49796 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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. 

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

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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49797 

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 


rwilkins on PROD1PC63 with PROPOSALS
49798 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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: 

• 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. 

• 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: 

• The National Uniform Billing 

Committee (NUBC). 

• The National Uniform Claim 

Committee (NUCC). 

• The Workgroup for Electronic Data 

Interchange (WEDI). 

• 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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49799 

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-forperformance 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 diagnosisrelated group (DRG) system classifies 

hospital cases into groups that are 

expected to have similar hospital 

resource needs. DRGs are assigned 


rwilkins on PROD1PC63 with PROPOSALS
49800 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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: 

• 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. 

• 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. 

• 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. 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 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: 

• Significant improvements in coding 

primary care encounters, external 

causes of injury, mental disorders, 

neoplasms, and preventive health. 

• Advances in medicine and medical 

technology that have occurred since the 

last revision. 

• Codes with more detail on 

socioeconomic, family relationships, 

ambulatory care conditions, problems 

related to lifestyle, and the results of 

screening tests. 

• More space to accommodate future 

expansions (alphanumeric structure). 

• New categories for post-procedural 

disorders. 

• 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. 

• 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) 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, 

is accredited by the American National 

Standards Institute (ANSI) as an 


rwilkins on PROD1PC63 with PROPOSALS
49802 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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, 

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 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 code set would first have to be 

mapped to a classification coding 

system, such as ICD–10–CM. (For 

further discussion of SNOMED CT 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 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: 

• The National Uniform Billing 

Committee (NUBC). 

• The National Uniform Claim 

Committee (NUCC). 

• The Workgroup for Electronic Data 

Interchange (WEDI). 

• 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: 

• The American Health Information 

Management Association (AHIMA). 

• The American Medical Association 

(AMA). 

• The Blue Cross Blue Shield 

Association (BCBSA). 

• The Medical Group Management 

Association (MGMA). 

• Health Information and 

Management Systems Society (HIMSS). 

• 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 numeric; Digits 2–5 are numeric ..... Digit 1 is alpha; Digits 2 and 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-specific codes ................................. Specificity improves coding accuracy and richness of data for analysis. 

Codes are non-specific and do not adequately define diagnoses needed for medical research.Detail improves the accuracy of data used for medical research. 

Does not support interoperability because it is not used by other countries.Supports interoperability and the exchange of health data between 

other countries and the U.S. 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49803 

1 ‘‘Coordination of SNOMED–CT 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. 

COMPARISON—Continued 

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 approach for procedures ............ Provides detailed descriptions of methodology and approach for procedures. 

Limits DRG assignment ............................................................................ Allows DRG definitions to better recognize new technologies and devices. 

Lacks precision to adequately define procedures .................................... Precisely defines 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

SNOMED Clinical Terms (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: 

• Staging and scales—contains 

concepts naming assessment scales and 

tumor staging systems. 

• Social context—contains social 

conditions and circumstances 

significant to health care. 

• 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 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 codes. The 

number of terms and level of detail in 

a reference of clinical terminology such 

as SNOMED CT 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

SNOMED CT 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: 

• Designing health care delivery 

systems. 

• Setting health policy. 

• Tracking public health and risks. 

• Monitoring resource utilization. 

• Processing claims for 

reimbursement. 

The benefits of using SNOMED CT

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 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—

• Use of data collected; 

• Retaining the value of data when 

migrating to newer databases; and 

• Avoiding entering data multiple 

times, and the risk of increased costs 

and errors. 

Using SNOMED CT 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 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 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. The 

NTTAA and Office of Management and 


rwilkins on PROD1PC63 with PROPOSALS
49804 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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 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 longterm 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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 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 

§ 162.1002(b) and § 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 

§ 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: 

• Beginning in September 2006 (and 

annually thereafter)—Delivery of 

Healthcare Information Technology 

Standards Panel (HITSP) 

interoperability specifications 

supporting specific use cases. 


rwilkins on PROD1PC63 with PROPOSALS
49806 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

• May 2007—Compliance date for all 

covered entities other than small health 

plans, implementing the HIPAA 

National Provider Identifier (NPI) in all 

HIPAA transactions. 

• June 2007—Publication of the 

Certification Commission for Healthcare 

Information Technology (CCHIT) 

criteria for certifying inpatient 

electronic health record products. 

