Understanding HCC Risk Adjustment – Implications for Healthcare Providers

Hierarchical condition categories (HCCs) and risk adjustment coding are top of mind for healthcare leaders today. Especially with the shift towards value-based care, HCC coding has become critical to reimbursement.

HCCs are based on medical and demographic data that physicians report on encounter claims, such as diagnoses documented during face-to-face patient visits. The more accurate the diagnosis codes are documented, the better.

Patient Care

Getting to know HCC risk adjustment is essential, particularly from a coding perspective. These diagnostic codes directly impact reimbursement amounts from the largest single-payer in healthcare – CMS. Health plans that enroll patients with more HCCs can expect those patients to require more intensive medical treatment and are therefore reimbursed at a different rate than enrollees with fewer HCCs. Capturing accurate data through HCC coding and risk adjustment ensures that healthcare organizations receive the highest reimbursement possible for their patients. Insurance companies use HCC coding and demographic information to assign Medicare Advantage members a risk factor (RAF) score, which helps predict future healthcare costs. These RAF scores are then used to calculate the member’s capitated cost rate. HCC coding is based on ICD-10-CM coding and is organized into diagnosis groups of body systems or disease processes and then subdivided further into specific diagnoses that are likely to impact long-term costs from a clinical and prescription drug management perspective.

Not all ICD-10-CM codes map to an HCC, and the value of each HCC is added to a member’s overall risk score only once. Therefore, the more severe a code is, the less it will increase a member’s RAF score.

Coding

With HCC coding being one of the most critical aspects of risk adjustment, ensuring accurate and complete documentation linked to each diagnosis is essential. This is especially true for physicians often unfamiliar with ICD-10 coding guidelines and may require decision support to ensure the most accurate code is assigned. Each HCC is mapped to an ICD-10-CM code and combined with demographic factors to determine a patient’s risk score. This score is used to predict medical costs and allocate reimbursement amounts. As a result, accurate coding is critical to maximizing reimbursement. Healthcare organizations that do not document to the highest level of specificity lose significant revenue opportunities for each HCC-tied patient they serve. A key way to do this is by integrating HCC coding into the EMR and creating a workflow that requires coding upon every face-to-face encounter. Additionally, ensuring that providers access robust HCC education can help them develop the skills and knowledge needed for optimal coding accuracy.

Reimbursement

For healthcare organizations that provide Medicare Advantage (MA) plans, HCCs are critical to accurate reimbursement because MA reimbursement methodology relies heavily on risk adjustment. The Centers for Medicare & Medicaid Services (CMS) assigns a risk adjustment factor to each MA member, an RAF score, partially based on an aggregated list of HCCs. The RAF score is then multiplied by a predetermined rate to determine the per-member-per-month (PMPM) capitation payment that healthcare organizations receive from CMS for each MA member they serve. To generate an aggregated list of HCCs, diagnoses in ICD-10-CM are grouped into groups or families of disease processes that share similar cost patterns. Then, these groups or families are ranked according to their severity, with the highest severity condition taking precedence. For example, if a member sees multiple providers throughout a year, and each provider documents different details of the same disease process—for instance, diabetes with a complication of peripheral vascular disease (CMS-HCC 18) versus diabetes without a complication of peripheral vascular (CMS-HCC 19), only the risk value associated with the more severe condition will be used to calculate an RAF score. For this reason, consistency in medical coding is essential for MA physicians, who must consistently document and code their patients’ diseases and complications. This enables accurate HCC reporting to CMS and private payers, which helps them accurately assess the healthcare costs of each MA member.

Quality Measures

Healthcare organizations use quality measures for a variety of reasons. For example, some of these measures are used to determine star ratings for hospitals that influence reimbursement. Other measures are used to gauge patient satisfaction and provide feedback for improvement. Regardless of the use case, healthcare organizations must understand that HCC risk adjustment impacts both. To improve coding accuracy and prevent overcrowding, healthcare organizations should ensure the completeness of patient medical records. This includes optimizing EMRs, implementing post-encounter coding reviews, and ensuring that only the most accurate diagnosis is assigned to a patient record. The accuracy of patient-level data also affects the performance of health systems in HCC risk adjustment. For example, in one study, additional adjustment for CAHPS survey results reduced ACO-level variation in costs more than adjusting for HCCs. Hierarchical condition categories (HCCs) are a common way to adjust Medicare Advantage capitation payments to account for differences in disease prevalence and the likelihood that individuals will use healthcare resources. Each HCC is associated with a risk adjustment factor (RAF) that is used to calculate a per-member-per-month (PMPM) capitated payment for each member of an MA plan.