What Is HCC Coding? a Guide Designed to Estimate Future Health Care Costs for Patients

Hierarchical condition category – HCC coding is a comprehensive model used for calculating the future cost of healthcare for patients. This model was designed and regulated in the year 2004 by the Centers for Medicare & Medicaid Services (CMS). However, the popularity and relevance of the model have significantly increased in the past few years when the healthcare industry started shifting to value-based models for payments. But what is HCC coding and how does it work to satisfy the payment needs of a variety of payers and practices?

Precisely, HCC coding depends on ICD-10-CM coding so the risk score for patients’ healthcare costs can be taken out. This means that HCC codes do not work alone but move around ICD-10-CM coding techniques. Insurance companies use HCC codes along with the demographic influential factors such as age and gender, etc. to assign the risk adjustment factor – RAF to patients. With the individual RAF score of every patient enables insurance companies to predict the cost of healthcare within a given year.

For instance, a patient with fewer health conditions having less need for healthcare assistance will have an average medical cost in a specific time period. On the other hand, if a patient has a range of chronic health complications would have a larger RAF score and will be expected to have greater utilization of medical resources and cost in the given time.

What is HCC coding and how does it work?

Hierarchical Condition Category Coding helps patients to draw out complexities and paint a picture of their health conditions of patients. Simply, it helps identify the utilization of resources, RAF score, and predict the healthcare costs based on the risk adjustment algorithms. By managing the levels appropriately, measuring the difference in complexity and cost parameters would be easier to evaluate.

The top categories for HCC codes to be used include;

  • Diabetes
  • Pulmonary diseases such as Asthma
  • Bipolar disorders
  • Congestive heart Failure
  • Specified heart arrhythmias
  • Rheumatoid Arthritis
  • Prostate and breast cancer
  • Colorectal kidney, breast

However, patients with a combination of diseases are often assigned multiple categories. This is because the demographic information can easily cumulate the chances of becoming affected by the associated illness.

What is HCC coding and how does it work
source:outsourcestrategies.com

Values-based payment and risk adjustment models

Risk adjustment factors have a significant role to play in the payment models. Also, they are effective in value-based payment generation. Value-based payment models utilize the performance of practice through quality and cost metrics so the revenue can be determined. This illustrates the meaning that the risk adjustments directly influence a practice’s revenue cycle.

When a patient’s complexity is not appropriately highlighted in the risk scores, that means they have to bear a higher cost or lower outcomes levels than what was initially expected.

When this happens, certain payment models observe a change in the quality deliverance of healthcare which causes the practice to fall below the targeted performance. With this, the practice would miss out on a range of opportunities for savings.

In any other model such as the Capitation Payment Model, the payment rate would be defined after evaluating the risk adjustment score for a patient or for the practice. For instance, Primary Care First – a payment model is based on population which is evaluated after examining the average RAF score calculated for the patient’s attributed beneficiaries. Practices depending on the complex patients’ risk adjustment scores acquire higher population-based payments as the complexity of the patient requires utilization of resources at a higher level.

How do HCC codes are determined at CMS?

As mentioned earlier, HCC-codes are determined through ICD-10-CM codes. These are supplied to CMS and to healthcare plans by healthcare providers. ICD-10 codes, however, measure and document a patient’s diagnosis. Each medication condition is specified through a code and there are over 10,000 ICD-10 codes regulated by CMS for each medical condition.

That’s being said that HCC codes rely on ICD-10-CRM, but not all the HCC codes map around ICD-10. For example, a healthcare condition that is not severe and non-chronic that does not affect a patient’s health in a long term such as sprained wrist or headache may not be attempted through HCC.

The HCC codes and payment models are on a continuous upgradation with the goal of improving clinical provisions.

How risk adjustment scores are calculated?

Here’re some examples that will make it easier to understand how the RAF score is calculated according to ICD-10-CM codes.

Example # 1;

A woman, 68 years of age suffering from type 2 diabetes without any severe health complications, hypertension, and a BMI of 38.2.

