Blog, Revenue Integrity, The Hospital Finance Podcast®

Healthcare risk adjustment – your top ten questions answered [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Laura Legg, Solutions Strategy Director at BESLER, to answer the top ten questions about healthcare risk adjustment  

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To view a SlideShare presentation about this episode, click HERE 


Highlights from this episode include:

  • How healthcare risk adjustment scores are calculated
  • Why CMS implements hierarchical condition categories (HCC) methodologies
  • How providers can prepare for payment under a HCC model
  • Common risk reduction strategies for a strong HCC performance

Answers to the Top 10 Questions about Healthcare Risk Adjustment


1. What is healthcare risk adjustment?
Risk adjustment is a modern payment model which uses both demographics and diagnoses to determine a risk score which predicts how costly the individuals care will be for the coming year. The most prevalent risk adjusted model is the CMS model called hierarchical condition categories also known as HCCs.

Hierarchical condition categories have been around for a while but primarily used for Medicare advantage plans.  Now contracts are being signed for other payers as well.

2. Why did CMS implement HCC methodology?
The idea is to pay more to providers with more complicated patients. The HCC model encourages providers and health plans to take care of more complex patients ensuring that Medicare beneficiaries receive high quality care. Risk adjustment and HCCs were mandated by the Balanced Budget act of the 1997 and implemented to Medicare Advantage Plans in 2004. Payment to providers is based on the individual’s risk adjustment score.

An example would be a couple Mr. and Mrs. Jones who both have Medicare coverage. Mr. Jones has no chronic illness and primarily sees his provider for a yearly wellness check and sometimes one or twice for minor complaints (his care is not very costly) he would have a low risk score. However, his wife Mrs. Jones has diabetes and a diabetic kidney condition which she takes multiple medications for. This requires her to see her provider frequently 1-2 times per month. Mrs. Jones has a much higher risk score as her care is more complex and requires greater resources. HCC or risk adjustment allows Mrs. Jones ‘ provider to be compensated fairly for her care.

3. How are risk adjustment scores calculated?
Groups of similar diagnoses consume similar resources. Each HCC is assigned a “weight” that impacts the patient risk score and determines payment. Two components of risk factors are used. The first risk factor is the demographic factor. The second factor is the HCC risk factor which is the disease burden component determined by the individual’s diagnoses. Each member is assigned a RAF or risk adjustment factor that identifies the health status of the patient. HCCs are similar to DRGs in that patients are grouped into categories who are expected to have similar cost patterns.

4. What does the demographic component include?
The demographics component includes age, sex, disabled status, eligibility status and whether the member lives in a community or institution. Having accurate data collection at access or registration of a patient is essential to ensure accurate demographics for everyone.

5. What does the disease burden component include?
There are more than 3,500 diagnoses codes that affect the HCC of an individual. Some of the most common are chronic conditions including chronic obstructive pulmonary disease, vascular disease, congestive heart failure and diabetes mellitus. HCCs are additive meaning that multiple chronic conditions result in a higher total HCC risk factor.

6. How many patients are covered under the risk adjustment model and is there a benefit for the patient?
More than 75 million individuals are currently covered by a risk adjustment payment methodology. Under the risk adjustment model, higher-risk patients are able to find and afford health insurance. There is also improved opportunity for patients to be identified for care management programs or disease intervention programs.

7. How is diagnoses data used in the calculation of risk adjusted scores?
Diagnoses are reported using ICD-10-CM codes. Not every diagnosis will “risk adjust,” or map to an HCC. Acute illness and injury are not as reliably predictive of ongoing costs, as are long-term conditions such as diabetes, chronic obstructive pulmonary disease (COPD), chronic heart failure (CHF), multiple sclerosis (MS), and chronic hepatitis; however, some risk adjustment models may include severe conditions relevant to a young demographics (such as pregnancy) and congenital abnormalities. The diagnosis codes are submitted on claims based on the face to face encounter clinical findings.

8. How can providers prepare for payment under an HCC model?
Providers should audit their documentation ensuring that the patient’s clinical conditions are fully described in clinical documentation.  Monitor and decrease their use of unspecified ICD-10 diagnosis codes. Unspecified ICD-10 diagnosis codes do not fully describe the patient’s clinical condition. ICD-10 coding should also be audited. Education and training should be conducted based on the results of the audit. Conducting an annual audit will ensure documentation and coding accuracies are sustained.

9. Is it possible for providers to lose financial opportunities under the HCC payment program and how can that risk be minimized?
If medical documentation lacks the accuracy and specificity needed to assign the most appropriate ICD-10 diagnosis code, providers face the possibility of reduced payment in a performance-based payment model. If a chronic condition is not documented yearly, the diagnosis will “fall off” and not be included in the HCC calculation possibly lowering the risk adjustment score. Good clinical documentation and accurate ICD-10 diagnosis coding will paint a complete clinical picture of the patient allowing the correct RAF score to be calculated and proper payment.

10. What are some common risk reduction strategies that can be implemented for strong performance under the HCC payment model?
There are some very specific documentation and coding practices that can be used for a strong HCC performance including:

  • Document and code all chronic conditions. Chronic and/or permanent diagnoses should be documented as often as they are assessed or treated. For risk adjustment, the Centers for Medicare & Medicaid Services requires these diagnoses to be submitted at least annually.
  • Clarify whether a diagnosis is current or “history of”. Coders need this information for correct code assignment. Anything that is listed as “repaired” or “resolved” should not be coded as current. Providers should be made aware of Z codes that are appropriate for these scenarios. Example: Neoplasms that are current code to ICD-10 codes in Chapter 2: Neoplasms. Neoplasms that are no longer present should be coded to Chapter 18: Factors Influencing Health Status and Contact with Health Services
  • Update the patient’s problem list regularly. Make sure all problems listed as active are appropriate and haven’t been brought forward (copied and pasted) in error.
  • The superbill is important but don’t use for code assignment. Coding from a superbill. A superbill simply does not allow a provider to see all the diagnosis options available to him or her. It is usually a limited, generic list of unspecified codes.
  • Increase your providers’ coding depth. Diagnosis codes are not limited to what brought the patient to the office today. Any condition the provider monitors, evaluates, assesses, or treats should be included in the documentation.
  • Avoid using generic or unspecified codes. Code to the level of specificity known for that encounter. If the provider does not document the information query for needed specificity. Example:  Congestive heart failure should be coded by type and acuity. The term congestive heart failure is considered nonspecific, outdated, and inadequate to fully describe the condition. Documentation should be present in the record of systolic and/or diastolic failure or dysfunction and acuity.
  • It is important to link manifestations and complications. Coders can’t assume there is a connection with conditions listed in the medical record — the provider needs to make the link. Some terms that can be used to link conditions are “because of,” “related to,” “due to,” or “associated with.”

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