[Federal Register Volume 79, Number 149 (Monday, August 4, 2014)]
[Rules and Regulations]
[Pages 45128-45134]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18347]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 162

[CMS-0043-F]
RIN 0938-AS31


Administrative Simplification: Change to the Compliance Date for 
the International Classification of Diseases, 10th Revision (ICD-10-CM 
and ICD-10-PCS) Medical Data Code Sets

AGENCY: Office of the Secretary, HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements section 212 of the Protecting 
Access to Medicare Act of 2014 by changing the compliance date for the 
International Classification of Diseases, 10th Revision, Clinical 
Modification (ICD-10-CM) for diagnosis coding, including the Official 
ICD-10-CM Guidelines for Coding and Reporting, and the International 
Classification of Diseases, 10th Revision, Procedure Coding System 
(ICD-10-PCS) for inpatient hospital procedure coding, including the 
Official ICD-10-PCS Guidelines for Coding and Reporting, from October 
1, 2014 to October 1, 2015. It also requires the continued use of the 
International Classification of Diseases, 9th Revision, Clinical 
Modification, Volumes 1 and 2 (diagnoses), and 3 (procedures) (ICD-9-
CM), including the Official ICD-9-CM Guidelines for Coding and 
Reporting, through September 30, 2015.

DATES: These regulations are effective on September 3, 2014.

FOR FURTHER INFORMATION CONTACT: 
Denesecia Green, (410) 786-8797.
Geanelle G. Herring, (410) 786-4466.
Kamahanahokulani Farrar, (410) 786-2155.

SUPPLEMENTARY INFORMATION:

I. Executive Summary and Background

A. Executive Summary

1. Purpose
    Prior to the enactment of the Protecting Access to Medicare Act of 
2014 (PAMA) (Pub. L. 113-93) on April 1, 2014, the health care industry 
was actively preparing to transition to the International 
Classification of Diseases, 10th Revision, Clinical Modification (ICD-
10-CM) for diagnosis coding and the International Classification of 
Diseases, 10th Revision, Procedure Coding System (ICD-10-PCS) for 
inpatient hospital procedure coding (herein collectively referred to as 
ICD-10) on October 1, 2014. Many in the health care industry had 
invested time and resources in system upgrades, testing, training, and 
undertaking the necessary changes to workflow processes. However, PAMA 
required the Secretary to adopt ICD-10 no sooner than October 1, 2015.
    This final rule establishes October 1, 2015, as the new ICD-10 
compliance date. This final rule also requires the continued use of the 
International Classification of Diseases, 9th Revision, Clinical 
Modification, Volumes 1 and 2 (diagnoses), and 3 (procedures), 
including the Official ICD-9-CM Guidelines for Coding and Reporting 
(herein collectively referred to as ICD-9-CM), through September 30, 
2015.
a. Need for the Regulatory Action
    This final rule establishes October 1, 2015 as the compliance date 
for ICD-10. It also requires the continued use of ICD-9-CM through 
September 30, 2015.
b. Legal Authority for the Regulatory Action
    Section 212 of PAMA, titled ``Delay in Transition from ICD-9-CM to 
ICD-10 Code Sets'' is the legal authority for the regulatory action.
2. Summary of the Major Provisions
    As noted previously, this final rule changes the compliance date 
for ICD-10 from October 1, 2014 to October 1, 2015 and requires covered 
entities to continue using ICD-9-CM through September 30, 2015.
3. Summary of Costs and Benefits
    In the September 5, 2012 Federal Register (77 FR 54664), the 
Department of Health and Human Services (HHS) published a final rule 
titled ``Administrative Simplification: Adoption of a Standard for a 
Unique Health Plan Identifier; Addition to the National Provider 
Identifier

[[Page 45129]]

Requirements; and a Change to the Compliance Date for the International 
Classification of Diseases, 10th Edition (ICD-10-CM and ICD-10-PCS) 
Medical Data Code Sets'' (herein referred to as the 2012 ICD-10 Delay 
final rule) in which the Secretary changed the compliance date for ICD-
10 from October 1, 2013 to October 1, 2014. In that rule, we estimated 
there would be a significant cost to industry from a delay of ICD-10 
because commercial health plans, medium and large hospitals, and large 
physician practices were far along in their implementation and had 
devoted funds, resources, and staff to the effort. In our analysis, we 
estimated that a 1-year delay of the compliance date for ICD-10 would 
add a range of 10 to 30 percent to the total cost that these entities 
had already spent or budgeted for the transition to ICD-10 on October 
1, 2013.
    We use the same rationale and methodology in our analysis of costs 
and benefits in the Regulatory Impact Analysis (RIA) of this final 
rule, and conclude that a delay of 1-year, as opposed to a longer 
delay, will be the least costly and most fiscally responsible way to 
implement the requirements of section 212 of PAMA. We estimate the cost 
of a 1-year delay to HIPAA covered entities will be $1.1 to $6.8 
billion.

