Master the upcoming ICD-10 code and IPPS changes! Prepare your team for the upcoming changes taking effect on October 1. Discover the benefits of IPPSPalooza and how it can drive your success. Click here >

Understanding Risk-Adjusted Payment Methodology

The importance of an effective outpatient CDI program cannot be overstated

When working with a member of the sales force for a previous employer, I was asked, “What is the biggest problem coders encounter?” My answer, very simply put, was “physician documentation!”

I should have added “or lack thereof!”

We all know that getting the most accurate and appropriate documentation has always been an issue. Trying to clarify documentation to obtain the most accurate diagnosis coding has expanded to more and more areas, moving from inpatients with DRGs to outpatient with APCs, and now to the physician office through the use of a risk-adjusted payment system using HCCs (Hierarchical Condition Categories). This risk adjustment methodology has been implemented to ensure that those insuring and caring for individuals with multiple chronic conditions will receive the same levels of care as those with little to no chronic conditions. In other words, the Centers for Medicare & Medicaid Services (CMS) wanted to make sure that patients would not be turned away because a physician felt that he or she was not getting paid for their services. This was also an important concept for insurance companies when the Patient Protection and Affordable Care Act (PPACA) was implemented, again, to make sure insurance companies were not refusing patients because they felt the risk of payout was too great.  

When seeking to clarify physician documentation, the physician response has frequently been “this is not my problem!” or “this does not concern me!” Truly, it did not affect them, because they billed based on CPT® codes rather than diagnosis codes. So why did they care if we clarified the documentation to obtain a more accurate code assignment? Now, with HCCs, not only should they care, but they need to care if their reimbursement is to be accurate.  

There are currently four different groups using HCCs, which differ from group to group. There are:

  • Medicare Advantage Organizations (MAOs)
  • Accountable Care Organizations (ACOs), in collaboration with a commercial health plan
  • Program of All-Inclusive Care for the Elderly (PACE)
  • Patient Protection and Affordable Care Act (PPACA) plans

Our focus is Medicare Advantage (MA), or CMS-HCCs. The Medicare Advantage program has 79 HCCs. These have been updated and refined over time, and similar to DRGs, they have an assigned weight based on the severity of the condition (e.g.  diabetes with renal complications has a higher weight than DM without complications). Multiple diagnoses may be present, each with its own assigned value. All weights are added together. These weights are then multiplied by a factor that results in a payment. 

Diagnosis-Related Groupings (DRGs), as well as the Ambulatory Payment Classifications (APCs) are paid on a retrospective basis. In other words, we provide the care, submit a claim, and receive a payment. HCCs, however, are a form of capitation resulting in an amount paid to the physician as an estimate of what it will cost him or her to provide care to a specified patient in the next calendar year. Each HCC is based on physician documentation of chronic conditions documented and treated during a face-to-face visit at least once in the current calendar year to receive payment for care for the following year. If the physician estimates poorly, then they could end up providing care to very sick patients essentially for free. So, what does documentation have to do with receiving a proper capitated payment? This is called a risk score. Each MA enrollee has his or her own risk score based on their chronic conditions, in addition to other factors including dual eligibility, age, sex, and living conditions, as well as the interactions between some conditions such as congestive heart failure (CHF) and chronic obstructive pulmonary disease (COPD). In addition to the HCCs focusing on the aforementioned conditions, we have another set of HCC known as the RxHCCs affecting payment for medications. Not every code recognized in the CMS-HCCs is recognized in the RxHCCs. Additionally, the HCC numbers are different from CMS-HCCs to RxHCCs. More information about the RxHCCs can be found on the CMS website at

One of the terms used to refer to proper documentation of conditions addressed during these face-to-face visits is the term MEAT: did the physician Monitor, Evaluate, Assess, and/or Treat a condition? An example of what we would like to see in the documentation includes phrases such as “Mr. Jones here for follow-up of diabetes. HbA1C noted to be 6.5. Dietary advice offered. Will continue to monitor.” The physician has told us why the patient is there and what they are doing about it. If the documentation lacks specificity, it may not meet the MEAT qualifier because the physician failed to link the condition and his/her follow-up. 

Keeping in mind that only about 9,000 of the approximately 70,000 ICD-10 codes are included in the HCCs, specificity becomes more important in that many of the “unspecified” codes are not included in the HCCs. The primary source of HCCs is the primary care physician (PCP), however information may be captured and used from all encounters, including inpatient encounters.  

Documentation improvement on the inpatient side frequently focuses on clarification of documentation to gain specificity, especially of those diagnoses that quality as Complication and Comorbidities (CC) codes and major CCs (MCCs), such as complications of diabetes. The growth in CDI programs in the outpatient arena is based on the same principal of documentation clarification to gain the greater specificity, such as with diabetic complications (i.e. DM with renal failure), which also means that physician queries are just as important, if not more important in the outpatient areas. However, we need to keep in mind the non-leading requirements associated with physician queries. 

