Demographics and diagnoses
Risk adjusted diagnosis coding is a model used to predict future health care costs based on demographics and diagnoses. It is most commonly used by Medicare to set rates for patients who are in Medicare Advantage plans. A Medicare Advantage plan is paid different amounts for the Medicare patients they cover, based on demographics and diagnoses. The model takes into account the age and gender of the population, whether they’re living at home or in an institution, if they are dually eligible for Medicare and Medicaid, and if they are being treated for end stage renal disease. And, the diagnosis codes submitted on claims or in files submitted by the Medicare Advantage plan to CMS.
The disease burden of the population of patients being served is measured by the diagnosis codes that are submitted to the payer on the hospital and professional claim forms and on additional file submissions.
Hierarchical condition categories (HCCs)
CMS developed HCCs to pay Medicare Advantage Organizations (MAOs) differentially based on disease burden and demographics. Some payers use proprietary risk adjustment models, but HCCs are well known. About 9,000 ICD-10 codes are grouped into categories and these categories are assigned a risk factor. There is weighting or hierarchy, which assigns higher values to more serious conditions. Two conditions in the same category are counted only once. Using the HCC model, conditions must be reported annually in order to be credited to that patient.
CMS uses two models:
The first, CMS-HCC is the model used to pay MAOs.
The second model was developed after the passage of the Affordable Care Act to pay health insurers in the ACA marketplace. This second model includes categories for infants, children, and all age adults, and includes obstetrical diagnosis codes for high risk OB care.
How to use this information in practice
Physicians and other providers don’t need to understand all of the details of HCCs but do need to understand these core principles:
- Annually, report on a claim form all serious acute and chronic conditions that are managed that affect treatment
- Be specific when reporting these conditions, in particular when there is a manifestation or complication for the condition, such as with bleeding or with ulcer
- Follow this ICD-10 guidance:
“Code all documented conditions, which coexist at the time of the visit that require or affect patient care or treatment. (Do not code conditions with no longer exist.)”
|Used by CMS to pay Medicare Advantage plans for enrollees||Used by CMS to pay health insurers in Affordable Care Act marketplace|
|Base year (current year) diagnoses determine next year’s rates||Uses current year diagnosis coding to set risk payments in current year|
|Developed for >65 year olds and disabled patients of all ages||Developed for all age patients|
|Pediatrics and obstetrics diagnosis codes are not assigned risk values||Includes categories for infants, children and adults, and includes obstetrical diagnoses|
|Does not include drug costs||Includes drug costs|
|Model used by many software programs, integrated into EMR systems.||Model less well known by medical practices|
|Rule making: proposal at the end of December, final rates in April||Payment to health insurers for caring for sicker patients in ACA.|