a standard developed by an SSO for 
reporting medical diagnoses and hospital inpatient procedures for 
purposes of administrative transactions.
    Under section 1172(c)(3) of the Act, the Secretary must consult 
with the following organizations before adopting a standard that was 
not developed, adopted, or modified by an SSO:
    <bullet> The National Uniform Billing Committee (NUBC).
    <bullet> The National Uniform Claim Committee (NUCC).
    <bullet> The Workgroup for Electronic Data Interchange (WEDI).
    <bullet> The American Dental Association (ADA).
    These organizations are members of the Designated Standard 
Maintenance Organization (DSMO) Steering Committee. The DSMO Steering 
Committee considered a January 8, 2003 DSMO Change Request submitted by 
the Centers for Disease Control seeking modification to the transaction 
code set to accommodate ICD-10-CM and ICD-10-PCS. The DSMO Steering 
Committee approved the change request and recommended the adoption of 
implementation specifications that would support the implementation of 
ICD-10-CM and ICD-10-PCS to the NCVHS.
    Furthermore, CMS also consulted with WEDI regarding ICD-10-CM and 
ICD-10-PCS after two industry-focused informational forums they 
conducted on ICD-10-CM and ICD-10-PCS during 2006. In a letter to the 
Secretary dated May 31, 2006, WEDI outlined discussions that occurred 
during an ICD-10-CM and ICD-10-PCS forum on April 19th and 20th 2006 in 
Chicago that was co-chaired by representatives of the American Hospital 
Association, and Blue Cross and Blue Shield of South Carolina. The 
purpose of the forum was to solicit audience discussion and input on 
various implementation issues surrounding the possible adoption of the 
ICD-10-CM and ICD-10-PCS code sets. The forum was not intended to 
debate the issue of whether these code sets should be adopted, but 
rather what would need to occur if they were adopted. CMS will further 
consult directly with NUBC, NUCC, and the ADA before adopting any ICD-
10 code set as a modification.
    Under section 1172(f) of the Act, the Secretary must rely on the 
recommendations of the NCVHS established under section 306(k) of the 
Public Health Service Act and must consult with appropriate Federal and 
State agencies and private organizations.
    The Secretary must publish notification in the Federal Register of 
any recommendation of the NCVHS. The NCVHS has conducted 8 days of 
hearings with providers, health plans, clearinghouses, vendors, and 
interested stakeholders on the adoption of ICD-10-CM and ICD-10-PCS in 
place of ICD-9-CM as the HIPAA adopted standard for reporting diagnoses 
and hospital inpatient services in standard transactions. (A list of 
organizations that provided comments to the NCVHS is available at 
http://www.ncvhs.hhs.gov/031105a3.htm, accessed 8-12-08.) In a letter 
dated November 5, 2003, the NCVHS submitted to the Secretary its 
recommendation to adopt ICD-10-CM and ICD-10-PCS. This letter is 
available at http://www.ncvhs.hhs.gov/031105lt.htm, accessed 8-12-08. 
The Secretary also has considered input from Federal and State agencies 
and private organizations regarding the adoption and implementation of 
ICD-10-CM and ICD-10-PCS, and has received input from a number of 
professional organizations and other industry stakeholders. The 
following organizations representing providers, health plans, 
clearinghouses, and vendors are among the stakeholders that have 
provided input:
    <bullet> The American Health Information Management Association 
(AHIMA).
    <bullet> The American Medical Association (AMA).
    <bullet> The Blue Cross Blue Shield Association (BCBSA).
    <bullet> The Medical Group Management Association (MGMA).
    <bullet> Health Information and Management Systems Society (HIMSS).
    <bullet> America's Health Insurance Plans (AHIP).

V. Comparison of ICD-9-CM Versus ICD-10-CM and ICD-10-PCS

                               Comparison
------------------------------------------------------------------------
 
------------------------------------------------------------------------
        ICD-9-CM diagnosis codes            ICD-10-CM diagnosis codes
------------------------------------------------------------------------
3-5 characters in length...............  3-7 characters in length.
Approximately 13,000 codes.............  Approximately 68,000 available
                                          codes.
First digit may be alpha (E or V) or     Digit 1 is alpha; Digits 2 and
 numeric; Digits 2-5 are numeric.         3 are numeric; Digits 4-7 are
                                          alpha or numeric.
Limited space for adding new codes.....  Flexible for adding new codes.
Lacks detail...........................  Very specific.
Lacks laterality.......................  Has laterality.
Difficult to analyze data due to non-    Specificity improves coding
 specific codes.                          accuracy and richness of data
                                          for analysis.
Codes are non-specific and do not        Detail improves the accuracy of
 adequately define diagnoses needed for   data used for medical
 medical research.                        research.
Does not support interoperability        Supports interoperability and
 because it is not used by other          the exchange of health data
 countries.                               between other countries and
                                          the U.S.
------------------------------------------------------------------------

[[Page 49803]]

 
        ICD-9-CM procedure codes            ICD-10-PCS procedure codes
------------------------------------------------------------------------
3-4 numbers in length..................  7 alpha-numeric characters in
                                          length.
Approximately 3,000 codes..............  Approximately 87,000 available
                                          codes.
Based upon outdated technology.........  Reflects current usage of
                                          medical terminology and
                                          devices.
Limited space for adding new codes.....  Flexible for adding new codes.
Lacks detail...........................  Very specific.
Lacks laterality.......................  Has laterality.
Generic terms for body parts...........  Detailed descriptions for body
                                          parts.
Lacks description of methodology and     Provides detailed descriptions
 approach for procedures.                 of methodology and approach
                                          for procedures.
Limits DRG assignment..................  Allows DRG definitions to
                                          better recognize new
                                          technologies and devices.
Lacks precision to adequately define     Precisely defines procedures
 procedures.                              with detail regarding body
                                          part, approach, any device
                                          used, and qualifying
                                          information.
------------------------------------------------------------------------

    Both ICD-10-CM and ICD-10-PCS provide laterality, precise 
anatomical descriptions, methods to report the exact causes of injury 
in diagnosing conditions, and approaches used to perform specific 
procedures. Laterality refers to the precision with which ICD-10-CM and 
ICD-10-PCS describe conditions and treatments for the anatomical right 
and left side. Information comparing ICD-10-CM and ICD-9-CM Volumes 1 
and 2 is available at: http://www.cdc.gov/nchs/about/otheract/icd9/icd10cm.htm (accessed 8-12-08). Information comparing ICD-10-PCS and 
ICD-9-CM Volume 3 is available at: http://www.cms.hhs.gov/icd9providerdiagnosticcodes/08_icd10.ASP (accessed 8-12-08).

VI. Discussion of SNOMED CT[supreg]

    SNOMED Clinical Terms[supreg] (CT) is a comprehensive clinical 
terminology that provides a framework to manage language dialects, 
clinically relevant subsets, qualifiers and extensions, as well as 
concepts and terms that are unique to particular organizations or 
localities. It contains over 366,170 concepts with unique meanings and 
formal logic-based definitions that are organized into hierarchies. 
Some examples of these hierarchies are:
    <bullet> Staging and scales--contains concepts naming assessment 
scales and tumor staging systems.
    <bullet> Social context--contains social conditions and 
circumstances significant to health care.
    <bullet> Observable entity--concepts represent a question or 
procedure which, when combined with a result, constitute a finding.
    In order to express these clinical concepts, SNOMED CT[supreg] 
contains more than 993,420 English language descriptions, and 
approximately 1.46 million semantic relationships. It would be 
impractical to attempt to manually assign SNOMED-CT[supreg] codes. The 
number of terms and level of detail in a reference of clinical 
terminology such as SNOMED CT[supreg] cannot be effectively managed 
without automation, and are not suited for the secondary purposes for 
which classifications systems such as ICD-10-CM and ICD-10-PCS are used 
because of their immense size, considerable granularity, complex 
hierarchies, and lack of reporting rules.\1\
---------------------------------------------------------------------------

    \1\ ``Coordination of SNOMED-CT[supreg] and ICD-10: Getting the 
Most out of Electronic Health Record Systems'' Sue Bowman, RHIA, 
CCS, director of coding policy and compliance, AHIMA; Perspectives 
in Health Information Management Spring 2005 (May 26, 2005) http://library.ahima.org/xpedio/groups/public/documents/ahima/bok1_027179.html, accessed 8-12-08.
---------------------------------------------------------------------------

    SNOMED CT[supreg] is a clinical terminology that is described as an 
input system that is primarily designed for the primary documentation 
of clinical care. A clinical terminology intended to support clinical 
care processes should not be manipulated to meet reimbursement and 
other external reporting requirements. Such manipulation presents the 
potential to adversely affect patient care, the development and use of 
decision support tools, and the practice of evidence-based medicine.
    ICD-9-CM, ICD-10-CM, and ICD-10-PCS are classification coding 
conventions that are typically used for reporting requirements where 
data aggregation is advantageous. A classification system such as ICD 
arranges like entities for retrieval. It aggregates granular clinical 
concepts into categories for secondary data purposes. Examples of 
current use of this data include:
    <bullet> Designing health care delivery systems.
    <bullet> Setting health policy.
    <bullet> Tracking public health and risks.
    <bullet> Monitoring resource utilization.
    <bullet> Processing claims for reimbursement.
    The benefits of using SNOMED CT[supreg] increase if it is linked to 
a classification system such as ICD-10-CM and ICD-10-PCS for the 
purpose of generating health information that is necessary for 
statistical analysis and reimbursement. The use of both SNOMED-
CT[supreg] and ICD-10-CM and ICD-10-PCS brings value to the development 
of interoperable electronic health records (EHR). The linkage of these 
two different coding systems for multiple purposes is accomplished 
through mapping.
    ``Mapping is the process of linking content from one terminology to 
another or to a classification.'' (http://library.ahima.org), accessed 
8-12-08. It requires deciding how different terminologies match, are 
similar, or differ. Mapping provides a link between terminologies to 
facilitate--
    <bullet> Use of data collected;
    <bullet> Retaining the value of data when migrating to newer 
databases; and
    <bullet> Avoiding entering data multiple times, and the risk of 
increased costs and errors.
    Using SNOMED CT[supreg] mapped to ICD-10-CM and ICD-10-PCS permits 
the use of a clinical terminology that could be the basis for EHRs and 
the ICD-10-CM and ICD-10-PCS classification coding system that is used 
for reporting and data trend analysis.
    As discussed in section IV of this proposed rule, we did not 
consider adopting SNOMED CT[supreg] as an alternative for ICD-10-CM and 
ICD-10-PCS because the code sets are designed for distinctly different 
purposes. We do not believe that SNOMED CT[supreg] qualifies under 
section 1172(c)(1) of the Act as a standard for reporting medical 
diagnoses and hospital inpatient procedures for purposes of 
administrative transactions. For similar reasons, we do not believe 
that we are required under the National Technology Transfer and 
Advancement Act of 1995 (NTTAA), Public Law 104-113, to consider 
adopting SNOMED CT[supreg]. The NTTAA and Office of Management and

[[Page 49804]]

Budget (OMB) Circular No. A-119, which provides some historical 
background and interpretation of parts of the NTTAA, directs Federal 
agencies to use voluntary consensus standards in lieu of government-
unique standards, except where inconsistent with law or otherwise 
impractical. Because we do not believe that SNOMED CT[supreg] is a 
suitable standard for reporting medical diagnoses and hospital 
inpatient procedures for purposes of administrative transactions, we 
believe that neither the NTTAA nor OMB Circular A-119 requires that we 
consider it for adoption.

VII. Alternatives To Adopting ICD-10 Code Sets

    In deciding to propose adoption of ICD-10-CM and ICD-10-PCS, we 
considered a number of alternatives. We invite public comment on the 
following discussion of those alternatives and our rationale:

A. Utilize Unassigned Codes

    It would be possible to extend the life of ICD-9-CM by assigning 
codes to new diagnoses and procedures without regard to the hierarchy 
of the code set. This hierarchy groups procedures by body systems, and 
then groups similar procedures that apply to a specific body system 
into categories. For example, ICD-9-CM Volume 3 was examined to 
identify any open series of codes that could be used for new procedures 
and technologies. Codes 17.00-17.99 (located between Chapter 3: 
Operations on the Eye, and Chapter 4: Operations on the Ear) were not 
being used. This series of 100 codes could be used for a wide range of 
new procedures and technologies, adding additional space for expansion 
within the existing structure of the ICD-9-CM procedure volume. 
Additionally, codes 00.00--00.99 were not in use. The ICD-9-CM 
Coordination and Maintenance Committee decided to create a chapter in 
this unused location. This decision enabled the creation of 100 new 
codes to identify procedures that could not be assigned a code within 
the existing, and more appropriate, chapters because of space 
limitations. CMS departed from the current organizational structure of 
ICD-9-CM procedures when we created a variety of procedure codes in a 
new chapter 00, Procedures and Interventions NEC (NEC means Not 
Elsewhere Classified). CMS has created new codes in all 10 categories 
within chapter 00. Details on CMS coding changes are available on the 
CMS Web site at: http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes, 
accessed 8-12-08.
    While this approach of placing codes in a non-hierarchically-
created structure does extend the ability to assign ICD-9-CM codes to 
new diagnoses and procedures, it does not represent a long-term 
solution to the code shortage. It will only be an effective solution as 
long as there are empty code slots. Moreover, it does not address the 
remaining shortcomings of ICD-9-CM discussed above, such as the 
critical lack of detail that is required to support evolving business 
needs, for example, in the areas of biosurveillance and quality 
monitoring. While there have been space issues in ICD-9-CM Volumes 1 
and 2, they have not been as pressing as the space needs in ICD-9-CM 
Volume 3. New categories/codes have been added within the chapters 
(body systems) of the classification, but not necessarily within the 
appropriate section within the chapter. New concepts have been 
incorporated into the existing structure, and in some instances this 
has meant not fully representing the concept as proposed because of 
space limitations. Some issues have been deferred and incorporated into 
ICD-10-CM because the concepts were inconsistent with the existing 
structure of ICD-9-CM. Unlike the procedures in ICD-9-CM Volume 3, 
which is a United States-developed system, the ICD-9-CM diagnosis codes 
are based on the WHO codes and must be consistent with the established 
structure.
    The disadvantage of this solution is that it destroys the natural 
hierarchy inherent in the code set. This hierarchy assists a coder or 
health care professional in choosing the most appropriate code since 
one can quickly review closely-related codes. Common coding practices 
do not require searches for unrelated procedures in a separate part of 
the coding book. However, these new chapters capture a very diverse 
group of unrelated procedures that affect a variety of body systems and 
are not logically placed in the chapters to which they relate. This 
creates considerable confusion for coders and difficulty locating the 
new codes, raising the likelihood of coding errors and negatively 
affecting productivity.

B. Use CPT-4 for Coding Hospital Inpatient Procedures

    The American Medical Association (AMA) developed and maintains the 
Physicians' Current Procedural Terminology (CPT) coding system to 
capture physician services. CPT also has been used to capture services 
performed in outpatient and ambulatory care settings, and is the HIPAA-
adopted standard code set for reporting physician and certain other 
health care services. While evaluating the need to replace ICD-9-CM, 
the AMA recommended that CPT be used for coding inpatient services. A 
letter from the AMA's medical organizations supporting the use of CPT 
for inpatient coding was sent to the Secretary on September 23, 2002. A 
copy of this letter is included in the Summary Report of the ICD-9-CM 
Volume 3 Coordination and Maintenance Committee, December 6, 2002 
meeting at http://www.cms.hhs.gov/ICD9ProviderDiagnosticCodes (accessed 
8-12-08). The AMA was concerned about industry suggestions that a 
uniform procedure coding system be identified for use in all health 
care settings. If this were to be the case, the AMA wanted CPT to be 
considered as that uniform procedure coding system.
    The NCVHS had previously evaluated ICD-9-CM Volume 3 and CPT as 
potential coding systems that could be used to capture services in all 
health care settings. After extensive hearings and discussions, the 
NCVHS issued a ``Report of the National Committee on Vital and Health 
Statistics Concerning Issues Relating to the Coding and Classification 
Systems'' in November 1990. It found structural problems and serious 
flaws with both CPT-4 and ICD-9-CM Volume 3. During 1993, an NCVHS 
subcommittee held three meetings and three working sessions which 
addressed the creation of a single procedure classification system for 
multiple purposes in the United States. It was felt that neither system 
could capture services in all health care settings. Despite continuing 
NCVHS hearings, there has been no endorsement of the use of CPT for 
hospital inpatient procedure coding.
    The Government Accountability Office (GAO) undertook a study on the 
use of multiple procedure coding systems, issuing a final report in 
August 2002 entitled, ``HIPAA Standards, Dual Code Sets Are Acceptable 
for Reporting Medical Procedures'' (GAO-02-796). The report concluded 
that ICD-9-CM Volume 3 and CPT do not meet all of the criteria for 
standard code sets under HIPAA and the procedural code set requirements 
recommended by NCVHS, including the criteria for adequate levels of 
detail for data analysis, and a capacity to add new codes in response 
to new technology. GAO sought advice from industry experts such as the 
American Hospital Association (AHA) and the American Health Information 
Management Association (AHIMA) as to whether CPT could be used for 
inpatient coding. AHA and AHIMA reported that CPT ``does not adequately 
capture

[[Page 49805]]

facility-based, non-physician services.'' The GAO report states that 
CPT has not been shown to be acceptable or comprehensive enough to 
serve as a single procedure code set for reporting both hospital 
inpatient and outpatient physician services. Therefore, GAO did not 
recommend the use of CPT-4 to capture inpatient services. Additional 
criticisms of CPT are that it does not include laterality, it has no 
predictable syntax, and the detail provided is inconsistent across 
procedures.
    The AHA, Federation of American Hospitals, and AdvaMED wrote a 
letter to the NCHVS on November 19, 2002 regarding the implementation 
of ICD-10-CM and ICD-10-PCS. The letter endorsed the implementation of 
ICD-10-CM and ICD-10-PCS as a national standard, and opposed the use of 
CPT for hospital inpatient services because it was designed for 
services more commonly provided in physicians' offices, not services 
provided in a hospital inpatient setting.

C. Wait and Adopt ICD-11

    One possible option is to forego adoption of ICD-10 and wait until 
ICD-11 is ready for implementation. The WHO, the developer of the ICD 
classification, has begun preliminary work on ICD-11. However, no firm 
timeframes for the completion of developmental work or testing have 
been identified, and no firm implementation date has been designated. 
Work has not yet begun on developing the companion procedure codes 
needed to implement ICD-11 in the United States. This means that the 
earliest projected date for implementation would be 2020, assuming that 
no clinical modification is needed for the ICD-11 and that the 
companion procedure code set could be completed in time. We project 
that we could not implement ICD-11 until 2016 because it is still in 
development, testing would be required, and there are no firm 
timeframes for completion of developmental work.
    In addition, ICD-11 will follow the same alphanumeric structure as 
ICD-10, which differs from that of ICD-9. Since ICD-11 would build upon 
ICD-10, many of the costs and much of the work associated with 
upgrading to ICD-11 will be mitigated by ICD-10 implementation. This 
option of waiting for ICD-11 was eliminated because there are no 
confirmed dates for ICD-11 readiness or adoption, ICD-11 will not 
include a procedure classification system and without ICD-10 to build 
upon, use of ICD-11 is likely to take longer to implement. ICD-9-CM 
would still have to be used in the interim, and ICD-9-CM is not the 
pathway to ICD-11 because it has a different structure than both ICD-10 
and the anticipated ICD-11.

