Beginning January 1, 2012, all U.S. Health Insurance Portability and Accountability Act (HIPAA)-covered entities must transition from the current HIPAA 4010/4010A standards for the transmission of healthcare transactions to HIPAA 5010 standards. As of this date, transactions that were accepted electronically under the 4010/4010A version must be submitted in the 5010 format. Any transaction that does not meet the criteria of the 5010 standards will be rejected by commercial and private insurers.

The transition from 4010 to 5010 standards has been on the industry radar for a couple of years now, and the deadline to transition has been reset multiple times due to the complexity of the process. Although multiple solution vendors are assisting with the format change, Aite Group’s many conversations with industry participants indicate that many participants still fail to understand the new format. This is particularly alarming because the primary reason for incorporating 5010 is ICD-10, which replaces ICD-9 codes as the coding guidelines under which medical diagnoses and inpatient procedures are reported.

The transition from ICD-9 codes to ICD-10 codes is set to be completed by October 1, 2013. ICD-10 code sets, used to report medical diagnosis and inpatient procedures, will be a handful to implement. Just like the ICD-9 codes, ICD-10 codes are distinguished by two categories:  ICD-10 CM for medical diagnoses (to be utilized by all U.S. healthcare providers), and ICD-10 PCS codes for inpatient procedures (to be utilized by hospitals only). The change between the number of ICD-9 and ICD-10 codes will be significant — from 18,000 codes to 150,000-plus codes — and will require a major overhaul of ICD-9-affiliated systems and processes.

Aite Group believes that the change will require a significant amount of training for providers, practice-management systems, payers, and third-party coders and billers. Moreover, it is impossible not to notice the burden this transition will impose on the already dysfunctional U.S. healthcare payments system. Those addressing healthcare payments are trying to automate payments for various financial and non-financial transactions, but much is left to be desired with regard to efficient operations.

The implementation of ICD-10 codes and related payments will carry grievous consequences for the already-complex healthcare payments system. Though the point of the transition is to automate various facets of healthcare transactions, reduce waste, and mitigate risks related to overpayment or fraud at healthcare providers, a transition of this magnitude is bound to cause some sort of breakdown, at least initially.

Making things worse, 70% of healthcare providers in the United States are small to midsize providers, most of which have little or no background in fund processing. Many of them rely on third-party coders/billers to do the coding for them. For providers that don’t understand the system used by these third-party coders/billers, ICD-10 codes may initially create additional pending or declined claims, which will  increase costs of processing claims and result in more denied payments.

In short, ICD-10 opens up huge cans of worms for payers and providers. Look for upcoming Aite Group research on what payers and providers need to do to survive and thrive in this rapidly changing landscape.