ICD-10 Transition Could Weaken Not-for-Profit Hospitals’ Credit Scores

March 12, 2014 in News

The shift to ICD-10 diagnostic and procedure codes could negatively affect not-for-profit hospitals’ credit scores by disrupting their revenue streams, according to a new report by Fitch Ratings, Becker’s Hospital Review reports (Gregg, Becker’s Hospital Review, 3/11).

Background

U.S. health care organizations are working to transition from ICD-9 to ICD-10 code sets to accommodate codes for new diseases and procedures. The switch means that health care providers and insurers will have to change out about 14,000 codes for about 69,000 codes.

In August 2012, HHS released a final rule that officially delayed the ICD-10 compliance date from Oct. 1, 2013, to Oct. 1, 2014, partially to look at the incremental changes needed in reforming health care (iHealthBeat, 2/20).

Details of Report

According to the report, the majority of credit-rated companies in the not-for-profit health care sector will be prepared for the Oct. 1 ICD-10 deadline. It also noted that available assets will help these organizations offset the cost of necessary IT and training for the conversion process (Becker’s Hospital Review, 3/11).

However, the report found that the ICD-10 conversion could disrupt the revenue cycle of not-for-profit hospitals because the switch affects the central components of hospital reimbursement systems, including:

The magnitude of the switch could downgrade the credit scores of hospitals with weak liquidity positions or depressed profitability, according to Fitch Ratings (Becker’s Hospital Review, 3/11). Meanwhile, investment-grade hospitals with strong liquidity positions likely will be able to endure the “short term pressure,” according to the report.

Comments

Gary Sokolow, a director in Fitch Ratings’ U.S. Public Finance Group, said, “It is a challenging time as health care reform moves forward and other pressures, such as sequestration, inpatient volume declines and reduced reimbursement, are being felt.”

Sokolow added that “ICD-10 conversion will bring additional costs at a time when hospital operations are already under pressure” (Fitch Ratings release, 3/11).

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