Data shows ICD-10 conversion created minimal financial disruption at hospitals

CHICAGO (June 28, 2016) – The U.S. conversion to the International Classification of Diseases, 10^th Revision (ICD-10) was expected to have far reaching effects. Anticipated impacts included delays in billing and coding, the potential for increased payer denials and accounts receivable (AR), and the possibility of decreased cash collections for healthcare providers as a result of these effects. However, new data shows the Oct. 1, 2015, conversion minimally impacted cash collections, initial denial rates and days in AR, according to Crowe Horwath LLP, one of the largest public accounting, consulting and technology firms in the U.S.

This data came from Crowe Revenue Cycle Analytics (Crowe RCA), a benchmarking solution that compiles and organizes a daily feed of transactional-level data from the patient accounting systems (PAS) of nearly 600 hospitals. These reports outline findings based on an assessment of key performance indicators (KPIs) related to billing and coding, AR and denials. The quarterly Crowe RCA Benchmarking Analysis, “ICD-10 conversion results in limited performance impact for most hospitals,” details the analysis of data examined through March 31, 2016.

Based on the recent PAS data, while there was minimal impact on cash collections, initial denial rates and days in AR, due to the ICD-10 conversion, there were delays in inpatient billing and coding. This resulted in a 10.1 percent increase in inpatient discharge and not final billed (DNFB) days from October through December 2015, compared to the same period a year earlier. Although inpatient DNFB days in January 2016 were only slightly elevated from the January 2015 level, average DNFB days for February and March 2016 continued to deteriorate and were 6.2 percent higher than the average levels from the same months a year earlier.

The Crowe RCA data also showed an increase for a material number of hospitals in denial claim adjustment reason code 11, which indicates the diagnosis is inconsistent with the procedure. According to Brian Sanderson, managing principal of Crowe healthcare services, while this increase included only a small percentage of the overall initial denial population and could be a result of using the new classification system, it is still critical for organizations to closely monitor their denial performance to limit revenue cycle cash leakage. He explained, “Providers need the tools to perform root cause analysis and understand the true financial impact of denials to their organization, beyond assessing trending by payer and denial category. Prioritizing denial prevention efforts depends on accurately calculating the financial impact, including the resource costs of resolving existing denials and preventing future denials.”

Through the Crowe RCA solution, Crowe supplements final denial write-off data with a metric calculating the payment or realization rate variance between historical denied and nondenied accounts. This KPI, called the “denials realization gap,” determines overall cash leakage from denials with respect to initial denial rates. In its analysis, Crowe specialists observed that most calculated hospital denials realization gaps range from 3.1 percent to 7.7 percent of gross patient services revenue (GPSR), including some greater than 11 percent.

In most cases, the Crowe-calculated denials realization gap indicates more cash leakage is occurring than the final denial write-offs indicate. This typically occurs because of the use of contractual and administrative adjustment codes that are used instead of the correct final denial write-off codes in cases where collections departments are unable to successfully resolve denied accounts.

Through the account-level linking of patient accounting system electronic remittance data, organizations can gain differential insights into root cause prevention mechanisms and AR resolution strategies. “Denials realization gap analysis can be used to target specific areas to improve denial prevention and resolution efforts,” said Sanderson. “In fact, our clients have been requesting this examination as part of a managed care review and are incorporating denials analysis into their payer scorecards.”

For more information or to download a copy of the Crowe RCA Benchmarking Analysis, please visit www.crowehorwath.com/benchmarking-release.

About the Crowe RCA Benchmarking Analysis
The Crowe RCA Benchmarking Analysis includes 597 distinct hospitals classified as acute, critical-access, rehabilitation, psychiatric or cardiovascular care facilities. The database contains information from hospitals in 42 states, with 20 or more facilities represented in Colorado, Florida, Illinois, Indiana, Kansas, Kentucky, Ohio, South Dakota, Texas and Wisconsin.

About Crowe Horwath
Crowe Horwath LLP (www.crowehorwath.com) is one of the largest public accounting, consulting, and technology firms in the United States. Crowe uses its deep industry expertise to provide audit services to public and private entities while also helping clients reach their goals with tax, advisory, risk and performance services. Crowe is recognized by many organizations as one of the country's best places to work. Crowe serves clients worldwide as an independent member of Crowe Horwath International, one of the largest global accounting networks in the world. The network consists of more than 200 independent accounting and advisory services firms in more than 120 countries around the world.

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