HCCs: A frequent factor in the value equation

February 20th, 2017 / By Kristine Daynes

Shifting from volume-driven to value-based healthcare wouldn’t be so difficult if value meant just one thing. But every payer and value-based program defines value to suit its own purposes—on good grounds, too. Every patient population presents a different set of needs. High-value care for economically disadvantages children is very different from high-value care for elderly individuals in nursing care.

Yet for health systems to be efficient in delivering high-value care, they need to be able to simplify and standardize processes where patient needs don’t require specialization. In managing value-based reimbursement, that means looking across multiple programs for the common elements and best practices that can be applied to other programs effectively.

One common element in many value-based programs is risk adjustment using Hierarchical Condition Categories (HCCs). HCCs can be used to classify patient conditions, and each has an associated Risk Adjustment Factor (RAF). The health risk of an individual is represented by the sum of RAFs for her conditions, typically calculated annually based on all the conditions in billed claims during a calendar year.

The HCC/RAF form of risk adjustment isn’t new to hospitals. It is used by many public and private payers in contract negotiations with hospitals and other providers to determine how sick a patient population really is. CMS uses HCCs as a factor in calculating the total performance score (TPS) under the Hospital Value-Based Purchasing (VBP) Program to risk-adjust mortality, efficiency/spending, and safety measures.

Although commonly used for risk adjustment, HCCs may not directly affect hospital reimbursement, unless the hospital or its health system

  • Administers a Medicare Advantage plan (RAF scores are payment multipliers for certain plan payment)
  • Participates in a Medicare shared savings ACO or similar commercial ACO (HCCs risk-adjust financial benchmarks and savings/risk targets)
  • Receives bundled payments for episodes of care under CMS Comprehensive Joint Replacement program (HCCs risk-adjust bundled payments to account for more complex patients)

A hospital’s financial risk tied to HCCs could increase with the implementation of CMS Alternate Payment Models (APMs), especially for health systems that own medical groups or employ PCPs and specialists. As with VBP, HCCs are used with MACRA/MIPS to risk adjust VBP performance metrics used in the APMs.

The HCC/RAF model assigns the highest scores to the sickest patients. Lower RAF scores suggest healthier patients. Or they could be the result of missing information in the patient records, such as a gap in doctor visits or no documentation of a chronic condition from one calendar year to the next. If the patients with lower RAF scores are really sicker, not healthier, but lacking appropriate documentation in their records, then the hospital’s performance profile may not look very good—patients with poorer outcomes and higher associated costs than expected.

It’s a challenge begging a good clinical documentation improvement (CDI) program. But one specific to HCCs. Traditional DRG-focused documentation improvement programs may not emphasize the entire disease burden. The HCC methodology requires records to be documented and coded in a particular way. And all health conditions need to be represented in claims data during the calendar year. That can be a challenge for physician practices. Office-based physicians, especially specialists, have no clinical need to fully document diseases, only whatever is relevant to the condition being treated during an encounter.

To successfully perform in programs using HCC risk adjustment, health systems need six processes in place:

  1. HCC coding review and staff education
  2. Population-level analysis of HCCs and RAFs
  3. Care coordination and scheduling based on HCC prioritization
  4. Outpatient and office patient reviews for CDI
  5. Guidance for physicians on documenting diagnoses for HCCs
  6. Complete, accurate coding for inpatient, outpatient, and office visits

These best practices will be familiar to organizations with DRG-based CDI programs. But they are broader than inpatient care and, unlike with DRGs, may not translate directly to reimbursement. As with DRGs, capturing more accurate diagnoses for HCC assignment will improve risk-adjusted data that are used to measure clinical and financial outcomes. It should improve performance and quality scores, too.

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