ICD-10

DESCRIPTION

RAF

Demographics (age and gender)

0.323

E11.9

Type 2 diabetes mellitus without complications

0.105

I10

Essential (primary) hypertension

0.000

Z68.38

Body mass index (BMI) 38.0-38.9, adult

0.000

Total Risk= 0.428

Example # 2;

Another woman at the age of 68 has type 2 diabetes, hypertension, polyneuropathy, morbid obesity, and congestive heart failure, with a BMI of 38.2. The RAF score will be;

ICD-10

DESCRIPTION

RAF

Demographics (age and gender)

0.323

E11.42

Type 2 diabetes mellitus with diabetic polyneuropathy

0.302

I10

Essential (primary) hypertension

E66.01 & Z68.38

Morbid (severe) obesity due to excess calories and body mass index (BMI) 38.0-38.9

0.250

I50.9

Heart failure, unspecified (includes congestive heart failure not otherwise specified)

0.331

Disease interaction (DM + CHF)

0.121

Total Optimized Risk 1.327

In these two examples, the HCC CMS models for values of ICD-10-CM 2021 were used.

Other risk adjustment types

Usually, HCC models are critiqued for not covering the other factors that affect the health of a patient and wellbeing. These factors include social needs regarding health care. This is because the development of the risk factors of the social needs can be challenging and cannot be intricate for a number of reasons. This may include the difficulty in gathering data for a particular condition.

In certain models, there have begun including social deprivation and area deprivation index data. However, these models include the data at a local level but data at the individual level is hard to gather.

How do HCC codes are determined at CMS
source:physicianspractice.com

Z codes

Collecting individual data is hard, but that doesn’t mean it can’t be collected. Individual data is leveled under Z codes. Z codes are designed as the ICD-10-CM diagnosis codes. These codes measure the factors that influence a patient’s health. For example, the subset of Z codes (Z55-Z65) is applied to potentially measure the factors affecting the patient’s health in psychological and socioeconomic circumstances. However, the relation of Z codes with the risk adjustment factors is yet to be discovered. This is because Z codes are connected to ICD-10-CM but they are not directly associated with the HCC value-based payment model.

On the flip side, some payers require the practices to cater to Z codes. The following are some of the Z code categories that define the social determinants affecting patient health.

  • Z56 – Problems related to employment and unemployment
  • Z55 – Problems related to education and literacy
  • Z57 – Occupational exposure to risk factors
  • Z59 – Problems related to housing and economic circumstances
  • Z58 – Problems related to the physical environment
  • Z62 – Problems related to upbringing
  • Z60 – Problems related to the social environment
  • Z63 – Other problems related to a primary support group, including family circumstances
  • Z62 – Problems related to upbringing
  • Z64 – Problems related to certain psychosocial circumstances
  • Z63 – Other problems related to a primary support group, including family circumstances
  • Z65 – Problems related to other psychosocial circumstances

However, these codes from Z55 to Z65 ranges cannot be utilized as the primary health diagnosis for a patient. This is because they depend on self-reported data. Authenticity cannot be defied unless severe changes have occurred due to such conditions. However, the issues and conditions must be reported in the medical records and data history by the clinician or physician.

How can coders effectively manage HCC coding?

HCC codes are used to comply with the CMS guidelines and they aim to provide accurate codes that identify patients’ health conditions so accurate reimbursements can be received. To meet this goal, coders have a great responsibility to take on.  They need to be updated with the advancements and upgrades that are introduced by the HCC and CMS platforms at the federal and state levels.

Since the main burden of RAF scoring is at the provider’s end, this is why coders must have appropriate knowledge of codes used for diagnosis and the related issues so all the services rendered for the said diagnosis can be covered. With codes, coders need to report complete clinical documentation in order to receive regular reimbursements.

The Bottom Line

Before there were any risk adjustment factors in healthcare industries, the reimbursements relied on demographic factors solely. This is one of the reasons that HCC coding is assumed to be a great equalizer and an innovative creation for effective revenue management.

Besides, demographic factors do influence the RAF scores in HCC coding so the cost to the patient’s health can also vary. However, through HCC coding, risk adjustment factors can be evenly calculated at an equal scale.

Also, HCC coding opens up never-ending opportunities for coders and healthcare providers equally for efficient approvals of reimbursements, which is eventually profitable for your overall practice.