Hierarchical condition category coding for family physicians

What is hierarchical condition category (HCC) coding?

Hierarchical condition category (HCC) coding is a risk-adjustment model originally designed to provide patients with an estimate of future health care costs. The Centers for Medicare & Medicaid Services (CMS) introduced its HCC model in 2004, and more practices have adopted HCC coding as part of a shift to value-based payment models.

HCC coding relies on ICD-10-CM coding to assign risk scores to patients. Each HCC is mapped to an ICD-10-CM code. Along with demographic factors such as age and gender, insurance companies use HCC coding to assign each patient a risk adjustment factor (RAF) score, which is then fed into an algorithm to predict costs. For example, a patient in mostly good health could be expected to have average medical costs for a given time, while a patient with multiple chronic conditions would be expected to have higher costs.

HCC coding helps paint a picture of the whole patient and the often-complex specifics of their condition. In addition to helping predict usage of resources, physicians can use RAF scores to risk-adjust quality and cost metrics by accounting for differences among each patient's unique circumstance.

Risk adjustment can play an important role in payment, and this is particularly true in value-based payment (VBP) systems. VBP arrangements use a practice’s performance on cost and quality metrics to determine revenue, which means risk adjustment can have a direct impact on a practice’s bottom line. When risk scores do not accurately reflect patient complexity, it may appear patients had higher costs and/or lower-quality outcomes than would be expected. In certain payment models, this could cause a practice to fall below quality and cost performance targets and potentially miss out on the opportunity for shared savings.

In other models, such as capitation, a practice’s payment rate may be based on a patient or practice’s average risk score. For example, in Primary Care First, the population-based payment (PBP) is calculated using the average RAF of the practice’s attributed beneficiaries. Practices with more complex patients, based on RAF scores, receive a higher PBP as it is expected their patients will use more resources.

*Sample patients only, using 2020 CMS HCC model values and 2021 ICD-10-CM codes.

A common critique of the HCC model is that it doesn't account for other factors that impact a patient’s health and well-being, such as health-related social needs. Developing a risk adjustment model that adjusts for social factors has been challenging for several reasons, including difficulty capturing data. Some models have begun incorporating data from area-deprivation and social-deprivation indices, which include generalized local information, but not data on individual patients.

One option to collect individual-level data is with Z codes.

It’s important to code to the highest level of specificity and ensure the diagnoses are properly sequenced on the claim. Some things to consider when selecting the appropriate diagnosis code: