The system for payment of medical procedures in the U.S. is in the midst of a major overhaul. Due to advances in medicine and new procedures, the U. S. Department of Health and Human Services (HHS) has rendered ICD-9 obsolete. By October 1, 2014 all HIPAA covered entities will be required to adopt ICD-10. Implementing ICD-10 will be complex process that touches every aspect of the medical practice and reimbursement policies.
With 68,000 codes, ICD-10 will have 5 times as many codes and twice as many categories as ICD-9. Despite an additional one year postponement in the implementation deadline, numerous healthcare providers remain under-prepared for the transition. The adoption of ICD-10 will require significant staff re-education and training, increased documentation, as well as substantial structural changes in providers’ information technology and database system. Failure to adhere to the transition schedule could result in loss of key vendors, lack of payer readiness, disruptions or increased delays and denials in payers’ claims processing, possible cash flow disruption, etc.
Studies show that cost impact will likely range from $83,000 to $2.7 million per provider. As such we expect healthy revenues to firms providing healthcare IT advisory, training and coding services. We believe favorable trends in this industry make these firms an attractive investment thesis. Additionally, we see further upside as WHO has already begun drafting ICD-11.
Brocair is closely watching developments in the coding space, which we think is likely to be an area of M&A interest from both strategic and financial buyers. Please feel free to call us to discuss how we can help you evaluate your acquisition or divestiture options in this area.