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What is HCC Coding? Understanding Today's Risk Adjustment Model

The old adage “you get what you pay for” may be applicable when purchasing an automobile or designer handbag, but in healthcare, that phrase just doesn’t apply. The Affordable Care Act (ACA) ensures that insurance companies are no longer offering less expensive insurance plans to healthy patients who rarely visit the doctor and that they are not denying or inflating coverage for patients who are ill.

The ACA premise is to offer affordable health coverage to everyone — no matter how many care visits — yet there is no simple one-plan-fits-all model for everyone to follow. Except there is this: Hierarchical Condition Categories (HCC), a risk adjustment model that has been around for years but has heightened visibility since Medicare Advantage Plans started to require RAF scores for reimbursement. Today it’s on the radar of every coding leader, and every commercial payer, for that matter. To understand HCC, you need a basic grasp of Risk Adjustment (RA) and vice versa. We’ll break it down for you here.

Watch our 19-minute webinar on The ABCs of HCCs!

Risk Adjustment (RA) 101

The Risk Adjustment (RA) model uses a patient’s demographics and diagnoses to determine a risk score, which is a relative measure of how costly that patient is anticipated to be. Healthy patients have a below-average Risk Adjustment Factor (RAF) score so revenue from the insurance premium is transferred from healthy patients to patients with an above-average RAF score.

Under this payment model, two patients in the same practice can have a different payment rate. This is based on a variety of factors that determine the amount of risk/work involved to maintain the health of a patient.

At its most basic, Risk Adjustment is the “Robin Hood” of healthcare payment models – assessing the cumulative risk of each patient, and designating a certain amount of money to his or her care.

With the RAF program and ACA market reforms, insurance companies are focused on providing quality and reasonably priced health plans regardless of patient health status. Exactly how patients are assigned an RAF score which is factored partially on HCCs.

HCC Coding 101

What are HCCs? CMS uses HCCs to reimburse Medicare Advantage plans based on the health of their members. It pays accurately for the predicted cost expenditures of patients by adjusting those payments based on demographic information and patient health status. The risk assessment data used is based on the diagnosis information pulled from claims and medical records which are collected by physician offices, hospital inpatient visits, and in outpatient settings.

Let’s be clear: This isn’t a new idea. Medicaid mandated this model in 1997 and began using it in 2004. Because of the proven success of HCCs in predicting resource use by Medicare Advantage enrollees, and because the general trend is to follow CMS’s lead, it’s a natural expectation that HCCs will become the model for commercial payers sooner rather than later.

How HCCs work

Diseases and conditions are organized into body systems or similar disease processes. 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
  • Colorectal, breast, kidney

Patients are often assigned to more than one category because the combination of demographic information and risk factors can cumulate to represent more than one kind of illness or potential for illness. The risk adjustment identifies patients in need of disease management and establishes the financial allotment provided by CMS towards the annual care of each patient.

The Key is Specificity

This new model is called CMS-HCC and is based on serious or chronic health conditions. Physicians must thoroughly report on each patient’s risk adjustment diagnosis and must be based on clinical medical record documentation from a face-to-face encounter. That means the RAF cannot be wholly determined from test results or patient medical history. Each specific diagnosis is used to determine the RAF, and the score is used to calculate not only the payer reimbursement but also predict potential future costs associated with each patient.

Just an FYI...
Physicians can accomplish the documentation standard by understanding MEAT. The provider must document all active chronic conditions as well as conditions that are relevant to the patient's current care. MEAT is an acronym used in HCC to ensure that the most accurate and complete information is being documented:

Monitor signs and symptoms, disease process.
Evaluate-test results, meds, patient response to treatment.
Assess/Address-ordering tests, patient education, review records, counseling patient and family members.
Treat-meds, therapies, procedures, modality.

It falls to your coders to ensure that each patient's medical record is coded accurately, and all factors, such as supporting documentation about the status of each condition, are fully represented. Diagnosis can’t be inferred test results, but it can be assigned to each condition documented on the record. Further, the documentation must show that the condition is monitored, evaluated, or treated. Each diagnosis should also have an assessment and plan. The treatment and level of care must be justified and the patient's health status considered. All chronic conditions must be monitored and reported at least once each year.

For HCC to be successful, the provider must report all diagnoses that impact the patient’s evaluation, care, and treatment including co-existing conditions, chronic conditions, and treatments rendered.

Action Steps for Coders Today

The main goal of HCC is to allow for better health management along with accurate reimbursements from Medicare Advantage plans. In order to achieve that goal, medical coders need to be up to date on best practices and educated on HCC. Since most of the burden in documenting the RAF is placed on the provider, having knowledgeable medical coders will ensure appropriate diagnosis codes are reported along with complete clinical documentation.

Reporting a complete picture for the risk adjustment factor through HCC increases the accuracy of the patient score and ideally, reduces the need to request medical records or audit provider’s claims. When done correctly, HCC streamlines the process creating clean claims and allowing for fast reimbursements.

The Bottom Line

HCC coding is a great equalizer. Prior to the rise of the risk adjustment model, reimbursement was based solely on demographic factors. Since costs can vary widely among patients, risk adjustment can now be used to evaluate patients on an equal scale. It opens up a world of new opportunities for coders and providers and may make reimbursements more efficient. And that’s good news for your revenue cycle performance.

To get more information on HCC coding, get instant access to our webinar, The ABCs of HCCs. Click below!

Coding leadership and medical coders can find additional resources at this HealthFusion blog post.

ABCs of HCC webinar on HCCs

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