Updated on: January 29, 2014

What You Need to Know About Hierarchical Condition Categories and ICD-10

By Elaine King
Original story posted on: November 20, 2013

Few providers are aware of the risk adjustment model that is quietly emerging under the Patient Protection and Affordable Care Act (also known as the ACA). That model is known as the Hierarchical Condition Categories (HCCs), and it has been the basis for reimbursement for Medicare Advantage plans (Medicare Part C) since 2004. HCCs use data to prospectively estimate predicted costs for enrolled members during the next year of coverage. Such estimates are based on demographic information such as age and major medical conditions documented from patient encounters in the previous 12-month period. They are used to adjust Medicare capitation payments to Medicare Advantage health plans based on the anticipated risk of enrollees calculated from relevant ICD-9-CM codes.

Because of the proven success of HCCs in predicting resource use by Medicare Advantage enrollees, the model now is being used to determine in part reimbursement for Accountable Care Organizations (ACOs) and the Hospital Value-Based Purchasing (HVBP) program. Few providers traditionally have assumed risk for outpatient documentation and coding. Under ACOs and HVBP, however, more providers are assuming risk when they record health status for their patients. That means good things for providers that accurately capture their patients’ health status benefits, while those who fail to capture relevant conditions face lower payments.


How are HCCs impacted by ICD-10-CM?

HCCs are calculated from the slightly more than 3,000 ICD-9-CM diagnosis codes approved by the Centers for Medicare & Medicaid Services (CMS) for 2014. While CMS has not released the ICD-10-CM relevant codes that will go into effect Oct., 1, 2014, translation of the codes using the CMS General Equivalency Mappings (GEMs) shows that the number of relevant codes jumps to over 11,000 – almost a four-fold increase. As with all ICD-9 and 10-CM coding, coders will not be able to assign codes without the presence of legible, accurate, consistent, and comprehensive supporting documentation. For example, documentation of ICD-9-CM HCC relevant code 078.5, cytomegaloviral disease, in ICD-10-CM will require additional specificity in terms of whether the cytomegaloviral disease is pneumonitis, hepatitis, pancreatitis, or another form of the disease. 

Many chronic conditions (such as alcohol dependence in remission, certain amputations, and artificial openings) are especially relevant for HCC coding because they serve as excellent predictors for future healthcare needs. These conditions will require additional specificity in ICD-10-CM.  The documentation must be based on face-to-face encounters with the healthcare provider, and patients must be monitored, evaluated, assessed, and/or treated during that encounter. 

ICD-10-CM HCC Risks

Many nonspecific diagnoses are not designated HCC codes under ICD-9-CM, and therefore they do not carry a risk-adjusted weight that enhances revenue for the covered member. For example, bronchitis, NOS (ICD-9-CM code 490), is not an HCC and carries no weight; simple chronic bronchitis (ICD-9-CM code 491.0), has a weight of .34 and falls under HCC category 108, Chronic Obstructive Pulmonary Disease. In ICD-9-CM, lobar pneumonia (which includes streptococcus pneumonia) falls into HCC 112, Pneumococcal pneumonia, empyema, and lung abscess, with a weight of .206. Lobar pneumonia likely will not be an HCC code under ICD-10 CM because streptococcal pneumonia is not included as a nonessential modifier for lobar pneumonia in the new code set. 

Additionally, CMS may restrict unspecified codes listed as HCCs further – and limit those diagnoses that do not provide laterality, episode of care, severity, or other required attributes. Many payors already have indicated that these conditions are being excluded under fee-for-service reimbursement methodologies because it is felt that nonspecific codes may indicate poor service or even fraud. It is likely that the CMS HCC system will follow the same pattern.

A further consideration for providers working with risk-adjusted HCCs with ICD-10-CM is that most documentation comes from outpatient office visits, and relatively little comes from inpatient encounters. Outpatient documentation historically has not been subject to the oversight common to inpatient documentation. In fact, many providers directly assign codes at the end of each encounter without the benefit of specific ICD-9 or ICD-10-CM coding education. Some are unfamiliar with valuable coding resources, official coding guidelines, or encoders. Some may select codes from superbills or electronic health record dropdown menus, which limit the available options to nonspecific codes. If coders are involved in the process, they increasingly are working remotely, and may be contract employees with minimal opportunity to question diagnoses and codes with the provider. A final area of caution resides with assigning coders. Traditionally, more experienced and credentialed coders are placed in the inpatient environment rather than in the outpatient environment.

Tips for Success

For most organizations stepping into the risk-adjusted market of ACOs, HVBP, or Medicare Advantage ownership, close scrutiny of your HCC documentation, coding, and process oversight will be critical for maintaining compliance, accurate quality measures, and financial integrity following the transition to ICD-10-CM. To mitigate these risks, organizations should begin to assess methods to educate, monitor, and evaluate the quality of outpatient documentation and coding as they pertain to HCCs. Technology can assist in many facets of the process, allowing for improving the capture of documentation with computer-assisted physician documentation, automating the capture of codes with computer-assisted coding, and simplifying clarification and follow-up with computer-assisted clinical documentation improvement. Such technology will not replace your current providers, coders, and CDI specialists; it will enhance their productivity and effectiveness.

Many organizations are in the process of expanding their clinical documentation improvement (CDI) efforts to include HCCs because of their growing use and the intersecting demand for increased specificity under ICD-10 CM. Some providers, such as Baptist Health South Florida, are increasing their numbers of clinical documentation improvement specialists in response to ICD-10-CM and are making appropriate adjustments and enhancements to their existing CDI programs. Other clients are adding HCC specialists to their current team of CDI specialists. Other measures should include assessing all EHR templates for ICD-10 readiness, eliminating coding cheat sheets, and providing ongoing assessment and education to providers, CDI specialists, and coders. 

Maintaining quality documentation and coding for HCCs under ICD-10-CM is a complex issue and will require a multifaceted approach to ensure success. Education, assessment, and technology are vital components as you adapt to the new risk adjustment environment.

About the Author

Elaine King, MHS, RHIA, CHP, CHDA, CDIP, FAHIMA, is the outpatient payment specialist for J.A. Thomas & Associates, a Nuance Company.

Contact the Author

To comment on this article please go to

Disclaimer: Every reasonable effort was made to ensure the accuracy of this information at the time it was published. However, due to the nature of industry changes over time we cannot guarantee its validity after the year it was published.