HCC Coding 101

Hierarchical condition category (HCC) coding is a risk-adjustment model originally designed to estimate future health care costs for patients. The Centers for Medicare & Medicaid Services (CMS) HCC model was initiated in 2004, but is becoming increasingly prevalent as the environment shifts to value-based payment models.

HCC code mapping

While each HCC is mapped to an ICD-10 code, not every ICD-10 code maps to an HCC. Approximately 10,000 out of 70,000+ diagnoses codes map to an HCC code. HCC codes represent costly chronic health conditions, as well as some severe, acute conditions. The model excludes diagnoses that are definitively treated, clinically insignificant or non-diagnostic.

Diagnoses are aggregated into groups

HCC codes are categorized into approximately 1,300 diagnostic groups that are then aggregated into condition categories. Hence the term ‘hierarchical condition categories’ or HCC. The codes in a category all relate to a reasonably well-specified medical condition, symptom, or finding which defines the category. All diagnoses in a particular category are related clinically and are similar in terms of predicated cost implications.

Disease hierarchies reflect the level of severity

HCCs are termed "hierarchical" because hierarchies are imposed among related condition categories. Hierarchies are used to characterize the patient’s illness level within each disease process. For some disease states, such as diabetes, multiple HCCs capture differing severity of illness. Within an HCC grouping, a patient is assigned only the HCC that corresponds to the most severe manifestation documented. If another HCC in the hierarchy is reported in the same calendar year, then the lower severity HCC will be dropped. For example, if both HCC 18 (diabetes with chronic complication) and HCC 19 (diabetes without complication) are reported in the same calendar year, then only HCC 18 will be assigned because it is the more severe manifestation of diabetes. Unrelated disease processes are cumulative. HCCs accumulate among unrelated diseases, and the model accounts for interactions between certain conditions for which costs can be exacerbated (e.g., diabetes and congestive heart failure).

HCC codes are used to calculate RAF scores

Each HCC code is assigned a numeric weight that reflects the severity of the diagnosis. The sum of HCC and demographic weights are used to calculate Risk Adjustment Factor (RAF) scores, which reflect the burden of illness associated with a patient population. RAF scores are used to determine revenue received by the health plans so that predicted cost of care will be more in line with patients’ health status and resources are allocated appropriately. The higher the patient’s RAF score, the higher the assumed risk, and ultimately, the higher the payment.

RAF scores are reset on an annual basis

The CMS risk management model reviews a previous year’s health status to predict the following year’s health expenses. Each January 1, patients' risk score is reset, and all existing conditions that may map to an HCC must be coded and reported on an annual basis to count towards the RAF score for the following year.