VIII. Provisions of the Proposed Regulation

A. Use of ICD-10-CM and ICD-10-PCS by Covered Entities

    In this proposed rule, we propose to adopt the ICD-10-CM and ICD-
10-PCS code sets to replace the ICD-9-CM Volumes 1 and 2 code sets for 
reporting diagnoses and Volume 3 code set for reporting procedures when 
conducting standard transactions. We would revise Sec.  162.1002(b) and 
Sec.  162.1002(c), and adopt ICD-10-CM and ICD-10-PCS in place of ICD-
9-CM, Volumes 1 and 2, and 3. We would adopt ICD-10-CM to replace ICD-
9-CM Volumes 1 and 2, including the official coding guidelines, for 
coding diseases, injuries, impairments, other health problems and their 
manifestations, and causes of injury, disease, impairment, or other 
health problems. Additionally, we would adopt ICD-10-PCS to replace 
ICD-9-CM Volume 3, including the official coding guidelines, for the 
following procedures or other actions taken for diseases, injuries, and 
impairments on hospital inpatients reported by hospitals: prevention, 
diagnosis, treatment, and management.
    HIPAA covered entities would be required to use these codes when 
diagnoses and hospital inpatient procedures need to be coded in HIPAA 
transactions. Because ICD-10-PCS codes are only used for inpatient 
hospital procedures, the ICD-10-PCS codes would not be used in 
outpatient transactions.
    In arriving at this proposal, we considered myriad input from the 
public, NCVHS, professional organizations, and others. Our 
deliberations centered around two sets of issues: the limitations of 
ICD-9-CM (Volumes 1 and 2, and 3), as discussed above, and the adoption 
of alternatives to ICD-10-CM and ICD-10-PCS code sets.
    We will establish an ICD-10-CM/PCS Coordination and Maintenance 
Committee. This committee will follow the same procedures currently 
used by the ICD-9-CM Coordination and Maintenance Committee to consider 
new codes and revisions to existing codes.
    We acknowledge that this proposed rule does not specifically 
address impacts on prospective payment systems that currently use ICD-
9-CM codes. We determined that these issues can best be addressed 
through the usual IPPS and other proposed rules that impact payment 
decisions and applications.

B. Effective Dates

    The effective date of revised Sec.  162.1002 would be 60 days after 
a final rule is published in the Federal Register.

C. Proposed Compliance Dates

    Under section 1175 of the Act, the compliance date of a 
modification to a HIPAA standard may not be earlier than the 180th day 
following the effective date of the adoption of the modification. The 
Secretary may consider the nature and extent of the modification when 
determining the compliance date. If the Secretary determines an 
extension is appropriate for small health plans, he may extend the time 
for their compliance. NCVHS testimony and subsequent industry input 
clearly indicate that the implementation of ICD-10 will be a 
significant undertaking. The activities involved in this implementation 
are discussed in detail in the impact analysis section of this proposed 
rule.
    Many covered entities have stated that they will need at least 2 
years from the publication of a final rule to implement ICD-10. Some 
have argued that 3 years will be needed, noting that the original 2-
year implementation period for the initial HIPAA transaction standards 
proved to be insufficient. Others note that ICD-10 implementation 
should be viewed in the context of other HIPAA requirements (including 
the implementation of the National Provider Identifier and the claims 
attachment transaction standard) and other information technology 
initiatives, including IT initiatives integral to the Department's 
transparency activities, and that ICD-10 compliance should not be 
required until 2012 or later. Coordination with these other health 
information technology (HIT) initiatives is discussed in the impact 
analysis of this proposed rule.
    HHS and industry health information technology initiatives include 
interoperability specifications, certification criteria, and standards 
developed under HIPAA and the Medicare Modernization Act. We describe 
these initiatives and associated known or projected publication, 
delivery, or compliance dates below:
    <bullet> Beginning in September 2006 (and annually thereafter)--
Delivery of Healthcare Information Technology Standards Panel (HITSP) 
interoperability specifications supporting specific use cases.

[[Page 49806]]

    <bullet> May 2007--Compliance date for all covered entities other 
than small health plans, implementing the HIPAA National Provider 
Identifier (NPI) in all HIPAA transactions.
    <bullet> June 2007--Publication of the Certification Commission for 
Healthcare Information Technology (CCHIT) criteria for certifying 
inpatient electronic health record products.
    <bullet> November 2007--Publication of Electronic Prescribing 
Standards for Medicare Part D Notice of Proposed Rulemaking.
    <bullet> April 2008--Publication of Final rule regarding standards 
for Electronic Prescribing under Medicare Part D and adoption of NPI in 
Electronic Prescribing transactions.
    <bullet> May 2008--Publication of CCHIT criteria for certifying 
health information technology networks and systems.
    <bullet> May 2008--Compliance date for small health plans 
implementing the HIPAA National Provider Identifier (NPI) in all HIPAA 
transactions.
    <bullet> April 2009--Projected compliance date for new e-
prescribing standards for the Medicare drug program, and use of NPI in 
e-prescribing transactions, pursuant to the Medicare Modernization Act. 
Medicare Part D Sponsors are required to support the standards. 
Prescribing providers and pharmacies are required to use them only if 
they choose to engage in e-prescribing.
    <bullet> 2010--Projected compliance date for the updated retail 
pharmacy drug claim, which will facilitate processing of Medicare drug 
claims and affects all pharmacies and plans that process pharmacy 
claims.
    <bullet> 2010--Projected compliance date for updated non-pharmacy 
HIPAA financial and administrative transactions which affects all 
HIPAA-covered entities. These transactions include the claim, 
remittance advice, eligibility, and claim status query and response 
transaction, plan enrollment, and referral authorization. Version 4010/
4010A1 of the American Standards Committee X12 group is the currently 
adopted standard. Version 4010/4010A1 transactions cannot accommodate 
the larger size of ICD-10 code set; therefore, the new version, 5010, 
must be implemented in order to implement ICD-10 code sets. Industry 
representatives have recommended that the compliance date for these 
standards be at least 18 months before the compliance date for ICD-10 
to allow for needed testing and to reduce risk. CMS is currently 
working on regulatory action regarding the transition to 5010 in order 
to accommodate the ICD-10 code set.
    <bullet> 2011--Projected compliance date for the new HIPAA standard 
for the claims attachment transaction, which would affect all HIPAA-
covered entities that are not health plans. This standard addresses the 
communication of additional information, often of a clinical nature, 
that may be needed in order to adjudicate a claim.
    <bullet> 2012--Projected compliance date for small health plans 
conducting HIPAA claims attachment transactions.
    We acknowledge that implementing ICD-10 code sets will require 
significant effort on the part of covered entities and their vendors. 
We also recognize the need to transition to a new code set before ICD-
9-CM becomes unworkable. Moreover, the enhanced functionality that ICD-
10-CM and ICD-10-PCS code sets bring to quality assessment, research, 
and biosurveillance argue for an earlier implementation. We have 
weighed all these factors in arriving at our proposal.
    We propose October 1, 2011 as the compliance date for ICD-10-CM and 
ICD-10-PCS code sets for all covered entities. It is important to note 
that the compliance date must occur on October 1 in order to coincide 
with the effective date of annual Medicare inpatient PPS updates. We 
believe that a 2011 compliance date permits adequate time for covered 
entities and their vendors to complete the necessary implementation 
activities. As shown above, our projected compliance dates for other 
health IT initiatives have been sequenced in a manner that will allow 
covered entities to concentrate their efforts on ICD-10 implementation 
(including the implementation of the 5010 transactions) during the 
relevant period.
    CMS believes it is in the industry's best interest (including small 
health plans) to have a single compliance date for ICD-10-CM and ICD-
10-PCS. This will reduce burden on both providers and insurers who will 
be able to edit on a single new coding system for claims received for 
encounters and discharges occurring on or after October 1, 2011. The 
proposed compliance date, we believe, is also sufficiently far in the 
future to provide all sectors of the industry, including small health 
plans, adequate time to implement the code sets. A single compliance 
date also will significantly reduce confusion in processing claims and 
analyzing data. Historically, all previous versions of the ICD coding 
systems, such as ICD-7 and ICD-8, have been implemented on a single 
date. The health care industry has come to expect this consistent 
approach to updating ICD coding systems. To allow two different 
compliance dates would create problems for all sectors of the health 
care industry. Examples of problems that would arise if both ICD-9-CM 
and ICD-10 codes were allowed to be reported for the same date of 
service include:
    <bullet> Increased errors--ICD-9-CM and ICD-10-CM have codes that 
can include the same number of digits and similar codes. Allowing both 
code systems to be used and reported will create confusion in 
processing and interpreting coded data. Claims may be denied for 
services if the edits are established for ICD-10-CM codes, but ICD-9-CM 
codes are reported. Claims may be returned as errors if edits indicate 
there are too many or too few digits, when in fact a different coding 
system is being used.
    <bullet> Provider burden--Maintaining both ICD-9-CM and ICD-10-CM 
will place a significant burden on providers. Providers would have to 
maintain both coding systems for a year because of different reporting 
requirements by some payers or entities if there were two 
implementation dates. This will not only increase burden, but would 
also lead to additional error messages and returned claims if the 
provider does not select the required coding system when claims are 
coded. Coders would be burdened by having to recall and apply codes 
from different coding systems for a year. It is much easier to simply 
learn and move to the new coding system for encounters occurring on a 
single fixed date.
    <bullet> Systems problems--if providers, insurers, and other 
entities are required to report and accept both coding systems for 
encounters occurring during a year, there would be significant system 
implications in trying to determine which coding system was being used 
to report the coded data. As indicated above, this may lead to denied 
and returned claims.
    <bullet> Payment update challenges--coded data are used to update 
payment systems such as the inpatient prospective payment system. If 
codes are reported in both ICD-9-CM and ICD-10-CM during a given year, 
it will be difficult to assess the need to update and refine the 
payment system based on coded data.
    <bullet> Problems with national health care data--by allowing the 
use and reporting of two different payment systems, the national data 
will be difficult to analyze and interpret. This not only creates 
problems with updating payment systems, as indicated above, but also 
creates problems in interpreting trend data on health care conditions. 
It will be problematic to make national projections on quality of care 
and outcomes when two different coding

[[Page 49807]]

systems are used for encounters during the same time period. This is 
further amplified when single providers report with two different 
coding systems to small entities, but with ICD-10 to large entities. 
Comparing national data and assessing outcomes will be challenging.
    We solicit public comment on the proposed compliance date of 
October 1, 2011.
    We anticipate that upon publication of this proposed rule in the 
Federal Register, both the industry and CMS will actively initiate and/
or complete planning for implementation of ICD-10. While not included 
under the auspices of this proposed rule, we also acknowledge the 
impact of the implementation of the ASC X12 Technical Reports Type 3, 
Version 005010, hereinafter referred to as Version 5010, on ICD-10 
implementation timelines. Once the ICD-10 and Version 5010/NCPDP 
Version D.0 final rules are published, we estimate that both CMS and 
the industry will begin documenting the requirements for both ICD-10 
and Version 5010 system changes, initiate and/or complete any gap 
analyses, and then undertake design and system changes, with Version 
5010 progressing first, based on the need to have it in place prior to 
ICD-10 implementation to accommodate the increase in the size of the 
fields for the ICD-10 code sets. In the case of Version 5010, system 
building and testing could commence approximately 12 months prior to a 
Version 5010 compliance date. We anticipate that ICD-10 external 
testing could start approximately 15 months prior to the October 2011 
compliance date.
    Upon publication of these proposed rules for both ICD-10 and 
Versions 5010/D.0 in the Federal Register, the Department, through CMS, 
plans on proactively conducting outreach and education activities, as 
well as engaging industry leaders and other stakeholder organizations 
to provide education and other resources to their respective 
constituencies. These activities would include roundtable conference 
calls with the industry, including Medicare contractors, fiscal 
intermediaries and carriers; hospitals; physicians; other providers; 
and other stakeholders.
    CMS will also develop and make available ``Frequently Asked 
Questions'' documents, fact sheets, and other supporting education and 
outreach materials for partner dissemination. Other potential 
activities will be identified and developed based on stakeholder input. 
The draft proposed timeline shown below is for preliminary planning 
purposes, and represents our best estimate, given our current 
knowledge, of what an implementation timetable might look like. It is 
subject to revision as updated information becomes available. We 
solicit industry and other stakeholder comments on our timeline 
assumptions and our proposed education and outreach strategy.
[GRAPHIC] [TIFF OMITTED] TP22AU08.006


[[Page 49808]]



IX. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 through 3520).

X. Response to Comments

    Because of the large number of items of correspondence we normally 
receive on Federal Register documents published for comment, we are not 
able to acknowledge or respond to them individually. We will consider 
all comments we receive by the date and time specified in the DATES 
section of this preamble, and, when we proceed with a subsequent 
document, we will respond to the comments in the preamble to that 
document.

XI. Regulatory Impact Analysis

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993, as 
further amended), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354) (as amended by the Small Business Regulatory 
Enforcement Fairness Act of 1996, Pub. L. 104-121), section 1102(b) of 
the Social Security Act, section 202 of the Unfunded Mandates Reform 
Act of 1995 (Pub. L. 104-4), Executive Order 13132 on Federalism 
(August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 (as amended by Executive Order 13258 and 
Executive Order 13422, which modifies the list of criteria used for 
regulatory review) directs agencies to assess all costs and benefits of 
available regulatory alternatives and, if regulation is necessary, to 
select regulatory approaches that maximize net benefits (including 
potential economic, environmental, public health and safety effects, 
distributive impacts, and equity). A regulatory impact analysis (RIA) 
must be prepared for major rules with economically significant effects 
($100 million or more in any 1 year). We consider this proposed rule to 
be a major rule, as it will have an impact of over $100 million on the 
economy. The RIA section of this proposed rule explains our 
calculations for costs and benefits. We attempt to provide information 
for the impact analysis, focusing on savings projections and cost 
estimates. Tables 13 and 14 summarize cost benefit projections. We 
solicit comments on these data during the comment period for this 
proposed rule. Section 202 of the Unfunded Mandates Reform Act of 1995 
also requires that agencies assess the anticipated costs and benefits 
before issuing any rule whose mandate requires spending in any 1 year 
of $100 million in 1995 dollars, updated annually for inflation in any 
1 year by State, local, or tribal governments, in the aggregate, or by 
the private sector. That threshold level is currently approximately 
$130 million. Based on our analysis, we anticipate that the private 
sector would incur costs exceeding $130 million per year in the first 2 
years following publication of the final rule. Our analysis indicates 
that States would not experience costs exceeding $130 million.
    The anticipated benefits and costs of these proposed modifications 
to the medical data code sets, and other issues raised in section 202 
of the UMRA, are addressed later in this document. In addition, under 
section 205 of the UMRA (2 U.S.C. 1535), having considered at least 
three alternatives that are referenced in the RIA section of this 
proposed rule, HHS has concluded that the provisions in this proposed 
rule are the most cost-effective alternative for implementing HHS' 
statutory objective of administrative simplification.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. Executive Order 13132 requires the opportunity for 
meaningful and timely input by State and local officials in the 
development of rules that have Federalism implications. The Department 
consulted with appropriate State and Federal agencies, including tribal 
authorities and Native American groups, as well as private 
organizations. These private organizations included WEDI and the 
Designated Standard Maintenance Organization (DSMO) coordinating 
committee according to section 1178(c)(3) of the Social Security Act.
    In order to validate the fiscal and operational impact of this rule 
on State Medicaid agencies, current data on costs for States to 
implement a new code set would be necessary. We reference in the RIA of 
this proposed rule industry studies that were conducted and that may 
provide some insight into this information for States. In addition, 
during the comment period, we hope that State Medicaid agencies will 
provide any additional and/or updated information.
    The Department has examined the effects of provisions in this 
proposed rule as well as the opportunities for input by the States to 
the proposed rule. The Federalism implications of the proposed rule are 
consistent with the provisions of the Administrative Simplification 
subtitle of HIPAA by which the Department is required by the Congress 
to promulgate standards for the interchange of certain health care 
information via electronic means. Under section 1178(a)(1) of the Act, 
these standards preempt contrary State law.
    The States are invited to comment on this section and all sections 
of this proposed rule. The Department concludes that the policy in this 
proposed rule has been assessed in accordance with the principles, 
criteria, and requirements in Executive Order 13132; that this proposed 
rule is not inconsistent with that Order; that this proposed rule would 
not impose significant additional costs and burdens on the States; and 
that this proposed rule would not affect the ability of the States to 
discharge traditional State governmental functions.
1. Regulatory Flexibility Act--Impact on Small Businesses
    The Regulatory Flexibility Act (RFA) requires agencies to analyze 
options for regulatory relief of small entities. For purposes of the 
RFA, small entities include small businesses, nonprofit organizations, 
and small governmental jurisdictions. Most hospitals and most other 
providers and suppliers are small entities, either by nonprofit status 
or by qualifying as small businesses under the Small Business 
Administration's (SBA's) size standards (revenues of $6.5 million to 
$31.5 million in any 1 year). For details, see the SBA's Web site at 
http://sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf (refer to Sector 62) (accessed 8-12-08).
    We discuss the impact of the proposed rule on small entities in 
section XI.D of this document.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a rule may have a significant impact on the 
operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. (See the discussion at 
section XI.D for our discussion of the expected impact on small rural 
hospitals.)

[[Page 49809]]

B. Anticipated Effects

1. Objective
    The objective of this regulatory impact analysis is to summarize 
the costs and benefits of moving from ICD-9-CM to ICD-10-CM and ICD-10-
PCS code sets in the context of the current health care environment.
    The following are the three key issues that we believe necessitate 
the need to update from ICD-9-CM to ICD-10-CM and ICD-10-PCS:
    <bullet> ICD-9-CM is out of date and running out of space for new 
codes.
    <bullet> ICD-10 is the international standard to report and monitor 
diseases and mortality, making it important for the U.S. to adopt ICD-
10 classifications for reporting and surveillance.
    <bullet> ICD codes are core elements of many HIT systems, making 
the conversion to ICD-10 necessary to fully realize benefits of HIT 
adoption.
    For a more detailed discussion of the limitations of ICD-9-CM, 
please refer to section III.B in the preamble of this proposed rule. No 
other viable alternatives to adopting ICD-10 were identified. The costs 
and benefits for moving from ICD-9-CM to ICD-10-CM and ICD-10-PCS were 
assessed within the requirements of the Executive Orders and Acts cited 
in section XI.B of this regulatory impact analysis.
2. Background
    Two major papers analyzed the costs and benefits of adopting the 
ICD-10 codes: (1) a March 2004 RAND study, http://www.rand.org/pubs/technical_reports/2004/RAND_TR132.pdf (accessed 8-12-08) and (2) an 
October 2003 study by the Robert E. Nolan Company commissioned by the 
Blue Cross and Blue Shield Association, http://www.renolan.com/healthcare/icd10study_1003.pdf (accessed 8-12-08). Both studies agreed 
that the basic elements driving the cost of implementing the ICD-10 
code sets were training, productivity losses, and system changes. Table 
6 summarizes the differences in cost and benefit estimates between the 
two studies.
    In considering the studies, HHS evaluated both on the basis of the 
following criteria:
    <bullet> The depth and completeness of the analysis and supporting 
evidence for the conclusions;
    <bullet> Data sources and a presentation of the data limitations;
    <bullet> The perceived objectivity of the analysis as demonstrated 
by the discussion of data sources and the rigor of the analysis;
    <bullet> The point of view the analysis adopted--whether from the 
general societal perspective or from a specific point of view (for 
example, from the payer or provider view point); and
    <bullet> HHS' ability to explain and justify in a Regulatory Impact 
Statement the findings and conclusions presented in each of the 
studies.
a. Nolan and RAND Studies: Analysis and Limitations
    ICD-10 code sets would likely represent the most complex of all the 
HIPAA code sets. Also, because the ICD-9-CM code set is used for 
reporting diagnoses, adoption of the new codes will likely touch every 
provider who submits diagnostic codes, and every payer that processes 
health care claims. Given the lack of quantifiable data, both studies 
were compelled to make numerous assumptions as to the possible 
behavioral changes resulting from the new codes. The key differences 
are how each study justifies its assumptions and seeks to provide 
detailed and plausible scenarios.
    As the Nolan and RAND reports were the only studies available at 
the time that outlined the costs and benefits for transitioning from 
ICD-9 to ICD-10, we employ them for purposes of this impact analysis 
along with their associated assumptions and limitations. We later 
discuss HHS' analysis based on our selected model. Overall, NOLAN 
estimates that it will cost providers and payers between $5.5 billion 
and $13.5 billion to implement ICD-10-CM and PCS code sets. In 
addition, Nolan expects there to be an additional $150 million to $380 
million in lost productivity.

i. Training

    Nolan expects the following number of individuals would require 
training on the new codes:

                                    Table 1--Nolan Study--Training Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                                   Training cost
                                                                     Number of                     in millions $
                           * Category                                  staff           Hours        (including
                                                                                                    follow-up)
----------------------------------------------------------------------------------------------------------------
Full-time coders................................................         142,170           24-40          94-141
Physicians/practitioners........................................         754,636            4-12         332-499
Part-time coders and other clinicians...........................       1,455,015            4-40         456-684
Other hospital..................................................          44,207            4-40           30-45
Payer plans.....................................................         117,020            4-80          54-80
----------------------------------------------------------------------------------------------------------------
* Nolan adapted from chart 6 on page 17.

