HCC 101: What you need to know about Hierarchical Condition Categories

Hierarchical Condition Categories (HCCs) aren’t a new concept, but as more and more organizations shift to value-based care, there has been renewed interest in the subject. And it makes sense – without solid foundational knowledge of HCCs, health systems risk lower rates of reimbursement, or sometimes not getting paid at all.
HCC 101

Table of Contents

What are HCCs?

HCCs, or Hierarchical Condition Categories, are sets of medical codes that are linked to specific clinical diagnoses. Since 2004, HCCs have been used by the Centers for Medicare and Medicaid Services (CMS) as part of a risk-adjustment 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.

How and by whom are HCCs used?

HCCs are 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.

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, and rheumatoid arthritis. 

What is a RAF score and what does it have to do with HCCs?

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.

How do HCCs impact reimbursement?

HCCs directly impact the amount of money received by healthcare organizations from the largest single payer in healthcare, CMS. 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. 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.

Specificity is essential to receive full reimbursement. For example, diabetes with no complications, HCC code 19, pays a $894.40 premium bonus, while diabetes with ESRD, requires 2 HCC codes, 18 and 136, and has a bonus of $1273.60. The ability to document with greater precision can dramatically impact payment amounts.

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.

Wondering how CMS’ new HCC updates will impact your organization’s bottom line? Watch the webinar on-demand, CMS-HCC Version 28: Get informed and be prepared for change.

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