Fitch: ICD-10 transition has negative credit implications for some hospitals

The financial impact of ICD-10 is expected to be manageable for nonprofit hospitals, but the potential for a revenue cycle disruption could have negative credit reverberations, according to a new Fitch Ratings report.

"It is a challenging time as healthcare reform moves forward and other pressures, such as sequestration, inpatient volume declines, and reduced reimbursement, are being felt," Gary Sokolow, director in the U.S. public finance group at Fitch, says in an announcement. "ICD-10 conversion will bring additional costs at a time when hospital operations are already under pressure."

The announcement notes that while providers and payers have had "ample time" to prepare for the conversion, there is a "heightened potential" for payment delays and/or disruption.

The report's authors that the "solid liquidity position" of most investment-grade hospitals should be enough to get through short-term pressure. However, since ICD-10 effects coding, billing and payment--and both government and private payers must make the transition--they think there could potential payment delays and disruption.

"Fitch does not believe ICD-10 implementation alone will be enough to lead to downgrades," the report's authors conclude. "However, revenue cycle disruptions due to ICD-10 implementation could place added rating pressure on hospitals with weak liquidity positions and/or depressed profitability ... or smaller hospitals with limited access to resources that would enable them to fully prepare for ICD-10 and absorb the associated revenue cycle disruptions."

According to an American Medical Association report published last month, ICD-10 implementation costs will be more expensive--in some cases more than three times previous cost estimates--for physician practices.

The study, an update of research published in 2008, predicts that small practice costs will range anywhere from $56,639 to more than $226,000. Medium practices, it estimates, will pay between $213,364 and $824,735 for implementation; costs for large practices are predicted to run between $2 million and $8 million.

What's more, a survey also published in February by the Medical Group Management Association found that less than 10 percent of responding physician practices were ready for the transition to ICD-10.

To learn more:
- see the announcement
- download the report from Fitch (registration required)

Related Articles:
AMA: ICD-10 costs more than prior estimates
Survey: Less than 10% of physician practices ready for ICD-10
ICD-10 conversion efforts slow for physician practices
Despite lagging on ICD-10 efforts, physician practices upbeat
WEDI to feds: Ramp up ICD-10 testing efforts
AHA urges CMS to start ICD-10 testing by January 2014

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