Four ways HCCs impact health systems

December 22nd, 2017 / By Kristine Daynes

Hierarchical Condition Categories (HCCs) have been the underlying risk adjustment for many Medicare programs for several years. But they didn’t attract wide interest until CMS began shifting more payment toward value-based programs, particularly MACRA, which affects clinician reimbursement.

That got the attention of the medical community.

Here is what got my attention: 3M analysis of client data shows about a third of patients with HCC conditions are not diagnosed or treated from one year to the next. That means that a third of patients with chronic conditions aren’t getting consistent care—or at least none that is billed within the care network. Inconsistent care could result in poor patient outcomes over time. The foregone care is also lost revenue, particularly for primary care physicians and specialists. And, finally, the undocumented and unbilled conditions skew HCC risk adjustment, which aggregates and weights diagnoses from inpatient, outpatient, and physician claims.

But, MACRA affects physicians, not hospital pay. How do HCCs affect hospital reimbursement or health system revenue? Here are four common ways, based on CMS value-based programs. Keep in mind the same criteria could apply for commercial health plans, too, if they use HCC risk adjustment to set payment rates or evaluate quality.

Physician payment. MACRA determines Medicare Part B payment for physicians, physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse anesthetists. About 56 percent of clinicians are subject to it, either through the Merit-based Incentive Payment System (MIPS) or as part of an Alternative Payment Model. This affects hospitals who employ salaried physicians. It also affects health systems with physician joint ventures or that own medical practices.

Clinicians who are subject to MACRA and opted for MIPS will be receiving reports on their 2017 performance sometime within the next year. It will determine their payment in 2019.

Hospital pay for performance. HCCs have been used for several years to risk adjust measures for Medicare’s programs to reduce readmissions and hospital-acquired conditions. The programs together affect up to four percent of a hospital’s Medicare reimbursement. However, success under these programs involves care coordination far more extensive than a close and ongoing assessment of risk scores. So the HCC aspect is often overlooked.

HCC risk adjustment is more prominent within the Hospital Value-Based Purchasing (VBP) program. Two percent of a hospital’s DRG reimbursement is withheld to pay for performance incentives. The total performance score contains two domains risk-adjusted using HCCs: clinical outcomes measures and the efficiency measure. Medicare Spending Per Beneficiary (MSPB) is used as the efficiency measure, and one factor in the calculation is the accumulated weights of a patient’s HCC conditions.

Hospitals will feel the sting of HCC risk adjustment if they have more than 50 percent reimbursement from Medicare patients and poor VBP clinical outcomes and efficiency scores.

Accountable care organizations. HCCs are used to risk adjust benchmarks, savings targets, and actual performance for Medicare ACOs. For hospitals or health systems that lead a Medicare ACO, this determines whether they get a portion of any cost savings as a bonus at the end of a fiscal year. For those who participate in a shared risk agreement, it determines the additional bonus for any cost savings or a penalty for losses.

Medicare Advantage and ACA payments. The CMS version of HCCs is used to set the per-member-per-month (PMPM) capitation payment to managed Medicare plans. It is also used to risk-adjust performance measures that evaluate the quality of plans. Likewise, the HHS version of HCCs is used for plans offered on most state health insurance exchanges, otherwise known as ACA plans.

Most hospitals and health systems aren’t affected by the HCC-based payment—unless they contract to offer a Medicare Advantage or ACA plan, thus assuming the role and risks of a payer. Over a hundred health systems or hospitals offer health coverage to five million individuals in this capacity. At least 40 additional hospitals have Medicare Advantage agreements with commercial health plans, in which they assume some level of risk for the costs and outcomes of the beneficiaries.

So what can be done? HCC risk adjustment requires a different way of managing, documenting, and coding chronic conditions. The following best practices can help a health system capture more complete HCC diagnoses across the care network, leading to more accurate HCC risk adjustment:

  • Set an internal process for HCC coding review and clinical documentation improvement, especially in outpatient and professional care settings
  • Do a population-level analysis of HCCs and risk scores
  • Use HCCs to prioritize care coordination and scheduling
  • Conduct physician education on HCC documentation and coding
  • Monitor coding and billing for inpatient, outpatient, and office visits

For additional guidance on accurate HCC risk adjustment, see my colleague Donna Smith’s article in ACDIS online. Or read any of the previously blogs about HCCs posted on Inside Angle.

Kristine Daynes is senior marketing manager for payer and regulatory markets at 3M Health Information Systems.


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