The American Recovery and Reinvestment Act (ARRA) provides incentives to modernize health care, including the upgrade to a new medical coding standard, ICD-10. Despite both incentives and mandates, health insurance companies, hospitals, and others want more data on the cost and benefits of the change over. We felt this data provided a good independent view of these issues.

The RAND Corporation was asked to provide research to answer these questions:

  • What are the costs and benefits of switching from ICD-9’s diagnostic codes to those of ICD-10-CM?
  • What are the costs and benefits of switching from ICD-9’s procedure codes to those of ICD-10-PCS?

The research was conducted by the Science and Technology Policy Institute (operated by RAND from 1992 to November 2003) for the Department of Health and Human Services, under contract ENG-9812731.


Statistical models led to these conclusions

Cost (March 2004 dollars)

Our best guess is that the cost of conversion will run $425 million to $1.2 Billion in one-time costs plus somewhere between $5 million and $40 million a year in lost productivity.


  • More-accurate payments for new procedures – between $100 million and $1.2 Billion
  • Fewer miscoded, rejected claims – between $200 million and $2.5 Billion
  • Reduced “improper” or exaggerated claims (including fraud ) – between $100–$1 Billion
  • Better understanding of the value of new procedures – between $100 million to $ Billion.
  • Improved disease management –between $200 and $1.5 Billion


It is likely that switching to both ICD-10-CM and ICD-10-PCS has the potential to generate
more benefits than costs.


RAND estimated the cost of systems reprogramming by sampling payers, providers, and software vendors; dividing their answers by membership (in the case of payers) or revenue (in the case of providers and software vendors); and extrapolating to the entire population.

Their anecdotal comment was that Most observers believe that ICD-10-CM and ICD-10-PCS are technically superior to their ICD-9-CM counterparts. If nothing else, they represent the state of knowledge of the 1990s rather than of the 1970s. They have also been deemed more logically organized, and they are unquestionably more detailed—by a factor of two in diagnoses (and twenty for injuries) and by a factor of fifty in procedures.

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