B. Background

    In the January 16, 2009 Federal Register (74 FR 3328), HHS 
published a final rule (herein referred to as the 2009 ICD-10 final 
rule) in which the Secretary adopted ICD-10 as the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA) standard code set to 
replace ICD-9-CM. The 2009 ICD-10 final rule established an October 1, 
2013 compliance date for ICD-10. For more background on the adoption of 
ICD-10, see the 2009 ICD-10 final rule and the August 22, 2008 proposed 
rule titled ``HIPAA Administrative Simplification: Modification to 
Medical Data Code Set Standards to Adopt ICD-10-CM and ICD-10-PCS'' 
(herein referred to as the 2008 ICD-10 proposed rule) (73 FR 49796).
    In late 2011 and early 2012, three issues emerged that led the 
Secretary to reconsider the compliance date for ICD-10: (1) The 
industry transition to ASC X12 Version 5010 did not proceed as 
effectively as expected; (2) providers became concerned that other 
statutory initiatives were stretching their resources; and (3) there 
was a lack of readiness for the ICD-10 transition, as indicated by 
industry surveys and polls. As a result, HHS published the 2012 ICD-10 
Delay final rule in which the compliance date for ICD-10 was delayed 
from October 1, 2013 to October 1, 2014.

II. Provisions of the Final Rule

    Section 212 of PAMA provides that the Secretary may not adopt ICD-
10 under HIPAA prior to October 1, 2015. We interpret this provision as 
requiring the Secretary to delay the October 1, 2014 implementation of 
ICD-10, and we believe the provision gives the Secretary discretion to 
choose a new compliance date of October 1, 2015, or later. We are 
establishing October 1, 2015 as the new compliance date.
    All segments of the health care industry have invested significant 
time and resources in financing, training, and implementing necessary 
changes to systems, workflow processes, and clinical documentation 
practices in order to prepare for ICD-10. The American Academy of 
Professional Coders (AAPC) provides training and education to medical 
coders, physicians and their practice management staff. In a June 2014 
survey \1\ of 5,000 AAPC members, nearly 75 percent of the survey 
respondents reported that they are making significant progress toward 
preparing for ICD-10 implementation. The survey also indicated that 
about 25 percent of those surveyed had completed all of the necessary 
ICD-10 training; 13 percent indicated that they were prepared for the 
October 1, 2014 implementation date; and 23 percent were actively 
testing with their ICD-10 vendors when PAMA was signed into law. The 
industry has made significant progress toward ICD-10 compliance and has 
gained momentum in its efforts. A delay of longer than 1 year would 
slow or even stop progress towards ICD-10 implementation. In order to 
preserve this momentum and encourage continued compliance efforts, we 
are establishing the shortest delay permitted by law, which is 1 year.
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    \1\ ICD-10 Monitor: Exclusive: ICD-10 Implementation--Where Do 
We Really Stand? http://icd10monitor.com/enews/item/1220-exclusive-icd-10-implementation-where-do-we-really-stand?utm_source=Real%20Magnet&utm_medium=Email&utm_campaign=42358626.
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    Additionally, we believe it is important to require implementation 
of ICD-10 as soon as the law permits because it will allow the industry 
to begin reaping the benefits of ICD-10 as soon as possible. ICD-10 
provides greater specificity of diagnosis-related groups; improves 
quality measurement and reporting capabilities; improves tracking of 
illnesses; and reflects greater accuracy of reimbursement for medical 
services. ICD-10's granularity will improve data capture and analytics 
of public health surveillance and reporting, national quality 
reporting, research and data analysis, and provide detailed data to 
inform health care delivery and health policy decisions.
    ICD-10 reflects the advances in medicine and medical technology 
that U.S. physician specialty groups called for as they provided 
extensive input into the development of the ICD-10-CM code-set to 
capture more precise codes for the conditions they treat. ICD-10 
includes significant improvements over ICD-9-CM in coding primary care 
encounters, external causes of injury, mental disorders, and preventive 
health. For example, ICD-10 reflects improved diagnosis of chronic 
illness and identifies underlying causes, complications of disease, and 
conditions that contribute to the complexity of a disease, and captures 
the severity and stage of diseases such as chronic kidney disease, 
dementia, and asthma.
    Finally, a 1-year delay, as opposed to a longer delay, is the least 
expensive option for the industry. As estimated in the 2012 ICD-10 
Delay final rule \2\ and repeated in this final rule, a 1-year delay 
increases costs for covered entities by a range of 10 to 30 percent. We 
conclude that a delay beyond 1 year would be significantly more costly 
and have a damaging impact on the healthcare industry. For example, 
extending the delay beyond 1 year could render current ICD-10 system 
updates and releases obsolete, which would diminish the investments 
stakeholders have already made to prepare for the ICD-10 transition. 
Stakeholders would need to restart their system preparation and would 
not be able to leverage past system investments.
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    \2\ Administrative Simplification: Adoption of a Standard for a 
Unique Health Plan Identifier; Addition to the National Provider 
Identifier Requirements; and a Change to the Compliance Date for the 
International Classification of Diseases, 10th Edition (ICD-10-CM 
and ICD-10-PCS) Medical Data Code Sets; Final Rule. http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf pages 50-53.
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    In order to implement section 212 of PAMA, we are changing the 
compliance date for ICD-10 from October 1, 2014 to October 1, 2015 in 
45 CFR 162.1002(c) by changing ``October 1, 2014'' to ``October 1, 
2015'' to read, ``[f]or the period on and after October 1, 2015.''
    Our regulations at 45 CFR 162.1002(b) currently require compliance 
with ICD-9-CM through September 30, 2014. We are changing our 
regulations to require the continued use of ICD-9-CM through September 
30, 2015. Accordingly, we are revising 45 CFR 162.1002(b) by

