Unraveling the Mystery of HCCs

on Tuesday, 05 September 2017. All News Items | Documentation | Coding

It’s all about Risk-Adjustment

It was Miss Peacock in the Dining Room with the Candlestick is just one of the many possibilities in solving the murder mystery in the game of Clue. Learning to put the pieces together to solve the mystery as a child has served me well when it comes to the world of Clinical Documentation Improvement where each chart is a new mystery and I am the detective. When reviewing a chart you may find clinical indicators without a diagnosis that provides you with the needed “clues” to query the physician. You may also find a diagnosis lacking the supporting “clues” (clinical indicators) that again require querying the physician.  And, if all goes well, at the end of the hospitalization the mystery is solved and there is clear documentation supporting a principal diagnosis, secondary diagnoses, the resources utilized and the medical necessity of the admission.  

More and more emphasis is being put towards outpatient Clinical Documentation. For many this is an entirely new and different mystery to be solved. One key to solving this mystery is having a basic understanding of Hierarchical Condition Categories (HCCs). This article is meant to be a starting point to unraveling the mystery of HCCs. 


  • Medicare Advantage (Part C) plans are paid a monthly capitation rate to provide health care services to enrolled beneficiaries.
  • Historically, payments to Medicare Advantage (Part C) plans were linked to Fee-for-Service expenditures. “Research showed that the managed care program was increasing total Medicare Program expenditures, because its enrollees were healthier than FFS enrollees.”¹
  • The Benefits Improvement Protection Act (BIPA 2000) required the implementation of a risk adjustment model using not only diagnoses from inpatient hospital stays, but also from ambulatory setting beginning in 2004.
  • The CMS-HCC model was implemented in 2004 as a risk-adjustment model. Per CMS this allows them “to pay plans for the risk of the beneficiaries they enroll, instead of an average amount for Medicare beneficiaries. By risk adjusting plan payments, CMS is able to make appropriate and accurate payments for enrollees with differences in expected costs. Risk adjustment is used to adjust bidding and payment based on the health status and demographic characteristics of an enrollee. Risk scores measure individual beneficiaries’ relative risk and risk scores are used to adjust payments for each beneficiary’s expected expenditures. By risk adjusting plan bids, CMS is able to use standardized bids as base payments to plans.”²
  • CMS-HCC data is calculated once a year based on information reported on claims.
  • To continue to be factored into an enrollees risk adjustment, all chronic conditions, including past surgeries, must be documented annually during a face-to-face encounter.

CMS-HCC Model Basics

  • An HCC is a category of disease type (e.g., congestive heart failure) with multiple individual ICD-10 diagnoses that map to that HCC category.
  • Similar to severity weighted MS-DRGs in the acute hospital inpatient setting, each HCC is assigned a Risk-Adjustment Factor (RAF) This score is a total of all relative factors related to one patient for a total year. Specifically, demographic (age and whether the patient is community-based or living in a skilled nursing facility (SNF) and disease complexity factors. There is an Interaction Factor for certain conditions indicating the presence of several conditions at the same time.
  • Diagnoses from inpatient, outpatient and professional practice encounters are used to calculate the RAF score.
  • There are currently 79 HCC Categories (e.g., Infection, Diabetes with Acute Complications, Diabetes with Chronic Complications, Cerebrovascular Disease).

CMS-HCC Model: Guiding Principles

The CMS-HCC model uses demographic information (age, sex, Medicaid dual eligibility, disability status) and a profile of major medical conditions in the base year to predict Medicare expenditures in the next year. The following 10 principles guided the creation of the CMS-HCC diagnostic classification system:

  • Principle 1: Diagnostic categories should be clinically meaningful,
  • Principle 2: Diagnostic categories should predict medical expenditures.
  • Principle 3: Diagnostic categories that will affect payments should have adequate sample sizes to permit accurate and stable estimates of expenditures.
  • Principle 4: In creating an individual’s clinical profile, hierarchies should be used to characterize the person’s illness level within each disease process, while the effects of unrelated disease processes accumulate.
  • Principle 5: The diagnostic classification should encourage specific coding. “Vague diagnostic codes should be grouped with less severe and lower-paying diagnostic categories to provide incentives for more specific diagnostic coding.”²
  • Principle 6: The diagnostic classification should not reward coding proliferation. “Neither the number of times that a particular code appears, nor the presence of additional, closely related codes that indicate the same condition should increase predicted costs.”²
  • Principle 7: Providers should not be penalized for recording additional diagnoses.
  • Principle 8: The classification system should be internally consistent.
  • Principle 9: The diagnostic classification should assign all ICD-10-CM codes as each code potentially contains relevant clinical information.
  • Principle 10: Discretionary diagnostic categories should be excluded from payment models.

