Optimizing HCC Coding for Accurate Reimbursement

By Eric McGuire

September 14, 2023

Among the essential elements in the shift from fee-for-service to value-based care models is the Hierarchical Condition Category (HCC) coding system. Introduced in 1997, HCC codes play a crucial role in predicting medical costs for patients with complex healthcare needs. Accurate HCC coding is vital not only for appropriate reimbursement but also for providing comprehensive and effective patient care.

HCC coding was initially developed by the Centers for Medicare and Medicaid Services (CMS) to forecast medical costs for Medicare beneficiaries over 65 with complex health needs. It measures relative risk due to health status for payment determination under Medicare Advantage (MA), Accountable Care Organizations (ACOs), and certain Affordable Care Act plans. Commercial payers also use risk-adjustment coding to predict medical costs for patients, particularly those with multiple chronic conditions.

The HCC coding system consists of approximately 7,770 diagnosis codes mapping to 115 HCC categories. Each HCC represents diagnoses with similar clinical complexity and expected annual care costs. Reimbursement under the HCC model is based on a Risk Adjustment Factor (RAF) score, calculated from a patient's medical history and demographic information. The RAF score, multiplied by a base rate, determines the provider's reimbursement.

The proper coding of HCC is crucial when it comes to value-based care models and effectively managing the health of populations. Failing to capture a comprehensive and accurate picture of the health and risks of a patient population can result in reduced reimbursements as well as poor decision-making regarding interventions and investments. As value-based care contracts continue to grow, implementing and optimizing proper HCC coding procedures enables healthcare providers to increase their revenue and be better equipped to achieve full reimbursement.

The complexity of HCC coding poses several challenges for healthcare providers. One of the significant obstacles is incomplete medical records, leading to undercoding and lower reimbursements. Additionally, limited resources, such as skilled coding specialists and outpatient CDI specialists, can hinder proper evaluation and documentation. Rapidly evolving regulations can also pose difficulties, and it is essential for coders to stay updated with the latest HCC code sets and guidelines. Another challenge is engaging physicians in the query process, and effective communication is crucial to ensure accurate documentation.

To enhance HCC coding for accurate reimbursement and improved patient experiences, healthcare providers should focus on specific key areas:

  • Implementing the MEAT criteria (monitor, evaluate, assess/address, and treat) supports proper documentation leveraged in risk adjustment coding. This is crucial for value-based payment models, where providers bear greater financial risk.
  • Targeting patient population improvements focused on high-impact areas for risk adjustment coding as well as on high-value and high-volume encounters. Implement outpatient clinical documentation improvement (OP CDI) programs to close documentation gaps and improve evidence capture.
  • Leveraging technology, including computer-assisted physician coding (CAPC) and computer-assisted clinical documentation solutions and tools that use natural language processing (NLP), natural language understanding (NLU), and machine learning (ML) to improve diagnosis capture. HCC return on investment (ROI) calculators and dashboards help optimize coding and reflect provider scores in real time.
  • Strengthening relationships with health plans through regular updates regarding diagnosis codes to identify missing or disallowed codes.
  • Engaging physicians through a program that balances auto-generated queries and NLP-based functionality with CDI tailored to individual physician preferences.
  • Conducting prospective and retrospective audits to identify gaps in documentation and provide targeted education for improvement.

Accurate and compliant HCC coding is essential for the financial stability of healthcare providers and the health of their patient populations. Properly designed strategies and effective implementation ensure appropriate documentation, resulting in accurate coding and increased reimbursements. Embracing technology and fostering collaboration between coders and physicians will pave the way for optimizing HCC coding, leading to improved financial performance while providing a solid foundation for thriving in the value-based care era.

Download our white paper, “Optimizing HCC Coding for Accurate Reimbursement” to learn more about how to design and implement strategies to ensure appropriate documentation to support accurate HCC coding.

Eric McGuire

Eric McGuire, CRCR, PgMP, PMP, LSSGB


Eric is a seasoned HIM and revenue cycle professional with more than two decades of experience in helping healthcare organizations bridge the gap between healthcare IT and business operations. As the senior vice president of coding and CDI services, he leads the development of service line strategy and execution. Eric’s leadership and consultancy has helped numerous customers transform their revenue cycle outcomes through enhanced patient experience, revenue growth, risk mitigation, and cost containment. Eric possesses a bachelor’s degree in Macroeconomics from The Ohio State University in Columbus, OH.