Hierarchical Condition Category Coding

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What is hierarchical condition category (HCC) coding?

Hierarchical condition category (HCC) coding is a risk-adjustment model originally designed to estimate future health care costs for patients. The Centers for Medicare & Medicaid Services (CMS) HCC model was initiated in 2004, but is becoming increasingly prevalent as the environment shifts to value-based payment models.

Hierarchical condition category relies on ICD-10 coding to assign risk scores to patients. Each HCC is mapped to an ICD-10 code. Along with demographic factors (such as age and gender), insurance companies use HCC coding to assign patients a risk adjustment factor (RAF) score. Using algorithms, insurances can use a patient’s RAF score to predict costs. For example, a patient with few serious health conditions could be expected to have average medical costs for a given time. However, a patient with multiple chronic conditions would be expected to have higher health care utilization and costs.

Why is HCC coding important?

Hierarchical condition category coding helps communicate patient complexity and paint a picture of the whole patient. In addition to helping predict health care resource utilization, RAF scores are used to risk adjust quality and cost metrics. By accounting for difference in patient complexity, quality and cost performance can be more appropriately measured.

*Example #1: A 68-year-old patient with type 2 diabetes with no complications, hypertension, and a body mass index (BMI) of 37.2  

ICD-10: E11.9Description: Type 2 diabetes with no complicationsRAF:  
ICD-10: I10Description: HypertensionRAF:  
ICD-10: Z68.37Description: BMI of 37.2RAF:  
ICD-10:  Description: Total Risk=RAF: 0.000

*Example #2: A 68-year old patient with type 2 diabetes with diabetic polyneuropathy, hypertension, morbid obesity with a BMI of 37.2, and status post-left below knee amputation (BKA) 

ICD-10: E11.42Description: Type 2 diabetes with diabetic polyneuropathyRAF: 0.0368
ICD-10: I10Description: HypertensionRAF:  
ICD-10: E66.01 & Z68.37Description: Morbid obesity with a BMI of 37.2RAF: 0.365
ICD-10: Z89.512Description: Status post-left BKARAF: 0.779
ICD-10:  Description: Total Optimized RiskRAF: 1.1808

*These are sample patients only, using 2017 CMS HCC model values and 2018 ICD-10 codes.