    The Nolan study estimates that 142,170 coders would need training 
at a cost of $94 million to $141 million. But the study does not 
differentiate between hospital-based coders and those working in 
physician offices and clinics. In addition, Nolan identifies another 
set of 44,207 coders as ``other hospital'' coders, but there is no 
explanation as to which hospitals are included under this category 
versus ``full-time coders,'' nor does the Nolan study document the 
sources of its numbers. According to the American Health Information 
Management Association Web site (http://www.ahima.org, accessed 8-12-
08), there are more than 51,000 AHIMA members. As AHIMA is the leading 
professional association representing specially educated and certified 
health information management professionals throughout the healthcare 
industry, we assume, as does the RAND study, that this represents the 
majority of the number of full-time coders employed in hospitals. 
Without supporting documentation, we cannot accept Nolan's estimate of 
142,000 full-time coders.
    The Nolan study estimates that 754,000 physicians would require 
between 4 to 12 hours of training at a cost of $332 million to $500 
million, or $440 to $663 per physician. Given the wide use of ``super-
bills'' (forms with codes for diagnosis and procedure codes with their 
descriptions that are most frequently used by physician practices, and 
that may or may not include specific charges) to document encounters in 
office-based practices,

[[Page 49810]]

and familiarity with the few codes for which they routinely bill, it 
seems unlikely that most physicians would require or desire training on 
the new code sets. We believe that only some physicians would have an 
interest in learning the new system. Also, it seems likely that large 
practices would have sufficient need to hire either a part-time or 
full-time coder. In comparison, RAND estimates that only one out of ten 
(45,000) physicians would want up to 8 hours of training, and these 
would most likely be emergency room physicians and surgeons. For these 
reasons, we believe the RAND numbers more accurately reflect the number 
of physicians likely to seek training.
    Nolan predicts that some 1.5 million clinicians, including nurses 
and physician assistants, would seek training in the ICD-10 codes at a 
cost ranging between $313 and $470 per clinician. As in the case of 
physician training, the Nolan study does not present any explanation 
for why over a million nurses and physician assistants would want or 
require training. In some offices, clinicians may perform coding along 
with their clinical duties, but in most cases, we again expect that 
super-bills or similar forms would be used which require minimal 
knowledge of the coding structure. On this basis, we rejected Nolan's 
estimates of clinician training.
    Training would be necessary for insurance and health plans that 
make payments to providers based on the submitted codes. The Nolan 
study estimates that 117,000 coders working for health plans would 
require between 4 to 80 hours of training at a cost of between $54 
million to $80 million. In this regard, both studies are close on their 
estimate of the number of personnel and time required for training, 
with RAND estimating 150,000 personnel requiring 4 to 8 hours of 
retraining.\2\ However, the Nolan study is rather opaque in providing 
evidence or rationale for its conclusions.
---------------------------------------------------------------------------

    \2\ RAND page 10.
---------------------------------------------------------------------------

ii. Productivity Losses
    The Nolan study distinguishes between short-term (6 months to a 
year) and permanent productivity loss.

                                      Table 2--Short-Term Productivity Loss
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Payer and provider productivity losses          $300-600 (million) in first year.
 resulting from claims rework.
Coder productivity loss for first 3 months....  $300-440 (million).
----------------------------------------------------------------------------------------------------------------
 Nolan, adapted from Chart 8, page 20.


                  Table 3--Long-Term Productivity Loss
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Coder productivity loss resulting     $152-380 million.
 from the greater number of codes
 and more complex coding structure.
------------------------------------------------------------------------
Nolan, adapted from Chart 9, page 21.

    The Nolan study concludes that the extra time ICD-10 requires for 
coding is largely the result of initial unfamiliarity with the code 
structure and terminology. However, because of the intrinsic greater 
complexity of coding and vastly greater number of codes, Nolan assumes 
there would be a permanent loss of productivity of $152 million to $380 
million.
    The American Health Information Management Association (AHIMA) and 
the American Hospital Association (AHA) conducted a field test of the 
ICD-10-CM codes and issued their report in September 2003. The full 
report is available at http://www.AHIMA.org. The study imposed certain 
limitations that may have contributed to the extended times in using 
the new code system (the principal limitation being the absence of 
digital documents which would enable faster searching for codes).\3\ 
However, overall, the study found that with adequate training and 
proper coding tools, there should be no loss in coder productivity in 
the long-run (AHIMA/AHA study, page 25).
---------------------------------------------------------------------------

    \3\ ``ICD-10-CM Field Testing Project'' AHIMA/AHA; September 
2003 (http://www.ahima.org/icd10/documents/FinalStudy_000.pdf), 
accessed 8-12-08 page 11; ICD-10 not available in electronic format.
---------------------------------------------------------------------------

    Nolan also cites Canadian sources who reported productivity losses 
during the first 6 months after ICD-10 was implemented, but according 
to its source, production rebounded to pre-ICD-10 levels.\4\
---------------------------------------------------------------------------

    \4\ Nolan, page 21.
---------------------------------------------------------------------------

iii. System Changes
    Nolan's analysis of the cost to make system changes rests largely 
on statements made by various executives who cited the costs of 
preparing for Y2K and HIPAA. The Nolan study analysis consisted of 
adjusting those figures for factors such as avoiding hardware 
purchases, or the inclusion of security and privacy costs in the HIPAA 
estimates. Nolan estimates the system changes based on an aggregate 
number that includes privacy and security, and then backs out the cost 
for implementing the code portion of the costs, concluding that 50 to 
70 percent of the costs would be attributable to code changes.\5\ 
However, there is no explanation for how Nolan determined this number. 
The following table summarizes Nolan's estimates for the cost of 
implementing system changes in the various affected health care 
sectors. The estimates are drawn from tables in the Nolan report.
---------------------------------------------------------------------------

    \5\ Nolan, page 6.

  Table 4--Nolan Study Estimates of System Changes Costs Across Health
                              Care Sectors
------------------------------------------------------------------------
                                                            In billions
------------------------------------------------------------------------
Facilities and physician offices........................       $2.6-$8.2
Health plans and insurers...............................         0.4-1.0
Medicaid/Medicare.......................................         0.7-1.4
------------------------------------------------------------------------
Nolan report, pages 8, 9, 11, 24.

    In estimating the costs of the system changes, Nolan compared the 
implementation of the codes sets to the implementation of the HIPAA 
sets and broke down the activities into the following tasks:

[[Page 49811]]



                          Table 5--Nolan Study Estimates of System Changes Cost by Task
----------------------------------------------------------------------------------------------------------------
         Project steps              Sub-steps          FTEs            HIPAA           FTEs           ICD-10
----------------------------------------------------------------------------------------------------------------
* Team Formation and Analysis.  Assign project          0.25-1.0     $25-$70,000        0.25-1.0     $25-$70,000
                                 leader.
                                Assemble project         0.5-2.0      50-140,000         0.5-4.0      50-280,000
                                 team and
                                 develop plan.
                                Perform gap and             0.25        5-25,000         0.5-3.0     50-210,000
                                 systems
                                 analysis.
----------------------------------------------------------------------------------------------------------------
* Nolan, page 5, chart 2.

    HIPAA required a number of system changes and adoption of a number 
of new code sets. In the final HIPAA transaction rule, we estimated the 
cost to implement the Administrative Simplification provisions to be 
approximately $7.1 billion (65 FR 50356).
    Nolan estimates that system changes in hospitals would cost between 
$2 billion and $6 billion, and $645 million to $2.2 billion for 
implementing the ICD-10 codes in physician and group practice offices. 
Nolan, however, does not take into account that hospitals would need to 
implement both ICD-10-CM and ICD-10-PCS, whereas physician and group 
practice offices will only need to implement ICD-10-CM. Payers would 
incur $400 million to $1 billion in costs to implement the ICD-10 code 
sets. The total cost of $3.045 billion to $9 billion represents from 43 
to 127 percent, respectively, of the $7.1 billion estimated for 
implementing the HIPAA provisions for both provider and plan costs. In 
addition, the Nolan study separately identifies the system change costs 
for government programs, including Medicaid and Medicare, at between 
$700 million and $1.4 billion.\6\ In analyzing the cost of implementing 
ICD-10 code sets for Medicaid State plans, Nolan cites several sources 
that refer to the costs of modifying the Medicaid Management 
Information Systems (MMIS), which may require some modifications to 
accept payments based on the new codes.
---------------------------------------------------------------------------

    \6\ Nolan, page 7.
---------------------------------------------------------------------------

    Nolan did not estimate any quantitative benefit which is a serious 
shortcoming of the study, given the Office of Management and Budget's 
(OMB's) guidance on preparing cost/benefit analyses for major rules.
    Based on the studies' designs, it appears that the RAND and Nolan 
reports had different target audiences; therefore, their respective 
methodologies differed. RAND considered costs and benefits from the 
perspective of the general public, while the Nolan study focused on 
major health care sectors. A key result of this difference is that 
potential winners and losers in each health care sector are not clearly 
highlighted in the RAND report.
    RAND's methodology is more analytical than Nolan's methodology, 
albeit there are still limitations to the RAND report. Both RAND and 
Nolan express the uncertainty in their estimates through presenting 
ranges for their estimates. RAND, however, provides more detailed 
scenarios and offers a qualitative analysis of the uncertainty in the 
variables it uses in its scenarios. Nolan does not offer any 
explanation for its ranges. Both studies conducted extensive literature 
reviews.
    In conducting the cost and benefit analysis, both reports dissected 
the estimates into a one-time cost and one-time and recurring benefits 
in the RAND study. In both the Nolan and RAND studies, nursing homes, 
clinical labs, Durable Medical Equipment suppliers (DMEPOS), third 
party administrators, clearinghouses, and small/medium insurers were 
excluded from their analysis. Table 6 below provides a high-level 
comparison between the RAND and Nolan studies.
    Although RAND does not explicitly break down its analysis beyond 
the broad categories of ``payer'', ``hospital'', ``physician'', for 
costs of coding, productivity losses, returned and improper claims, by 
examining the costs of the generic categories of training, 
administration, and claims processing, RAND's approach cuts across the 
subcategories of providers and payers. Only in the analysis of system 
change costs is there a defect in RAND's method. From the documentation 
provided, RAND conducted interviews with executives of health care 
systems of various sizes as measured by membership.\7\ It is not clear, 
however, the span of the interviewed health systems in terms of the 
types of providers. Without more details, we cannot conclusively 
determine the extent of the system conversion costs of long-term care 
facilities, home care providers and other non-hospital organizations. 
It may be that the system conversion costs for these types of health 
providers are underrepresented. Similarly, it is not clear how far-
ranging is RAND's examination of the various types of payer 
organizations. It is possible that third party administrators, 
clearinghouses, and small health plans may be underrepresented in the 
analysis.
---------------------------------------------------------------------------

    \7\ RAND, pages 15-16 and Appendix B.

                   Table 6--Comparison of Cost and Benefit Estimates in RAND and Nolan Studies
                                                 [In $ millions]
----------------------------------------------------------------------------------------------------------------
                                          RAND            Nolan        Difference              Comments
----------------------------------------------------------------------------------------------------------------
Costs Training:
    One-time.......................        $200-450      $950-1,500      $750-1,050  <bullet> 35 to 50 percent
                                                                                      difference attributable to
                                                                                      the assumption of part-
                                                                                      time coders: RAND assumed
                                                                                      200,00 compared to 1.5
                                                                                      million in the Nolan
                                                                                      report.
                                                                                     <bullet> 25 to 40 percent
                                                                                      difference attributable to
                                                                                      the number of physicians:
                                                                                      RAND assumed 1:10
                                                                                      physicians would be
                                                                                      trained compared to most
                                                                                      physicians in the Nolan
                                                                                      report.
Productivity Losses:
    One-time.......................          50-350       600-1,040         550-690  <bullet> The Nolan report
                                                                                      treated re-work and short-
                                                                                      term losses separate from
                                                                                      productivity losses--which
                                                                                      may account for the Nolan
                                                                                      Report figures.

[[Page 49812]]

 
    Recurring......................            0-30         152-380         152-350
System Changes:
    One-time.......................         225-700    3,700-10,600     3,475-9,900  <bullet> The Nolan report
                                                                                      compared ICD-10 code set
                                                                                      implementation to other
                                                                                      large scale system changes
                                                                                      such as Y2K and HIPAA.
    Contract Negotiations..........               0          82-416          82-416
Benefits: (in millions)
    More accurate payments for new        100-1,200           (\1\)  ..............  <bullet> The Nolan report
     procedures.                                                                      claims that vast majority
                                                                                      of benefits cannot be
                                                                                      achieved without a
                                                                                      standard clinical
                                                                                      vocabulary. Also, the
                                                                                      report states that the
                                                                                      benefits asserted by
                                                                                      proponents are uncertain
                                                                                      and unproven based on
                                                                                      literature reviews.
    Fewer rejected claims..........       200-2,500           (\1\)
    Fewer fraudulent claims........       100-1,000           (\1\)
    Better understanding of new           100-1,500           (\1\)
     procedures.
    Improved disease management....       200-1,500          (\1\)
----------------------------------------------------------------------------------------------------------------
\1\ Uncertain.

    Finally, Nolan also argues that implementing ICD-10 codes would 
lead to increased incidences of fraud and abuse in its introductory 
period. We agree with this view since we anticipate that people may 
take advantage of the initial ambiguity of the new codes, but we also 
believe that the greater precision of the coding requirements would 
eventually lead to lower incidences of abuse.
    Both studies presented valuable input and relevant information, but 
based on questions regarding the methods and assumptions presented in 
each report, we believe that neither should be used as the sole basis 
for an ICD-10-CM and ICD-10-PCS impact analysis. To address these 
shortcomings, HHS convened a workgroup to develop a framework 
consistent with OMB's requirements for an impact analysis. The 
framework extracted relevant points from both the RAND and Nolan 
studies, and also identified new internal and external data sources.
    Also taken under consideration for purposes of this impact 
analysis, is a report authored by the Hay Group, Inc., ``Examining the 
Cost of Implementing ICD-10'', commissioned by America's Health 
Insurance Plans (AHIP) (hereinafter referred to as the AHIP report'') 
in October 2006. \8\ This report, a white paper based on the 
previously-referenced RAND and Nolan reports on ICD-10 implementation, 
is intended to identify the primary sources of ICD-10 implementation 
costs. It includes a review of existing cost estimates from RAND and 
Nolan and uses those estimates to develop preliminary estimates of the 
likely cost to the U.S. health system as a whole. Its scope includes 
health care providers, private payers, and government payers. The types 
of costs considered are systems implementation, training, and provider 
contract renegotiations. Only direct implementation costs are 
considered. The report does not include the cost of work that must be 
re-done due to error rates or other forms of lost productivity.
---------------------------------------------------------------------------

    \8\ ``Examining the Cost of Implementing ICD-10'' White Paper 
prepared by Thomas F. Wildsmith, FSA, MAAA of HayGroup, Inc. on 
behalf of the America's Health Insurance Plans, October 12, 2006. 
http://www.ehcca.com/presentations/hithipaa414/3_04_1.pdf.
---------------------------------------------------------------------------

    For purposes of this regulatory impact analysis, we used the AHIP 
report as a litmus test in that it was authored a full 2 years after 
the RAND and Nolan reports, and held the potential for providing more 
updated cost estimates. However, it again relies on RAND and Nolan 
data, and notes that its cost estimates would still have to be adjusted 
for inflation, which we have already done for this impact analysis. The 
AHIP report also lacks discussion regarding the monetary benefits that 
would occur once ICD-10 is implemented. It also does not specifically 
reference how their estimates were calculated or the sources for many 
of their assumptions.
    We agree with selected segments of the AHIP report, namely its 
conclusion that implementation of ICD-10 for Medicare and Medicaid 
would run between $250 and $370 million; we estimate an average of $315 
million. Where our analysis and the AHIP report differ is in the cost 
for the training of physicians on the ICD-10 codes sets, and in the 
cost of re-negotiating contracts. In the case of the former, we 
continue to believe that there will be a minimum number of physicians 
who will desire such training, leaving it instead to their staff 
coders, or the use of ``super-bills'' to update their coding 
information. In the case of the latter, we continue to believe that 
contract re-negotiation costs are considered for purpose of this 
analysis to be a cost of doing business, and would take place whether 
or not the transition to ICD-10 took place. We believe that the level 
of effort to re-negotiate contracts for the purposes of implementing 
ICD-10 would not be significantly different from other policy-related 
changes requiring contract renegotiations. We also do not account for 
AHIP's increase in system implementation costs of between $115 to $416 
million due to an accelerated implementation of the ICD-10 code sets 
versus an orderly, staged rollout as we have proposed.
3. Framework for Impact Analysis
a. The Impact Analysis Workgroup
    HHS created a workgroup from a cross-agency, multidisciplinary team 
with actuarial, economic and coding subject matter expertise from HHS' 
Office of the Assistant Secretary for Planning and Evaluation (ASPE); 
Centers for Disease Control (CDC)/National Center for Health Statistics 
(NCHS); Centers for Medicare & Medicaid Services (CMS); and the Office 
of the National Coordinator for Health Information Technology (ONC). 
The workgroup sought guidance from the Department of Defense (DoD), the 
Department of Veterans Affairs (VA), and contacts from other countries 
that have implemented ICD-10, to lead the cost-benefit analysis for 
transition from

[[Page 49813]]

ICD-9-CM to ICD-10-CM and ICD-10-PCS. Also, Actuarial Research 
Corporation (ARC) was hired to help the team evaluate and update the 
data sources and available information. The team critically reviewed 
several cost-benefit studies and international experiences with ICD-10 
implementation. Data were drawn from the RAND study (sponsored by 
NCVHS), the Nolan study (sponsored by the Blue Cross Blue Shield 
Association), the American Health Information Management Association 
(AHIMA), and CMS.
    In 2005, the workgroup began the analysis of the costs and benefits 
by examining and comparing the RAND and the Nolan studies. While both 
contain useful information, the requirements for regulatory impact 
estimates demand a somewhat different framework. The workgroup 
incorporated the basic results from both studies, as well as the 
Secretary's vision of health care information technology, and reflected 
costs and benefits by year based on assumed implementation schedules.
    The workgroup's analysis assumes that the implementation of ICD-10 
code sets would be coordinated with existing HHS health information 
technology initiatives, and include the required changes to dependent 
regulations and standards. HHS health initiatives, such as public 
health/biosurveillance, disease registries, quality monitoring, 
utilization review, and pay for performance, could employ either ICD-9-
CM or ICD-10-CM and ICD-10-PCS code sets.
    Conversion costs from ICD-9-CM to ICD-10 code sets are unavoidable 
and do not include costs associated with the American Standards 
Committee (ASC) X12N version 5010 standard. ICD-9-CM is an adopted 
HIPAA code set and the adopted HIPAA Transaction standard (ANSI ASC 
X12N version 4010/4010A1) does not support ICD-10-CM and ICD-10-PCS 
code sets. Also, the CMS IPPS uses ICD-9-CM-based Diagnostic Related 
Groups (DRGs), and the annual regulatory IPPS update would require 
conversion to ICD-10-based DRGs. Regulatory and standards changes, 
including implementation of Version 5010 must occur before, or parallel 
to, conversion to ICD-10-CM and ICD-10-PCS code sets, with sufficient 
notice to the industry to reconfigure systems, policies and 
methodologies. For initiatives in the early stages of development, 
costs to implement ICD-9-CM now, with conversion to ICD-10 code sets 
later, could be avoided by direct conversion to ICD-10 code sets 
concurrently with the initiatives.
    The following is a detailed discussion of the workgroup's approach, 
method, and assumptions underlying its costs/benefit analysis.
    First, we present an overview of HHS' approach to estimating the 
costs and benefits based largely on the RAND study but also drawing 
from the Nolan study and the AHIMA/AHA study.\9\ The second part of 
this section describes in detail the assumptions and models that RAND 
developed for its estimates and which were adapted for this analysis.
---------------------------------------------------------------------------