[[Page 45130]]

changing ``September 30, 2014'' to ``September 30, 2015'' to read, 
``[f]or the period on and after October 16, 2003 through September 30, 
2015.''

III. Waiver of Proposed Rulemaking

    Under 5 U.S.C. 553(b) of the Administrative Procedure Act (APA), we 
are required to publish a notice of proposed rulemaking (NPRM) in the 
Federal Register. Section 553(b) of the APA provides an exception to 
this requirement. Section 553(b)(B) of the APA authorizes HHS to waive 
normal rulemaking requirements if it finds that notice and comment 
procedures are impracticable, unnecessary, or contrary to the public 
interest. We believe waiving normal notice and comment rulemaking 
requirements is justified because covered entities need to know how to 
proceed with respect to ICD-9-CM and ICD-10 now, or they will not have 
adequate time to prepare to accurately submit, process, and pay for 
health care claims.
    The October 1, 2014 compliance date for ICD-10 was established in 
the 2012 ICD-10 Delay final rule. Section 212 of PAMA was enacted on 
April 1, 2014, six months prior to the October 1, 2014 ICD-10 
compliance date, at a critical time when most health care entities had 
already configured and tested systems and business processes, and 
devoted staff and financial resources in preparation for compliance on 
October 1, 2014. IT systems were changed to align with new payment 
policies and rules, staff was trained on new workflow processes, and 
trading partner agreements were updated to begin using ICD-10 on 
October 1, 2014.
    After section 212 of PAMA was enacted, many industry stakeholders 
asked the Secretary to clarify which ICD version could or must be used 
and when. Many interpreted section 212 of PAMA as requiring a delay of 
ICD-10 to October 1, 2015, while others interpreted the law as allowing 
the Secretary to postpone implementation of ICD-10 for longer than a 
year. Other industry stakeholders suggested that section 212 of PAMA 
permitted covered entities to use either ICD-9-CM or ICD-10 on October 
1, 2014. These widely different interpretations reflected the 
industry's uncertainty about when it would be required to use specific 
versions of the ICD coding system, and we recognized a growing 
apprehension among stakeholders in light of this uncertainty.
    There are also a number of important business and implementation 
decisions that industry stakeholders have to make now. For example, 
budgeting, project management, and systems planning for the continued 
use of ICD-9-CM on October 1, 2014 and for the delayed implementation 
of ICD-10 on October 1, 2015, must begin as soon as possible for all 
covered entities. Both large and small providers and health plans 
generally develop budgets and allot resources for transitions far in 
advance and particularly for those transitions that impact IT systems, 
business policies, and processes. Most covered entities have allocated 
funds, assigned human resources, and have employed contractors to 
assist with or manage various aspects of the transition to ICD-10 based 
on an October 1, 2014 compliance date. These resources, trading partner 
agreements, vendor systems, and maintenance contracts will have to be 
reconsidered and reallocated within a very short period of time to 
accommodate the delay. Many covered entities have also begun to train 
their staff for ICD-10 implementation and must decide immediately 
whether to continue this training. The absence of a firm implementation 
date impedes decision-making for budgetary development, projecting 
planning, and systems preparation. If covered entities are unable to 
make these decisions timely, some may choose to slow or even suspend 
ICD-10 preparations.
    Covered entities will also have to accomplish systems and business 
process changes in a relatively short period of time. Many providers 
have programmed their IT systems to submit ICD-10 codes on October 1, 
2014, and have implemented changes in business processes to accommodate 
these changes. Most health plans have programmed their claims 
processing systems to accept and process ICD-10 codes on October 1, 
2014. These systems will have to be reconfigured to process ICD-9-CM 
coded claims for an additional year while also preparing to process 
ICD-10 coded claims on and after October 1, 2015. It is imperative that 
covered entities know the new compliance dates now so they can begin 
immediately to take the necessary steps to comply.
    A seamless industry transition to a required code set is necessary 
in order to avoid payment disruptions. If covered entities are not 
prepared to accept and process ICD-9-CM codes on October 1, 2014, there 
could be significant disruptions in health care payments. The inability 
of health plans to successfully process claims directly impacts the 
timeliness of provider reimbursements for services rendered. Many 
providers, especially small and rural providers, rely on the timeliness 
of payments in order to continue to do business. A risk to a provider's 
economic well-being is a risk to patient care.
    In order to minimize industry disruption, it is important for the 
Secretary to announce the new compliance dates as soon as possible. 
Even with the extra few months this final rule affords, time is short. 
If we were to engage in full notice and comment rulemaking, covered 
entities would be left with uncertainty until a final rule could be 
published, which would be unlikely to happen prior to October 1, 2014. 
And even if the process could be expedited, a final rule would be 
issued too close to October 1, 2014 to give most covered entities 
sufficient time to comply with the requirements of the rule. 
Accordingly, we find there is good cause to waive the normal notice and 
comment rulemaking procedures, as they are impracticable and contrary 
to the public interest.