• November 2007—Publication of 

Electronic Prescribing Standards for 

Medicare Part D Notice of Proposed 

Rulemaking. 

• April 2008—Publication of Final 

rule regarding standards for Electronic 

Prescribing under Medicare Part D and 

adoption of NPI in Electronic 

Prescribing transactions. 

• May 2008—Publication of CCHIT 

criteria for certifying health information 

technology networks and systems. 

• May 2008—Compliance date for 

small health plans implementing the 

HIPAA National Provider Identifier 

(NPI) in all HIPAA transactions. 

• 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. 

• 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. 

• 2010—Projected compliance date 

for updated non-pharmacy HIPAA 

financial and administrative 

transactions which affects all HIPAAcovered 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. 

• 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. 

• 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: 

• 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. 

• 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. 

• 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. 

• 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. 

• 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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 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. 


rwilkins on PROD1PC63 with PROPOSALSEP22AU08.006</GPH>
49808 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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.) 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 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: 

• ICD–9–CM is out of date and 

running out of space for new codes. 

• 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. 

• 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: 

• The depth and completeness of the 

analysis and supporting evidence for the 

conclusions; 

• Data sources and a presentation of 

the data limitations; 

• The perceived objectivity of the 

analysis as demonstrated by the 

discussion of data sources and the rigor 

of the analysis; 

• 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 

• 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

* Category Number of 

staff Hours 

Training cost 

in millions $ 

(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, 


rwilkins on PROD1PC63 with PROPOSALS
49810 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

2RAND page 10. 

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. 

4Nolan, page 21. 

5Nolan, page 6. 

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 superbills 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. 

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 resulting from claims rework .......................................................... $300–600 (million) in first year. 

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 from the greater number of codes and more complex coding structure ............................ $152–380 million. 

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). 

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 preICD–10 levels.4

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. 

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: 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49811 

6Nolan, page 7. 7RAND, pages 15–16 and Appendix B. 

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 leader ....................... 0.25–1.0 $25–$70,000 0.25–1.0 $25–$70,000 

Assemble project team and develop 

plan.

0.5–2.0 50–140,000 0.5–4.0 50–280,000 

Perform gap and systems analysis .. 0.25 5–25,000 0.5–3.0 50–210,000 

* 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. 

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 onetime 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 highlevel 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. 

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 • 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. 

• 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 • The Nolan report treated re-work and short-term losses 

separate from productivity losses—which may account for 

the Nolan Report figures. 


rwilkins on PROD1PC63 with PROPOSALS
49812 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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. 

TABLE 6—COMPARISON OF COST AND BENEFIT ESTIMATES IN RAND AND NOLAN STUDIES—Continued 

[In $ millions] 

RAND Nolan Difference Comments 

Recurring ......................... 0–30 152–380 152–350 

System Changes: 

One-time .......................... 225–700 3,700–10,600 3,475–9,900 • 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 procedures.

100–1,200 (1) ........................ • The Nolan report 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 procedures.

100–1,500 (1) 

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 previouslyreferenced 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. 

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 renegotiation 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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49813 

9 ‘‘ICD–10–CM Field Testing Project.’’ AHIMA/ 

AHA; September 2003 (www.ahima.org/icd-10/ 

documents/FinalStudy/pdf.), accessed 8–12–08 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. 

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 costbenefit 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. 

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 yearby-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. 

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 


rwilkins on PROD1PC63 with PROPOSALS
49814 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

12From the Consumer Price Index 2004 and 2007, 

http://www.bls.gov/CPI/, accessed 8–12–08. 

13National Health Expenditures and Selected 

Economic Indicators, Levels and Annual Percent 

Change: Calendar Years 2002–2017. 

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: 

• Training. 

• Productivity Losses. 

• 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. 

For the benefit growth factor preimplementation, 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

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: 

• Cash flow. 

• 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–


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49815 

14RAND, page 8. 15RAND, page 8. 16http://www.census.gov/csd/susb/susb05.htm, 

accessed 8–12–08. 

17RAND, page 8. 

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

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

NAIC 

code Type of entity 

Total number 

of entities (establishments) 

and employees 16

5–9 

employees 

10–19 

employees 

20–99 

employees 

100–499 

employees 

Total number 

of part-time 

coders 

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 Practitioners.115,378 19,357 7,654 5,043 11,774 ........................