    \9\ ``ICD-10-CM Field Testing Project.'' AHIMA/AHA; September 
2003 (www.ahima.org/icd-10/documents/FinalStudy/pdf.), accessed 8-
12-08
---------------------------------------------------------------------------

    The workgroup's calculations began with the RAND \10\ estimates, 
incorporating additional information from CMS, and some input from 
Nolan.\11\ For each category for which RAND provided a range of high 
and low costs, a point estimate was generated. When RAND did not 
include a specific estimate, HHS' point estimate was based on the 
midpoint of their high and low estimates. RAND's descriptions and 10-
year numbers were used to create a year-by-year spread of both costs 
and benefits. Modifications were made after reconsideration of the RAND 
study regarding their calculations. These modifications included the 
addition of productivity losses for outpatient claims; the separation 
of costs from the benefits for rejected and improper claims; and 
reconciliation of what were considered inconsistencies in the RAND 
study. We selected the computed values from the text of the RAND report 
rather than relying on the values presented in the tables.
---------------------------------------------------------------------------

    \10\ ``The Costs and Benefits of Moving to the ICD-10 Code 
Sets.'' Martin Libicki and Irene Brahmakulaum, The RAND Corporation. 
MHHSh 2004.
    \11\ ``Replacing ICD-9-CM with ICD-10-CM and ICD-10-PCS: 
Challenges, Estimated Costs and Potential Benefits.'' Robert E. 
Nolan Company. October 2003.
---------------------------------------------------------------------------

    HHS also examined estimates from the Nolan study. Nolan 
specifically estimated outpatient productivity losses, a cost that RAND 
did not estimate. For outpatient productivity, the Impact Analysis Work 
group assumed the short-term impact may be very small in terms of extra 
time per claim, but because of the large number of claims, the loss was 
judged to be significant. In its analysis, Nolan identifies potential 
productivity and other losses for physician and facilities. RAND did 
not examine the possible loss of productivity for physician and other 
outpatient claims. We believe that there may be a productivity loss of 
outpatient and physician office-based services. The loss per claim may 
be very small, but because of the huge volume of physician and 
outpatient facility claims, the productivity loss may be significant.
    To allow analysis of longer-term conversion impacts, HHS' estimates 
are moved to a year-by-year basis. Also, since we expect new procedures 
to be introduced each year, the savings from the introduction of the 
new codes are estimated to increase annually over the period for which 
the analysis was conducted.
    For two benefit categories, ``fewer rejected'' and ``improper 
claims,'' RAND estimated a net cost of zero over the first 5 years, 
expecting that there would be some short-term losses before benefits 
materialized. For the purpose of calculating both year-by-year 
estimates and 10-year estimates, these categories are included on the 
cost side as well as on the benefit side. This is reflected by 
including costs of rejected and improper claims for the first 2 years.
    The next section details the assumptions used to estimate the costs 
and benefits, and the models used to estimate the benefits. Upper and 
lower bound estimates are also presented.
4. Assumptions Underlying the Cost and Benefit Analysis
    The estimates for the impact of replacing ICD-9-CM with ICD-10-CM 
and ICD-10-PCS code sets as the HIPAA standard code sets is based 
primarily on the RAND analysis previously cited. After reviewing that 
report versus other reports (for example, Nolan), comments from other 
entities, experience from other countries, and conversations with 
government analysts, we adapted the RAND results as the base for 
developing the regulatory impact estimates. As noted above, we adopted 
the RAND approach and results but made several modifications to the 
underlying RAND estimates.
5. Impacted Entities
    Entities covered under HIPAA would be required to comply with the 
provisions of this proposed rule once finalized. Covered entities 
include all health plans, all health care clearinghouses, and health 
care providers that transmit health information in electronic form in 
connection with a transaction for which the Secretary has adopted a 
standard. In the sections that follow, we attempt to outline the ICD-10 
transition cost impacts to various covered entities; however, we 
acknowledge that the cost analysis for training, productivity loss, and 
system changes are impacts of varying degrees on all covered entities.
    There are multiple ways to implement the ICD-10 code sets. As the 
codes will be integrated into systems and

[[Page 49814]]

processes, some providers, plans, and vendors may decide to populate 
the new codes throughout their entire system at once, or translate the 
codes on a flow basis as they are used. Integration of the codes in 
many cases will be determined by the extent to which the available 
granularity is needed in transactions.
    Many small and specialty practices may continue to submit paper 
claims as well, using preprinted forms that include all of the 
appropriate codes required for use in such offices. In most instances 
small practices and direct billing practitioners may assign the 
diagnosis themselves and may include the ICD-10 code on the paper 
billing form. As time goes on, we anticipate that the industry will 
migrate to the full use of the more robust codes to realize the full 
benefit potential of ICD-10.
    We solicit industry and other stakeholder comments on ICD-10 
integration and use of workarounds.
6. Estimated Costs
    As identified in both the Nolan and RAND studies, HHS estimates the 
following three basic categories of costs:
    <bullet> Training.
    <bullet> Productivity Losses.
    <bullet> Systems Changes.
    In general, costs may be categorized into one-time costs and 
recurring costs. In our analysis, some costs are considered one-time 
costs associated with conversion and training, which will be expended 
within less than a year. Other costs, such as the cost for additional 
claims processing resulting from errors and delays in implementing 
system changes, are projected to extend out for several years and are 
considered recurring costs. (see Table 13a) Both RAND and Nolan 
identify short-term (6 months or less) and long-term productivity 
losses (extending beyond the initial 6-month period).
    For purposes of this analysis, we consider a primary estimate to 
include all estimated costs, and estimated benefits incorporating both 
one-time and recurring costs, extended over a 15-year period based on 
the data provided from the RAND and Nolan studies. (Please refer to 
Table 13a and b for more information on costs and benefits as well as 
primary estimates).
    In developing our estimates for both the costs and benefits of 
converting to the ICD-10 codes, we developed ranges, intended to 
express the uncertainty in our point estimates. The low point of each 
range represents for the most part, half of the point estimate, with 
the high point of the range representing a doubling of the point 
estimate.
    For some of the cost estimates, we use the higher end of the scale 
to be more conservative. For example, when we suggested that training 
would take four to eight hours, we based our calculations on eight 
hours. Also, we use a 15-year timeframe to show the point at which 
benefits exceed costs. For purposes of this impact analysis, in some 
instances we base our ranges on that of the RAND study and extend them 
out over 15 years. Also, because our analysis shows that costs will be 
expended within the first 3-5 years, in most cases we use the midpoint 
of our ranges for the primary estimate.
    We also estimate that there will be a phase-in of costs. In most 
cases, costs begin showing in the 2 years prior to implementation and 
zero out the year after implementation. The only exception is the costs 
for improper and returned claims, which we estimate will not be 
incurred until after implementation since claims using ICD-10 will not 
be submitted until after the implementation date.
    In terms of a phase-in of benefits, we do this in order to show 
that benefits will increase the more the industry becomes familiar with 
using the new codes. We do not expect benefits to begin until the year 
after implementation, but will continue to increase each year 
thereafter with 100 percent of the benefit being realized 5-6 years 
after implementation.
    Since we base our figures on 2004 dollars, for purposes of this 
analysis, we account for inflation by increasing the cost estimates by 
the Consumer Price Index (CPU-I) figures from 2004 to 2007 and the 
benefit estimates by the growth rate in the National Health Expenditure 
accounts for 2005 to 2007.
    For estimation of the costs estimates, we divide the CPI-U annual 
index for 2007 by 2004's index to determine the adjustment factor in 
which to apply to each cost estimate and range. This adjustment factor 
equals approximately 1.098.\12\ Since the cost estimates for 
implementing ICD-10 are not tied to medical services, we feel that the 
CPI-U is reasonable to use for adjusting for inflation. That is, most 
of the costs are so heavily allocated to the first few years, the 
inflation adjustment does not have a significant effect.
---------------------------------------------------------------------------

    \12\ From the Consumer Price Index 2004 and 2007, http://www.bls.gov/CPI/, accessed 8-12-08.
---------------------------------------------------------------------------

    For the benefit growth factor pre-implementation, we use the growth 
in national health care expenditures for years 2005-2007, with year 
2007 having an estimated growth rate of 1.212. For the growth 
projections for years 2012 and beyond, we use the compounded growth in 
the U.S. population which is projected to grow at 0.008 per year.\13\
---------------------------------------------------------------------------

    \13\ National Health Expenditures and Selected Economic 
Indicators, Levels and Annual Percent Change: Calendar Years 2002-
2017.
---------------------------------------------------------------------------

    Although we base most of our assumptions on the RAND study, we take 
into account the concerns expressed by the Nolan study that RAND did 
not raise:
    <bullet> Cash flow.
    <bullet> Contract renegotiations.
    We agree with Nolan's assumption that the slowdown associated with 
the implementation of the new code sets may cause serious cash flow 
problems for providers. The risk of a payment slowdown always exists 
whenever a new payment system or policy is implemented. However, even 
with major policy changes, plans have learned over time to anticipate 
these problems and have instituted measures to provide periodic interim 
payments (PIP) for providers who may be affected by the processing 
slowdown. Most payers have learned through experience the cash flow 
needs of their providers and can easily set up PIPs and perform 
reconciliation at the end of the fiscal year.
    With respect to contract renegotiation, this is an activity that 
providers and payers must perform on a regular basis, and every time a 
new policy is issued. The implementation of the new codes would require 
contract renegotiations. However, we do not see the level of effort to 
be significantly greater than with other renegotiation efforts, 
especially in the recent past with the initiation of a number of 
prospective payment systems for long-term care, psychiatric, 
rehabilitation, and outpatient services.
    Therefore, for purposes of this impact analysis, we do not address 
the concerns of Nolan as stated above.
a. Training
    For training costs associated with the ICD-10 transition, we 
account for both full-time and part-time coders. We surmise that full-
time coders are primarily dedicated to hospital inpatient coding while 
the part-time coders work in outpatient ambulatory settings. The 
classifying of hospital inpatient coders as full-time may roughly 
represent the employment status of this group of coders. However, we 
believe it is more accurate to categorize coders based on their job 
location as inpatient or ambulatory setting coders. The difference in 
categorizing coders based on the job setting rather than full- or part-
time has to do with the need to learn ICD-10-

[[Page 49815]]

PCS in addition to ICD-10-CM. All coders will need to learn ICD-10-CM 
while the coders working in the hospital inpatient setting will also 
need to learn ICD-10-PCS. This will apply to inpatient coders 
regardless of their status as part-time or full-time coders.
    For full-time/inpatient coder training, we use the estimation 
calculated by AHIMA and others that getting full-time coders to 
proficiency on both ICD-10-CM and ICD-10-PCS could take as little as a 
few days or up to a full 40 hours.\14\ Based on AHIMA membership, we 
assume that 50,000 full-time hospital coders would need one week of 
training, at $2,750 per coder, which includes $2,200 for lost work time 
and $550 for training expenses, for a total of $137.51 million.\15\
---------------------------------------------------------------------------

    \14\ RAND, page 8.
    \15\ RAND, page 8.
    \16\ http://www.census.gov/csd/susb/susb05.htm, accessed 8-12-
08.
---------------------------------------------------------------------------

    Therefore, we estimate that the training costs for full-time coders 
associated with adopting ICD-10 is approximately $137.51 million with a 
low range estimate of approximately $110 million and a high of 
approximately $165 million.
    As explained previously, we expect training of full-time coders to 
start in 2010 (the year before ICD-10 implementation). We assume that 
15 percent of training costs will be expended in this year. In the 
following year (the year ICD-10 implementation occurs), we assume 75 
percent of training cost will be expended in 2011 and 10 percent of 
training costs in 2012.
    Estimating the distribution of coders in ambulatory settings is 
more complicated because not every ambulatory setting may employ a 
coder. In many physician and practitioner offices, the use of ``super-
bills''--preprinted forms that include all of the appropriate codes 
required for use in such offices--minimizes the need for a coder. Based 
on our knowledge of the industry, in most instances physicians and 
direct billing practitioners will assign the diagnosis themselves and 
may include the ICD code on the billing form. Yet we believe that all 
but the smallest practices will have someone whose responsibilities 
either formally as part of their job description or informally include 
handling coding issues.
    Table 7 below summarizes the number of part-time coders by North 
American Industry Classification System (NAICS) code for ambulatory 
entities (http://www.census.gov/csd/susb/susb05.htm, accessed 8-12-08).

                     Table 7--Ambulatory Entities Assumed to Employ Part-Time Coders Based on the 2005 Statistics of U.S. Businesses
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         Total number of
                                                            entities                                                                       Total number
           NAIC code                Type of entity      (establishments)   5-9 employees       10-19           20-99          100-499      of part-time
                                                          and employees                      employees       employees       employees        coders
                                                              \16\
--------------------------------------------------------------------------------------------------------------------------------------------------------
6211..........................  Office of Physicians..          213,611           44,457          25,178          21,500           7,062  ..............
                                Employees.............        2,041,704          286,741         316,111         555,259         256,996         100,875
6213..........................  Office of Other Health          115,378           19,357           7,654           5,043          11,774  ..............
                                 Practitioners.
                                Employees.............          553,658          121,527          88,196          96,754          47,155          30,962
6214..........................  Outpatient Care                  26,901            1,897           1,907           4,190           5,440  ..............
                                 Centers.
                                Employees.............          658,507           12,510          24,766         109,237         186,883          17,941
6215..........................  Medical and Diagnostic           11,856            1,324           1,324           1,492             928  ..............
                                 Laboratories.
                                Employees.............          222,651            8,577          13,194          41,707          40,221           6,080
6216..........................  Home Health Care                 20,184            1,426           1,569           4,109           2,445  ..............
                                 Services.
                                Employees.............          913,514            9,558          22,111         171,704         245,827  ..............
                                                                                                                                                 179,267
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Based on the 2005 Statistics of U.S. Businesses data, our analysis 
suggests that there are approximately 179,000 part-time coders who will 
require training on the ICD-10 CM codes, but not on the ICD-10-PCS 
codes. Based on contacts with industry and our own experience, we 
assumed that for every 20 employees employed in an ambulatory setting, 
there would be one part-time coder. Using the size categories that the 
Office of Advocacy in the U.S. Small Business Administration created 
with the Statistics of U.S. Businesses data, we calculated the number 
of part-time coders in outpatient ambulatory practices with 20 to 499 
employees. (http://www.census.gov/csd/susb/susb05.htm, accessed 8-12-
08) We further assumed, that based on their size, the administrative 
complexities and the types and volume of services provided, that 
facilities with 500 or more employees would require full-time coders. 
Thus, we did not include ambulatory practices with 500 or more 
employees in our analysis of part-time coders.
    We also assumed that very small providers with between 5-10 
employees would have someone responsible to manage coding issues, who 
would need some amount of training. We assume that the 179,000 coders 
would have training costs per coder of $550. This includes $440 for 
lost work time and $110 for training expenses, for an estimate total of 
$98.5 million.\17\
---------------------------------------------------------------------------

    \17\ RAND, page 8.
---------------------------------------------------------------------------

    For purposes of this impact analysis, we estimate the cost 
associated with part-time coder training in adopting ICD-10 is 
approximately $98.50 million, with a low range of approximately $55 
million and a high range of $165 million.
    Code users can include people outside of health care facilities--
researchers, epidemiologists, consultants, auditors, claims 
adjudicator, etc. Users could also include people within health care 
facilities in areas such as senior management, clinicians, quality 
improvement, utilization management, accounting, business office, 
clinical departments, data analysis, performance improvement, corporate 
compliance, data quality, etc. AHIMA defines a user of coded data as 
anyone who needs to have some level of understanding of the coding 
system, because they review coded data, rely on reports that contain

[[Page 49816]]

coded data, etc., but are not people who actually assign codes.
    We estimate that there are approximately 250,000 code users.\18\ We 
assume that of these 250,000 only 150,000 work directly with codes and 
would require eight hours of training at approximately $250 ($31.25 per 
hour x 8 hours). We estimate training costs for code users at $37.50 
million with a low range estimate of $27 million and the high range is 
$55 million.\19\
---------------------------------------------------------------------------

    \18\ RAND, page 9.
    \19\ RAND, page 9.
---------------------------------------------------------------------------

    For physicians, we assume that only 1 in 10 physicians, or 150,000 
(there were a total of 1.5 million physicians in the U.S. as of 2005 
\20\), would require training. Based on our experiences and the 
testimonies of various providers, we estimate physicians would only 
need 4 hours of training, which is half of what RAND assumes, at $137 
per hour. \21\ However, after conversations with industry experts and 
various physician types, we believe that since it is likely that 
physicians will obtain ICD-10 training through hospital-sponsored staff 
in-services, county medical society in-services, continuing physician 
education programs, etc., which they would attend nonetheless, 
physician ICD-10 training costs will be even less. Based on the 
assumptions above, we estimate the cost associated with physician 
training for adopting ICD-10 is $82.20 million with range estimates 
including a minimum of $0 and a maximum of $165 million.
---------------------------------------------------------------------------

    \20\ World Health Organization, http://www.who.int/en/, accessed 
8-12-08.
    \21\ RAND, page 9.
---------------------------------------------------------------------------

    We invite the public to comment on our assumptions and to provide 
any data that may improve the accuracy of our analysis.
b. Productivity Losses
    Productivity loss refers to the cost resulting from a slow-down in 
coding bills and claims because of the need to learn the new coding 
systems. \22\ One can think of productivity loss as the number of 
additional staff hours that would be required to code the same number 
of bills and claims per hour before the code conversion. With the 
adoption of a new code set, there would be an initial loss in 
productivity. All personnel, including coders and practitioners, would 
be affected to some degree. Coders would be directly affected because 
of the need to learn new codes and definitions. Time would be lost, and 
undoubtedly some claims would require resubmission to payers as both 
providers and payers adjust to the new codes.
---------------------------------------------------------------------------

    \22\ RAND, page 10.
---------------------------------------------------------------------------

i. Inpatient
    We assume that there would be a significant amount of short-term 
losses during the first 6 months after implementation. Beyond that 
point, we believe that productivity would return to its previous level. 
Studies from Canada and Australia have shown that the productivity 
losses disappeared within 6 months after transition to their versions 
of ICD-10.
    According to a field test conducted by the American Health 
Information Management Association (AHIMA) and the American Hospital 
Association (AHA) in 2003 (http://www.ahima.org/icd10/documents/FinalStudy_000.pdf), coders reported no difference in the time it took 
to code the claims in 58 percent of the cases. Ninety-one percent of 
the remaining records took more than five additional minutes over the 
ICD-9 coding in part due to:
    <bullet> Unfamiliarity with the index structure of ICD-10;
    <bullet> Use of different main terms and sub-terms in ICD-10 versus 
ICD-9;
    <bullet> Spending more time reviewing the medical record; and
    <bullet> Having greater familiarity with ICD-9 than with ICD-10, as 
many coders had common codes memorized.
    AHIMA concluded that the availability of much-improved coding 
tools, more training, and increased familiarity with ICD-10-CM would 
significantly reduce the amount of time needed to code records in ICD-
10-CM, possibly to the point where ICD-10-CM actually may require less 
coding time than ICD-9-CM.\23\
---------------------------------------------------------------------------