IV. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it does not require a review 
by the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Analysis

A. Statement of Need

    As stated previously, section 212 of PAMA specifies that ``[t]he 
Secretary of Health and Human Services may not, prior to October 1, 
2015, adopt ICD-10 code sets as the standard for code sets under 
section 1173(c) of the Social Security Act (42 U.S.C. 1320d-2(c)) and 
section 162.1002 of title 45, Code of Federal Regulations.'' This final 
rule establishes a new ICD-10 compliance date of October 1, 2015. It 
also requires the continued use of ICD-9-CM through September 30, 2015.

B. Overall Impact

    We have examined the impacts of this final rule as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993, as further amended), Executive Order 13563 on Improving 
Regulation and Regulatory Review (January 18, 2011), 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 Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory

[[Page 45131]]

approaches that maximize net benefits (including potential economic, 
environmental, public health and safety effects, distributive impacts, 
and equity). Section 3(f) of Executive Order 12866 defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule: (1) Having an annual effect on the economy of $100 million 
or more in any 1 year, or adversely and materially affecting a sector 
of the economy, productivity, competition, jobs, the environment, 
public health or safety, or state, local or tribal governments or 
communities (also referred to as ``economically significant''); (2) 
creating a serious inconsistency or otherwise interfering with an 
action taken or planned by another agency; (3) materially altering the 
budgetary impacts of entitlement grants, user fees, or loan programs or 
the rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million in 1995 dollars or 
more in any one year). We estimate that this rule is ``economically 
significant'' as measured by the $100 million threshold, and hence also 
a major rule under the Congressional Review Act. Accordingly, we have 
prepared a Regulatory Impact Analysis (RIA) that presents the costs and 
benefits of this rule.
    In determining the costs of this final rule, we needed to 
establish, as a baseline, what costs would likely be incurred absent 
this final rule, and then compare this baseline to the costs of the 
ICD-10 delay announced in this final rule. The costs estimated in this 
RIA include costs to industry and government entities for an October 1, 
2015 compliance date. For the RIA in this final rule we have also 
relied largely on the estimates in the RIA of the 2012 ICD-10 Delay 
final rule because that rule also estimated the cost of a 1-year delay 
in the compliance date for ICD-10.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any one year of 
$100 million in 1995 dollars, updated annually for inflation. In 2014, 
that threshold is approximately $141 million. This final rule contains 
a mandate that would likely impose spending costs on the healthcare 
industry of more than $141 million. Therefore, in this RIA we 
illustrate the costs of the 1-year delay in compliance date for ICD-10.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State laws, or otherwise has Federalism implications. We do 
not anticipate that the 1-year delay in the compliance date for ICD-10 
will have a significant impact on State and local governments, preempt 
State laws, or otherwise have Federalism implications.

