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The Smart Rev Cycle Blog

Importance of Diagnosis and HCC Coding

Diagnosis Coding is Becoming Increasingly Important

Diagnosis coding is becoming more and more important. The shift from volume to value requires HCC coding for patient acuity not just diagnosis coding for medical necessity. During the “Good Old Days” (think pre-Meaningful Use) as well as during the Meaningful Use Era, diagnoses were primarily required to justify the medical necessity of CPT codes for reimbursement under Fee-for-Service. As the healthcare reimbursement process shifts towards a Value-Based model, Fee-for-Service will continue. However, there are many other reporting mechanisms that will now utilize diagnosis codes.

Most practices will encounter Value-Based Reimbursement through the Cost and Quality Measures under MIPS. Any attempt to measure and provide financial incentives based on Quality and Cost requires Risk Adjustment. Risk Adjustment is simply the recognition that there are factors outside the control of the physician that have a significant impact on patient outcomes and healthcare expenses. Both Quality and Cost measures under MIPS are risk adjusted.

The government’s preferred methodology for Risk Adjustment is Hierarchical Condition Categories (HCC). HCC coding began as a risk adjustment tool for Medicare Advantage plans in 2004. Since 2004, CMS has continued to make adjustments to the HCC model. As a result, the HCC coding score for a patient population has become very accurate in predicting future healthcare expenses for that patient population.

Demographics + Diagnosis = HCC Coding Score

There are two major components to a patient’s HCC coding score: demographics and diagnosis. The demographic factors are age, gender and eligibility status. Older patients are obviously more likely to consume higher amounts of healthcare in the following 12 months, than an identical patient who is 10 years younger. Eligibility status is an attempt to account for socioeconomic factors that can impact healthcare expenses. If a patient is eligible for both Medicare and Medicaid, the model expects them to have higher healthcare costs. The diagnosis component of HCC coding looks at all diagnoses for a patient over the past 12 months. A weight is assigned to each diagnosis (some have a weight of zero) and these weights are added to the demographic factors to generate a total HCC score. The higher the patient’s HCC coding score, the sicker the patient. The sicker the patient, the higher the future healthcare expenses.

Practices are beginning to pay more attention to HCC coding and Risk Adjustment. Hospitals and inpatient coding have been doing this for years. However, this is a new frontier for the majority of ambulatory practices. The good news is that practices do not have to be perfect in this area. Practices are compared to their peers, not to an absolute standard. Only 18% of practices across the country have Risk-Adjusted contracts with commercial payers. This means that forward-thinking practices have an opportunity to get ahead of their peers by (1) more accurately coding diagnoses, (2) more accurately reflecting patient acuity and HCC scores and (3) improving Cost and Quality scores relative to other practices.

Capturing Comorbidities is the Key

The Fee-for-Service model requires a diagnosis that justifies medical necessity for the CPT codes on a claim. Today, most practices stop short of documenting and capturing comorbidities that complicate medical decision making, treatment plan, and more accurately reflect the condition of the patient. These comorbidities have not been required for proper reimbursement, and therefore only 19% of practices say that they always code comorbidities on the claim. However, 58% of practices indicate that their physicians do a good job of documenting these comorbidities in the note. The change is not one of documentation, but a coding change that is needed for the practice.

Practices that want to more accurately reflect patient acuity need to do a better job of coding comorbidities.

How Do I Start?

The first step is to know how you are doing today. It is important to be able to answer the following questions: What HCC codes are we using most frequently today? Which physicians are doing the best job accurately coding patient acuity? Where does my practice have room for improvement?

HCC Analysis

HCC analysis, basic vs advanced

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