    \23\ ICD-10 Field Testing Project Summary Report, September 23, 
2003; AHIMA, p. 25.
---------------------------------------------------------------------------

    Although the field study suggests a larger initial loss of coder 
productivity, the lack of training, the unavailability of user-friendly 
coding tools, and other limiting factors, it did not represent the 
``real-world'' conditions under which coding would be performed. 
Because of the restrictions and the absence of the ``real world'' 
conditions under which we believe coders will be working once the ICD-
10 code system is implemented, we did not base the estimate of 
productivity loss on the field study.
    For purposes of this impact analysis, we estimate that it would 
take coders 1.7 additional minutes in the first month to code an 
inpatient claim that includes an inpatient procedure.\24\ We estimate 
that the first month's productivity loss at 1.7 minutes per claim and 
applying this to 1.8 million inpatient claims requiring procedures per 
month (20,000,000 claims per year divided by 12 months) at $50 per hour 
or $1.41 per claim will result in productivity losses equaling $2.7 
million in the first month. For purposes of this analysis, we assume 
that resumption of productivity will increase the same amount each 
month over the next five months. Dividing $2.7 million by 6 gives a 
monthly increase in productivity of $450,000. Thus, within 5 months 
following implementation of the ICD-10 codes for inpatient services, 
coding productivity will return to their pre-conversion levels and 
there will be no long-term impact on coding efficiency. After 
subtracting the $450,000 from each month's lost productivity, we add 
the residual monthly amount of lost productivity. The total cost due to 
reduced inpatient productivity resulting from introduction of the ICD-
10-CM and PCS codes is projected to be $8.90 million incurred within 
the first year, with a low estimate of approximately $0 and a high 
estimate of approximately $55 million.
---------------------------------------------------------------------------

    \24\ RAND, page 10.
---------------------------------------------------------------------------

    Further support for the view that long-term productivity will not 
be adversely affected came in a July 2007 conversation CMS had with 
AHIMA.\25\ AHIMA further reiterated that long-term productivity losses 
would not be significant. The learning curve for ICD-10 in an inpatient 
setting may be longer due to the need for coders to learn both ICD-10-
CM and ICD-10-PCS. However, ICD-10-PCS has proven to be easier for 
coders to learn than ICD-9-CM procedures with its many inconsistencies. 
Within 2 months, inpatient coders would understand ICD-10-CM and 
rapidly gain a proficiency in its use. Within 6 months, inpatient 
coders would be highly proficient in its use. After 6 months, there 
would be extremely small degrees of loss of productivity, if any at 
all.
---------------------------------------------------------------------------

    \25\ This was an informal conversation between Pat Brooks from 
the Hospital and Ambulatory Policy Group within the Centers for 
Medicare Management at CMS and Sue Bowman from AHIMA.
---------------------------------------------------------------------------

ii. Outpatient
    In analyzing the cost of productivity loss in the outpatient/
ambulatory setting we had to determine the amount of additional time 
coders would need to code a claim with the ICD-10-CM codes, and the 
number of claims processed within a given period.
    In selecting a source for the number of outpatient/ambulatory 
claims, we examined data from the National Ambulatory Medical Care 
Survey, the National Hospital Ambulatory Medical

[[Page 49817]]

Care Survey and the Nolan report. These surveys collect data on patient 
visits to physicians and visits to hospital outpatient departments and 
emergency rooms. In 2005, the NAMCS reported 964 million physician 
visits. In the same year, the NHAMCS reported 115 million patient 
visits to emergency rooms and 90.4 million visits to hospital 
outpatient departments. The total number of patient visits to 
outpatient medical settings based on the two surveys was 1,169 million 
visits.
    Because we are inclined to adopt a conservative approach to 
estimating the costs of converting to the ICD-10 codes, we are using 
the estimate of outpatient claims that the Nolan report used in its 
calculation. While the NAMCS and NHACS surveys probably accurately 
reflect the number of patient visits, the number of visits may 
understate the number of claims submitted. As we discuss below in 
section iv., Improper and Returned Claims, a certain percentage of 
claims will be processed more than once. We believe that the two 
billion claim estimate accounts for the multiple processing of claims 
in addition to the initial processing of claims.
    For purposes of the analysis, we assume the average time to code an 
outpatient claim could take one-hundredth of the time for a hospital 
inpatient claim. The average time to code an outpatient claim takes 
into account the wide variety of outpatient settings and coding forms. 
For example, physician offices may use preprinted forms or touch-
screens that require virtually no time to code. Clinics and hospital 
outpatient units using outpatient claim forms, however, may require 
more time and some may require as much time as inpatient claims.
    Applying the estimate of 0.017 minutes per outpatient claim (one 
hundredth of 1.7 minutes for inpatient claims) to the monthly number of 
claims of 166.7 million and $50 per hour or $0.014 per claim, we 
estimate the first month's productivity loss will be $2.6 million. 
Applying a straight line assumption for the recovery or productivity 
over the next five months, we divided $2.6 million by six to arrive at 
$433,000. That is, productivity will recover from a low of $2.6 million 
at a rate of $433,000 per month for the next five months. Over the 
following 5 months, we expect productivity to return to its pre-
conversion level.
    In the same July 2007 CMS conversation referred to in the 
discussion of inpatient productivity loss, AHIMA noted that the 
productivity losses in an outpatient setting would be less than 
inpatient due to the need of coders to learn only ICD-10-CM rather than 
both ICD-10-CM and ICD-10-PCS. Within a few weeks, coders would 
understand most of the differences between ICD-9-CM and ICD-10-CM. 
Within 6 months, coders would be quite proficient in ICD-10-CM.
    For purposes of this impact analysis, we estimate the cost 
associated with outpatient productivity losses with adopting ICD-10, is 
approximately $8.56 million with a range of a $0 minimum and a $55 
million maximum.
iii. Physician Practices
    We assume that physician practices will sustain an initial loss of 
productivity loss. Each practice will have to convert their current 
``super-bills'' to an updated version that includes ICD-10 codes. AHIMA 
estimates that it will take approximately two hours for this 
conversion, with a one-time cost estimate of $55 per practice. Assuming 
there are 200,000 practices nationwide, this cost equates to a one-time 
total cost of approximately $10.98 million, with a low range of $5.5 
million and a high range of $27 million. We consider this number to be 
high considering that some practices will have their specialty 
societies perform the ``super-bill'' conversion and supply it to their 
members.
iv. Improper \26\ and Returned Claims
---------------------------------------------------------------------------

    \26\ RAND defines improper claims as those claims that could be 
fraudulent.
---------------------------------------------------------------------------

    The implementation of the new code sets is expected to produce a 
temporary increase of coding errors especially on the part of 
physicians. To determine the effects of introducing code changes on the 
number of claims processing and the number of Medicare returned claims, 
we reviewed returned claims data for FYs 2004, 2005 and 2006. We found 
that there appears to be a pattern of a spike in Medicare returned 
claims 3 to 6 months following the introduction of ICD-9 annual code 
updates. The average percent increase in returned claims associated 
with the annual coding update is approximately three percent over the 
3-year period.\27\ Based on our findings and considering that the 
annual coding update affects a relatively small number of codes 
compared to the proposed ICD-10 conversion, which will affect all 
diagnostic and procedure codes, we anticipate that the percent of 
returned claims following the implementation could be more than double 
the previous years' increases. We expect that the percent of returned 
claims may peak at around 6-10 percent of the pre-implementation levels
---------------------------------------------------------------------------

    \27\ CMS Medicare Returned Claims Report for FYs 2004, 2005, and 
2006; Office of Financial Management.
---------------------------------------------------------------------------

    Relying on RAND's estimate that the average overall cost of claims 
adjudication in the U.S. is roughly $22 billion nationwide per 
year,\28\ this represents only a fraction of the $88 billion total 
health administrative claims adjudication costs.\29\ If we assume that 
the average claim goes through two cycles, the overall cost of claims 
adjudication divided by the average number of cycles a claim makes, 
results in a cost of approximately $11 billion per cycle per year for 
all claims.\30\ Based on our assumed cost of claims processing and the 
additional initial increase of 3 percent jump in erroneous claims, we 
estimate that the total cost for claims handling for plans and 
providers will be $543.29 million. We assume the annual cost of the 
increase in returned claims equals $329 million (3 percent of $11 
billion). In the first year, we expect the full annual cost for added 
claims processing. In the second year, we expect added processing costs 
to equal 50 percent or $164 million. In the third year, we expect 
processing costs to equal 15 percent of the annual cost, or 
approximately $49.4 million. By the fourth year, however, we expect 
claims processing costs to begin to drop below their pre-conversion 
levels (see ``Fewer Rejected Claims'' and ``Fewer Improper Claims'' in 
the discussion of Benefits).
---------------------------------------------------------------------------

    \28\ RAND, page 25.
    \29\ The National Health Expenditure accounts for private health 
insurance cost of administering insurance are in claims 
adjudications.
    \30\ RAND defines a claim cycle as the process a claim goes 
through from provider to payer.
---------------------------------------------------------------------------

    In the first year following implementation, claims processing costs 
for the added returned claims are estimated to be $329.29 million. The 
next year, we assume the number of returned claims will be half of the 
first year's level and will cost $164.64 million to process. By the 
third year following implementation, we assume that returned claims 
will be 15 percent of the first year's number and cost about $49.39 
million.
    With the transition to ICD-10, we assume that eventually there will 
be fewer returned claims due to the more detail and better structure 
that ICD-10 provides. Costs of returned claims may include improper 
claims that reflect an attempt on the part of suppliers and providers 
to ``game'' the system. That is, during the period following the 
transition, some suppliers and providers may attempt to abuse and 
possibly defraud the payment system, hoping that improperly coded 
claims may slip through plans' payment edits. In

[[Page 49818]]

discussion of the benefits of implementing ICD-10, we have treated the 
benefits for fewer returned claims and fewer improper claims 
separately. In this section, we combine the cost of the initial 
increase in returned clams with the expected increase in improper 
claims. Therefore, for purposes of this impact analysis, we estimate 
that the lost productivity costs for improper and returned claims for 
transitioning to ICD-10, is $543.29 million with a range estimate of a 
$274 million minimum and a $1.1 billion maximum.
    We invite the public to comment on our assumptions and to provide 
any data that may improve the accuracy of our analysis.

C. Systems Changes

    Although system change requirements may vary, all would need to 
support the expanded number of characters in ICD-10-CM and ICD-10-PCS, 
as well as the number of available codes. Trading partner agreements 
and reimbursement policies would also impact system changes.
    In implementing the ICD-10-CM and PCS coding systems, large 
providers and institutions will probably need to make changes to their 
systems as well as perform software upgrades, while small providers may 
require only software upgrades.
i. Providers and Software Vendors
    Large provider groups, chain providers, and institutions, such as 
large hospitals, are most likely to require changes to their billing 
systems, patient record systems, reporting systems and associated 
system interfaces. For example, mainframe-based systems will require 
changes to accommodate the longer diagnostic and inpatient procedure 
codes which, in turn, will require changes to interfaces with other 
systems such as accounting and medical records. The new codes may also 
require the redesign of standard and special reports. Small providers 
who rely on super-bills, as well as their home-grown systems for 
capturing patient information and claims submission, may only need to 
update their systems to accommodate the length of the new codes. Given 
the information above, we expect that system changes will incur costs 
in the range of $55 million to $220 million.\31\ Factors that 
contribute to the range of costs include: The degree of system 
integration; the need for outside technical assistance; and the number 
of systems and system interfaces that must be updated.
---------------------------------------------------------------------------

    \31\ RAND, page xiv.
---------------------------------------------------------------------------

    We assumed that implementation of the system changes upgrades would 
begin as early as 2 years in advance of the ICD-10 implementation date. 
We expect that large providers especially would need to begin this far 
in advance and that spending on system change in 2009 would equal 
$20.58 million and would represent 15 percent of total provider system 
change costs. In the next year, spending would double to 30 percent of 
provider system change expenditures and equal $41.16 million. In FY 
2012, the year ICD-10 is to be implemented, we anticipate spending for 
system changes to amount to 50 percent of provider spending on system 
changes and equal $68.60 million. The year following implementation, we 
expect providers and suppliers with small systems and some large 
organizations will still be implementing changes or refining their 
changes. In that year, we are assuming that about 5 percent of the 
provider system change costs will be expended or $6.86 million. Thus, 
for purposes of this impact analysis, we estimate that from 2009 
through 2012, the cost of system changes to providers for transitioning 
to ICD-10, is approximately $137.20 million, with a low range estimate 
of $55 million minimum and a $220 million maximum.
    For small providers that are PC-based or have client-server systems 
that rely on vendor-supplied software, the provider may not bear any 
immediate costs for the software upgrades. Based on CMS's own 
experience with the industry, most software maintenance contracts offer 
free upgrades to accommodate regulatory changes. Thus, the impact on 
providers that have such contracts will be postponed until the contract 
is renewed. Even if a provider were to pay for the software upgrade 
directly, an ambulatory provider would only require updating of the 
diagnostic codes.
    While many providers who use vendor-supplied software may be able 
to defer the costs of software upgrades, the vendor industry may have 
to bear, at least initially, the costs of such upgrades. In interviews 
RAND conducted with industry experts including association 
representatives, providers, payers, software and service vendors, and 
government officials, two major software vendors said it would take 10 
percent of their labor force, one saying it would be spread out over a 
3-year period. Another stated that it would take 50 to 100 person-
years.\32\ Several other software vendors that RAND interviewed, 
however, stated that they expect that adaptation to the ICD-10 codes 
would only take a few person-years. Thus, based on RAND, we estimate 
the cost of system changes for software vendors of transitioning to 
ICD-10, to be approximately $96.05 million with a range of $55 million 
minimum and $137 million \33\ maximum because of the wide range of 
information and billing systems and the configurations of provider 
systems.
---------------------------------------------------------------------------

    \32\ RAND, page 5.
    \33\ RAND, page xiv and page 17.
---------------------------------------------------------------------------

    As in the case with provider and supplier system change costs, we 
assume that beginning in FY 2009, software vendors will begin 
developing new software and continue the development and refinement 
through FY 2013. In FY 2009, vendors are assumed to spend 15 percent of 
the cost of software development or $14.41 million. In FY 2010, we 
anticipate vendors will spend 30 percent of the cost of software 
development or $28.81 million and in FY 2012, the year of 
implementation, we project vendors will expend 50 percent or $48.02 
million. In the next year, spending will continue mostly for refinement 
and last minute upgrades. The expenditures are calculated to be $4.81 
million and represent 5 percent of the software development costs.
ii. Payers
    We estimate that changing payer systems to ICD-10 may be one of the 
largest cost categories, but the cost is not clear and the range is 
variable as payers represent a widely varied group. System change costs 
for payers are based on interviews that RAND conducted with eight 
different payers. (However, the ``List of Interviewees'' in Appendix B 
of the RAND report lists seven different payers, with a total of nine 
interviews). RAND divides the eight payers into three groups, based on 
their approach and estimate for system change. RAND does not disclose 
which payers fall into which of the three groups. The first group, 
which consists of three payers, representing 4 percent of the market, 
expects their vendors to supply the updates. The second group, which 
consists of three payers, representing 12 percent of the market, notes 
they would invest 40 cents per member. The third group, which consists 
of two payers, representing 3 percent of the market, estimates costs to 
be $1 per member. Using RAND's basic findings, we estimate the cost of 
system changes to payers for transitioning to ICD-10, is approximately 
$164.64 million with a range of $110 million minimum to $274

[[Page 49819]]

million maximum, based on the groups' market share estimates from 
RAND.\34\
---------------------------------------------------------------------------

    \34\ RAND, page 14.
---------------------------------------------------------------------------

iii. Government Systems Costs
    Government systems change estimates are expected to occur across a 
number of Federal and State agencies and include Federal transition 
costs. Also, to make costs comparable to those of the private sector 
system changes, only costs for logic and format changes are considered. 
The examples in this impact analysis are only illustrative in nature 
and are based on limited analysis. They are presented to illustrate the 
potential administrative costs to the Federal Government.
    For purposes of this impact analysis, we gathered information from 
various government agencies to determine total government systems costs 
for implementing ICD-10. Estimates for State Medicaid Agencies were 
gathered from the Center for Medicaid and State Operations (CMSO) 
within CMS and were derived based on the state's need to design, 
develop and implement changes to their systems to accommodate ICD-10 
codes. Some government agencies are continuing to work on their cost 
estimates. As this information is still in the process of being 
analyzed and compiled, it is not included for purposes of this impact 
analysis. The costs outlined in Table 8, represent our best estimate 
based on the information available from CMS, the Indian Health Service 
(IHS), State Medicaid Agencies, and the Department of Veteran's Affairs 
(VA).
    For purposes of this impact analysis, we estimate costs for the 
impact on government systems in transitioning to ICD-10 include system 
modifications, payment modifications, updates to software applications 
and training for a total minimum cost of approximately $315 million, 
with a minimum estimate of $157.5 million and a maximum estimate of 
$630 million. Table 8 shows the cost breakouts by government agency.

                        Table 8--Government Costs
------------------------------------------------------------------------
                                                              Cost  (in
             Change                   Government agency       millions)
------------------------------------------------------------------------
Systems/Software Modifications
 and Updates:
                                 CMS.......................         $105
                                 IHS.......................            8
                                 VA........................        19.05
                                                            ------------
    Subtotal...................  ..........................       132.05
Training:
                                 CMS.......................          9.5
                                 IHS.......................          1.3
                                 VA........................           47
                                                            ------------
    Subtotal...................  ..........................         57.8
Planning:
                                 CMS.......................            4
                                 IHS.......................            3
                                 VA........................          2.5
                                                            ------------
    Subtotal...................  ..........................          9.5
Other..........................  ..........................         12.6
State Medicaid Agencies........  ..........................          102
                                                            ------------
      Total....................  ..........................          315
------------------------------------------------------------------------

    We invite public comment on our assumptions, as well as comments 
from affected government agencies herein identified or those not 
identified in this analysis, so they may provide any additional and/or 
updated data that may improve the accuracy of our analysis.
(d) Distribution of ICD-10 Transition Costs
    In the Table 9, we show the distribution of the transition costs to 
the ICD-10 codes for providers, suppliers, payers and software and 
system design firms. Entities are grouped by the North American 
Industry Classification System (NAICS) and are presented at the firm 
level. The NAICS figures were adjusted based on the same medical 
inflation factor we used for all costs that are outlined above.
    As indicated earlier in this analysis, data was collected primarily 
by inpatient and outpatient categories (see Table 9). To allocate the 
transition costs, we have to use an available base which can serve as a 
proxy for apportioning the transition costs to the sub-groupings of 
inpatient and outpatient providers and suppliers. For the task of 
allocating the transition costs, we are using the revenue-receipts 
reported in the Services Annual Survey and the National Health 
Expenditure Accounts.
    The first step was to group providers and suppliers by inpatient 
and outpatient groups reflecting the level at which the data was 
available. Inpatient providers included:
    <bullet> Hospitals,
    <bullet> Nursing facilities.
    The group of outpatient providers and suppliers included:
    <bullet> Physicians and other practitioners (excluding dentists),
    <bullet> Outpatient care centers,
    <bullet> Medical and diagnostic imaging services,
    <bullet> Home health services,
    <bullet> Other ambulatory health care services,
    <bullet> Durable medical equipment suppliers.
    In column 3, we present the revenue-receipts for each type of 
provider-supplier, insurance carrier-third party administrator, and 
computer design firm expected to bear transition costs. We summed the 
revenue-receipts for each of the inpatient and outpatient.
    Column 4 shows the percent of the two groups' revenue-receipts each

[[Page 49820]]

provider-supplier type comprises of the group's total.
    In column 5, we apply the percentages to the total ICD-10 
transition costs for each provider-supplier type. Total inpatient 
transition costs--including productivity losses--from Table 9 equal 
$228.55 million. Total transition costs--including productivity 
losses--for outpatient providers-suppliers (from Table 9) equal $165.36 
million, including an adjustment for inflation. It should be noted that 
physician costs include a portion of the coding training costs and 
productivity losses in addition to costs directly allocated to 
physicians and practices expenses. This explains the high percent of 
implementation costs to receipts-revenues than for the other outpatient 
providers-suppliers.