C. Anticipated Effects on Impacted Entities

    ICD codes are used in nearly every sector of the health care 
industry. All HIPAA covered entities will be affected by a delay in the 
compliance date of ICD-10. Covered entities include all health plans, 
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.
    While covered entities are required to transition to ICD-10, many 
other entities not covered by HIPAA also use ICD codes for a variety of 
purposes because their operational and business needs often intersect 
with those of covered entities. For practical and business purposes, we 
expect these non-covered entities will voluntarily transition to ICD-
10. Entities that are not considered covered entities, but that may be 
affected by the transition to ICD-10, include: Workers' compensation 
programs and automobile and personal liability insurers, hardware and 
software vendors for health care practice management systems and 
electronic health record systems, researchers, public health 
organizations, educational institutions, and coding entities.

D. Scope and Methodology of the Impact Analysis for ICD-10

    This RIA estimates the costs of a delay of compliance with ICD-10. 
In this RIA we are analyzing only the impact of a delay, not the impact 
of ICD-10 implementation, which we addressed in the 2008 ICD-10 
proposed rule (73 FR 49476) and the January 2009 ICD-10 final rule (74 
FR 3328). For purposes of this analysis, we reference estimates made in 
the RIA of the 2012 ICD-10 Delay final rule because it also delayed 
compliance with ICD-10 by 1 year.
    While we assume that a delay of the implementation of ICD-10 will 
affect a broad range of health care providers, as illustrated in Table 
1, we only examine the costs and benefits of a delay on two types of 
health care providers: Hospitals and small providers. We do not analyze 
the impact on other providers, including, but not limited to, nursing 
and residential care facilities, dentists, or durable medical equipment 
(DME) suppliers, though we understand that there is likely to be an 
impact on most of these providers. As was the case for our impact 
analysis in the 2008 ICD-10 proposed rule, there continues to be very 
little publicly available data on the use of electronic data 
interchange (EDI) among dentists, DME suppliers, nursing homes, and 
residential care facilities. The lack of data for these types of health 
care providers has been noted in other studies on administrative 
simplification.\3\
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    \3\ ``Excess Billing and Insurance-Related Administrative 
Costs,'' by James Kahn, in The Healthcare Imperative; Lowering Costs 
and Improving Outcomes: Workshop Series Summary, edited by Pierre L. 
Yong, Robert S. Saunders, and Leigh Anne Olsen, Institute of 
Medicine of the National Academies, the National Academies Press, 
Washington, DC: 2010.
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    We do not include an analysis of costs or benefits to health care 
clearinghouses and transaction vendors in this RIA. Transaction vendors 
are entities that process claims or payments for entities such as 
health plans. Not all transaction vendors meet the HIPAA definition of 
a health care clearinghouse, which constitute a subset of transaction 
vendors. Payment vendors also would be a type of transaction vendor--a 
transaction vendor that ``associates'' or ``re-associates'' health care 
claim payments with the payments' remittance advice for either a health 
plan or provider. For our purposes, transaction vendors do not include 
developers or retailers of computer software or entities that are 
involved in installing, programming or maintaining computer software. 
However, we did not calculate costs and benefits to health care 
clearinghouses and transaction vendors in this RIA because, as in our 
previous impact analyses in the August 2008 ICD-10 proposed rule and 
the 2012 ICD-10 Delay final rule, we assume that any associated costs 
and benefits will be passed on to the health plans or providers and 
will be included in the costs and benefits we apply to health plans and 
providers.
    Although self-insured group health plans meet the HIPAA definition 
of ``health plan,'' we did not include them in this impact analysis. 
While self-insured group health plans will be required to implement 
ICD-10, we assume that, with a few exceptions, such plans do not send 
or receive HIPAA electronic transactions because

[[Page 45132]]

most are not involved in the day-to-day activities of a health plan, 
and outsource those services to third party administrators (TPAs) or 
transaction vendors.
    We do delineate a cost to TPAs in this RIA. Although TPAs do not 
meet the definition of ``health plans,'' and therefore are not required 
by HIPAA to use code sets such as ICD-10, as a practical matter they 
will need to make the transition in order to continue to conduct 
electronic transactions on behalf of self-insured group health plans. 
The impact of a delay of the compliance date of ICD-10 on TPAs will be 
similar to the commercial insurer cost/benefit impact profile as TPAs 
serve a similar function and will have to implement and test their 
systems in the same manner as health plans. Therefore, when we refer to 
``commercial health plans'' in this RIA, we are including TPAs in the 
category of ``small health plans'' in the RIA.
    In the 2012 ICD-10 Delay final rule (77 FR 22991) and in this RIA, 
we do not include the costs for software vendors, including software 
vendors for practice management and EHR systems, as they ultimately 
pass their costs to their clients.

