Intro to HCC Risk Adjustment Coding

Understanding Hierarchical Condition Category (HCC) coding should be a priority for any revenue cycle leader. This is because risk adjustment coding is critical to estimating costs and future outcomes for your patient populations.

To help you and your team better understand the fundamentals of HCC risk adjustment coding and how to apply them at your organization, we’ve put together this concise walkthrough of the concept. Be sure to share with your team members who might be new to the concept or looking to better understand the responsibilities and backgrounds of certified risk adjustment coders.

HCC risk adjustment coding is the process of grouping similar patient diagnoses under one related category called a hierarchical condition category [1]. These groupings are then used in risk adjustment payment models. These models are used to reimburse health insurance plans for the services they provide their enrollees. 

Every HCC has a value which is called a risk adjustment factor (RAF). This is used by the Centers for Medicare & Medicaid Services (CMS) for Medicare Advantage calculations, as well as by the Department of Health & Human Services (HHS) for commercial risk adjustment.

Coding reviews are conducted by certified risk adjustment coders through the review of medical records, from which they then abstract the appropriate diagnosis codes that are clinically significant for risk adjustment payment models. These coders can be employed by a range of environments, including:

• Providers
• Health plans
• Vendors who are working on behalf of health plans
• Government contracted companies providing audit services

While HCC coding doesn't impact billing in the same way fee-for-service (FFS) coding does, it has a significant impact on reimbursement from government agencies and should be a core focus of your risk adjustment strategy. The diagnosis that a provider submits on the claim form is used by the health plan for calculating a risk score.

When coded properly, the diagnosis codes are a tool that portrays a highly accurate and complete health status of patients to a governmental risk adjustment agency or commercial payer. This is why many vendors and health plans have implemented programs for provider documentation to describe the highest level of specificity possible. When the most accurate documentation and diagnosis codes that support medical necessity are used, reimbursement is more accurate.

For providers under value-based contracts, risk adjustment coding is a significant factor in establishing a healthy revenue cycle [2]. These arrangements tie revenue to performance on quality metrics and cost. So, when risk scores do not align with patient complexity, it can give the impression that patients were healthier than their actual state or had higher costs than should be expected. Depending on the payment model and contract, this can cause a provider to drop below performance targets and lose out on opportunities for shared savings. 

In the case of capitation models, reimbursement can be based on either a provider’s or patient’s average risk score. This means that providers with patients with more complex needs will have a higher population-based payment (PBP) since there’s an expectation that their patients require more resources and have higher rates of utilization. 

Risk Adjustment Coding Reminders

Here are a few reminders for HCC coding as selected by the American Association of Family Physicians (AAFP): 

• HCCs are additive in nature. All conditions that coexist when an encounter occurs or that impact patient care or treatment should be coded.
• Always code to the highest level of specificity. This helps ensure diagnoses are sequenced properly on a claim.
• If conditions that were previously treated no longer exist, they should not be coded. Use history codes as secondary codes to indicate this type of condition or family history.
• Risk adjustment scores are reset yearly.
• Remember to include legible signatures and credentials on the medical record.

How HCC Risk Adjustment Coding Differs from Fee-For-Service Coding

HCC risk adjustment coding differs from fee-for-service (FFS) coding in a few ways [1]. FFS claims are billed with CPT or HCPCS codes. The services are required to be medically necessary to treat the patient’s conditions. HCC coding doesn’t include these codes and instead involves submission of ICD-10-CM codes to CMS or HHS for risk adjustment by the provider. Next, CMS pays the Medicare Advantage Organization a per-member per-month (PMPM) rate based on the predicted risk scores. This PMPM capitation payment is pre-arranged and monthly.

While it sounds simpler, HCC coding is not inherently easier than FFS. For example, the level of coding that’s sufficient for establishing medical necessity for an FFS claim might fall short for an accurate risk score calculation. HCC coders require special training in chart reviews to code in line with each risk adjustment program’s rules.

Qualifications for Certified Risk Adjustment Coders

This specialized type of coder has specific requirements. They maintain an expertise in diagnosis coding and have a deep understanding of the regulations around risk adjustment payment models. These coders also need to understand that they are required to stay up-to-date with regulatory changes and expectations, since they can vary in specific ways. For example, rules can differ between diagnosis code capture for commercial risk adjustment and Medicare Advantage risk adjustment. 

Ultimately, risk adjustment coding requires a commitment to comprehensive clinical documentation in painting a complete picture of patient health. To learn more about how we can support you and your team in your risk adjustment needs, contact us today.