“A lot of small and rural hospitals, we’re talking 30- to 40-bed hospitals, they’re operating on razor-thin margins,” said Frank Clark, CIO of the Hospital Authority and Medical Center of South Carolina. “It’s amazing how razor-thin their margins are. It might seem they’re crying wolf but many of them are not. ICD-10 could cripple them.”

If healthcare IT shops faced only ICD- 10, the unfunded mandate would still be mighty intimidating. The aforementioned VA presentation, for instance, listed 58 packages – within the depart- ment’s VistA electronic health record system alone – that require remediation to comply with ICD-10.

Add the VA and Department of Defense to the list of entities for which failure is not an option, of course. Might as well include the likes of Johns Hopkins and Vanderbilt, too.

[Q&A: How meaningful use is clashing with ICD-10.]

But some smaller hospitals, specialists and physician practices are “already going out of business because of the economic environment. They simply cannot afford ICD-10,” Tennant said.

Clark agreed: “Small hospitals – the bulk of the 5,500 hospitals across the country – ICD-10 is going to push them to align themselves with hospital organizations, because they cannot afford it.”

ICD-10, that is, along with meaningful use, building accountable care organizations, value-based purchasing, myriad reporting requirements, reductions in readmissions, state-level health information exchanges – all of which greedily demand and consume IT resources.

Unlike the unfunded ICD-10 mandate, however, a number of those promise financial incentives down the road. Despite that payoff, a mere 5 percent of rural hospitals will achieve meaning-ful use, largely because “the costs of compliance may be particularly high,” according to a report in the Journal of Rural Health’s Summer 2011 issue.

“What has to shift is all the pressure being placed on providers,” said Kim Lamb, executive director of the Oregon Health Network. “It cannot just be that ‘you-know-what rolls downhill’ and the providers are stuck cleaning that up. For the majority of our participants, that cost is just too much.”

Fueling Consolidation

What with overwhelming expenses in tight economic times, widespread consolidation is underway – and ICD-10 will only fuel that fire.

Small and rural physician practices are either being consumed by, or latching onto, larger regional health centers, if only to pay the bills. With the MGMA estimating a small practice will have to pony up $84,000 for ICD-10 alone, and other projections skyrocketing into the millions of dollars depending on provider size, it’s no wonder.

“This problem where doctors are getting rolled up into big practices, it’s happening right now. And they sit there earning a salary and being less productive, their pay is going to go down anyway, and so we’ll have a less enthusiastic physician workforce,” said John Graham, director of healthcare studies at the Pacific Research Institute.

For Graham, it’s a matter of patients’ choices. The smaller the provider community, the fewer the options patients have when it comes to healthcare. For Clark, of the Hospital Authority and Medical Center of South Carolina, and health entities of a similar ilk, such consolidation – by no means triggered by ICD-10 alone for an organization of that size – may be more a matter of survival.

“It scares us to the point we need to find a good partner,” Clark said of the overflowing pool of IT projects and current economic realities driving alliances. “Remember back in the late ‘80s and early ‘90s, when we had this consolidation wave coming across California and we had all these organizations partnering? Well, we’re going through that again.”

And not just in California.