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Small-Business Loans for Doctors Prepping for ICD-10

Aug. 27, 2015
Small Business
Small-Business Loans for Doctors Prepping for ICD-10
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If you’re a U.S. doctor, you’re probably bracing yourself for the financial fallout from ICD-10 — a major shift in the way physicians document medical diagnoses. The change, which takes effect Oct. 1, has prompted some doctors to look for small-business loans to finance necessary software, training programs and more, which could cost hundreds of thousands of dollars.

Why ICD-10 is a big deal

If you’re a doctor running your own office, the ICD-10 will require you to adopt a new way of recording and documenting patient visits, which is critically important when you’re billing insurance companies for your services.

It’s expected to be a tough transition. Consider this: The current system, ICD-9, which was adopted in the 1970s, has around 13,000 diagnostic codes. Under ICD-10 (International Classification of Diseases, Revision 10), medical offices must document patient visits and procedures based on 68,000 codes, according to the American Medical Association.

The new system will cover more specific medical issues and procedures. For example, instead of just one code for a bone fracture, there are multiple codes for fractures on specific body parts, identifying “which leg, which part of that leg, how long it was broken, and was it a hairline fracture or a complete break,” says Dr. Stu Weisman, who runs a medical office in Palo Alto, California. “They’re getting diagnostic information that has much more detail than before.”

The ICD-10, already in use in other countries, is being adopted to reflect advances in medical knowledge and improve the identification of medical and public health trends, according to the AMA.

The financial impact of ICD-10

The shift is expected to cause financial headaches for many doctors. In fact, some small-business lenders are also gearing up for the change, including a few featured in NerdWallet’s small-business loans page.

  • Fundation has released an “ICD-10 Transition Checklist” with tips for medical practices on planning for ICD-10 costs. The alternative lender says its financing “can help your company make the required updates to meet the new compliance standards, while maintaining operations and cash flow during the ICD-10 transition.”
  • SmartBiz, which offers SBA-guaranteed loans, can help medical offices that need “additional funds to ensure they are compliant with the new regulations,” SmartBiz General Manager Evan Singer says.
  • Opportunity Fund, a nonprofit small-business lender, works with doctors “looking to shore up their cash reserves” as they prepare for ICD-10, says Caitlin McShane, marketing and communications manager.

A typical small practice, with three doctors and two administrative staff, can expect to pay between nearly $57,000 and $226,000 for the transition. It could cost a medium-sized practice, with 10 physicians and seven staff members, from $213,000 to $825,000.

Major costs medical offices are preparing for include:

1. New or upgraded medical billing systems

Medical offices will need to replace or upgrade software used to manage patient information and billing. In some cases, doctors will have to buy new hardware and electronic systems, which will also entail “testing and tech support costs,” Fundation says.

2. Training medical billing staff to learn ICD-10

Medical office staff members will have to be trained on the new system.

“ICD-10 will take considerable learning, not just for the coding staff of a physician’s practice, but for the physician, who might have been coding in a particular way for decades,” says Matthew Katz, CEO of the Connecticut State Medical Society.

In fact, Weisman says, “Billing classes are … exploding this year with offerings on how to learn ICD-10.”

3. Cash reserves for expected delays in health claim reimbursements

Managing cash flow is many practices’ biggest worry, Weisman says.

Under the current system, reimbursement payments from health insurance companies are sometimes delayed due to questions about or errors in the reporting of a patient visit or procedure.

“They routinely happen,” Weisman says. “We’re schooled in it, so we minimize it.”

But ICD-10 is such a complex system that doctors expect longer delays.

“[Insurance companies’] denial rate is going to go up dramatically,” Weisman says. “Our revenue is going to drop. … It’s going to slow us down.”

“It’s the fear of the unknown that’s driving us crazy,” he adds.

The fears are based on the potential effects of ICD-10-related expenses and cash flow delays.

“A significant portion of a practice’s claims could be denied if they are not properly and immediately transitioning to the use of ICD-10 on claim forms,” Katz of Connecticut State Medical Society says. “In many cases, the transition may be out of the physician’s control because of the technology they have in their practice, and whether or not that technology is sufficiently prepared.”

McShane of Opportunity Fund says, “If billing delays go beyond the 90 days typical for most vendors, a medical office could have their available cash tied up on inventory supplies, leaving too little working capital available to cover payroll,” rent and payments to suppliers.

Preparing for ICD-10

Jordan Arovas, senior vice president of specialty banking at Webster Bank, tells NerdWallet that medical offices should focus on three key tasks:

  1. Forecast the cash flow you’ll need to run your practice in the event of any delays.
  2. Set up a line of credit to manage daily cash flow requirements.
  3. Set aside a cash reserve to help you navigate the transition period.

For financing options, NerdWallet has curated a list of small-business loans best for business owners. All of our recommendations are based on the lender’s market scope and track record, and business owners’ needs, as well as rates and other factors.

McShane says that inquiries to Opportunity Fund “are definitely increasing as more doctors become aware of the ICD-10 changes. Most doctors understand the liquidity they need.”

One of these inquiries came from Weisman, who recently got a $55,000 term loan from company. He plans to use it as an emergency fund in case of cash flow shortfalls during the shift.

Weisman says he’s been advised to have a three- to six-month cash reserve.

“If you don’t anticipate shortfall, you could go under,” he says. “If you’re operating on thin margins to begin with, it’s going to come out of your profit.”

If you’re a physician preparing for the ICD-10 transition, you can check out your financing options on the NerdWallet small business loans page.


To get more information about funding options and compare them for your small business, visit NerdWallet’s small-business loans page. For free, personalized answers to questions about financing your business, visit the Small Business section of NerdWallet’s Ask an Advisor page.

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