The U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) generally uses what’s called a Risk Adjustment Data Validation (RADV) audit process to ascertain that the basic tenets of the HCCs are met. It is their plan to review a percentage of submitted claims to verify that the documentation supports them. However, our experience has shown that in the interest of obtaining documentation to support the maximum number of HCCs, some organizations have asked their coders to add codes qualifying as HCCs that were not necessarily supported by the documentation.  Another activity receiving scrutiny is the practice of adding missed HCCs but not removing those HCCs not supported by the documentation during internal audit processes. This behavior has resulted in an increased OIG focus on documentation support of HCCs.

Having recently participated in a long-term audit prompted by a concern by the OIG that the HCCs billed by a particular physician group were not supported, I can confirm it is a detailed and expensive project that can be prevented through physician education. 

The importance of an effective outpatient CDI program cannot be overstated, as these individuals can clarify the documentation to support an accurate depiction of the patient and the services provided by the physician. It is usually the CDI group that provides physician education.

Another imperative, if we are going to help our physicians ensure the most accurate documentation is present, is physician education, which should focus on the need for specificity and the use of the MEAT criteria to ensure that optimum documentation is obtained.

Comment on this article

Print Friendly, PDF & Email

Related Stories

Leave a Reply

Please log in to your account to comment on this article.

Featured Webcasts

Mastering the Two-Midnight Rule: Keys to Navigating Short-Stay Admissions with Confidence

Mastering the Two-Midnight Rule: Keys to Navigating Short-Stay Admissions with Confidence

The CMS Two-Midnight Rule and short-stay audits are here to stay, impacting inpatient and outpatient admissions, ASC procedures, and Medicare Parts C & D. New for 2024, the Two-Midnight Rule applies to Medicare Advantage patients, requiring differentiation between Medicare plans affecting Case Managers, Utilization Review, and operational processes and knowledge of a vital distinction between these patients that influences post-discharge medical reviews and compliance risk. Join Michael G. Calahan for a comprehensive webcast covering federal laws for all admission processes. Gain the knowledge needed to navigate audits effectively and optimize patient access points, personnel, and compliance strategies. Learn Two-Midnight Rule essentials, Medicare Advantage implications, and compliance best practices. Discover operational insights for short-stay admissions, outpatient observation, and the ever-changing Inpatient-Only Listing.

Print Friendly, PDF & Email
September 19, 2023
Secondary Diagnosis Coding: A Deep Dive into Guidelines and Best Practices

Secondary Diagnosis Coding: A Deep Dive into Guidelines and Best Practices

Explore comprehensive guidelines and best practices for secondary diagnosis coding in our illuminating webcast. Delve into the intricacies of accurately assigning secondary diagnosis codes to ensure precise medical documentation. Learn how to navigate complex scenarios and adhere to coding regulations while enhancing coding proficiency. Our expert-led webcast covers essential insights, including documentation requirements, sequencing strategies, and industry updates. Elevate your coding skills and stay current with the latest coding advancements so you can determine the correct DRG assignment to optimize reimbursement, support medical decision-making, and maintain compliance.

Print Friendly, PDF & Email
September 20, 2023
Principal Diagnosis Coding: Mastering Selection and Sequencing

Principal Diagnosis Coding: Mastering Selection and Sequencing

Enhance your inpatient coding precision and revenue with Principal Diagnosis Coding: Mastering Selection and Sequencing. Join our expert-led webcast to conquer the challenges of principal diagnosis selection and sequencing. We’ll decode the intricacies of ICD-10-CM guidelines, equipping you with a clear grasp of the rules and the official UHDDS principal diagnosis definition. Uncover the crucial role of coding conventions, master the sequencing of related conditions, and confidently tackle cases with equally valid principal diagnoses.

Print Friendly, PDF & Email
September 14, 2023
2024 IPPS Summit: Final Rule Update with Expert Insights and Analysis

2024 IPPS Summit: Final Rule Update with Expert Insights and Analysis

Only ICD10monitor delivers what you need: updates on must-know changes associated with the FY24 Inpatient Prospective Payment System (IPPS) Final Rule, including new ICD-10-CM/PCS codes, plus insights, analysis and answers to questions from the country’s most respected subject matter experts.

Print Friendly, PDF & Email
2024 IPPS Summit Day 3: MS-DRG Shifts and NTAPs

2024 IPPS Summit Day 3: MS-DRG Shifts and NTAPs

This third session in our 2024 IPPS Summit will feature a review of FY24 changes to the MS-DRG methodology and new technology add-on payments (NTAPs), presented by senior healthcare consultant Laurie Johnson, with bonus insights and analysis from two acclaimed subject matter experts

Print Friendly, PDF & Email
August 17, 2023

Trending News