E. Cost of a 1-Year Delay of Implementation of ICD-10 for Health Plans

1. Cost of a 1-Year Delay to Commercial Health Plans and TPAs
    Health plans are a varied group in terms of size, and the cost of a 
delay is calculated using a range that reflects this variance. In terms 
of costs, commercial health plans are far along in their ICD-10 
implementation and have devoted funds, resources, and staff to the 
effort. When PAMA was enacted, the majority of commercial health plans 
were in the external testing phase of their ICD-10 implementation 
plans.\4\ A 1-year delay of ICD-10 compliance will allow entities more 
time to thoroughly test, but the testing and the continued maintenance 
of contracts and personnel required for the transition will be 1- year 
longer than was budgeted.
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    \4\ Twenty of the top 25 health insurance companies indicated 
that they were prepared to test with trading partners, according to 
a scan of their Web sites. The top 25 health insurance companies 
were identified by US News (http://health.usnews.com/health-news/health-insurance/articles/2013/12/16/top-health-insurance-companies).
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    Continued training, testing, and retention of personnel, and 
contracts are expected to be the primary costs associated with a 1-year 
delay for commercial health plans. Commercial health plans will perform 
additional work in preparing their systems to process ICD-9 coded 
claims for an additional year while also converting their systems to 
process ICD-10 coded claims on and after October 1, 2015. We estimate 
the costs of the delay for commercial health plans and third party 
administrators to be between $547 million and $2,786 million.
2. Cost of a 1-Year Delay to Medicare
    We believe many government health programs were prepared to be ICD-
10 compliant on October 1, 2014, and, like commercial payers, will 
incur costs from a 1-year delay. As an example, components affected by 
a 1-year delay at the Centers for Medicare & Medicaid Services (CMS), 
in particular, Medicare Fee-for-Service (herein referred to as 
Medicare), estimate that there will be additional costs. Like other 
government payers, Medicare has programmed its claims processing 
systems to accept and process ICD-10 codes on October 1, 2014. These 
systems will have to be reconfigured to process ICD-9-CM-coded claims 
for an additional year while also preparing to process ICD-10-coded 
claims on and after October 1, 2015. Therefore, costs include 
expenditures like extending contracts and reprogramming work for the 
ICD-9-CM systems and ICD-10 systems while continuing to test ICD-10 in 
the new 2015 systems environment. Other additional costs include an 
increased need for outreach and education claims processing manual 
updates, technical assistance, and training.
    It was estimated in the 2012 final rule that a 1-year delay of ICD-
10 compliance would be reflected by additional work at an estimated 
total cost of $5 to $10 million for the Medicare program. Because the 
Medicare program was so far along in its ICD 10 implementation when 
PAMA was enacted, we now estimate that the cost of a 1 year delay will 
be $21 to $32 million for the Medicare program spread across FYs 2014 
and 2015.
3. Cost of a 1-Year Delay to State Medicaid Agencies
    State Medicaid Agencies (SMAs) completed a cost impact assessment 
for a 1-year delay in April of 2014. SMAs face similar costs as 
commercial health plans as a result of the 1-year delay of ICD-10. SMAs 
will incur costs due to contractual obligations which may require 
modifications, extensions, or procurements. Other costs to SMAs include 
the need to test ICD-10 codes in the new 2015 systems environment, 
which will be needed even by SMAs that have successfully tested to 
date. SMA resources will need to be maintained at full pre-
implementation and go-live levels through 2015 in order to prepare for 
the October 1, 2015 implementation. These will likely affect planning 
and implementation of other IT initiatives for SMAs, potentially 
resulting in additional costs and delays for those initiatives. SMAs 
report the total cost for both state and federal of a 1-year delay for 
all SMAs is $169 to $182 million.