Employees .............................. 553,658 121,527 88,196 96,754 47,155 30,962 

6214 .... Outpatient Care Centers ......... 26,901 1,897 1,907 4,190 5,440 ........................

Employees .............................. 658,507 12,510 24,766 109,237 186,883 17,941 

6215 .... Medical and Diagnostic Laboratories.11,856 1,324 1,324 1,492 928 ........................

Employees .............................. 222,651 8,577 13,194 41,707 40,221 6,080 

6216 .... Home Health Care Services ... 20,184 1,426 1,569 4,109 2,445 ........................

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

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 


rwilkins on PROD1PC63 with PROPOSALS
49816 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

18RAND, page 9. 

19RAND, page 9. 

20World Health Organization, http:// 

www.who.int/en/, accessed 8–12–08. 

21RAND, page 9. 

22RAND, page 10. 

23 ICD–10 Field Testing Project Summary Report, 

September 23, 2003; AHIMA, p. 25. 

24RAND, page 10. 

25This 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. 

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 × 

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

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. 

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. 

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: 

• Unfamiliarity with the index 

structure of ICD–10; 

• Use of different main terms and 

sub-terms in ICD–10 versus ICD–9; 

• Spending more time reviewing the 

medical record; and 

• 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

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. 

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. 

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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49817 

26RAND defines improper claims as those claims 

that could be fraudulent. 

27CMS Medicare Returned Claims Report for FYs 

2004, 2005, and 2006; Office of Financial 

Management. 

28RAND, page 25. 29The National Health Expenditure accounts for 

private health insurance cost of administering 

insurance are in claims adjudications. 30RAND defines a claim cycle as the process a 

claim goes through from provider to payer. 

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 onehundredth 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 ‘‘superbills’’ 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 

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 

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). 

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 


rwilkins on PROD1PC63 with PROPOSALS
49818 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

31RAND, page xiv. 32RAND, page 5. 33RAND, page xiv and page 17. 

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. 

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 personyears. 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. 

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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49819 

34RAND, page 14. 

million maximum, based on the groups’

market share estimates from RAND.34

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

Change Government agency Cost 

(in 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: 

• Hospitals, 

• Nursing facilities. 

The group of outpatient providers and 

suppliers included: 

• Physicians and other practitioners 

(excluding dentists), 

• Outpatient care centers, 

• Medical and diagnostic imaging 

services, 

• Home health services, 

• Other ambulatory health care 

services, 

• Durable medical equipment 

suppliers. 

In column 3, we present the revenuereceipts for each type of providersupplier, 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 


rwilkins on PROD1PC63 with PROPOSALS
49820 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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 providersupplier 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) 

NAICS Provider/supplier type Firms 

Revenue/ 

receipts 

($ mil.) 

Percent of revenue receipts ICD–10 costs 

($ mil.) 

Percent ICD–

10 costs of 

revenue/ 

receipts 

622 .......................... Hospitals (General Medical and 

Surgical, Psychiatric and drug 

and Alcohol Treatment, Other 

Specialty).

4,409 653,033 81.45 186.16 0.03 

623 .......................... Nursing Facilities (Nursing care 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).

22,867 148,716 18.55 42.40 0.03 

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 

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).

13,624 73,966 13.80 9.93 0.01 

6215 ........................ Medical Diagnostic and Imaging 

Services.

7,811 37,253 6.93 5.00 0.01 

6216 ........................ Home Health Services .................... 14,512 47,007 8.75 6.31 0.01 

6219 ........................ Other Ambulatory Care Services 

(Ambulance and Other).

5,872 24,593 4.58 3.30 0.01 

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 

Third Party Administrators 4.

4,578 723,412 100 164.54 0.023 

5415 ........................ Computer System Design and Related Services 6.97,556 200,695 100 96.50 0.048 

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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49821 

35RAND, page 19. 36RAND, page 21. 37RAND, page 21. 

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 revenuesreceipts 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] 

Minimum Maximum Primary 

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

• More accurate payments for new 

procedures: 

• Fewer rejected claims; 

• Fewer improper claims; 

• Better understanding of new 

procedures; 

• Improved disease management; 

• Better understanding of health 

conditions and health care outcomes (no 

monetary estimate made); and 

• 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

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

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 


rwilkins on PROD1PC63 with PROPOSALS
49822 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

38RAND, page 22. 

39RAND, page 23. 

40 ‘‘Issues Surrounding the Proposed 

Implementation of ICD–10.’’ WEDI MHHSh 2000, 

page 9. 

