Ensure Your Practice Gets the Most Out of Hierarchical Condition Category (HCC) Coding

Candace Lewis, Director, Revenue Cycle Management Revenue Cycle Management (RCM)

Hierarchical Condition Categories

What is HCC Coding?

In medical terms, Hierarchical Condition Category (HCC) coding is a common non-proprietary system used by the Centers for Medicare & Medicaid Services (CMS) for Medicare Advantage and the Comprehensive Primary Care Plus (CPC+) program. Medical practices need to follow the International Classification of Disease, Tenth Edition (ICD-10) rules when selecting diagnosis codes for a visit and they must decide whether to use all current and past conditions. Failure to follow diagnosis coding guidelines can cause an incorrect risk level to be assigned to the patient, which can impact future payments. 

According to the American Society of Anesthesiologists, about 9,500 of the roughly 70,000 ICD-10-CM codes map to 79 HCC categories.

What is Risk Adjustment?

Risk adjustment is a process for health insurance plans to be compensated based on the underlying health conditions of their enrollees. Payments are adjusted based on the person’s age, disability, financial status, and diagnoses. The
model of risk adjustment filters ICD-10 codes into diagnosis groups and then into condition categories. Hierarchies or “families” of conditions are assigned an HCC numeric code, which translates to a risk adjustment factor value.

This risk adjustment model assigns a value to each diagnosis that is included in the model. However, not all diagnosis will be assigned an HCC. Only the diagnoses that are costly to manage will be assigned an HCC. Each
is then assigned a risk adjustment factor score. These score values change based on where the diagnosis was established and whether the patient has other influencing factors, such as End Stage Renal Disease (ESRD) or is in hospice care. Practices should be careful when selecting specific diagnosis codes for chronic conditions and they should know which types of unspecified codes do not carry a risk-adjusted factor.

How Risk Adjustment Works

Insurance companies reimburse physicians for services performed. If chronic conditions are properly documented and coded, CMS pays the insurance company for the patient based on the patient’s risk adjustment score. If physician practices do not document or correctly code chronic conditions, this deprives the insurance company and the physician of accurate reimbursement when those conditions contribute to the level of medical decision making and services provided.

Why Hierarchical Condition Categories Coding Matters

HCC coding requires a wider focus than just the presenting symptoms during an office visit. Physicians should report any chronic conditions that are documented and may have an influence on patient care. Failing to report a documented diagnosis could skew the patient profile and negatively affect funding for the care and attention to those missed diagnoses. Accurate coding under risk adjustment models is essential to characterize risk, enhance shared savings, and provide patient-centered care.

Hospital, group, and health system employers are increasingly paying physicians based on how their practices perform in value-based care. Ultimately, risk adjustment greatly affects a physician’s income. Higher risk scores for a population translate into a higher benchmark for expenditures, while lower risk scores translate into a lower benchmark. Having an accurate benchmark is vital in achieving shared savings. A benchmark that inadequately reflects the underlying health status of a population will be too low and will lead to expenditures that are higher than expected.

Hierarchical Condition Categories coding is the 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 a practice’s revenue cycle performance.

Best Practices for HCC Coding

Performing an annual audit is a good first step toward improving your practice’s revenue cycle. In an audit, documentation for each date of service must support the diagnoses reported. A risk adjustment auditor cannot refer to other visit notes or ask the provider for clarification. Often during an audit, patients are found to have many conditions, which were not known or not reported previously on claims. This leads to an underpayment and limited resources to cover the costs of that patient’s care, leaving the health plans with a lack of appropriate funding when it becomes necessary to treat those diagnoses in the future.

In addition, each chronic condition needs to be reported once a year or the health plans will miss out on additional risk adjustment reimbursement. From a physician’s perspective, this makes sense because any patient with a chronic condition should be monitored at least annually, if not more often.

In HCC coding, at least one of the MEAT components is required to report a diagnosis:

Measured (signs, symptoms, progression/regression)

Evaluated (test results, response to treatment)

Addressed (order tests, referrals, review records)

Treated (prescriptions, therapies)

Common Errors in HCC Coding

Here are some common errors made in coding and documentation. By correcting these errors, physician practices will be better able to meet the requirements for risk adjustment coding:

  1. Missed diagnosis that are not reported on a claim or recorded in the chart.
  2. Not documenting “due to” – including this phrase will support the causal relationship, allowing for proper reporting of diagnoses.
  3. Misuse of the phrase “history of” – only use this phrase for a condition that has been completely resolved. If the condition is active, do not use this phrase.
  4. Documentation of medication list review.
  5. Ambiguity – coders cannot make decisions, assumptions or fill in the blanks. Physicians must be clear in their documentation.

When chronic conditions are properly documented and coded, reimbursement to health insurance plans and physicians is based on the correct risk adjustment score. When coding is not done correctly, insurance companies do not have the metrics they need or the accurate clinical information to adequately fund the care and attention to those missed diagnoses.