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Risk Adjustment

Risk Adjustment and the ABCs of HCCs

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Today on the blog, we are discussing two central questions that directly determine how providers receive their operating revenue:

  • What is risk adjustment?
  • What is hierarchical condition category (HCC) coding?

Risk adjustment alters the cost of healthcare coverage based on a patient’s health status. The payments are adjusted according to the patient’s age, disability, financial status, and diagnoses. Hierarchical condition category (HCC) codes leverage ICD-10 codes to document those health statuses. Each chronic condition is assigned a payment value on the care of a patient with that condition. When providers document HCC codes, it allows payers to calculate their risk-adjustment factor (RAF) score.

Start From the Start: HCC Basics

Hierarchical condition categories adjust capitation payments to Medicare Advantage plans for the health expenditure risk of their patients. HCCs are captured over the course of a year by documenting the highest disease categories for each of the patient’s conditions. The timeframe is generally configurable between calendar months or rolling 12-month periods. Diagnoses that demonstrate similar resource usages are categorized together.

For Medicare Advantage members, consistency is paramount to garner accurate information from HCC coding. Physicians hold the primary responsibility, as they treat patients who are on plans funded through risk-adjusted models. Medicare Advantage plans expect providers to document and code diagnoses correctly, as physician documentation and coding show the complexity and workload of the physician’s patient population. The Centers for Medicare & Medicaid Services (CMS) and private payers reimburse Medicare Advantage plan physicians for the health status of their patients, which is determined by their RAF score. The physicians’ detailed documentation and diagnoses become the chief basis for funding and reimbursement.

The RAF Score Reflects the Health of the Population

RAF Score = Patient Demographics (Age, Gender, etc.) + Sum of HCC Codes (Factor)

The risk adjustment factor score identifies a patient’s health status. Each patient has a RAF score, which includes demographic elements like age and gender that can impact the final number. The RAF score is also made of the HCC diagnosis factor submitted on claims from face-to-face encounters with qualified practitioners. A low RAF score may indicate a population is relatively healthy unless it is documented poorly or incomplete. HCCs must be recoded each year to portray each patient’s RAF score accurately.

The RAF score adds the risk factors together to achieve a total health status score. After completing the equation above, the RAF score is multiplied by the average Medicare Advantage patient rate. The rate is a preset cost, usually between $750 and $800. The total projected payment for the patient is the result of this equation.

The Financial Impacts of HCC Coding

To illustrate HCC coding and its financial impact if codes are missed, below is a hypothetical 68-year-old male patient who is Medicaid-eligible with multiple conditions. He could achieve significant reimbursement based on how consistent his HCC codes are recorded.

CMS can provide different reimbursement amounts, but for the given example, the CMS-agreed community rate for this patient’s plan is an average of $800. With proper HCC coding, his physician can increase the patient’s RAF score by 1.77. The increase totals to a difference of $1,416 per month­­, or nearly $17,000 per year by documenting HCC codes correctly.

(Note: HCC numbers, community rate, and factor numbers are purely hypothetical to demonstrate approximate financial impact.)

Interested in learning more about the HCC module? Contact us for more information, and visit our resource center for additional thought leadership content.

Matt Westfall is a Data Scientist at Lightbeam.

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