41RAND, page 23. 

42RAND page 26. 

43RAND, 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. 

44RAND, page 26. 

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

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. 

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. 

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

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. 

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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49823 

45RAND, page 28. 

46This is an absolute value concept which 

applies to both procedures done and not done. 

RAND, page 9. 47RAND, page 30. 

48http://www.cdc.gov/media/pressrel/2008/ 

r080624.htm, accessed 8–12–08 

49Based 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. 

50RAND, page 30. 

51This is different from RAND’s parameter of 0.1, 

but was confirmed through discussions with the 

authors. 

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

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. 

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

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: 

• 60 percent of diabetics are currently 

enrolled in plans with disease 

management programs; 

• 50 percent of the patients in such 

plans are not in a disease management 

program (30 percent); 

• 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; 

• Use of ICD–10 reveals new 

information on 20 percent of Type II 

diabetics in plans using ICD 

classifications; 

• 50 percent of these patients elect to 

participate in the disease management 

program; 

• 20 percent of those newly enrolled 

in a disease management program, 

achieve sufficient improvement to 

increase their life expectancy by six 

months. 

• For patients already in a disease 

management program, using ICD–10 

will result in an improved program in 

50 percent of the patients. 

• 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 × 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

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

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 


rwilkins on PROD1PC63 with PROPOSALS
49824 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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 phasein 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 crossborder 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. 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49825 

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. 

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 realtime health situational awareness. 

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

Minimum Maximum Primary 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 


rwilkins on PROD1PC63 with PROPOSALSEP22AU08.015</GPH>
49826 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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 longterm 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 AntiKickback 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. 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49827 

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 


rwilkins on PROD1PC63 with PROPOSALSEP22AU08.016</GPH>
49828 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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

Providers/suppliers Firms 

Revenuereceipts 

($ millions) 

ICD–10 costs 

(million $) 

% ICD–10 

cost of 

revenue 

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 fouryear 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 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 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

NAICS 

Payers and system 

design and related 

services 

Firms Small 

entities 

Revenue/ 

receipts 

($ millions) 

Small entity receipts 

(in millions 

$) 

% Small 

entity 

receipts 

of total 

receipts 

Annual 

ICD–10 

costs 

(in 

millions) 

Small entity share of 

ICD–10 

Costs 

(in millions 

$) 

% Small 

entity implementation cost/ 

revenue 

receipts 

524114, 

524292.

Health Insurance Carriers and Third 

Party Administrators.

4,578 3,449 723,412 18,309 2.53 41.13 1.04 0.01 

5415 ......... Computer Systems 

Design and Related 

Services.

97,556 96,948 200,695 107,048 53.34 24.13 12.87 0.01 

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 


rwilkins on PROD1PC63 with PROPOSALS
49830 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

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 × 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 × 3 staff × $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 

e×tra 425 minutes (1.7 × 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 × 1.7). For the first month, 

the productivity loss for inpatient 

coding is $353 ($1.41 × 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 onehundredth 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 × 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 × 0.017). For the first 

month, the productivity loss for 

inpatient coding is $15.28 ($0.014 × 

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. 


rwilkins on PROD1PC63 with PROPOSALS
Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 49831 

TABLE 17—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED EXPENDITURES, FROM FY 2009 TO FY 2023 

[In millions] 

Category 

Primary 

estimate 

(millions) 

Minimum 

estimate 

(millions) 

Maximum 

estimate 

(millions) 

Source 

citation (RIA, 

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) benefits .................................... Improved biosurveillance and 

global disease management.

........................ ........................ RIA. 

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) costs ........................................ None ....................................... None None 

Transfers 

Annualized monetized transfers: ‘‘on budget’’ .......................... N/A .......................................... N/A N/A 

From whom to whom? .............................................................. N/A .......................................... N/A N/A 

Annualized monetized transfers: ‘‘off-budget’’ .......................... N/A .......................................... N/A N/A 

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 crosswalk of ICD–9 codes to ICD–10 codes in 

the beginning of the transition, but as 

our analysis has shown, in the longterm, 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. 

§ 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. 


rwilkins on PROD1PC63 with PROPOSALS
49832 Federal Register / Vol. 73, No. 164 / Friday, August 22, 2008 / Proposed Rules 

(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 


rwilkins on PROD1PC63 with PROPOSALS