F. Cost of a 1-Year Delay to Providers

1. Hospitals and Large Providers
    We expect that many hospitals and large provider organizations have 
already spent funds in preparation for the ICD-10 transition. As with 
health plans, a delay of the compliance date will add to their costs 
because large providers must maintain personnel staffing levels, make 
significant system changes; renegotiate the contracts necessary to 
extend preparations an extra year, and retest systems in the new 2015 
systems environment. Likewise, large providers must maintain 
technological resources for an extra year.
    According to our estimates in the 2012 ICD-10 delay final rule, the 
cost of a 1-year delay to hospitals and large physician practices will 
be $409 million to $3.7 billion.
2. Small Providers
    There are some surveys that estimate the associated costs for 
providers transitioning to ICD-10, and we referenced some of these 
studies in the 2012 ICD-10 Delay proposed rule (77 FR 22997). In that 
proposed rule, we did not estimate the cost to small providers of the 
1-year delay because these costs were negligible.
    Given the lack of statistically valid data regarding the resources 
small providers have expended, as well as their state of readiness for 
an October 1, 2014 compliance date as compared to an October 1, 2015 
compliance date, we do not estimate the cost or benefits to small 
providers in this RIA. However, based on other relevant areas of the 
health care industry, we assume that the change in compliance date will 
negatively impact some percentage of small providers in terms of cost. 
Nonetheless, the 1-year delay may also give relief to small providers 
that were not prepared by affording them another year in which to 
spread costs and resources.

G. Summary of Costs of a 1-Year Delay of the Compliance Date of ICD-10

    Except for estimates of the impact on Medicare and State Medicaid 
agencies, we are using the cost estimates from the 2012 ICD-10 Delay 
final rule to

[[Page 45133]]

conclude that a 1-year delay of the ICD-10 compliance date would add a 
range of 10 to 30 percent to the total cost that these entities have 
already spent or budgeted for an October 1, 2014 implementation date, 
for an additional cost to commercial entities of approximately $1 
billion to $6.8 billion.
    We summarize the range of low and high estimates of a 1-year delay 
of the compliance date for ICD-10 in Table 1.

             Table 1--Summary of Costs in 2015 of a 1-Year Delay in the Compliance Date of ICD-10 *
----------------------------------------------------------------------------------------------------------------
                                                                 Low (in          High (in       Mean (average)
                                                                millions)         millions)       (in millions)
----------------------------------------------------------------------------------------------------------------
Cost to Commercial Health Plans...........................              $547            $2,786            $1,667
Cost to Medicare..........................................                21                32                27
Cost to State Medicaid Agencies...........................               169               182               176
Cost to Hospitals and Large Provider Organizations........               422             3,849             2,136
                                                           -----------------------------------------------------
    Total Costs...........................................             1,161             6,850             4,007
----------------------------------------------------------------------------------------------------------------
* In 2014 Dollars.

H. Considered Alternatives to a 1-Year Delay of the ICD-10 Compliance 
Date

    Section 212 of PAMA states that ``the Secretary of Health and Human 
Services may not, prior to October 1, 2015, adopt ICD-10 code sets as 
the standard for code sets under section 1173(c) of the Social Security 
Act (42 U.S.C. 1320d-2(c)) and section 162.1002 of title 45, Code of 
Federal Regulations.'' We interpret the statute as mandating a delay of 
the compliance date of ICD-10, and permitting the Secretary discretion 
to select the length of the delay, as long as implementation is 
required no sooner than October 1, 2015. This final rule adopts a 
compliance date of October 1, 2015.
    We considered a number of delays of different durations before 
establishing October 1, 2015 as the compliance date for ICD-10. 
However, we concluded that a delay beyond 1 year would be significantly 
more costly and have a damaging impact on industry. For example, 
extending the delay beyond 1 year could render current ICD-10 system 
updates and releases obsolete, which would diminish the investments 
stakeholders have already made to prepare for the ICD-10 transition. 
All segments of the health care industry have invested significant time 
and resources in financing, training, and implementing necessary 
changes to systems, workflow processes, and clinical documentation 
practices. Stakeholders would need to restart their system preparation 
and would not be able to leverage past system investments.
    As estimated in the 2012 ICD-10 Delay final rule \5\ and repeated 
in this final rule, a 1-year delay increases costs for covered entities 
by a range of 10 to 30 percent. As indicated in the RIA in this final 
rule, we estimate little to no benefit or cost savings in delays of 
ICD-10 beyond the minimum 1-year delay required by PAMA. Although 
industry readiness has not been studied, stakeholders representing a 
significant majority of the industry have reported that they invested 
significant time and resources and were prepared for the October 1, 
2014 ICD-10 compliance date. A delay of longer than 1 year would slow 
or stop progress towards ICD-10 implementation, delay the efficiencies 
that can be achieved through ICD-10 implementation, and create wasteful 
spending. Therefore, we believe that an October 1, 2015 compliance date 
is the most appropriate alternative.
---------------------------------------------------------------------------

    \5\ Administrative Simplification: Adoption of a Standard for a 
Unique Health Plan Identifier; Addition to the National Provider 
Identifier Requirements; and a Change to the Compliance Date for the 
International Classification of Diseases, 10th Edition (ICD-10-CM 
and ICD-10-PCS) Medical Data Code Sets; Final Rule. http://www.gpo.gov/fdsys/pkg/FR-2012-09-05/pdf/2012-21238.pdf pages 50-53.
---------------------------------------------------------------------------

