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Understanding the HHS-HCC Risk Adjustment Model

By AGS Health

March 1, 2023

Section 1343 of the Affordable Care Act (ACA) addresses the need for a risk-adjustment model. The U.S. Department of Health and Human Services (HHS) created a risk adjustment model based on the Hierarchical Condition Category (HCC) classification system. However, this model was developed using commercial claims data and refined HCCs to reflect those conditions expected within the commercial risk adjustment population. The hierarchical grouping logic is similar to the Medicare methodology, but HHS selected a different set of HCCs for the federal commercial risk adjustment methodology to reflect the population differences. HCCs may be excluded from this risk adjustment model if they are not predictive of costs or if the diagnoses are too vague, discretionary in treatment or coding, or not medically significant.

What is the HHS-HCC model?

The HHS-HCC is a risk adjustment model that calculates risk scores concurrently, which means it uses diagnoses from a period to predict costs in that same period. This model is primarily used for commercial payers of the Affordable Care Act (ACA) and is not restricted to older patients, which the CMS-HCC is. This model includes categories for:

  • Infants
  • Children
  • Adults of all ages, including obstetrical diagnosis codes for high-risk OB care

These risk scores are used to adjust payments and bids based on the health status (diagnostic data) and demographic characteristics (such as age and gender) of enrollees.

Both the CMS-HCC and the HHS-HCC models are used to provide risk-adjustment payments for patients with more complex care needs.

The HHS risk adjustment methodology aims to compensate health insurance plans for differences in enrollee health mix, so plan premiums reflect differences in scope of coverage and other plan factors, but not differences in health status.

ACA Plan Category

Patients are classified by platinum, gold, silver, bronze, or catastrophic level. Payments are adjusted by plan level, geographical rating area, induced demand, and age rating, so transfers reflect health risk, not other cost differences.

This model did not initially include prescription-based diagnoses, such as those found in the RxHCC used by Medicare. After the first year of collected data, capturing high-cost prescriptions was identified as a future need.

Bronze plans generally have the lowest premiums (monthly cost) but also the highest deductibles and other out-of-pocket costs.

Platinum plans usually have the highest premiums but the lowest deductibles and out-of-pocket costs.

Patients who qualify for cost-sharing reductions based on income and enroll in a silver plan may get the best of both worlds - lower premiums and out-of-pocket costs.

Catastrophic plans have lower monthly premiums and a very high deductible. These are best used to protect patients from worst-case scenarios, such as a life-threatening illness or injury; however, catastrophic plans do not cover most routine medical expenses.

ACA Plan Category

With each plan paying more of the covered out-of-pocket expenses, the premium paid each month goes up. So given the bronze example above, choosing that plan would incur a higher deductible or copay but a lower monthly premium.

ACA Plans

The Difference between CMS-HCC and HHS-HCC Model

CMS-HCC HHS-HCC
Used by CMS to pay Medicare Advantage plans for enrollees Used by CMS to pay health insurers in Affordable Care Act marketplace<
Base year (current year) diagnoses determine next year’s rates Uses current-year diagnosis coding to set risk payments in the current year
Developed for those >65 years old and disabled patients of all ages Designed for patients of any age
Pediatrics and obstetrics diagnosis codes are not assigned risk values Includes categories for infants, children, and adults and includes obstetrical diagnoses
Does not include drug costs Includes drug costs
Model used by many software programs and integrated into EMR systems. Model less well known by medical practices
Rulemaking: proposal at the end of December, final rates in April Payment to health insurers for caring for sicker patients in ACA

HHS-HCC Code Mapping

The U.S. Department of Health and Human Services (HHS) uses the Risk-Adjustment Factor (RAF) methodology. This is similar to the model the Centers for Medicare and Medicaid Services (CMS) uses to risk adjustment payments to insurers under Medicare Advantage and to set budgets for Accountable Care Organizations (ACO) under the Medicare Shared Savings Program (MSSP).

RAF is a sum of multiple factors, such as:

  • Patient demographics
  • Acute and chronic health conditions that drive healthcare costs
  • Condition severity
  • Patient maturity metrics - for infants

These factors determine the health risk of an enrollee. The health conditions are identified using Hierarchical Condition Category (HCC). The HHS-HCC model uses many MSSP conditions but includes specific codes to risk-adjust pediatrics, neonatal, and pregnant populations.

Similar to the CMS methodology, HHS-HCCs must be re-coded each calendar year to count toward the patient’s RAF score. Medical records must reflect that the condition is monitored, evaluated, assessed, or treated.

There are 127 HCC codes presently being used in the HHS model, with 7768 ICD-10 codes mapping to an HCC. The HHS-HCC model is concurrent, meaning codes submitted during the current year are used to determine that year’s budget. The CMS model is retrospective, using codes submitted from a previous year to estimate future healthcare costs.

As such, the HHS model uses both chronic and acute conditions to determine healthcare costs in the current year, whereas the CMS model (in general) focuses on chronic health conditions that drive future healthcare costs.

The HHS-HCC also aims to limit the use of codes that might represent the poor quality of care (e.g., pressure ulcers or complications of care), random acute events (e.g., trauma), or codes that are susceptible to discretionary diagnosis coding.

The most common HCCs in adults include: 

  1. HCC  21               Diabetes without Complication
  2. HCC   8                Major Depression and Bipolar Disorders
  3. HCC  61               Asthma
  4. HCC  20               Diabetes with Chronic Complications
  5. HCC 160             COPD, including Bronchiectasis
  6. HCC  12              Breast and Prostate Cancer, Benign/Uncertain Brain Tumors
  7. HCC 142             Specified Heart Arrhythmias
  8. HCC  130            Congestive Heart Failure
  9. HCC  56              Rheumatoid Arthritis and Specific Autoimmune Disorders
  10. HCC  209            Complicated Pregnancy with no or Minor Complications

The five most common HCCs in pediatrics include: 

  1. HCC 161          Asthma
  2. HCC  88            Major Depressive and Bipolar Disorders
  3. HCC  120         Seizure Disorders and Convulsions
  4. HCC   21           Diabetes without Complication
  5. HCC  102         Autistic Disorder

HCC RAF Calculation

HCC RAF Calculation
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