by Wyn Staheli, Director of Research
April 27th, 2020
Broadly speaking, risk adjustment is simply a way of making sure that there are sufficient funds to adequately take care of the healthcare needs of a certain population. It’s a predictive modeling methodology which attempts to determine the health care costs which will be incurred based on the diagnoses of the individuals in that population. Due to the high cost of healthcare provider fee-for-service payment/reimbursement models, there has been an increase in moving to value based models which rely on risk adjustment to ensure proper funding.
Hierarchical Code Classification (HCC) codes are mandated by the Department of Health and Human Services (HHS) and specifically used by payers managing risk adjustment insurance plans to identify and classify conditions and injuries affecting the patient’s health status.
The following four separate HCC models are updated regularly by CMS and are used for different programs:
- CMS: Medicare Risk Adjustment plans
- RX: Prescription (Part D) plans
- ESRD: Medicare beneficiaries with end-stage renal disease
- HHS: Affordable Care Act (ACA) (Obamacare) plans
It is important to keep in mind that because health plans are funded based on these HCC models and their associated risk adjustment factors, under-coding leads to underpayment and loss of revenue but over-coding leads to audit risk and compliance actions. It’s essential to understand the rules to ensure maximum funding without increasing the organization’s risk of an audit. For Medicare programs, CMS regularly conducts Risk Adjustment Data Validation (RADV) audits to verify the accuracy of diagnosis codes submitted and every payer organization that provides Medicare Advantage (Part C) coverage to Medicare beneficiaries is audited.