            Table 9--Estimated Impact of ICD-10 Transition Cost on Inpatient and Outpatient Providers and Suppliers (Adjusted for Inflation)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                          Percent ICD-10
                                                                                             Revenue/       Percent of     ICD-10 costs      costs of
                NAICS                        Provider/supplier type            Firms        receipts ($       revenue        ($ mil.)        revenue/
                                                                                               mil.)         receipts                        receipts
--------------------------------------------------------------------------------------------------------------------------------------------------------
622..................................  Hospitals (General Medical and              4,409         653,033           81.45          186.16            0.03
                                        Surgical, Psychiatric and drug
                                        and Alcohol Treatment, Other
                                        Specialty).
623..................................  Nursing Facilities (Nursing care           22,867         148,716           18.55           42.40            0.03
                                        facilities, Residential mental
                                        retardation, mental health and
                                        substance abuse facilities,
                                        Residential mental retardation
                                        facilities, Residential mental
                                        health and substance abuse
                                        facilities, Community care
                                        facilities for the elderly,
                                        Continuing care retirement
                                        communities).
                                                                         -------------------------------------------------------------------------------
                                        Subtotal........................          27,276         801,749             100          228.55            0.03
6211.................................  Office of Physicians (firms).....         189,542         330,889           61.60          137.62            0.04
6214.................................  Outpatient Care Centers (Family            13,624          73,966           13.80            9.93            0.01
                                        Planning Centers, Outpatient
                                        Mental Health and Drug Abuse
                                        Centers, Other Outpatient Health
                                        Centers, HMO Medical Centers,
                                        Kidney Dialysis Centers,
                                        Freestanding Ambulatory Surgical
                                        and Emergency Centers, All Other
                                        Outpatient Care Centers).
6215.................................  Medical Diagnostic and Imaging              7,811          37,253            6.93            5.00            0.01
                                        Services.
6216.................................  Home Health Services.............          14,512          47,007            8.75            6.31            0.01
6219.................................  Other Ambulatory Care Services              5,872          24,593            4.58            3.30            0.01
                                        (Ambulance and Other).
N/A..................................  Durable Medical Equipment \3\....         404,293          23,709            4.41            3.18            0.01
                                                                         -------------------------------------------------------------------------------
                                        Subtotal........................         636,654         537,417             100          165.36            0.03
524114, 524292.......................  Health Insurance Carriers and               4,578         723,412             100          164.54           0.023
                                        Third Party Administrators \4\.
5415.................................  Computer System Design and                 97,556         200,695             100           96.50           0.048
                                        Related Services \6\.
                                                                         -------------------------------------------------------------------------------
                                        Subtotal........................         102,134         924,107  ..............          261.00           0.044
                                                                         -------------------------------------------------------------------------------
                                       Total............................         575,522       2,263,273  ..............             655          0.031
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table notes: Most of the data for this table comes from the Statistics of U.S. Businesses 2005 tables for firms and establishments presented by employee
  size, and from the Bureau of the Census Services Annual Survey for 2006 that provides annual receipt-revenues by NAICS. Both data sets are available
  from http://www.census.gov/econ/www.index.html. Data on the number of Durable Medical Equipment suppliers comes from the 2007b CMS Data Compendium
  http://cms/hhs.gov/DataCompendium/17_2007_Data_Compendium.asp#TopOfPage. Revenue data comes from the National Health Expenditures tables, 1960-
  2006, available at http://www.cms.hhs.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp#TopOfPage. All accessed on 8-12-08. Firms
  data come from http://www.census.gov/svsd/www/services/sas/sas_data/sas54.htm, accessed 8-12-08.
Revenue and receipts for each industry sector and sub-sector come from the Census Bureau Services Annual Survey for 2006 at B29. Revenue/receipt data
  for NAICS codes 6211-6219, 622 and 623 come from tables 8.1-8.10. Data for codes 5415 come from tables 6.1-6.21. Revenue/receipts are used to allocate
  ICD-10 implementation costs. Revenue/receipts were subtotaled by ambulatory provider plus DME suppliers (NAICS 62111-6219) and inpatient providers
  (NAICS 622, 623) and the percent of the subtotaled revenue/receipts for the provider/supplier was computed and applied to the total ICD-10
  implementation costs for each of two subtotaled groupings. ICD-10 costs for ambulatory provider do not include the cost of system changes. Some costs,
  however, are included with inpatient system changes since large multi-campus, integrated health care facilities are likely to include their ambulatory
  care facilities in the cost of upgrading their information systems.

    In calculating the impact on provider/suppliers, payers, third 
party administrators and computer design and related service firms we 
compared the total expected costs to the one-year revenues for each 
class of entities. By

[[Page 49821]]

doing so, we deliberately overstate the expected annual impact of the 
transition. In part, we did this because we cannot be certain that we 
have properly allocated implementation costs to each entity category or 
that we accounted for all costs.
    The impact on revenue-receipts of the transition to ICD-10 is 
shown. For inpatient providers, the impact will be an average increase 
against revenues of 0.03 percent. For outpatient providers and 
suppliers, the average increase against revenues is projected to be 
0.03 percent.
    The impact on insurance carriers and third party administrators is 
expected to be an increase against revenues of 0.023 percent. For 
system design firms, the impact against revenues is projected to be 
0.048 percent.
    Because we are not able to determine the exact number of third 
party administrator firms or system design firms that will be involved 
or have to implement the ICD-10 codes, we used the number of firms and 
revenues-receipts shown for the applicable NAICS. To the degree that 
fewer firms are actually involved in the transition to ICD-10, our 
estimate of the impact is understated. The fewer firms implementing 
ICD-10, the smaller number firms over which to spread the 
implementation costs. Therefore, we are specifically requesting 
comments on this estimate and how many third party administrators and 
computer design firms will be implementing ICD-10.
    Table 10 outlines the approximate total estimated costs as outlined 
in the above sections. Table 10 shows both the minimum and maximum 
ranges for each cost as well as their corresponding primary estimates. 
We solicit comments from industry and other stakeholders on other 
potential entities that may be affected by the transition from ICD-9 to 
ICD-10 code sets.

                                   Table 10--Summary of Total Estimated Costs
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                                                                      Primary
                                                                      Minimum         Maximum        estimate
----------------------------------------------------------------------------------------------------------------
Training:
    Full-time Coders (Inpatient)................................            $110            $165         $137.51
    Part-time Coders (Outpatient)...............................             $55            $165          $98.50
    Code Users..................................................             $27             $55          $37.50
    Physicians..................................................              $0            $165          $82.20
Productivity Losses:
    Coders (Inpatient)..........................................              $0             $55           $8.90
    Coders (Outpatient).........................................              $0             $55           $8.56
    Physician Practices.........................................            $5.5             $27          $10.98
    Improper and Returned Claims................................            $274          $1,100         $543.29
Systems Changes:
    Providers...................................................             $55            $220         $137.20
    Software Vendors............................................             $55            $137          $96.05
    Payers......................................................            $110            $274         $164.64
    Government Systems..........................................          $157.5            $630         $315.00
----------------------------------------------------------------------------------------------------------------

7. Projected Benefits
    We identified six benefits of transitioning to ICD-10: \35\
---------------------------------------------------------------------------

    \35\ RAND, page 19.
---------------------------------------------------------------------------

    <bullet> More accurate payments for new procedures:
    <bullet> Fewer rejected claims;
    <bullet> Fewer improper claims;
    <bullet> Better understanding of new procedures;
    <bullet> Improved disease management;
    <bullet> Better understanding of health conditions and health care 
outcomes (no monetary estimate made); and
    <bullet> Harmonization of disease monitoring and reporting world-
wide (no monetary value was included in the analysis).
    In our analysis, benefits begin to appear in the year following the 
implementation date. Therefore, our total estimated benefits differ 
slightly from RAND estimates, which assumed phased-in benefits prior to 
implementation. All benefit estimates, in addition to having a point 
estimate also have a wide high to low range because of the 
uncertainties inherent in these estimates. We have also adjusted 
benefit figures for the projected growth in the population using the 
growth in national health care expenditures for years 2005-2007. Year 
2007 is an estimated growth rate of which we used an adjusted growth 
factor of 21.2 percent. For the growth projections for 2012 and beyond, 
we used the compounded growth in the U.S population which is projected 
to grow at 0.8 percent per year.
a. More Accurate Payments for New Procedures \36\
---------------------------------------------------------------------------

    \36\ RAND, page 21.
---------------------------------------------------------------------------

    The transition to ICD-10-PCS codes will allow for more accurate 
payments for new procedures. Under the current ICD-9 Volume 3 procedure 
codes there is little room for additional codes. It has been estimated 
that at the current rate of adding additional codes, the capacity of 
ICD-9 Volume 3 will reach its maximum by 2009. The result is that new 
and possibly more complex and expensive procedures are being grouped in 
with less expensive procedures. With introduction of the PCS codes, it 
is more likely that such new procedures will receive a separate code 
and more appropriate payment. We assume that new procedures that could 
receive a separate code under the PCS system are so expensive they 
would be unlikely to be performed unless, through the new coding, the 
hospital received adequate payment.\37\
---------------------------------------------------------------------------

    \37\ RAND, page 21.
---------------------------------------------------------------------------

    Of the approximately 20 million procedures performed each year, 
roughly one percent or 200,000 procedures are new. We estimate that 
100,000 of the new procedures would be paid for by CMS based on the 
fact that Medicare pays for approximately one half of all inpatient 
procedures. Examining the historical trend for the number of new codes 
assigned each year, we determine that about one percent of new 
procedures received separate codes. Using this one percent assumption, 
the 200,000 new procedures would be represented by approximately 36 new 
codes (one percent of the 3,600 current procedure

[[Page 49822]]

codes in the ICD-9 Volume 3). We assume that three procedures would be 
performed frequently enough to be given their own codes. We also assume 
the three procedure codes would represent about 40 percent of the 
annual number of new procedures.\38\
---------------------------------------------------------------------------

    \38\ RAND, page 22.
---------------------------------------------------------------------------

    Subtracting out 40 percent of the procedures from 100,000 new 
procedures that CMS would pay for each year leaves 60,000 procedures 
represented by 33 codes that, under the current coding structure, may 
be inappropriately grouped and paid an inappropriate amount. For 
purposes of this analysis, we recognize that the odds that hospitals 
would not perform a procedure that was seen to have therapeutic value 
in spite of being underpaid are low. For this reason, we assume that in 
10 percent or 6,000 of the cases involving new inpatient procedures 
that are not adequately reimbursed, hospitals may be disinclined to 
admit patients requiring the procedure.
    Finally, we estimate the opportunity cost of foregoing those 
procedures that would be undervalued under the current coding structure 
(and presumably would be properly paid under the PCS codes). Of 33 
procedures that are undervalued, some may yield significant health 
benefits while the majority will yield small health benefits. Hospitals 
are more likely to perform the high benefit procedures even though they 
may be underpaid for the procedures.
    We assume that the average procedure costs approximately $12,120 
and has a net benefit yield of $6,060. Multiplying the amount by the 
6,000 procedures yields a benefit of approximately $36 million.\39\ We 
also expect that the effects of the benefit are cumulative for each 
year and that every year, 6,000 procedures will be added.
---------------------------------------------------------------------------

    \39\ RAND, page 23.
---------------------------------------------------------------------------

    Based on a growth rate of 6,000 per year, the growth in benefits 
would equal 50 fold or $1.8 billion in 10 years. This may overstate the 
benefits because of cost reduction over time due to the learning curve 
and the introduction of lower cost alternative procedures. Rather than 
an increase of 50 times, a factor of 25 is used, resulting in an 
estimate of $909 million. For purposes of this impact analysis, we make 
a more conservative assumption. After the third year following 
implementation of the code conversion we assume an opportunity cost 
that increases $12 million every year, with the fourth year showing 
approximately $62 million benefit (see Table 13b). For purposes of this 
impact analysis, we estimate that the benefit of more accurate payments 
for new procedures would equal approximately $1,032 million with a 
minimum range estimate of $121 million and a maximum estimate of $1,455 
million.
    We recognize that many assumptions underlie our estimates of more 
accurate payments and we invite comments on this analysis.
b. Fewer Rejected Claims
    The Workgroup for Electronic Data Interchange (WEDI) has stated 
that ``[The] greater detail [of ICD-10-CM and ICD-10-PCS] may help 
reduce the number of cases where copies of the medical record need to 
be submitted for clarification for claims adjudication.'' \40\ For 
example, in ICD-10-CM, the injury codes provide excellent detail in 
identifying the fracture site of a malunion or non-union; the ICD-9-CM 
codes for malunion and non-union do not identify fracture site. If the 
payer required this information to adjudicate the claim, the provider 
would need to send a claims attachment. Also, in ICD-10-CM, the injury 
codes provide excellent detail in identifying bilateral fractures. If a 
patient fractured both wrists, two codes could be assigned; one code 
identifying the left wrist fracture and a separate code identifying the 
right wrist fracture could be reported. ICD-9-CM does not provide this 
detail and if a provider wanted to report fractures of both wrists and 
reported the diagnosis code twice, the claim would be rejected.
---------------------------------------------------------------------------

    \40\ ``Issues Surrounding the Proposed Implementation of ICD-
10.'' WEDI MHHSh 2000, page 9.
---------------------------------------------------------------------------

    Based on the WEDI assumption, we estimate the average cost per 
cycle of processing a claim at a total of $12 billion per year for all 
claims. RAND makes the assumption that using ICD-10 code sets would 
decrease the amount of claims sent back by one percent. This gives a 
$120 million annual benefit (0.01 x 12 billion).\41\
---------------------------------------------------------------------------

    \41\ RAND, page 23.
---------------------------------------------------------------------------

    For purposes of this impact analysis, we estimate approximately 
$100 million per year in benefits after phased-in benefits for the 
first four years, compounded annually by a 0.8 percent growth in the 
population. We assume an extended phase-in for this benefit because of 
the lag time in receiving claims data showing the effects of the new 
system that will lead to delays in taking advantage of the improved and 
more precise data.
    We also assume that returned claims will temporarily increase in 
the initial years. We discussed the temporary increase of returned 
claims in section b. iv., above, under Productivity Losses.
    For purposes of this impact analysis, we estimate that the benefit 
of fewer rejected claims would equal approximately $1,015.41 million 
with a minimum range estimate of $242 million and a maximum estimate of 
$3,031 million. We invite the public to comment on our assumptions and 
to provide any data that will improve the accuracy of our analysis.
c. Fewer Improper Claims
    The distinction that we are seeking to make in this section is 
between claims that would be returned because of mistakes in coding 
resulting from confusion about the new codes, lack of training and 
experience with the new codes, and those claims that appear to be 
deliberately miscoded in an attempt to defraud or abuse the payment 
system. WEDI states that, despite an initial expectation of increased 
improper claims, ``In the longer term, it is possible that fraud could 
be reduced since ICD-10-CM and ICD-10-PCS are more specific and there 
are fewer `gray' areas in the coding.'' \42\ The amount of improper 
claims due to abuse is estimated to be $3.03 billion annually, 
approximately 20 percent of the $15.8 billion that GAO estimates are 
improperly paid each year.\43\ GAO acknowledges that this number may 
not represent all improper payments. Given this, we assume that eight 
percent of payment system abuse is perpetrated by people who capitalize 
on the ambiguity of the ICD-9-CM codes.\44\ We also assume that half of 
that eight percent would feel that the new codes would eliminate the 
ambiguity, eliminating half of these abuses, assuming that new 
ambiguities are not created.
---------------------------------------------------------------------------

    \42\ RAND page 26.
    \43\ RAND, page 26 and GAO, Federal Budget, ``Opportunities for 
Oversight and Improved Use of Taxpayer Funds,'' Statement of David 
M. Walker, Comptroller General of the United States, GAO-03-922T, 
http://www.gao.gov/new.items/d03922t.pdf, accessed 8-12-08.
    \44\ RAND, page 26.
---------------------------------------------------------------------------

    We estimate that after phased-in benefits in the first four years 
after implementation, which compounded annually by an 0.8 percent 
population growth factor, 100 percent of the benefit will be reached in 
the fifth year after implementation. We assume an extended phase-in for 
this benefit because of the lag time in receiving claims data showing 
the effects of the new system that would lead to delays in taking 
advantage of the improved and more precise data.
    For purposes of this impact analysis, we estimate that the benefit 
of fewer

[[Page 49823]]

improper claims will equal approximately $508.22 million, with a range 
minimum estimate of $121 million and a maximum estimate of $1,455 
million.
    As with rejected claims, this benefit is also expected to be an 
initial cost as people take advantage of the ambiguity during 
transition to ICD-10 code sets. For purposes of this impact analysis, 
there may be a greater number of returned claims as well as an increase 
in the percentage of initial improper payments. In Table 13a, we show 
the expected effects of the initial impact of rejected and improper 
claims. We invite the public to comment on our assumptions and to 
provide any data that may improve the accuracy of our analysis.
d. Better Understanding of New Procedures \45\
---------------------------------------------------------------------------

    \45\ RAND, page 28.
---------------------------------------------------------------------------

    Benefits are also anticipated due to better understanding of new 
procedures with ICD-10. The rationale is that ICD-10's granularity 
would aid statistical analysis and provide more information on disease 
treatments and outcomes. We estimate the number of procedures that 
would be identified only in ICD-10-PCS and would provide statistically 
significant differences in outcomes. That is, identification of 
procedures through the use of the ICD-10 codes could presumably enable 
statistical analysis of procedures that would not otherwise be possible 
and thereby become the subject of research. Through a series of 
assumptions regarding 200,000 occurrences of the ``significant'' new 
procedures that would be added each year (see the discussion above 
regarding more accurate payment for new procedures), we pare the number 
of procedures that would actually be changed as a result of research 
down to 16,000 procedures.\46\ The assumptions apply to the elimination 
of high volume procedures (again, see the discussion on more accurate 
payment for new procedures), the probability that anomalies would be 
discovered only through the application of ICD-10 codes and that 
finally such anomalies would result in the change in medical practice. 
The results of the research could indicate that procedures that were 
considered appropriate are now found to be inappropriate for the 
patients that underwent the procedure. Similarly, the research may find 
that procedures that were believed to be inappropriate may now be 
thought to be appropriate.
---------------------------------------------------------------------------

    \46\ This is an absolute value concept which applies to both 
procedures done and not done. RAND, page 9.
---------------------------------------------------------------------------

    Finally, applying the same net benefits used in the analysis of 
more accurate payments of new procedures, we conclude after phased-in 
benefits in the first three years following implementation, which 
compounded annually by an 0.8 percent growth in the population, 100 
percent of the benefit will be realized in the fourth year.
    For purposes of this impact analysis, we estimate that the benefit 
of a better understanding of new procedures with implementing ICD-10, 
would equal approximately $812.54 million with a minimum range estimate 
of $121 million and a maximum estimate of $1,819 million. We invite the 
public to comment on our assumptions and to provide any data that may 
improve the accuracy of our analysis.
e. Improved Disease Management \47\
---------------------------------------------------------------------------

    \47\ RAND, page 30.
---------------------------------------------------------------------------

