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Hierarchical Condition Categories and Outpatient Clinical Documentation Improvement

By Susan Chapman, MA, MFA

Hierarchical condition categories (HCCs) are risk-adjusted Medicare and Medicare Advantage outpatient clinical documentation classifications used to forecast future provider reimbursement. Akin to diagnosis-related groups, or DRGs, for inpatient care, HCCs operate on the assumption that similar conditions among patients require comparable amounts of care and resources.

Each HCC has an individual value assigned to it. “We determine reimbursement by adding a value from each category for certain conditions that a patient has, combine that with demographic information like age and gender, and assign an overall patient-risk score,” explains Kelly Shew, RHIA, CPC, CPCO, CDEO, CPB, CPMA, CPPM, CRC, CEMC, CGIC, CPEDC, an AAPC-approved instructor. “As an example, the average patient in the Medicare population has a risk score of one. Healthier-than-average Medicare patients may have a rating that is less than one. If you have a sicker-than-average Medicare patient, that individual could be a little bit over one or well over one. Depending on their conditions, patients could have scores of two, three, or even into the teens. A higher score might pertain to someone like a transplant patient or someone with a number of chronic conditions. We then multiply that risk score by a dollar value to determine the capitation fee for each patient per month,” Shew says.

When determining HCCs, clinical documentation specialists (CDSs) recommend comparable reimbursement for similar conditions. For instance, if two patients have type 2 diabetes, the assumption is that they receive similar levels of care and allocations of medical resources. However, if one patient has a comorbidity, for example, chronic kidney disease, then that individual would require greater care, resulting in higher reimbursement.

If a patient has several conditions, CDSs assign credit to only one HCC. “Patients can't get credit for three or four conditions within a particular HCC category because those conditions all require roughly the same amount of effort and resources,” Shew says. “As an example, someone reports a patient has diabetes with no complications, which is one HCC. Later, that same patient develops acute kidney failure. In that case, the lesser value, the diabetes with no complications, is then trumped by the condition that is more serious. Credit wouldn’t be assigned to both conditions, just to the more serious one.”

Shew explains that CDSs look at a sample of charts with an eye toward trends and analyze HCCs over the course of a year, which impacts reimbursement for the following year or two. “In 2023, we’re gathering the information to determine what the reimbursement rate is for patients in 2024 or 2025,” Shew says. “So, what we determine is not going to affect providers’ payments this year, as that was already done last year. Whatever providers reported last year affects their payments this year, which is why it's very important to make sure that doctors are reporting this information and doing so accurately. This will ensure that their payments next year reflect the amount of effort that they're putting into their patients.”

Specific diagnosis codes greatly influence outpatient clinical documentation improvement. “You could have someone who is reporting hypertension with just the ICD-10 diagnosis code that does not risk adjust. But, if the patient has hypertension and chronic heart failure, that's a completely different set of codes that do risk adjust,” Shew says. “The CDSs are able to take their knowledge of coding to help the provider identify the proper diagnosis that will risk adjust and show just how much work the provider actually puts into the patient's care. It’s an important role because CDSs serve as critical communication liaisons.”

While CDSs want to educate doctors so that they accurately document the care they provide, Shew points out that they never tell providers to specifically look for an HCC diagnosis code just so that they receive a higher reimbursement. “If we were to do that, then we could inadvertently flirt with fraud, and we definitely don't want to encourage doctors to do anything fraudulent,” she says. “My take on education, then, is to stress that providers should only be reporting the severity, or acuity, of the patient's condition and to also have the documentation to support what they are reporting.”

Increasingly, insurance companies are taking notice of this trend-forecasting process, using HCCs. Shew predicts that in the next five or 10 years, this type of documentation and analysis will become more prevalent in the commercial space, noting, “A lot of the industry chatter is that this is going to be a bigger thing in the future. In fact, people are already beginning to educate themselves and are training to become certified in risk adjustment. I believe that there will soon be more jobs with insurance companies and health care systems specifically for risk-adjustment coding, which is great for those people who are interested in learning about and advancing in what is emerging in coding and health care.”

— Susan Chapman, MA, MFA, PGYT, is a Los Angeles–based freelance writer and editor.