Denial rates in ICD-10 claims testing are encouraging

The success rate of claims filed in the latest round of ICD-10 testing by the Centers for Medicare and Medicaid Services improved over the rate from testing done last January, an encouraging sign that more healthcare providers will be ready when the new diagnostic codes go live on Oct. 1.
High claims denial rates can have a disruptive impact on the revenue cycle by causing delays in – and sometimes an inability to collect – payment. Healthcare finance experts have raised concerns that the conversion to ICD-10, which include 68,000 codes (or nearly five times the 14,000 codes under ICD-9), will lead to an increase in claims denials.
But in CMS end-to-end testing of more than 23,000 claims filed in late April and early May by 875 Medicare Administrative Contractors (MACs), less than 13 percent of claims were rejected, with only 2 percent of denials being traced to ICD-10 coding errors.
The contractors filed a total of 23,138 claims using CMS’s Common Electronic Data Interchange, with 20,306, or 87.8 percent, being approved. That’s solid progress from the 81 percent claims approval rating in testing last January.
Critics of IDC-10 have said that the expanded diagnostic coding vocabulary would lead to more coding error-based claims denials. Indeed, CMS has predicted denials after Oct. 1 could increase from 100 percent to 200 percent and lengthen accounts receivable cycles an extra 40 percent.
While the latest testing results would seem to belie the severity of CMS’s forecast, two caution flags must be raised: 
  1. The volume of claims filed in the latest tests is a tiny fraction of the “4.9 million Medicare claims” made each business day, according to CMS. But even if healthcare providers were able to keep ICD-10 errors at the CMS test’s 2 percent rate, that’s nearly 100,000 claims denials a day across the U.S. healthcare system. And it’s much more likely that the sheer volume of daily claims being filed using a new and drastically expanded diagnostic coding system will push that ICD-10 error rate beyond 2 percent.
  2. The MACs participating in the CMS tests by definition are further along in the ICD-10 conversion process than others, many of which will be unprepared when Oct. 1 rolls around. For these laggard MACs, claims denials could have a significant negative effect on revenue cycle management.
Minimizing the impact of claims denials requires adequate staff training, comprehensive testing, the ability to analyze denial data, and an awareness of larger trends in denials.

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