Table of Contents
What is Hierarchical Condition Category (HCC) coding?
Hierarchical Condition Category, or HCC, is a term for sets of medical codes that are grouped together and linked to one specific clinical diagnosis. Since 2004, HCC coding has been used by the Centers for Medicare and Medicaid Services (CMS) as part of a risk adjustment payment model that identifies individuals with serious acute or chronic conditions. This allows Medicare to project the expected risk and future annual cost of care. Each HCC represents diagnoses with similar clinical complexity and expected annual care costs.
HCC coding is used to calculate payments to healthcare organizations for patients who are insured by Medicare Advantage (MA) plans, Accountable Care Organizations (ACOs), some Affordable Care Act (ACA) plans, and many more. Clinicians add HCCs to a patient’s medical record along with supporting documentation as required by CMS. HCC coders are typically employed by health plans, provider groups working with health plans, vendors operating on behalf of health plans, and companies contracted by the government to perform audits, including Risk Adjustment Data Validation (RADV) audits.
INSIGHT BRIEF
A proactive approach to HCC management for better risk-adjusted reimbursement
Why is HCC coding important?
HCC coding is necessary to communicate patient complexity and ensure an accurate ‘digital twin’ in the electronic health record (EHR). This, in turn, helps determine risk adjustment factor (RAF) scores and reimbursement rates. Without precise HCC coding, RAF scores won’t accurately reflect patient complexity, making it appear that a patient had higher costs or lower quality outcomes than would be anticipated.
What kinds of conditions do HCCs represent?
HCC codes represent costly chronic health conditions, as well as some severe acute conditions. The number of HCC categories expanded from 86 to 115 when CMS clinically reclassified the model. The reclassification also changed the number of ICD-10-CM codes represented from 9,700 to 7,770 within the various HCCs.
The top HCC categories include:
- Major depressive and bipolar disorders
- Asthma and pulmonary disease
- Diabetes
- Specified heart arrhythmias
- Congestive heart failure
- Breast and prostate cancer
- Rheumatoid arthritis
How does HCC coding affect risk adjustment and value-based payment?
Risk adjustment can greatly impact an organization’s revenue, and this is particularly true in value-based care. A Risk Adjustment Factor, known as a RAF score, is a measure of the estimated cost of an individual’s care based on their disease burden and demographic information. The RAF score is then used to calculate payments to healthcare organizations.
Each HCC associated with a patient is assigned a relative factor that is averaged with any other HCC code factors and a demographic score. The resulting score is then multiplied by a predetermined dollar amount to set the per-member-per-month (PMPM) capitated reimbursement for the next period of coverage. The PMPM is the payment amount a provider receives for a patient enrolled in an MA plan regardless of services provided. Healthier patients will have a below average RAF while sicker patients will have a higher one, which impacts the calculated payment amount. Scores are calculated on an annual basis.
An example of risk adjustment scoring for type 2 diabetes mellitus, chronic kidney disease, and COPD
How does HCC coding impact billing and reimbursement?
HCCs directly impact the amount of money CMS, the largest single payer in healthcare, awards to healthcare organizations. Patients with high HCCs are expected to require intensive medical treatment, and clinicians that enroll these high-risk patients are reimbursed at higher rates than those with enrollees who have low HCCs.
IMO Health found that nearly half of all patients have missing chronic conditions in their records, resulting in missed MA reimbursement. For one client, 579 chronic HCCs were found missing from 763 patients’ problem lists, representing a potential MA reimbursement increase of $1 million.
Specificity is essential to receive full reimbursement. Organizations who do not document the severity of their patient population to the highest specificity will not receive the appropriate reimbursement amount for applicable patients.
What is CMS-HCC V28?
CMS is moving from HCC Version 24 (V24) to Version 28 (V28).
This update aims to improve the accuracy and specificity of the HCC model based on ICD-10-CM. Transitioning to ICD-10-CM coding enhances data capture and cost prediction, aligning with industry standards and providing a robust foundation for risk adjustment. This ensures accurate payment calculations.
