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The three keys to HCCs and risk adjustment

December 7, 2016:

Interest in risk adjustment coding and the hierarchical condition category (HCC) system is growing. This attention stems primarily from the growth of Medicare Advantage plans where payments are based on the Medicare beneficiaries health status as expressed by the hierarchical condition category (HCC). Nearly one third of Medicare beneficiaries are members of these plans. The term risk adjustment describes what HCCs do: HCCs predict the health care resource consumption of individuals. HCC scores are used to adjust payments to a health plan based on the level of risk the beneficiary presents to a plan. HCCs adjust payments so that there is a higher reimbursement for sicker individuals.

Here are three key factors that are essential to understanding how HCCs work:

1) Not every diagnosis code has an HCC value. Why is that? The HCC payment system uses both demographics (age, sex, institutional status) and diagnosis codes to generate a risk adjustment factor (RAF) score, which can then be translated into a payment amount. There are RAF amounts for demographic status and for medical condition. The demographic RAF assumes that a person—for example an 85 year old woman—will have some level of health costs, and more than a 65-year-old person. These expected medical problems are built into the RAF demographic scores.

2) RAF scores are additive. An individual may have more than one HCC, which are added together. An individual may also have no HCCs, for which their risk adjustment factor is based on demographic factors only. See example below where the demographic factor is added to HCCs for diabetes and CHF.

3) There’s more than one type of HCC. The HCC system is a group of medical conditions that map to a corresponding group of ICD-10-CM diagnoses codes. The number of HCCs and associated ICD-10-CM codes can change from year to year, and are different for the four HCC models: Medicare, PACE/ESRD, Rx-HCC (drugs), and commercial or HHS-HCCs. Note that for all four systems, the HCCs are not consecutively numbered and not all diagnoses are assigned to an HCC.

What is the fourth key to risk adjustment and HCCs?

It’s fostering clinical documentation improvement. The newly released 2017 edition of the Clinical Documentation Improvement Desk Reference for ICD-10-CM and Procedure Coding covers 90 diagnoses and procedures with Clinical Documentation Checklists designed to help clinicians to document the essential information that coders need for appropriate code assignment. See more at https://www.optum360coding.com/Product/45960/.


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