CMS-HCC Model: Disease Hierarchy

Similar to the surgical hierarchy in the inpatient setting. The CMS-HCC model follows a disease hierarchy. The hierarchy addresses “situations when multiple levels of severity for a disease, with varying levels of associated costs, have been reported for a beneficiary. The hierarchies prioritize the inclusion in a risk score of multiple HCCs where diagnoses are clinically related and ranked by costs. In the case of a disease hierarchy, Part C payment is based only on the most severe and costly manifestation of the disease. Hierarchies are published in the Rate Announcement for the years when CMS recalibrated the CMS-HCC model.”²

CMS-HCC Model: Risk Adjustment Data Submission Requirements

The following bullets can be found in Chapter 7 of the Medicare Managed Care Manual and detail some of what plan sponsors must do when submitting data.

  • “Ensure the accuracy and integrity of risk adjustment data submitted to CMS. All diagnosis codes submitted must be documented in the medical record and must be documented as a result of a face-to-face visit. The diagnosis must be coded according to International Classification of Diseases, (ICD) Clinical Modification Guidelines for Coding and Reporting.
  • Implement procedures to ensure that diagnoses are from acceptable data sources. The only acceptable data sources are hospital inpatient facilities, hospital outpatient facilities, and physicians. Plan sponsors are responsible for determining provider type based on the source of the data.
  • Submit the required data elements from acceptable data sources according to the coding guidelines.
  • Submit all required diagnosis codes for each beneficiary and submit unique diagnoses at least once during the risk adjustment data-reporting period. Submitters must filter diagnosis data to eliminate the submission of duplicate diagnosis clusters.
  • For Part B-only beneficiaries enrolled in a plan, the plan sponsor must submit diagnosis codes under the same rules as for a beneficiary with both Parts A and B. The plan should also submit diagnosis codes for Part A services provided under a non-Medicare contract.

If upon conducting an internal review of submitted diagnosis codes, the plan sponsor determines that any diagnosis codes that have been submitted do not meet risk adjustment submission requirements, the plan sponsor is responsible for deleting the submitted diagnosis codes as soon as possible.”²

HCCs beyond Medicare

The CMS-HCC Model is just one example of HCCs being used. Examples of different ways HCCs are being used includes the following:

  • The CMS-RxHCC Model is used separately to address Medicare Part D (Medicare prescription drug coverage),
  • The Department of Health and Human Services maintains the HHS-HCC Model to address commercial payer populations;
  • Accountable Care Organizations (ACOs) participating with the Medicare Shared Savings Program (MSSP); and
  • The Medicare Hospital-Value-Based Purchasing Program measure Medicare Spending per Beneficiary.

Risk-Adjustment Payment Models are an integral part of CMS’s move away from paying for volume and towards payment for quality. To accurately reflect risk, there should be no mystery as to what the physician meant in the documentation. Documentation needs to reflect all medical conditions being managed, evaluated, assessed and treated and be detailed enough so the conditions can be coded to the highest specificity.

 Article by Beth Cobb

Beth Cobb, RN, BSN, ACM, CCDS, is the Manager of Clinical Services at Medical Management Plus, Inc.  Beth has over twenty-five years of experience in healthcare including eleven years in Case Management at a large multi-facility health system.  In her current position, Beth monitors, interprets and communicates current and upcoming Case Management / Clinical Documentation issues as they relate to specific entities concerning Medicare.  You may contact Beth at This email address is being protected from spambots. You need JavaScript enabled to view it..

This material was compiled to share information.  MMP, Inc. is not offering legal advice.  Every reasonable effort has been taken to ensure the information is accurate and useful


  1. Pope G, Kautter J, Ellis R, Ash A, Ayanian J, Iezzoni L, Igber M, et al. Risk adjustment of Medicare capitation payments using the CMS-HCC model. Health Care Financing 2004; 25:119-141. Accessed August 31, 2017 at: https://www.cms.gov/Research-Statistics-Data-and-Systems/Research/HealthCareFinancingReview/downloads/04Summerpg119.pdf
  2. Medicare Managed Care Manual, Chapter 7 – Risk Adjustment Accessed August 31, 2017 at: https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/mc86c07.pdf

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