This is the transcript of my recent podcast interview with HealthEdge COO Ray Desrochers. David Williams: This is David E. Williams, co-founder of MedPharma Partners and author of the Health Business Blog. I’m speaking today with Ray Desrochers, he is Chief Operating Officer of HealthEdge. Ray, thanks for your time today. Ray Desrochers: Thanks for having me. Williams: Let’s start off talking about ICD-10. First, Ray, can you explain what ICD-10 is? Desrochers: ICD-10 is a coding standard that allows health care organizations of all types to communicate with each other about a number of important things. The most important are diagnosis codes and procedure codes. Those codes allow us to talk to each other about what your diagnosis might be, all the way down to a fine granular level and also about the procedures that are done and why. Williams: Now I understand the standard today is ICD-9, but there is a shift to ICD-10. What’s the difference and what’s the big deal? Desrochers: The difference is that ICD-10 takes coding to a completely different level. We move from 17,000 diagnosis and procedure codes to over 155,000 diagnosis and procedure codes in the new ICD-10 standard tomorrow. This allows payer organizations to get to a much more granular level when talking about all of the things that happen in the health care experience. Williams: ICD-10 has been talked about for a long time and we were already scheduled to see the benefits of it by now. But there have been serious delays in implementation. Why have those delays occurred? Desrochers: ICD-10 has been called the Y2K of health care. ICD-10, as we go from the 17,000 codes to the 155,000 codes, introduces a whole different level of complexity that most of the organizations out there today are not ready to deal with. Remember that many of the technology platforms that are running today’s payer organizations are 20, 25, even 30 years old. When you start to talk about change, particularly significant change like this, they’re not able to easily accommodate that. Also, similar to Y2K, you’re not only talking about a larger number of codes, you’re also, at the same time, about codes that are much longer than their ICD9 counterparts. So you start to think about this and you go through all of the same experiences that existed in Y2K in terms of needing to analyze the databases, needing to expand fields, needing to migrate and convert data, etc. So that’s what organizations across the country are looking for as they head towards the 2013 ICD-10 standard. As you pointed out, it has been delayed several times already and the latest delay was a two-year delay that has landed us in October of 2013. It looks like, at this point, people are pretty confident it’s not going to move again for a variety of reasons. Williams: One of the things about Y2K that’s different is there was a hard deadline, so there was no opportunity to move it back. How do health plans think of the ICD-10 conversion in the context of their overall information technology strategy? Does it cause them to have a broader view of what they need to do rather than just making a patch? What is the optimal approach that these payer organizations should be taking? Desrochers: There are a number of things coming down at exactly the same time. ICD-10 is certainly a major driver and a major cause of anxiety in the market, but we can’t forget all of the health care reform initiatives that are also going on simultaneously along with next generation proposals including value based health care and next generation consumer based health care. So ICD-10 is a significant issue, but it’s one of several. I think these issues together are causing payers to step back and ultimately think about what the platforms and the technologies are that will be required, not just to solve this one problem, but ultimately to be ready for tomorrow. They want to be ready to take on any type of new business regardless of where the standards go. They want to automate and streamline existing business and make sure that the platform is at least somewhat future proofed. They want to avoid repeating these massive remediation efforts for the next issues, such as ICD-11. Williams: The plans obviously have a lot of big things on their plates. ICD-10 is certainly one of the big ones that they discuss, but there is a fundamental question of what role health plans will play long term. There was certainly discussion during the health reform debate, not so much about single payer, but about a public option and whether it was a backdoor to single payer. With these different health plan IT platforms that you’re describing, is there an opportunity for plans fundamentally to add more value in the future than they have in the past and therefore to secure their position in the health care world? Desrochers: I think there certainly is. We’re already seeing plans that are starting to move in this direction, through the whole concept of value based health care, where everybody plays a role and ultimately shares the risk. I think it is a very interesting new development and is certainly one of the areas that’s getting a lot of market attention right now. In addition, payers have most of the information required for wellness and other prevention programs for chronic disease. They just haven’t had the systems or technology required to identify the population that is most at risk and to deal with them. That’s changing now. Payers are evolving into organizations that can really impact the health and wellness of the population that is connected to them. Williams: Accountable Care Organizations and Patient Centered Medical Homes are often positioned as a way for providers to be independent of the plans and perhaps less influenced by them. But on the other hand, much of what’s needed are things that plans specialize in. Will plans play a bigger role in these new