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September 2018

Coding Corner: HIM's Role in HCCs
By Wendy Coplan-Gould, RHIA, and Barbara Hinkle-Azzara, RHIA
For The Record
Vol. 30 No. 8 P. 32

The Patient Protection and Affordable Care Act of 2010 (ACA) included provisions intended to contain Medicare costs, grow revenues, improve delivery systems, and increase services. One of the strategies used in 2014 to achieve these goals was to move gradually from a fee-for-service to a value-based payment system. With current projections estimating the Medicare trust fund to run out of money in 2026, value-based payment is an attempt to stem the bleeding. Medicare's goal is to have 50% value-based reimbursement by the end of this year.

This massive industry transformation began slowly but is quickly gathering momentum. For example, KPMG recently conducted a poll that showed 46% of health care organizations were seeing improved profitability with value-based contracts vs 23% two years ago.

At the recent Healthcare Financial Management Association Annual Conference, many revenue cycle leaders were focused on moving their organizations from volume to value. A week prior at the 2018 America's Health Insurance Plans (AHIP) Expo, a survey of payers by CHANGE Healthcare reported that two-thirds of provider reimbursement has moved into value-based payments, and payers' health care costs have been reduced between 5.6% to 7.5% when using value-based agreements with providers.

The value-based train has left the station and is rumbling down the tracks. Today's HIM professionals can play a pivotal role in the movement by applying their knowledge and expertise to one of value-based programs' most important components: hierarchical condition categories (HCCs). This article provides important insights into HCCs and encourages HIM professionals to seize the day when it comes to value-based reimbursement.

Expand Your HCC Knowledge
In 1977, the Centers for Medicare & Medicaid Services (CMS) mandated the use of HCCs, which in 2004 were selected as a risk adjustment model to determine reimbursement under the value-based payment system in the following areas:

• MA: Medicare Advantage Plans;
• MSSP: Medicare Shared Savings Programs (accountable care organizations);
• CPC+: Comprehensive Primary Care Plus (Medical Home Models); and
• Commercial: Small group and individual market populations within the ACA.

The primary HCC models currently in use include CMS-HCC, Health and Human Services (HHS)-HCC, and RxHCC. All of these employ a risk adjustment score to predict future health care costs for plan enrollees. The models operate within a hierarchical structure in which the more complex diagnoses absorb and incorporate less complex conditions.

The CMS-HCC model addresses a predominantly older population (65 years and older) and the fiscal year 2018 version includes more than 9,000 ICD-10 codes that map to 79 HCC codes.

The HHS-HCC model, which addresses commercial payer populations, covers all ages. In addition to ICD-10 codes, this system considers CPT/HCPCS codes for outpatient and professional services claims to determine allowable risk-adjusted services. It currently comprises 128 HCCs. Created in 2014 as part of the ACA, the HHS model provides a risk adjustment program in the individual and small group markets. It is based on a state-level risk pool of shared funding.

A prescription drug category (RxC) classification system was added to the ACA model as of the 2018 benefit year. This change adds further complexity to the process for determining risk adjustment for these enrollees.

RxHCCs complement reimbursement for managing patients with illnesses that qualify due to increased medication costs but may not be as complex or costly as HCC diagnoses. There are 76 condition categories in the RxHCC Model Category V05 for the 2018 payment year. As a general rule, almost all HCC diagnoses are also RxHCC codes, but not all RxHCCs are also HCCs.

Why Risk Adjustment Matters
Diagnosis codes, HCCs, and other data are used to establish risk adjustment factor (RAF) baselines and benchmarks for each enrollee. RAFs are relative measures used to predict the cost level for the individual. They are used by Medicare to determine how organizations and providers are paid.

MA plans, which are reimbursed based on the health status of its members, are paid a fixed amount per month per member. Care is delivered by hospitals, clinicians, and other providers contracted by the plan, all of which are incentivized to focus on preventive care, innovation, and care coordination. For example, the CHANGE Healthcare survey presented during the 2018 AHIP Expo reported that 80% of payers reported care quality improvements from providers receiving value-based reimbursement.

Payments to MAs are based on documentation of clinical diagnoses to ensure each member receives appropriate care based on their health status. The clinical documentation is translated into ICD-10-CM codes, which are then mapped to HCCs. The HCCs, along with other demographic information, are used to assign an RAF for each member.

RAFs are based on active diagnoses. To ensure the information is accurate, providers must conduct annual face-to-face or telehealth encounters with their patients and document all pertinent diagnoses in the patients' medical records. The HHS Risk Adjustment Data Validation (RADV) protocol document specifies telehealth visits are acceptable for annual visits as long as the encounter is documented and authenticated by a permitted provider of services. CMS continues to address the inclusion of telehealth into Medicare and Medicaid allowable services with further expansion expected in the year ahead.

An Invitation to HIM
HCCs open the door for HIM professionals—who possess the expertise and knowledge to ensure appropriate codes are selected for each patient based on the documentation—to join the value-based movement. For example, by working with providers to verify the documentation in each patient's medical record is specific and complete, HIM staff promote value-based care.

Focusing on these activities helps ensure optimal reimbursement for the organization and strengthens the necessary supporting documentation for any RADV audits that may occur. In fact, RADV audits represent another opportunity for HIM professionals to jump on the value-based train.

Welcome to RADV Audits
CMS performs RADV audits to validate the accuracy of the HCC codes submitted by MA plans for payment. (HCCs are used to determine the beneficiaries' risk scores.) There are two types of RADV audits:

• annual national level audits to estimate a national improper payment rate; and

• contract-level RADV audits to identify and recover improper payments from MA or ACA organizations.

RADV auditors examine whether health plans have either overstated the severity of conditions or reported conditions that may have no impact on medical care or health in order to obtain additional monies. Payment error rates can be calculated from the data collected to determine whether payment recovery is applicable.

Because the audit process entails a review of all beneficiaries' inpatient and outpatient physician and hospital records, HIM leaders should proactively ensure they are notified of any RADV audit requests. Since the organization being audited must review all of the records and identify and submit the best medical record to CMS, HIM can curate the most appropriate documentation and ensure proper submission to auditors.

Additionally, HIM professionals have an opportunity to provide the RADV health data status reviews for initial validation auditors. These reviews are particularly important under the HHS-HCC model because this program requires two levels of medical record coders as a part of the process: The primary coder or auditor must be credentialed by either AHIMA or AAPC; the senior coder or auditor must be credentialed by either AHIMA or AAPC with a minimum of five years of coding experience.

Time for New Horizons
Risk-adjusted reimbursement is HIM's new frontier. Fee-for-service reimbursement will go the way of taxicabs and telephone landlines. It's only a matter of time.

Savvy HIM professionals can thrive in this new reimbursement landscape by learning to navigate value-based payment programs and expanding their opportunities for leadership roles.

— Wendy Coplan-Gould, RHIA, is the founder and president of HRS.

— Barbara Hinkle-Azzara, RHIA, is vice president of HIM Operations for HRS, where she has overall responsibility for HRS coding and management consulting projects, including key risk adjustment validation reviews.


Hierarchical condition categories (HCCs) are the foundation of risk adjustment models. The following are key points to know about HCCs:

• Diagnosis codes are used to calculate the risk adjustment factor, which is the relative measure used to predict the cost level for patients.

• More than one HCC can be assigned per encounter; not every diagnosis code maps to an HCC.

• At least one face-to-face individual evaluation is required annually with a qualified provider to document applicable conditions.

• Documentation must demonstrate the patient continues to have the condition(s) on an annual basis.

• Documentation must support each condition, along with an assessment and management plan.

— WCG and BHA