Hierarchal Condition Categories (HCC) and Managed Care

HCC and the associated codes are currently an obscure sidebar that pass under the radar of all except practices that accept risk for Medicare Advantage patients. Healthcare charting, billing and reporting have long been a mind-numbing alphabet soup of acronyms and numbers. As practices make the transition from fee-for-service (FFS) reimbursement models to outcome-based reimbursement, their upside incentives will inevitably be tied to accepting risk for their patient population by accepting annual capitated payments to treat them.

CMS implemented HCC in 2004. It is the method to document and support upward adjustment to capitated payments associated with treating multiple chronic conditions (MCC). These upward adjustments are incentives for providers to accept these sicker patients into their capitated population.

The key to successfully managing this program is proper documentation. Documentation begins with the patient’s face-to-face encounter with the provider. The provider is required to meet and document that encounter at least once a year and capture the diagnostic code associated with their conditions. CMS, essentially turns the HCC clock back to zero each year. HCC conditions that were reported the previous year are “dropped off” by CMS as a way to force a mandated face-to-face encounter. During the treatment year as CMS is billed for patient care, the procedure codes (CPT) must match to support the conditions they were assessed with at that yearly encounter.

CMS is very specific about how a diagnosis is supported in documentation and regularly audits for validation, also known as Risk Adjustment Data Validation (RADV).

To refer back to the transition the industry is going through toward at-risk managed care, CMS is looking to use this method of treatment codes supporting documented conditions across their other non-Advantage programs. We also expect this check and balance approach will be quickly adapted by other payers to help them get their arms around costs in this managed care environment. Providers that recognize this system is becoming the standard for the industry and are early adopters will become preferred partners. These same early adopter providers will also be more profitable during this transition, as later adopters struggle to develop and internalize the required process and work flow changes.