    Disease management programs are generally used for managing chronic 
diseases to prevent or delay serious complications. The increased 
granularity of ICD-10-CM would allow case management organizations to 
better identify candidates for disease management programs, and to 
better adapt the disease management program to the individual once 
enrolled. To estimate improvements in disease management that the ICD-
10 conversion could bring about, we follow RAND's use of diabetes as 
the sample disease and their assumption that two-thirds of all the 
benefit would come from better management of this disease.
    For purposes of this analysis we follow the RAND model that divides 
diabetics into Type I and Type II not currently in a disease management 
plan and who could benefit from participating in such a plan; and those 
in a disease management plan and who could benefit from improved 
management of their disease. RAND makes the following assumptions:
    <bullet> 60 percent of diabetics are currently enrolled in plans 
with disease management programs;
    <bullet> 50 percent of the patients in such plans are not in a 
disease management program (30 percent);
    <bullet> 50 percent of plans use a system other than ICD to 
identify and classify their patients. Of the remaining half, 2/3 use 
(1/3 of the total) use ICD classifications;
    <bullet> Use of ICD-10 reveals new information on 20 percent of 
Type II diabetics in plans using ICD classifications;
    <bullet> 50 percent of these patients elect to participate in the 
disease management program;
    <bullet> 20 percent of those newly enrolled in a disease management 
program, achieve sufficient improvement to increase their life 
expectancy by six months.
    <bullet> For patients already in a disease management program, 
using ICD-10 will result in an improved program in 50 percent of the 
patients.
    <bullet> 10 percent of Type I and Type II will achieve improvements 
to the point of Type I achieving two additional years of full quality 
life and Type II six additional months of full quality life.
    We estimate the number of both Type I and Type II diabetics at 1.2 
million and 22.8 million,\48\ respectively. Using these numbers as a 
base, we can arrive at an annual estimate of benefits. Applying RAND's 
formulas in this case, we determine that approximately 45,144 Type II 
individuals per year who would gain six months of full quality of life 
valued at $100,000 per year.\49\ This yields a benefit of $2.257 
billion ($50,000 x 45,144) for those Type II diabetics not currently 
enrolled in a disease management plan but who would be enrolled as a 
result of the conversion to the ICD-10 codes.\50\
---------------------------------------------------------------------------

    \48\ http://www.cdc.gov/media/pressrel/2008/r080624.htm, 
accessed 8-12-08
    \49\ Based on research that Viscoosy and others have done on the 
value of a statistical value of life, $50,000 for a year of full 
quality of life appears to be conservative. We have updated the 
estimated a statistical life year based on inflation since RAND 
examined the issue based on the value that HHS has used in a number 
of regulations.
    \50\ RAND, page 30.
---------------------------------------------------------------------------

    The benefit of the greater granularity that use of ICD-10 codes may 
offer for those who are currently enrolled in a disease management plan 
is greatly dependent upon how much the additional detail helps the 
enrollee, and how many enrollees are helped. We could create an 
assumption for the percentage of people who would be enrolled in a 
better plan based on the new information that ICD-10 codes may provide, 
and the percentage of those whose treatment would be adjusted in 
response to the new information.\51\
---------------------------------------------------------------------------

    \51\ This is different from RAND's parameter of 0.1, but was 
confirmed through discussions with the authors.
---------------------------------------------------------------------------

    We could potentially conclude that adding someone to a diabetes 
management program has twice the benefit of adjusting treatment for 
someone already enrolled in a disease management program. As a result 
of the code conversion, it is possible that, for example, 1,188 
individuals with Type I diabetes would gain 2 years of life while 
22,572 individuals with Type II diabetes

[[Page 49824]]

would gain 6 months of full quality life. We attribute the difference 
in longevity to the fact that Type I diabetes usually manifests itself 
in younger persons. Changes made earlier in a person's life will have a 
longer deterioration curve by about two years than changes made later 
in a person's life.
    When we combine the parameters, we could realize an annual benefit 
of $237.6 million for Type I diabetes and $1.1286 billion for Type II 
diabetes already in a plan for a total of $1.3662 billion. We could 
potentially show an annual benefit for better management of diabetes to 
be $3.6234 billion ($2.2572 billion from new Type II patients enrolled 
in disease management + $1.3662 billion from improved disease 
management of Type I and Type II patients already in a plan).
    Finally, we could share RAND's assumption that the diabetes benefit 
is about two-thirds of the total benefit for improved case management 
attributable to converting to ICD-10. Under RAND's assumption the total 
annual benefit for improved disease management would be $5.4351 
billion. We assume a phase-in of benefits prior to the fourth year of 
implementation where 100 percent of the benefit is realized in the 
fourth year after implementation.
    The aforementioned scenario is based upon our interpretation of 
RAND's scenario that the benefit of improved disease management could 
conceivably be expected from ICD-10-CM and ICD-10 PCS code sets applied 
to the sample disease, diabetes. However, although we agree that the 
potential benefits of disease management could be large, we do not 
necessarily agree with the calculations used in RAND's theory because 
we believe they assume much greater benefits than can be directly 
attributable to the ICD-10 code set alone, such as the development of 
new and improved diabetes drugs or improved patient outreach, 
monitoring and communications. RAND also does not take into account 
disease management benefits from across the full clinical spectrum. For 
purposes of this analysis, we very conservatively claim a one percent 
benefit of our total disease management calculations based on RAND's 
formulas, and solicit feedback from the industry on this assumption.
    Therefore, for purposes of this impact analysis, we estimate that 
the total benefit of improved disease management may equal 
approximately $582.57 million with a minimum range estimate of $291 
million and a maximum estimate of $1,165 million.
f. Better Understanding of Health Conditions and Health Care Outcomes
    ICD-10-CM and ICD-10-PCS provide specific diagnosis and treatment 
information that can improve quality measurements and patient safety, 
and the evaluation of medical processes and outcomes. ICD-10-PCS has 
the capability to readily expand and capture new procedures and 
technologies. For quality improvement programs to effectively result in 
meaningful clinical outcomes, improved practice management processes 
that document and measure patient care, and sustain provider investment 
in services that improve quality of care, the ability to modify or add 
to a list of treatments, diseases and conditions is essential. The ICD-
10 code sets provide a standard coding convention that is flexible, 
providing unique codes for all substantially different procedures or 
health conditions and allowing new procedures and diagnoses to be 
easily incorporated as new codes for both existing and future clinical 
protocols.
g. Harmonization of Disease Monitoring and Reporting World-Wide
    Another benefit we expect will be achieved with the implementation 
of the ICD-10-CM codes is better coordination of disease outbreak 
reporting with other countries. Most industrialized countries have 
adopted the ICD-10 code structure and, with the United State's adoption 
of the codes, the time to identify and respond to cross-border disease 
outbreaks will be reduced. We will be able to process public health 
warnings coming from other countries faster and be able to respond more 
accurately to the threats because of the greater precision of the 
coding compared to ICD-9.
    Below is a chart that illustrates the reduction in response time we 
expect to achieve from the implementation of ICD-10-CM codes. After the 
outbreak of an illness occurs, as represented by the large curve on the 
left of the chart, there is a reporting lag and a further delay for the 
processing and analyzing of reports and the mounting of a response. The 
sooner outbreaks are reported to public health officials and the more 
accurate the information that is reported, the faster officials can 
respond. The two smaller curves on the right side of the chart 
represent the time between outbreak and response under the current 
coding and the enhanced response time. The shift to the left of the 
response time represents the benefit in terms of the short response 
time and outbreak.
    The following chart was originally published in an FDA rule, 
``Establishment and Maintenance of Records under the Public Health 
Security and Bioterrorism Preparedness and Response Act of 2002.'' It 
was published in the Federal Register on December 9, 2004 (Vol. 69, No. 
236; Rules and Regulations 71615) and was adapted for use in this 
regulation.

[[Page 49825]]

[GRAPHIC] [TIFF OMITTED] TP22AU08.015

    These benefits would expand communication and interoperability 
capabilities for biosurveillance and disease reporting at an 
international level. As noted in a recent report, The Effectiveness of 
ICD-10-CM in Capturing Public Health Diseases, ``* * * the use of ICD-
10-CM has great implications for our entire nation since public health 
diseases, which include epidemic and other diseases related to 
bioterrorism, are generally able to be captured in a more specific way 
when using the ICD-10-CM system.'' \52\ BioSense, CDC's early event 
detection system, currently uses ICD-9-CM. Improved clinical detail 
would be a benefit to a national system designed to improve the 
nation's capabilities for disease detection, monitoring, and real-time 
health situational awareness.
---------------------------------------------------------------------------

    \52\ ``The Effectiveness of ICD-10-CM in Capturing Public Health 
Diseases.'' AHIMA, Perspectives in Health Information Management 
2007 (June 12, 2007), http://library.ahima.org/xpedio/groups/public/documents/ahima/bok1_036019.html, accessed 8-12-08.
---------------------------------------------------------------------------

    As noted in the May 2004 NCVHS Workgroup on Quality Report, titled 
``Measuring Health Care Quality: Obstacles and Opportunities'', most 
other industrialized nations have already transitioned to ICD-10, 
requiring a painstaking crosswalk of United States diagnosis codes to 
make international comparisons.
    However, even with a crosswalk, comparisons are problematic given 
that changes to ICD-10 which represent a new understanding of disease 
(such as the myeloproliferative disorders and myelodysplastic syndrome 
now being recognized as hematologic malignancies which are classified 
as neoplasms of uncertain behavior in ICD-9-CM) affect data analysis at 
the State, national and international level.
    Because the U.S. does not currently use ICD-10-CM and ICD-10-PCS, 
there is insufficient data to quantify the results of these benefits. 
For additional discussion of biosurveillance, refer to section III.
    Table 12 below outlines the total estimated benefits as outlined in 
the above sections. The table shows both the minimum and maximum ranges 
for each benefit as well as their corresponding primary estimates.

                                  Table 12--Summary of Total Estimated Benefits
----------------------------------------------------------------------------------------------------------------
                                                                                                      Primary
                                                                      Minimum         Maximum        estimate
----------------------------------------------------------------------------------------------------------------
More accurate payments for new procedures.......................            $121          $1,455          $1,032
Fewer rejected claims...........................................             242           3,031        1,015.41
Fewer improper claims...........................................             121           1,455          508.22
Better understanding of new procedures..........................             121           1,819          812.54
Improved disease management.....................................             291           1,165          582.57
----------------------------------------------------------------------------------------------------------------


[[Page 49826]]

C. Alternatives Considered

    As discussed in detail in section VII of the preamble of this 
proposed rule, we considered a number of options for replacing ICD-9. 
We considered extending the life of ICD-9-CM by utilizing unassigned 
codes, use of CPT-4 for coding inpatient hospital procedures, and 
waiting to adopt ICD-11 as alternatives to the adoption of ICD-10-CM 
and ICD-10-PCS. We determined that adopting ICD-10-CM and ICD-10-PCS 
was the only viable alternative that would meet the long-term coding 
needs of the health care industry.
1. Relation to and Impact on Other HIT Initiatives
    Both Federal and private-sector stakeholders prefer synchronization 
of related Federal HIT initiatives to permit adequate planning, 
resources, and implementation. Because implementation of ICD-10 is a 
massive undertaking, these initiatives should be queued up as 
rationally as possible. Most of the initiatives related to the adoption 
of ICD-10 involve promulgation of regulations and compliance dates. In 
this respect, there is minimal flexibility when some regulations may be 
promulgated and related compliance dates. Under sections 1860D-4(e)(1), 
1860D-4(e)(3) and 1860D-4(e)(4)(D) of the Act, we were required to 
promulgate uniform standards for e-prescribing not later than April 1, 
2008. Not later than one year after promulgation of such final 
standards, prescriptions and other prescription-related information for 
drugs covered under Medicare Part D and for individuals eligible for 
Part D benefits must be transmitted only in accordance with such 
standards. We anticipate that most of this regulatory activity will 
take place in 2008. At the same time, there are a number of related 
Departmental and private sector initiatives that will be ongoing during 
this time period, although specific dates are not available at this 
time. During the next several years, for instance, we anticipate that 
the Certification Commission for Healthcare Information Technology 
(CCHIT) will be completing and updating certification criteria for 
ambulatory EHRs, inpatient EHRs, and health information networks. CCHIT 
has already developed certification criteria for ambulatory EHRs and 
inpatient EHRs and has already begun certifying both types of products. 
CCHIT has also begun developing certification criteria for networks. 
Once CCHIT has established the certification criteria, it plans to 
update them on a yearly basis to align its efforts with the standards 
harmonization efforts of the Healthcare Information Technology 
Standards Panel (HITSP).
    HITSP seeks to achieve widely accepted and readily implemented 
consensus-based standards that will enable and support widespread 
interoperability among health care information technology users, 
especially as they would interact in a Nationwide Health Information 
Network (NHIN) for the United States. On October 31, 2006, HITSP 
presented three sets of ``interoperability specifications'' to the 
American Health Information Community (AHIC), a Federal advisory 
committee chartered to make recommendations to the Secretary on methods 
for accelerating the development and adoption of health information 
technology. The AHIC considered HITSP's presentation, and after 
reaching consensus, recommended to the Secretary that he recognize 
certain interoperability specifications. On March 1, 2007, the 
Department published a Notice of Availability (72 FR 9339), identifying 
the recommended specifications, and indicating the Secretary's 
acceptance and anticipated recognition of the interoperability 
specifications. In January 2008, following a one-year period of 
implementation testing, the Secretary announced his formal recognition 
of HITSP interoperability specifications (http://www.hitsp.org/government.aspx, accessed 8-12-08.)
    Both CCHIT and HITSP have developed processes that build industry 
consensus and support voluntary adoption of health information 
technology standards. By ``recognizing'' interoperability standards, 
the Secretary is also advancing the adoption of health IT standards 
within the Federal government and among many of its contractors (See 
Executive Order 13410--Promoting Quality and Efficient Health Care in 
Federal Government Administered or Sponsored Health Care Programs), and 
for certain entities seeking to donate EHR software and training 
services in compliance with the Stark EHR Exception and the Anti-
Kickback EHR Safe Harbor (See 71 FR 45140 and 71 FR 45110). Finally, 
trial implementations of the Nationwide Health Information Network 
(NHIN), including specifications and testing of interoperable health 
information exchange, are proceeding.
    The implementation of ICD-10 will promote the use of HIT and 
increase the overall value of EHRs. Updating a coding system to a more 
rigorous and exact coding system such as ICD-10 results in the ability 
to more accurately understand changes in medical technology, treatment 
patterns, disease spread, and outcomes of quality measures. The detail 
and precision of the ICD-10 codes will allow for any necessary updates 
to quality measures, payment systems, fraud prevention and clinical 
decision support mechanisms. ICD-10 is already included in the HITSP 
electronic health record (EHR) use case, and as an administrative 
standard it will drive change as it will be required for use on all 
claims.
    ICD-10 impacts on HIT initiatives might come in the form of the 
industry needing time to become comfortable with the new codes, 
resulting in benefits being reaped 1-2 years after implementation. 
While there will be resource impacts on other HIT initiatives as a 
result of the ICD-10 implementation, there will be greater impacts if 
ICD-10 is delayed and more EHR systems need to be retrofitted.
    CMS solicits industry and stakeholder comments on the direct and 
indirect impacts to current Health Information Technology initiatives.
    Tables 13a and b below outline the total estimated benefits and 
costs as outlined in the above sections. The table illustrates in which 
years we believe each cost and benefit will be realized.

[[Page 49827]]

[GRAPHIC] [TIFF OMITTED] TP22AU08.016

D. Regulatory Flexibility Analysis

    The Regulatory Flexibility Act (RFA) of 1980, Public Law 96-354, 
requires that the Secretary certify that a proposed regulation will not 
have a significant economic impact on a substantial number of small 
entities. In the health care sector, a small entity is one with between 
$6.5 million and $31.5 million in annual revenues or is a nonprofit 
organization. For the purposes of this analysis (pursuant to the RFA), 
nonprofit organizations are considered small entities; however, 
individuals and States are not included in the definition of a small 
entity. We have attempted to estimate the number of small entities and 
provide a general discussion of the effects of the proposed regulation.
    Because most medical providers are either nonprofit or meet the 
SBA's size standard for small business, we treat all medical providers 
as small entities.
1. Alternatives Considered
    As mentioned in section VII of the proposed rule, we considered 
various policy alternatives to adopting ICD-10-CM and ICD-10-PCS. One 
alternative that was considered included the use of unassigned codes. 
Although it may be possible to extend the life of ICD-9-CM by assigning 
codes to new diagnoses and procedures without regard to the hierarchy 
of the code set, it does not represent a long-term solution and will 
only be effective as long as there are empty code slots. Moreover, it 
does not address the remaining shortcomings of ICD-9-CM such as the 
critical lack of detail that is required to support evolving business 
needs and advanced technology.
    Another alternative that was considered included the use of CPT-4 
for coding hospital inpatient procedures. Both the National Committee 
on Vital and Health Statistics (NCVHS) and GAO found structural 
problems and serious flaws with CPT-4 for coding inpatient hospital 
procedures since the system could not capture all services in all 
health care settings.
    A final alternative that was considered was waiting and adopting 
ICD-11, which is not a feasible option since the WHO is in their 
earliest stages of development with the earliest projection of the 
completion being 2016. However, based on past experience with the 
development of ICD-10 being several years late, it is anticipated that 
this date will slip. The U.S version would then need to be developed 
requiring additional analysis, which could take a minimum of 3-5 years 
(optimistically). It is not expected that ICD-11 will be available for 
use in the U.S. until at least 2020.
    We considered a number of options for implementing the transition 
to ICD-10 but rejected them as being too costly and too burdensome. One 
of the options we considered included phasing in the implementation of 
the new codes either by geographic region as Canada and Australia did, 
or by provider/supplier category. We rejected these alternatives 
because it would require plans, especially national plans and possibly 
multi-state chain or national providers/suppliers or health care 
entities that were vertically integrated, to maintain and operate both 
the ICD-9 and ICD-10 coding systems for an extended period of time. 
Code users in national payer

[[Page 49828]]

plans would have to learn the new ICD-10 codes at the same time work 
with the old ICD-9 codes, which would increase the chance of errors in 
payments, create confusion and uncertainty in the providers/supplier 
community and result in delays in processing claims. We believe the 
cost of maintaining two systems running concurrently would impose a 
very significant burden on plans and providers/suppliers.
    Another option for implementing the transition to the new coding 
system is to maintain both the ICD-9 and ICD-10 systems for a period of 
time. We rejected this alternative for many of the same reasons we 
rejected phasing in the ICD-10 code sets. Maintaining two systems 
imposes a significant burden on payers and providers/suppliers as well 
as creates conditions for increased coding errors and payment delays. 
In addition, because Medicare updates the ICD codes on October 1 of 
each year, implementation of any new codes must take place on that 
date. Given the risks for error and the added costs, there seems to be 
little benefit to be gained from providing the opportunity for parallel 
coding systems beyond the October 1 deadline being proposed in this 
rule.
    A third option that was considered and rejected was to delay 
implementation for small entities. However, because we treat all heath 
care providers/suppliers as small entities, we did not see any benefit 
to be gained from delaying implementation of the ICD-10 code sets 
beyond the four-year implementation period being proposed in the rule. 
Delaying implementation would only have an adverse effect on 
implementation of other standards that use the ICD codes. Those 
standards and the systems built around those standards would either 
have to be pushed off further into the future or have to be revised and 
redesigned to accommodate the ICD-10 code sets. The costs of such 
delays could be substantial. Therefore we rejected this option for ICD-
10 implementation.
2. Number of Small Entities
    Two hundred nonprofit health care organizations that offer 213 
plans are considered small entities because of their nonprofit status. 
Practices of doctors of osteopathy, podiatry, chiropractors, mental 
health independent practitioners with annual receipts of less than $6.5 
million are considered to be small entities. Solo and group physicians' 
offices with annual receipts of less than $9 million (97 percent of all 
physician practices) are also considered small entities, as are 
clinics. Approximately 92 percent of medical laboratories, 100 percent 
of dental laboratories and 90 percent of durable medical equipment 
suppliers are assumed to be small entities as well. The American 
Medical Billing Association (AMBA) (http://www.ambanet.net/AMBA.htm, 
accessed 8-12-08) lists 97 billing companies on its Web site. It notes 
that these are the only companies with Web sites. The Statistics of 
U.S. Businesses data shows that there are 97,556 firms involved in 
system design and related services (NAICS code 5415) providing software 
services, data processors, computer facilities management services, 
computer system design services, custom programming services as well as 
other computer-related services.
    Table 9 above (see section XI.B.6.d) presents the impact of the 
ICD-10 implementation costs on all entities we anticipate will be 
affected by the rule. Because we consider all health care provider-
suppliers as small entities, Table 9 shows that the proposed rule will 
not have a significant impact on a substantial number of small health 
care entities. The following table (Table 15) summarizes the results 
from Table 9 for inpatient and outpatient providers/suppliers.

