HCC coding stands for hierarchical condition category coding.
It is a risk-adjustment coding model exclusively designed for estimating future healthcare costs for patients. The process of HCCs medical coding started in 2004, but it recently gained popularity due to payment models shifting from fee-for-service (FFS) to value-based care (VBC) arrangements.
Fig 1. Out of 70,000+ ICD10 codes, approximately 9,500 ICD10s map to a hierarchical condition category. Each HCC ICD10 is subsequently bucketed into 86 individual “condition categories.”
Fig 2. Each of the 9,500 HCC codes are put into one of 86 condition categories. Each condition category carries a specific RAF. No matter how many ICD10 conditions a patient has in the same category, they will only be assigned the RAF score one time.
Medicare assigns a risk score known as a risk adjustment factor (RAF) to each of the 86 individual condition categories. RAF scores of patient populations are subsequently used by Medicare and other payors to predict the cost of care, which influences reimbursements.
For the remainder of this article, we will explore the rationale behind HCC coding and why all providers (even those NOT in a value-based care arrangement) should care.
Why should doctors care about HCC coding?
HCC coding is the cornerstone of most value-based care arrangements. Today, “value-based care” is used synonymously with Medicare Advantage, but in the near future, we believe all forms of reimbursement will be tied to some VBC arrangement.
HCC coding falls under the broader term of risk adjustment (RA) models where patient care is paid based on a prospective payment model. Specially designed RA models are used to determine risk scores for patients. In the Medicare Advantage world, these models use the demographics and HCC diagnoses of the patient to assign a risk score known as an RAF. The assumption is the sicker the patient, the higher the RAF, the more dollars it will take to care for this patient during any given year. Therefore the RAF score of any patient population will determine the prospective payment Medicare disburses.
This prospective payment model based on RAF does 2 things:
1. Aligns physician incentives. Currently, clinicians make money from taking care of sick patients. The sicker the patient, the more visits, tests, surgeries they have to do, and the more they are reimbursed. In this model, clinicians are incentivized to keep patients healthy and therefore require LESS tests and surgeries.
2. Spurs clinical innovation the right way. Right now, pharmaceuticals and medical hardware companies are all trying to find ways to treat diseases. The newer the drug or medical device, the more revenue they make. In this model, healthcare groups are incentivized to find new ways of preventing the disease progression from ever needing the latest drug or newest medical surgery equipment.
As Medicare and payers alike are starting to take notice of #1 and #2 above, the market is now trending towards building in value-based care drivers to all types of patients outside of Medicare Advantage. It’s unlikely a brand new risk model will be born for commercial patients. Therefore, all physicians will need to understand the risk adjustment models and the implications of documentation accuracy for reimbursement.
HCC coding is here to stay and will only grow in the years to come. While the market has heavily leveraged medical coders or third party vendors to do much of the lift thus far, V2 of Value-based Care will require all clinicians to understand and participate in it for every patient visit.
HCC coding’s importance is less about the impact on revenue and more about the shift towards VBC models, which have consistently shown better clinical outcomes at lower costs. In our next 2 posts, we will dive deeper into the financial implications of HCC coding, HCC coding tools, and the clinical outcomes associated with VBC in 2021.
— Doctus Team