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.

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