HCCs explained
Hierarchical condition categories (HCCs) are used by Medicare for risk adjustment.
By Richard D. Pinson, MD, FACP
Developed in 2000, HCCs are part of a risk-adjustment model allowing Medicare to project the
expected future annual cost of care. They're used for calculating payments to Medicare Advantage
plans, accountable care organizations (ACOs), and certain Affordable Care Act (ACA) plans. Many
chronic conditions are included.
Risk adjustment allows Medicare to “level the playing field” so plans that cover patients with
more severe, complex, and costly conditions receive a larger capitated payment than plans with
less costly patients.
HCCs group together ICD-10 codes for related diagnoses with similar clinical complexity and
expected annual costs of care. Each HCC is assigned a relative weight proportional to the
relative costs associated with its constituent diagnoses.
Higher-cost HCCs have higher relative weights. HCC relative weights are therefore similar to
diagnosis-related group weights and to relative value units for CPT codes.
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The Table
gives a few CMS-HCC examples with relative weights and the number of constituent diagnoses.
Medicare calculates a Risk Adjustment Factor (or RAF, pronounced “raf” as in “raft” without the
“t”) for each patient by combining relative weights for certain of the patient's demographic
factors with the weights of all HCCs covering diagnoses submitted on Medicare claims for that
patient from certain sites of service during the calendar year. The individual patient's RAF
scores are then averaged and this average RAF is multiplied by the base payment rate established
by Medicare for the organization.
An HCC will not be included if one of its constituent diagnoses is not included. Each HCC is
included only once in the RAF calculation. Once a diagnosis from an HCC has been submitted,
other diagnoses in the same HCC have no impact.
RAF calculations are derived from claims submitted for physician offices and hospital inpatient
and outpatient departments.
Today, HCCs are also used for risk adjustment of many quality and pay-for-performance measures
for clinicians and hospitals, including the Merit-based Incentive Payment System (MIPS), the
Hospital Value-based Purchasing Program (VBP), the Hospital Readmissions Reduction Program
(HRRP), and the Hospital-Acquired Condition Reduction Program (HACRP). Hence, it is important to
capture all diagnoses comprising HCCs from the RAF sites of service (including hospitals) and
ensure assignment of the correct RAF.
Dr. Pinson is a certified coding specialist, author, educator, and cofounder of Pinson and Tang, LLC, and is based in Chattanooga,
Tenn. This content is adapted with permission from Pinson and Tang, LLC. The views expressed in
this column are those of the author and not intended to replace authoritative sources for
documentation and coding.
Information referenced from acphospitalist.org