I. Regulatory Flexibility Analysis: Impact on Small Providers of a 
Delay in the Compliance Date of ICD-10

    The Regulatory Flexibility Act (RFA) of 1980 (Pub. L. 96-354) 
requires agencies to describe and analyze the impact of the final rule 
on small entities unless the Secretary can certify that the regulation 
will not have a significant impact on a substantial number of small 
entities. According to the Small Business Administration's size 
standards, a small entity is defined as follows according to health 
care categories: Office of Physicians are defined as small entities if 
they have revenues of $11 million or less; most other health care 
providers (dentists, chiropractors, optometrists, mental health 
specialists) are small entities if they have revenues of $7.5 million 
or less; hospitals are small entities if they have revenues of $38.5 
million or less. (For details, see the SBA's Web site at http://www.sba.gov/sites/default/files/Size_Standards_Table.pdf. Refer to 
Sector 62--Health Care and Social Assistance).
    As in the 2012 Delay final rule, we continue to assume for purposes 
of the RFA, that all physician practices are small entities. We 
conclude that a 1-year delay in implementation of the ICD-10 will 
affect a ``substantial number'' of small entities. However, we assert 
in this final rule, that the 1-year delay of the compliance date of 
ICD-10 will be more beneficial to small entities than it will be 
burdensome. The benefits are derived from the additional time that 
small entities will have for ICD-10 implementation. Therefore, we 
certify that the provisions in this final rule will not have a 
significant economic impact on a substantial number of small entities.

J. Accounting Statement and Table

    The total costs of a 1-year delay of the compliance date will 
likely be incurred over a 12-month period. However, due to the range of 
impacted entities, including educational institutions, those 12 months 
may span different dates and different budget periods. Given the 
diverse approaches to budgeting in the industry, there is no precise 
way of calculating how much of the cost and cost avoidance falls 
outside of the October 1, 2014 to October 1, 2015 timeframe. For 
simplicity's sake, we calculate costs of a delay of the compliance date 
for ICD-10 as occurring in calendar year 2015.
    As required by OMB Circular A-4,\6\ Table 2 is an accounting 
statement showing the classification of the expenditures associated 
with the

[[Page 45134]]

provisions of this final rule. Table 2 provides our best estimates of 
the costs and benefits associated with a 1-year delay of the compliance 
date of ICD-10.
---------------------------------------------------------------------------

    \6\ ``Circular A-4,'' September 17, 2003, Office of Management 
and Budget (OMB), http://www.whitehouse.gov/omb/circulars_a004_a-4/.

  Table 2--Accounting Statement: Classification of Estimated Expenditures for 1-Year Delay of ICD-10 Compliance
                                          Date From FY 2014 to FY 2015
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                         Minimum           Maximum
            Category              Primary estimate      estimate          estimate        Source citation (RIA,
                                     (millions)        (millions)        (millions)          preamble, etc.)
----------------------------------------------------------------------------------------------------------------
                                                      COSTS
----------------------------------------------------------------------------------------------------------------
Annualized Monetized costs:
    7% Discount.................          $4,007.0          $1,161.0          $6,850.0  RIA.
    3% Discount.................           4,007.0           1,161.0           6,850.0  RIA.
----------------------------------------------------------------------------------------------------------------

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 the preamble, the Department of Health 
and Human Services amends 45 CFR Part 162 as follows:

PART 162--ADMINISTRATIVE REQUIREMENTS

0
1. The authority citation for part 162 continues to read as follows:

    Authority: Secs. 1171 through 1180 of the Social Security Act 
(42 U.S.C. 1320d-1320d-9), as added by sec. 262 of Pub. L. 104-191, 
110 Stat 2021-2031, sec. 105 of Pub. L. 110-233, 122 Stat. 881-992, 
and sec. 264 of Pub. L. 104-191, 110 Stat 2033-2034 (42 U.S.C. 
1320d-2 (note)), secs. 1104 and 10109 of Pub. L. 111-148, 124 Stat 
146-154 and 915-917.

Sec.  162.1002  [Amended]

0
2. Section 162.1002 is amended as follows:
0
A. In paragraph (b) introductory text by removing the date ``September 
30, 2014'' and adding in its place the date ``September 30, 2015''.
0
B. In paragraph (c) introductory text by removing the date ``October 1, 
2014'' and adding in its place the date ``October 1, 2015''.

    Dated: July 17, 2014.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: July 25, 2014.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2014-18347 Filed 7-31-14; 4:15 pm]
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