models of care than the conventional wisdom would suggest? Desrochers: It’s really hard to say at this point. From our standpoint as a health care technology company, all of these proposals, initiatives, thoughts and designs have one thing in common: they will not be accomplished using the legacy platforms that have existed for 25 or 30 years. While those have been fantastic in the “one size fits all” health care of yesterday that we’ve all known and loved, they really aren’t geared to deal with the individualization, personalization and customization that next generation health care will require. So whichever proposal you believe and whichever reformist you listen to, one thing that they all have in common is ultimately starting to share responsibility for each member’s health between the payer themselves, the member, and the provider. And it will be accomplished using a number of different types and classes of next generation technology. Williams: You mentioned earlier that there are some early adopters. Can you provide an example or two about what health plans are actually doing to push ahead and how that might give them an advantage over competitors? Desrochers: One thing that is getting a lot of attention and focus is the ability to provide a new level of transparency to everyone involved in the health care delivery cycle. Next generation payers are looking to embrace new concepts such as value-based health care and next generation consumer-based health care. In order to pull those off, they will need to be able to provide a completely different level of information to everyone involved in that quality of care cycle. So in order for the member to make good decisions about their care, which is really what we want to incent them to do, they must have the data at their fingertips to do that. The same thing with the providers. If you’re going to pay for provider performance, this whole pay for performance initiative, they must have the data necessary to incent the right behavior. Part of what’s going on right now with the early adopters is a number of them are getting ahead of the curve in terms of their technology platforms, ahead of the curve in terms of their ability to follow standards like ICD-10, and are using this next generation of more granular information to push out to the health care delivery recipients and ultimately allow them to make good decisions and incenting them when they do that. Williams: Over the past several years we’ve seen large growth in the cost of health care. There are also challenges with access and questions about quality. It hasn’t been the kind of industry where one might look from the outside and say this is a really successful industry in terms of delivering value to people. It’s gotten to the point where it adversely affects the overall competitiveness and fiscal stability of the country in the long term. As you look forward, would you say that you’re optimistic or pessimistic? Do you think we’re going to get cost under control, improve quality, and improve access? Or are those unrealistic goals? Desrochers: I do think we’re going to do that. Many other industries out there have done it. The banking industry underwent a fundamental transformation in the late 1970s as they went through a technology modernization and got rid of a lot of the stuff that wasn’t allowing them to be successful. The manufacturing industry also embraced massive technology upgrades during the late 70s and early 80s and then retail financial went through basically the same thing in the late 80s and early 90s. Each one of those industries, as they’ve gone through these transformations, have come out much much better and much more efficient. They found ways to involve the consumer. They found ways to cut costs. They found ways to streamline and automate. Health care really hasn’t done that yet. They haven’t had to do it. But with all of these different drivers right now, it appears finally, for the first time, the health care industry as a whole and payers specifically, are being forced to consider modernization and to consider next generation technology upgrades. If you look at one of the core problems facing the industry, it’s inefficiency and significant administrative cost. A driver of that is the fact that health plans, using yesterday’s technology, are not able to easily automate today’s options. Many of them are choosing to use manual labor in order to accomplish those tasks. For example, a new customer comes to them that wants value-based health care or wants some next generation consumer based health care. They know they can’t do it with their existing systems but they certainly don’t want to turn away that business. So what do they do in many cases? We see this over and over again, they say we’re going to deal with this in a manual way for some period of time. The period of time, they’re being optimistic, is going to be six months to 12 months to 18 months. It grows to 18 to 24 to 36 months or beyond. So as a result, we live in a world now where many of the leading payer organizations are processing 15, 20, or 25 percent of their claims manually. If you believe the analysts’ projections, then each manually processed claim costs between $6 and $8. It doesn’t take a whole lot of those to become a very expensive problem or to become a significant burden on the health care marketplace. So ultimately I think all of the drivers –value-based health care, ICD-10, all of the reform proposals and the reform legislation– these are all going to cause the transformation to happen in health care, finally. What will result, I hope, is something that’s much more efficient, something that’s much more streamlined and much more automated. Williams: I’ve been speaking today with Ray Desrochers. He is Chief Operating Office of HealthEdge. Ray, thanks so much. Desrochers: Thank you for having me. I appreciate it.