HCC’s: Hierarchical
Condition Categories &
Medicare Risk
Adjustment
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References
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program/other-content-types/radv-docs/[Link]
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● Risk adjustment methodology overview – Centers for Medicare & Medicaid … (n.d.).
[Link]
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What is RAC
Risk Adjustment Coding
Risk adjustment model is to predict (on average) the future healthcare costs
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Risk Adjustment
Score
Risk Adjustment Coding is an proactive approach
Analyses diseases burden of a patient
First implemented in 2004
Hierarchical condition categories (HCC). Groupings of clinically
similar diagnoses in each risk-adjustment model. Conditions are
categorized hierarchically and the highest severity takes
precedence over other conditions in a hierarchy.
Complex patient = higher risk = higher cost of care = higher reimbursement
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What is RAF
Risk-adjustment factor (RAF). Risk score assigned to each
beneficiary based on his or her disease burden, as well as
demographic factors.
● Approx 10,000 codes as RAF- HCCs are typically chronic
conditions
● One ICD-10-CM code appears in one HCC only
● HCC not effected by CPT/HCPCS codes
● HCCs are calculated over a year using scores from all providers
● Must follow ICD-10-CM Coding guidelines
● No sequencing involved in HCC Coding
RAF = DEMOGRAPHIC FACTOR + HCC1 + HCC2 + HCC3
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Medicare Part-C- Medicare
Advantage
Includes Part A and Part B services, includes coverage for extra
dental, vision, hearing and preventive services and some
optional supplement services (e.g. gym memberships and
exercise classes)
Medicare Advantage plan receives payment for each member
from CMS
Payment is based on member predicted health status and
demographic characteristics
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Medicare Advantage plan regulated by CMS
Total Risk Adjustment Factor (RAF) Score = Demographics +
Diagnoses + Interactions + Multiple HCC’s (4-10 HCC’s
or Chronic Conditions)
Medicare Advantage (MA) organizations must collect diagnostic data for risk adjustment purposes.
The collected diagnostic data is submitted to CMS for determining accurate risk adjustment
payments to the MA organization.
Diagnosis codes submitted to CMS must be accurate, valid, and substantiated by proper medical
documentation.
Risk adjustment ensures that payments to MA organizations are based on the health status of their
enrolled beneficiaries.
This process applies to organizations participating in Medicare Part C and/or Part D.
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Data Sources for
RAC/HCC
• Hospital inpatient facilities
• Hospital outpatient facilities
• Professional providers such as:
Physicians
Nurse practitioners
Physician assistants
Other approved providers
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What effects HCC
Calculation
• Demographic
• Gender
variables for risk adjustment include:Age
• Socioeconomic factors
• Disability status
• Disabled beneficiaries under 65 living in community, nursing home, etc.
• Original reason for entitlement
• Identifies those over 65 who "disabled into Medicare" before 65
• Insurance status
• Commercial, Medicare, Medicaid, or Dual-Eligible
• Diagnoses
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HCCs- Designed for use by all
Payers HHS-HCC
CMS-HCC
●Age 65+ ●All Ages
●Medicare Part C ●For commercial Payers
●Medicare Part D (Rx HCC) ●Predicts Medical and Drug spending
per patient
RISK ADJUSTMENT Predicts future healthcare expenditures for individual patients
– based on Demographics and Health Status and Conditions recorded as HCC’s.
These predictions adjust payments up or down.
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HCCs-Who uses it? Who
does it?
Who uses it? Who Actually does it?
●Medicare Advantage ●Providers- ICD-10-CM Codes
●Medicaid Plans ●CMS- Runs risk model 3 times a year
●Commercial Carriers to calculate beneficiary risk scores
●ACOs
●Value Based Purchasing
Models
●MIPS and APMs
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Summary
Risk adjustment is a method of adjusting payments to health plans or individual
providers to account for the differences in expected health costs of individuals.
▪ Diagnosis codes are used to determine potential risk
▪ Used to predict cost of care and quality of care
The process starts over every year on January 1 st
Higher risk = sicker → more costly to care
In 2023, MA plans are paid on the 2020 version, V24.
$ = Demographics, Geography, and Diagnoses
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ANY QUESTIONS?
Email – support@[Link] for immediate response
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