Aug 15, 2017 / By HIA Beatrice V

Risk Adjustment and Hierarchical Condition Category Coding


-  A mandated payment model the Centers for Medicare and Medicaid Services (CMS) uses to reimburse Medicare Advantage Plans based on the beneficiary's health status.

-  CMS decided to pay plans for the risk of the beneficiaries they enroll in an effort to make appropriate and accurate payments for enrollees that had differences in expected cost.  These risks allow CMS to standardize bids as base payments to plans

Demographic information such as age, sex, disability status and Medicaid dual eligibility along with an enrollees/beneficiaries' major medical conditions are used by CMS-HCC model in the base year to determine the next year's Medicare expenditures.

-  RxHCC:  Risk will be adjusted based on the prescription burden of disease for some HCC's.

10 principles that guided CMS-HCC model include: 

1.)  Diagnostic categories should be clinically meaningful

2.)  Diagnostic categories should predict medical expenditures (Diagnoses that are in the same HCC should be alike with respect to their outcome on the current year and next year's costs)

3.)  Diagnostic categories that will affect payments should have adequate sample sizes to permit accurate and stable estimate of expenditures (when establishing payment, adequate sample sizes should be utilized in available data sets when using diagnostic categories)

4.)  In creating an individual's clinical profile, hierarchies should be used to characterize the person's illness level within each disease process, while the effects of unrelated disease processes accumulate (Each new medical problems adds to one's disease burden, those that are unrelated should increase the predicted cost of care.  Moreover, the worst manifestations of a disease process will ultimately define its impact on cost.  This is why conditions that are related should be treated hierarchically with the more severe manifestations of a condition dominating the ones that are less severe.

5.)  The diagnostic classification should encourage specific coding (diagnoses that are unclear or obscure should be grouped with those which are not as severe and lower diagnostic categories, which will ultimately)

6.)  The diagnostic classification should not reward coding proliferation (the amount of codes has no bearing on greater disease burden and does not increase predicted cost)

7.)  Providers should not be penalized for recording additional diagnoses (monotonicity) (There are 2 consequence for modeling under this principle:  1. no condition category (CC) should carry a negative payment weight and 2. a condition that ranks higher in the disease hierarchy should have a payment weight that is similar to that of a lower rank condition in the same hierarchy)

8.)  The classification system should be internally consistent (transitive)

9.)  The diagnostic classification should assign all ICD-10-CM codes (exhaustive classification)

10.)  Discretionary diagnostic categories should be excluded from payment models (Cost predictions should not increase based on diagnoses that are inappropriately coded by health plans/providers or those that are not known as cost predictors)


-  A beneficiary's health status and demographic information determines their risk score

-  the sum of an enrollees demographic and health factors which is weighted by their average marginal contributions to total risk is how an enrollees risk score is calculated.

-  In other words, the risk score may be calculated by:  demographics + disease = risk score

-  CMS scores each disease using an HCC risk factor score.  There are approximately 70 diagnostic groups that an HCC categorizes over 3,000 ICD-9-CM diagnoses into

-  An MA plans' base payment is calculated by the plan and submitted to CMS for approval.  This is how the total payment to MA plans begin and is the start of the annual bid process: 

             Base payment x risk score = total payment

HCC coding is important and mandated by CMS.  It requires a thorough knowledge of the HCC process and risk adjustment to achieve complete accuracy.  HIA has a professional team of trained coders in Hierarchical Condition Category coding that will work with the providers to help build and improve HCC coding and documentation standards.  Because timely and accurate reporting is of the essence when performing HCC coding, it is imperative that you have a company that has a thorough knowledge of the HCC coding process.  HIA is here to assist with all of your HCC needs delivering the most efficient services to optimize quality and decrease cost