                         Table 15--Impact on Inpatient and Outpatient Provider-Suppliers
----------------------------------------------------------------------------------------------------------------
                                                                     Revenue-                      % ICD-10 cost
               Providers/suppliers                     Firms        receipts ($    ICD-10 costs     of revenue
                                                                     millions)      (million $)      receipts
----------------------------------------------------------------------------------------------------------------
Inpatient.......................................          27,276         801,749          228.55            0.03
Outpatient......................................         635,654         537,417          165.36            0.03
----------------------------------------------------------------------------------------------------------------

    To determine the impact on small insurance carriers, third party 
administrators and system design and related services firms, we first 
determined the number of entities that meet the SBA size standard. For 
insurance carriers and third party administrators, the SBA size 
standard is annual receipts of $6.5 million. For system design and 
related services firms, the SBA size standard is annual receipts of $23 
million.
    Using the Statistics for U.S. Businesses for firm sizes by number 
of employees for 2005 (the latest year for which the Census Bureau 
reports payroll), we combined total annual payroll reported for NAICS 
524114 and 524292 for a total of $32.5 billion (http://www.census.gov/
epcd/susb/2005/us/US_.HTM, accessed 8-21-08) Taking the total premium 
payments made to health insurers reported for 2006 (the latest year for 
which CMS has insurance premium data) in the National Health 
Expenditure Report of $723.4 billion (http://www.cms.hhs.gov/NationalHealthExpendData/02_NationalHealthAccountsHistorical.asp, 
accessed 8-12-08), we divided total insurance premiums by total payroll 
to arrive at a ratio of annual health insurance receipts to annual 
payroll of 22.3.
    Applying the ratio to the reported annual payroll for the employee 
size categories and dividing by the number of firms in each category, 
we found that firms with between 10 and 19 employees had average annual 
receipts of $8.3 million.
    Based on the method for computing annual receipts for firms by the 
number of employees, we estimate that 71 percent of insurers and third 
party administrators account for 2.5 percent of annual receipts. 
Applying this percent to the projected costs of system changes for 
payers found in Table 13a, the costs to small insurers and third party 
administrators is expected to be a total of $4 million for the 
anticipated four-year implementation period. Thus, the annual cost is 
expected to be approximately $1 million or 0.01 percent of revenues.
    We applied the same approach for system design and related computer 
services firms and used 2006 receipt data from the Statistics of U.S. 
Businesses Annual Survey for NAICS 5415 in place of the National Health 
Expenditure data, http://www.census.gov/svsd/www/services/sas/sas_data/sas54.htm, accessed 8-12-08). Dividing total annual receipts by 
total annual payroll, we applied a ratio of 2.4468 to the annual 
payrolls of the various employee size categories and

[[Page 49829]]

found that firms with between 100 and 499 employees had average annual 
receipts of $27.7 million. Total annual receipts for all small entities 
equal $107 billion which represents 53.3 percent of total annual 
receipts for the NAICS category. By comparison, the number of small 
entities represents 99.3 percent of all firms in this category.
    Taking the small entity receipt ratio to total receipts and 
applying it to the expected ICD-10 implementation costs, we find that 
the cost to small entities equals $51.5 million over the four year 
implementation period or $12.9 million per year. As a percent of 
receipts, this equals 0.1 percent.
    As we pointed out in discussing the effects of the total costs on 
third party administrators and system design computer firms, we do not 
know how many firms will actually be involved in implementing the ICD-
10 coding system. For purposes of the analysis, we assume that all 
firms reported in the Statistics of U.S. Businesses for the NAICS codes 
we are examining will be participating in the implementation of the 
codes. Since it is possible we could be including more firms than will 
be implementing the codes, our impact estimate on small entities may be 
understated. To test the sensitivity of the impact of the 
implementation costs on small firms, we assumed that burden would equal 
three percent of revenues. HHS policy states that if a rule imposes a 
burden equal to or greater than three percent of a firm's revenues, it 
is significant (see: ``Guidance on Proper Consideration of Small 
Entities in Rulemakings of the U. S. Department of Health and Human 
Services'' at http://www.hhs.gov/execsec/smallbus.html, accessed 8-12-
08). We assumed that the small business share of the market would 
remain constant at 53 percent and that the $12.8 million costs we 
expect small firms to incur will be distributed equally. Using these 
assumptions, we computed the amount of small entity revenue such that 
the ICD-10 small entity share would equal three percent--$429 million. 
We then calculated the percent of $429 million that is the small entity 
share of the revenue and multiplied the results by the number of small 
entities (see Table 16). From this analysis we estimate that if only 
389 or fewer small firms provide computer and software services, the 
burden could be significant.
    We note that the regulation would not impose any compliance 
requirements on system design and related services firms and, while the 
firms may have to wait for some period of time before they are 
compensated for their services because of contract agreements, they 
should eventually be able to pass on some or all of their costs on to 
their customers. In order to determine if these estimates are accurate, 
we are specifically requesting comments on our analysis and asking for 
any data that will help us determine the number and sizes of firms 
implementing the ICD-10 code sets.
    Table 16 below summarizes the impact of the rule on small insurance 
carriers, third party administrators, and system design and related 
computer design firms.

                                                Table 16--Payers and Computer Design and Related Services
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                 Small
                                                                                             Small      % Small                 entity
                                   Payers and system                           Revenue/     entity      entity    Annual ICD-  share of   % Small entity
              NAICS               design and related     Firms       Small     receipts    receipts    receipts    10 costs     ICD-10    implementation
                                       services                    entities       ($          (in      of total       (in      Costs (in   cost/revenue
                                                                               millions)   millions    receipts    millions)   millions      receipts
                                                                                              $)                                  $)
--------------------------------------------------------------------------------------------------------------------------------------------------------
524114, 524292..................  Health Insurance         4,578       3,449     723,412      18,309        2.53       41.13        1.04          0.01
                                   Carriers and
                                   Third Party
                                   Administrators.
5415............................  Computer Systems        97,556      96,948     200,695     107,048       53.34       24.13       12.87          0.01
                                   Design and
                                   Related Services.
--------------------------------------------------------------------------------------------------------------------------------------------------------

    It is evident that the conversion to ICD-10 would have a wide-
ranging impact, affecting almost every health entity. At minimum, 
personnel will have to adjust to the new diagnostic codes when 
submitting bills. For a small enterprise that does business in a 
relatively narrow range of services or supplies relies primarily on 
paper records, the change may be minimal involving no more than a 
software upgrade for its billing system and new super bill forms. Based 
on a survey published in the June 18, 2008 New England Journal of 
Medicine (Catherine M. DesRoches, Eric G. Campbell, Sowmya R. Rao, et 
al.) found that 83 percent of doctors did not have electronic records 
systems (N Engl J Med 2008;359:50-60). Thus, we expect that the vast 
majority of physicians and practitioners will need to make relatively 
small changes in their record billing systems.
    In the same survey the authors found that only 4 percent of 
physicians surveyed had fully functional electronic health records 
systems and 13 percent had a basic electronic health records system. Of 
the physicians with fully functioning electronic health records, 28 
percent belong to group practices with six or more physicians. Nine 
percent of physicians with access to electronic health record systems 
practice in hospitals, clinics, and medical centers. Although the cost 
to transition to the ICD-10-CM codes will be more costly for providers/
suppliers with electronic health records systems, the data suggests 
that large practices and hospitals and medical centers have invested in 
the sophisticated record systems rather than the average medical 
practice.
    Based upon the previously cited survey, we assume that in many 
small provider practices, electronic health record systems likely are 
not used. Some may use practice management systems (most likely for 
billing purposes) and these will need to be updated. However, the costs 
for these updates can be attributed to the implementation of Version 
5010, and not to ICD-10. Very small provider practices without practice 
management systems likely use only paper. In these instances, there 
will be minimal costs, such as revision to their paper records and the 
updating of their printed super bills. We invite industry and 
stakeholder comment regarding these assumptions.
    At the other extreme are large teaching hospitals and health plans 
that will not only have to transition to the new diagnostic codes, but 
also to the new procedure codes. The changes entailed for such large 
organizations may involve the reconfiguration of entire data systems 
that will require

[[Page 49830]]

hundreds of staff hours in addition to training time and lost 
productivity. Although the previous analysis indicates that the overall 
impact on the health care sector of the economy will be very small, we 
acknowledge that these entities may incur a significant economic 
impact. However, we believe these organizations comprise a small 
minority of the total number of health care entities. We solicit 
industry and stakeholder input on this issue.
    To further illustrate the impact we anticipate the rule will have, 
we developed a scenario for a typical community hospital in the Mid-
West. The data for this illustration is drawn from the American 
Hospital Directory (http://www.AHD.com). While based on an actual 
hospital in a mid-western state, the data has been altered to make 
calculations simpler. The hospital has 100 beds, 4,000 discharges 
annually, and gross revenues of $200 million. Using the factors 
presented in the impact analysis, we estimated training costs 
(including the cost of the actual training as well as lost time away 
from the job), productivity loss for the first 6 months resulting from 
becoming familiar with the diagnostic and procedure codes, and the cost 
of system changes. For our scenario, we assumed that the hospital 
employs three full-time coders who will require eight hours of training 
at $500 per coder for $1,500 ($500 x 3). While they are in training, 
the hospital will have to substitute other staff either by hiring 
temporary coders if possible or shifting staff. The estimated cost at 
$50 per hour is $1,200 (8 hours x 3 staff x $50 per hour).
    In estimating the productivity loss, we are only looking at the 
initial 6 months after implementation. Therefore we divided the annual 
number of discharges of 4,000 by 2 to equal 2,000. We assume that 3/4 
of the discharges are surgical, giving us 1,500 discharges requiring 
use of PCS codes. Dividing this by 6 months yields an average monthly 
discharge rate of 250.
    We perform a similar calculation for outpatient claims. Of the 
13,000 outpatient claims, the monthly average is 1,083 (we do not 
distinguish between medical and surgical outpatient claims).
    Applying the 1.7 extra minutes per discharge, we estimate it would 
take an extra 425 minutes (1.7 x 250) to code the discharges in the 
first month. At $50 per hour, the cost per minute is $0.83 ($50/60 
minutes) and the cost per claim is $1.41 ($0.83 x 1.7). For the first 
month, the productivity loss for inpatient coding is $353 ($1.41 x 
250). Assuming for simplicity's sake that the resumption of 
productivity over the 6-month period would increase in a straight line, 
we divide the $353 by six to come up with $59. We reduce the 
productivity loss by this amount each month through the sixth month. 
The total loss for the 6-month period is $1,233.
    We apply the same method to determine the outpatient productivity 
loss. Based on our assumption that outpatient claims will require one-
hundredth of the time for hospital inpatient claims, we applying the 
.017 extra minutes per claim, we estimate it would take an extra 18.41 
minutes (0.017 x 1083) to code the discharges in the first month. At 
$50 per hour, the cost per minute is $0.83 ($50/60 minutes) and the 
cost per claim is $0.014 ($0.83 x 0.017). For the first month, the 
productivity loss for inpatient coding is $15.28 ($0.014 x 1083). 
Assuming for simplicity sake that the resumption of productivity over 
the 6-month period would increase in a straight line, we divide the 
$15.28 by six; to come up with $2.55. We reduce the productivity loss 
by this amount each month through the sixth month. Thus the total loss 
for the first 6 months will equal $53.
    In estimating the cost of system changes and software upgrades, we 
deliberately chose a value that we think overstates the cost. We 
assumed that hospital will have to spend $300,000 on its data 
infrastructure to accommodate the new codes. Summing the training 
costs, productivity losses, and system upgrades, we estimate the total 
cost to the hospital will equal approximately $303,990. Finally, in 
order to determine the percent of the hospital's revenue that would be 
diverted to funding the conversion to the ICD-10 we compared the 
estimated cost associated with the conversion to ICD-10 to the total 
hospital revenue of $200 million. The costs amount to 0.15 percent of 
the hospital's annual revenues.
    We note that although the impact in our scenario of 0.15 percent is 
significantly larger than the estimated impact of 0.03 percent for 
inpatient facilities in the Table 15 above, it is still significantly 
below the threshold the Department considers a significant economic 
impact. As expressed in the Department guidance on conducting 
regulatory flexibility analyses, the threshold for an economic impact 
to be considered significant is 3 percent to 5 percent of either 
receipts or costs. As is clear from the analysis, the impact does not 
come close to the threshold. Thus based on the foregoing analysis, we 
conclude that some health care providers or suppliers may encounter 
significant burdens in the course of converting to the ICD-10 codes. 
However, we are of the opinion that, for most providers and suppliers, 
payers and computer firms involved in facilitating the transition, the 
costs will be relatively small.
3. Conclusion
    Based on the foregoing analysis, we could certify that this 
proposed regulation would not have a significant economic impact on a 
substantial number of small entities. However because of the 
substantial uncertainty in the data and our assumptions we invite 
public comments on the analysis and request any additional data that 
would help us determine more accurately the impact on the various 
categories of entities affected by the rule.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf) (accessed 8-12-08), in 
Table 12 below, we have prepared an accounting statement showing the 
classification of the expenditures associated with the provisions of 
this proposed rule. This table provides our best estimate of the costs 
and benefits associated with the implementation of ICD-10-CM and ICD-
10-PCS in 2011 as HIPAA standard code sets to replace ICD-9-CM. All 
exclassified as implementation for HIPAA covered entities.

[[Page 49831]]



        Table 17--Accounting Statement: Classification of Estimated Expenditures, From FY 2009 to FY 2023
                                                  [In millions]
----------------------------------------------------------------------------------------------------------------
                                                               Minimum         Maximum
             Category                  Primary estimate       estimate        estimate     Source citation (RIA,
                                          (millions)         (millions)      (millions)       preamble, etc.)
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Annualized Monetized benefits:
    7% Discount...................  $212.1...............           $72.3          $233.6  RIA.
    3% Discount...................  241.0................            82.2           265.4  RIA.
    Qualitative (un-quantified)     Improved               ..............  ..............  RIA.
     benefits.                       biosurveillance and
                                     global disease
                                     management.
----------------------------------------------------------------------------------------------------------------
                                                      Costs
----------------------------------------------------------------------------------------------------------------
Annualized Monetized costs:
    7% Discount...................  $144.9...............           $40.1          $159.4  RIA.
    3% Discount...................  124.8................            34.4           137.3  RIA.
    Qualitative (un-quantified)     None.................            None            None  .....................
     costs.
----------------------------------------------------------------------------------------------------------------
                                                    Transfers
----------------------------------------------------------------------------------------------------------------
Annualized monetized transfers:     N/A..................             N/A             N/A  .....................
 ``on budget''.
From whom to whom?................  N/A..................             N/A             N/A  .....................
Annualized monetized transfers:     N/A..................             N/A             N/A  .....................
 ``off-budget''.
From whom to whom?................  N/A..................             N/A             N/A  .....................
----------------------------------------------------------------------------------------------------------------

F. Conclusion

    Because ICD-9 is the official system of assigning codes to medical 
diagnoses and procedures associated with hospital and ambulatory 
utilization, the changeover to ICD-10 codes will have a major impact on 
the entire health care industry. This transition is needed due to the 
space and granularity deficiencies inherent in the almost three-decade-
old ICD-9 code set, and the increased procedure and diagnosis detail 
that ICD-10 offers, allowing for more accurate payment of claims.
    For hospitals, ambulatory centers, physician offices, and health 
plans, this transition will be multifaceted, but once adopted, ICD-10 
would allow for better coding of complex conditions and procedures as 
well as a more uniform measure of reimbursement. Providers and payers 
are likely to need a cross-walk of ICD-9 codes to ICD-10 codes in the 
beginning of the transition, but as our analysis has shown, in the 
long-term, the benefits of ICD-10 outweigh its costs.
    This impact analysis references two reports that outline the costs 
and benefits of transitioning from ICD-9 to ICD-10. These reports 
include ``The Costs and Benefits of Moving to the ICD-10 Code Sets'' by 
the RAND Corporation, and ``Replacing ICD-9-CM with ICD-10-CM and ICD-
10-PCS Challenges, Estimated Costs, and Potential Benefits'' by the 
Robert E. Nolan Company. For purposes of this impact analysis, we also 
reference field studies and interviews done by AHIMA, which detail 
first-hand accounts of the benefits of using the ICD-10 code sets.
    If we do not implement ICD-10 codes, we could continue to use ICD-9 
codes; however, as mentioned in previous sections of this impact 
analysis, ICD-9 codes do not capture new technologically-advanced 
procedures, there would be an increased need to add new codes in 
illogical locations which would cause more confusion and inaccuracy 
when assigning codes, and there would possibly be improper payments for 
inaccurate diagnoses and procedures.
    Because of the considerable uncertainty in the data and our 
assumptions we invite public comments regarding whether this proposed 
regulation would have a significant economic impact on a substantial 
number of small entities. We request any additional data that would 
help us determine more accurately the impact on the various categories 
of entities affected by the rule.
    We have considered the alternatives specified in section XI of the 
preamble of this proposed rule. We welcome comments on ways to lessen 
any burdens from our proposal, on alternatives that might be more 
effective or less costly, and/or any other improvements we can make 
before issuing a final rule.
    In accordance with the provisions of Executive Order 12866, as 
amended, this regulation was reviewed by the Office of Management and 
Budget.

List of Subjects in 45 CFR Part 162

    Administrative practice and procedures, Electronic transactions, 
Health facilities, Health Insurance, Hospitals, Incorporation by 
reference, Medicaid, Medicare, Reporting and recordkeeping 
requirements.

    For the reasons set forth in this preamble, the Department of 
Health and Human Services proposes to amend 45 CFR subtitle A, 
subchapter C, part 162 as follows:

PART 162--ADMINISTRATIVE REQUIREMENTS

    1. The authority citation for part 162 continues to read as 
follows:

    Authority: Secs. 1171 through 1179 of the Social Security Act 
(42 U.S.C. 1320d-1320d-8), as added by sec. 262 of Public Law 104-
191, 110 Stat. 2021-2031, and sec. 264 of Public Law 104-191, 110 
Stat. 2033-2034 (42 U.S.C. 1320d-2(note)).

    2. Section 162.1002 is amended by revising paragraph (b) 
introductory text and adding paragraph (c) to read as follows.


Sec.  162.1002  Medical data code sets.

* * * * *
    (b) For the period on and after October 16, 2003 through September 
30, 2011:
* * * * *
    (c) For the period on and after October 1, 2011:
    (1) The code sets specified in paragraphs (a)(4), (a)(5), (b)(2), 
and (b)(3) of this section.

[[Page 49832]]

    (2) International Classification of Diseases, 10th Revision, 
Clinical Modification (ICD-10-CM) (including The Official ICD-10-CM 
Guidelines for Coding and Reporting), as maintained and distributed by 
HHS, for the following conditions:
    (i) Diseases.
    (ii) Injuries.
    (iii) Impairments.
    (iv) Other health problems and their manifestations.
    (v) Causes of injury, disease, impairment, or other health 
problems.
    (3) International Classification of Diseases, 10th Revision, 
Procedure Classification System (ICD-10-PCS) (including The Official 
ICD-10-PCS Guidelines for Coding and Reporting), as maintained and 
distributed by HHS, for the following procedures or other actions taken 
for diseases, injuries, and impairments on hospital inpatients reported 
by hospitals:
    (i) Prevention.
    (ii) Diagnosis.
    (iii) Treatment.
    (iv) Management.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Approved: March 12, 2008.
Michael O. Leavitt,
Secretary.

    Editorial Note: This document was received at the Office of the 
Federal Register on August 15, 2008.
 [FR Doc. E8-19298 Filed 8-15-08; 3:55 pm]
BILLING CODE 4120-01-P