Since 2004, the Centers for Medicare and Medicaid Services (CMS) has used HCCs to predict the annual cost of a patient’s healthcare. As more commercial payers follow CMS’s lead, understanding HCCs is crucial for coding leaders.
Correct diagnosis code reporting is vital to determining a patient’s RAF score. That’s why there is a demand for software tools to relieve physicians and medical coders from the burden of accurate HCC documentation.
What are HCCs?
Hierarchical condition categories (HCCs) aren’t new but are increasingly prevalent as the healthcare industry shifts toward value-based care. CMS developed HCCs to help predict anticipated costs for Medicare Advantage enrollees and adjust payment rates accordingly.
HCCs are built from medical code data submitted by physicians, hospitals, and other healthcare providers on claims and records. The codes paint a picture of a patient’s overall health and risk of death. Using HCCs and other demographic data, the CMS or commercial payer assigns a risk score that is used to determine reimbursement.
The higher a patient’s risk, the more expensive they are to manage. This means the payer pays more for a patient with a high HCC than a patient with a lower HCC. HCCs are also important for provider organizations because they directly affect the amount of money they receive from the largest single-payer in healthcare, CMS.
Healthcare organizations that don’t document HCCs accurately or to the highest level of specificity may not receive the additional reimbursement amounts for those patients. As a result, HCC coding has become a core component for many healthcare coding professionals. It’s a critical process that must be completed yearly to ensure the best possible reimbursement for medically necessary services. It’s also essential to a successful risk adjustment program for providers transitioning to value-based care.
How do HCCs work?
In a nutshell, HCCs determine reimbursements for Medicare Advantage plans, Accountable Care Organizations and some ACA-approved insurance models. Clinicians must accurately document and code a patient’s diagnosis with each encounter, using specific terminology to ensure that CMS can identify the appropriate risk value for the underlying condition.
The coding must also be consistent across encounters, as each diagnosis needs to be reported the same way every time. This helps ensure that HCCs are accurately reflected in the RAF score. The RAF model considers a patient’s demographics and current year diagnoses to predict how costly the individual is anticipated to be. The model distributes payments based on the RAF score, shifting revenue away from healthy patients to those anticipated to need more healthcare resources.
Because of this, a patient’s RAF score is heavily weighted by HCCs. Correct coding of HCCs communicates the patient’s complexity and paints a clear picture of the health status, resulting in better care and more efficient reimbursements.
It is important to remember that RAF scores reset each year, so practices must document and submit all active diagnoses to their payer. In addition, many payers require using Z codes (ICD-10-CM diagnosis codes that capture social risk factors) to collect additional patient health data.
What is the RAF score?
The RAF score considers the enrollee’s demographics and the medical conditions mapped to ICD-10 codes, also known as HCCs or Hierarchical Condition Categories. Payers use the HCC risk adjustment factor score to determine the cost of care the patient will likely incur each year. The higher the RAF, the more the insurer will reimburse for the patient’s care.
The CMS-HCC and other risk adjustment models use the RAF score to calculate reimbursement for healthcare providers. This is a significant change to the traditional fee-for-service payment models.
This means that healthcare organizations are now getting paid for the health of their patients and not just for each procedure they perform on the patient. This shift to value-based reimbursement requires that healthcare organizations focus on accurate RAF coding and documentation.
Physicians are responsible for documenting and coding all HCC-related diagnoses that could impact a patient’s RAF score, which can be enormously time-consuming. However, healthcare organizations can reduce this clerical burden with the right technology and processes.
With the help of a robust RAF software solution, physicians can quickly and accurately identify all diagnoses associated with an HCC. This allows them to remove duplicative and inactive diagnosis codes and to create a list of priority diagnoses to be submitted.
How do HCCs affect reimbursement?
HCCs play an important role in healthcare reimbursement for Medicare Advantage (MA) plans, Accountable Care Organizations (ACOs), and some Affordable Care Act (ACA) plan models. They determine a patient’s risk score, impacting reimbursement amounts.
CMS created a list of 9,700 diagnosis codes, or conditions, associated with higher-than-average cost patterns. These diagnoses are organized into different HCC categories. The specific HCC category that a diagnosis is assigned to will determine its contribution to the RAF score. For example, a diagnosis code for diabetes may map to CMS-HCC 19 or CMS-HCC 54: the more severe the diagnosis, the greater its contribution to the RAF score.
Medical coding professionals must ensure that the ICD-10-CM and CPT codes they assign to patients accurately represent their health status. This includes properly identifying whether a condition is chronic, acute or episodic. Coding errors that result in a miscoded condition can negatively impact reimbursement rates.
As the healthcare industry transitions to value-based care, accurate and timely HCC documentation will become even more critical for providers. It’s essential to have a solid understanding of how this complex coding system works and how it can be utilized to improve quality outcomes and optimize revenue. Healthcare organizations prepared to transition to HCC-based reimbursement will benefit from this model’s financial stability and growth.