Hierarchical Condition Categories and Risk Adjustment

Hierarchical Condition Categories and Risk Adjustment by David Reece, BSN, RN, CCDS, Consulting Director, Outpatient CDI Solutions, MedPartners University

If you’ve been following the trends of healthcare, it seems that hierarchical condition categories (HCCs) are the buzzword in outpatient. Most people tend to associate HCCs with Medicare Advantage and think it’s only the insurance companies that benefit. But what exactly are HCCs, how do they impact risk adjustment, and why are they so popular all the sudden?

HCCs are not as new as some might think, but have actually been around for many years. The Balanced Budget Act of 1997 mandated that a risk adjustment payment methodology, incorporating information on beneficiaries’ health status, be implemented in the Medicare+Choice (M+C) program (now the Medicare Advantage program) no later than January 2000. The Benefits Improvement and Protection Act of 2000 required the implementation of a risk adjustment model using not only diagnoses from inpatient hospital stays, but also from ambulatory settings beginning in 2004. The draft CMS-HCC risk adjustment payment model was released on March 29, 2002. Version 22 of the CMS-HCC model contains over 9,500 ICD-10-CM codes that map to one or more of the 79 HCC codes. The CMS-HCC model is used to predict health care costs based on the relative actuarial risk of enrollees in risk adjustment covered plans.

Although HCCs have been around for a number of years, it wasn’t until CMS began putting more emphasis on value-based programs that providers and hospitals really started to take notice. My introduction to HCCs began shortly after my start in Clinical Documentation Improvement (CDI) when I was asked to be part of an outpatient medical group initiative looking at HCC capture. That initiative was a direct result of their participation in the Medicare Physician Group Practice (PGP) demonstration. Although they achieved benchmark performance on all 10 measures each year, it was the cost efficiency domain, from which Medicare Part A and Part B expenditures were risk adjusted according to the CMS-HCC concurrent risk adjustment model that negatively impacted performance payment. One of the basic concepts gleaned through participating in the PGP demonstration was the importance of providing the complexity and acuity of each patient by limiting the use of non-specified diagnoses, documentation of chronic health conditions, and proper coding/billing of the encounter in order to justify or offset the cost of higher resource utilization in providing care to complex patients.

HCC utilization for risk adjustment can be found in numerous CMS and commercial based programs including the Total Per Capita Costs and Medicare Spending Per Beneficiary performance measures in the Cost category of MIPS; Alternative Payment Model; Medicare Advantage/CMS-HCC; Medicaid; Hospital Value-Based Purchasing; Medicare Shared Savings Accountable Care Organizations; Commercial ACOs/Shared Risk arrangements; Population Health/Risk Stratification/Cost Prediction; and HHS-HCC.

With the increased push of CMS value-based initiatives and commercial payers following suit, HCC risk adjustment methodology will continue to expand into additional programs. Ensuring diagnoses are properly documented, supported, coded, and billed not only impacts risk adjustment, but it’s the right thing to do in communicating the medical conditions and treatments of the patient.









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