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Docs face 'crushing' costs from diagnosis code switch, AMA says

Doctors face "crushing" costs from a looming rule change that will shake up the way diagnosis codes used for insurance claims are filed, the American Medical Association warned Wednesday.

In some cases, the AMA expects doctors will have to pay three times the original estimate for implementing these new and more numerous codes.

Switching to the so-called ICD-10 codes this fall will cost large physician practices anywhere from $2 million to $8 million, according to the study conducted by Nachimson Advisors for the AMA.

Small practices will have to fork out anywhere between $56,600 and $226,100 for the transition, and medium-sized practices between $213,360 and $824,700, the study found.

Nachimson projected that two-thirds of the physician practices would incur costs in the upper half of those ranges.

"The markedly higher implementation costs for ICD-10 places a crushing burden on physicians, straining vital resources needed to invest in new health-care delivery models and well-developed technology that promotes care coordination with real value to patients," said Dr. Ardis Dee Hoven, the AMA's president.

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The AMA objects to the costs in large part because it says that the doctors that make up its constituency will be forced to pay potentially large sums of money to comply with a new coding scheme that they use at a much lower rate than hospitals.

This study comes six years after Nachimson took an initial look at the expected costs for adopting the new codes, which report specific medical diagnoses and inpatient procedures.

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In the original study, Nachmison found that the median small physician practice would have to pay about $83,300 in added costs, while medium-size practices would pay a median of $285,195, and larger practices $2.7 million.

In the latest study, the biggest cost drivers by far were related to testing, lost productivity and disruption of payments.

The AMA noted that the new study has much higher estimates for necessary testing and the potential risk of payment disruption as well as the fact that the federal Centers for Medicare & Medicaid Services "has estimated that claims denial rates could increase 100 to 200 percent in the early stages of coding with ICD-10."

The AMA, citing the new cost estimates, Wednesday wrote Health and Human Services Secretary Kathleen Sebelius asking her to reverse the mandate forcing the rule's implementation.

A CMS spokeswoman said, "CMS is working very closely with all industry stakeholders to provide support in transitioning to ICD-10 [as] expected later this year."

The current code scheme, known as ICD-9, "is more than 30 years old and contains outdated, obsolete terms that are inconsistent with current medical practice," the spokeswoman said. "ICD-10 codes will provide better support for patient care, and improve management, quality measurement and analytics."

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Unlike the current ICD-9 codes, which have a set of about 13,000 codes for diagnoses, the ICD-10 system has a whopping 68,000 codes.

The new codes are extremely specific and are the subject of snorting among AMA officials, one of whom noted there is a code for "being burned by flaming water skis," and another for "being bit by a duck in a opera house."

"It's being portrayed as a tool to help improve patients' care," that official said. But it's actually "creating a huge administrative and financial burden to implement and make the transition happen," the official said. "It's going to affect productivity, it's going to take time away from patient care."

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However, an executive at a recruitment firm who specializes in health-care clients took another view, and suggested that doctors who face much higher costs than originally projected have themselves largely to blame.

"ICD-10 is one of the biggest health-care changes that the United States has faced to date," said Steve Tutwiler, who leads the health-care division of JRP Group. "It is a daunting task, but will end up creating more efficiency in provider practices, more proficiency in hospital practices and overall better patient care. However, this will take time to come to fruition."

"The 2008 estimate for implementation costs was based on the assumption that physicians would [be] involved and proactive in this conversion," Tutwiler said. "The projected cost increase is based on the fact that many independent practices have been resistant to ICD-10 implementation. Everyone has had ample time to prepare and many have simply chosen not to."

"Ten percent of practices, independent or part of a hospital group, are still using paper records and physical charts. What is culminating from this mandate is that many doctors will need to implement a full technology upgrade," Tutwiler said. "If practices engage today, implement the tools available to them and spread out proper protocol over the next nine months, it is possible to manage costs to the penny."

By CNBC's Dan Mangan. Follow him on Twitter @_DanMangan.

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