Posted on June 02, 2022 | 4 min read

What is HCC Coding in Risk Adjustment?


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HCC coding in risk adjustment

Despite the pivotal role value-based care has in healthcare in the United States, it’s often not well understood. In the same spirit in which we covered the basics of risk adjustment and two-sided risk, today we want to tackle HCC coding in risk adjustment. With any luck, you’ll come away with a better understanding of this recognizable but not well understood part of healthcare and become better situated to support your own organization.

So, what is HCC coding? First, HCC stands for “hierarchical condition category.” They are exactly what they seem, a way to organize and understand the hierarchical impact of conditions on a patient’s health, both as an individual and as part of a population. They capture both severity and complexity as a way to prospectively predict costs of care for the coming year (hence its impact on risk adjustment). It goes beyond cost, though. HCC coding in risk adjustment helps organizations bearing the risk of care and CMS both have a better grasp of the complexity and severity of illness someone is dealing with.

For some historical context, in 2004, CMS built the HCC risk adjustment model to uniquely identify risk adjustable conditions for the calculation of capitated payments for Medicare Advantage plans for beneficiaries that were elderly and/or disabled. When we previously discussed demographic data as the starting point to calculate RAF, this is the source of that calculation.

Today, HCC codes are intrinsic to risk adjustment across multiple populations. They are the determining factor in further refining and capturing a more accurate picture of the patient’s health status and care, and therefore the population’s risk adjustment factor (RAF). There are also various similar models, like RxHCC. RxHCC specifically captures medication that doesn’t impact condition complexity beyond the primary HCC code but is still relevant to risk and cost calculations under value-based care, because of the cost of pharmaceutical treatment, a particularly targeted area for reform.

Each HCC code is mapped to an ICD-10-CM code, (the tenth edition of the international classification of diseases identifier that allows for clinical modification). The HCC coding system is part of CMS’s primary compensation model, but not all health conditions are risk adjustable. That means that while all HCC codes have ICD-10-CM counterparts, the opposite is not true, not all ICD-10-CM codes have HCC code counterparts.

Earlier, we described how they capture severity. This is where their hierarchical nature bears out. Basically, different HCC codes within a category capture differing severities of a single illness. Because of how risk calculations work (prospectively, identifying potential cost), a patient’s submitted HCC code identifies the full severity of their condition. For example, if a patient or member were to have been diagnosed with major depressive disorder (F32), they may have an ICD-10-CM (clinical modification) code for an initial mild, single instance (F32.0). If then, in the same year, they struggle with a second bout of major depression, much more intense and with severe psychotic symptoms, the code changes category to F33 and intensity to F33.3 (major depressive disorder, recurrent, severe with psychotic symptoms).

Much like severity, complexity is capture-able as well by HCC coding in risk adjustment. Co-morbid conditions that are indications of a more complex presentation of another condition can allow for a higher severity of code. For example, patients with hypertension often develop chronic kidney disease or heart failure. Because ICD-10-CM allows coders to automatically assume these are related, they can assign a single ICD-10-CM “combo” code that captures both diagnoses. This is also reflected in the submitted HCC codes, as well. The broader complexity of the patient’s health is then reflected in the record.

For an HCC code submitted to CMS as part of value-based care and to be risk-adjustable, it needs to have supporting clinical evidence. A valid provider as outlined by CMS has to have assessed the patient in an approved location, documented the care (and/or time spent on said care), and noted a treatment and observation plan that qualifies as having met M.E.A.T. criteria:

  • Monitor- signs, symptoms, disease progression, disease regression
  • Evaluate- test results, medication effectiveness, response to treatment
  • Assess/Address– ordering tests, discussion, review records, counseling
  • Treat– medications, therapies, other modalities

This is why, ultimately, Edifecs’ NLP engine is such a pivotal technology for our partners. Our risk adjustment solutions don’t just find ICD-10 codes and suggest a relevant HCC code. They identify the critical, MEAT-criteria relevant clinical evidence itself, alongside any other evidence of a diagnosis by a clinician and submit both to the coder for review. That same technology will also suggest redacting any HCC code that’s present but lacks appropriate evidence, ensuring that Edifecs’ partners can remain compliant in their submissions, minimizing the chance of an audit or other penalties that can open up an organization to criminal and financial penalties, as well as put their participation in value-based care in jeopardy.

Next time, we’ll discuss common errors, misunderstandings, and misconceptions in HCC coding, and how to address them. In the meantime, to learn more about our risk adjustment solutions, or discuss your organization’s risk adjustment strategy, contact us today.


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