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2022 Coding and Medicare Reimbursement: What Providers and Payers Need to Know


Enrollment in Medicare Advantage plans has grown significantly over the last 10 years. Providers, payers and health systems with a large population of Medicare patients need to understand how the Centers for Medicare and Medicaid Services (CMS) is changing how they calculate patient risk – and how it will ultimately impact reimbursements, gain sharing and bonuses in the coming years.

Why Both Providers and Payers Should Care About HCC Coding

CMS finalized and published its annual payment notice in April of 2021, with changes going into effect at the beginning of 2022. One of the most significant changes coming next year is that CMS is adjusting how it uses hierarchical condition category (HCC) coding to determine reimbursements for patients on Medicare Advantage plans.

When payers and providers understand the new rules, and the importance of capturing diagnoses correctly using HCCs, it guides physicians to document and code appropriate HCCs at the point of care within the electronic health record (EHR) workflow. With accurate coding, they can be compensated appropriately based on the health severity of member populations.

The Basics of HCC Coding

HCC coding was first introduced in 2004 as a tool for CMS to adjust payments to private insurance companies with Medicare Advantage plans. Payers – especially CMS – continue to refine HCC coding as reimbursements shift away from an entirely fee-for-service (FFS) model that rewards more care (even if it’s not medically necessary for an optimal patient outcome). In a nation where we spend more than twice as much on healthcare compared to similarly developed countries, the goal is to align healthcare incentives with overall patient health and wellness, not just total number of procedures.

The challenge with determining what payers should reimburse for care is that the total cost of care varies based on each patient's overall health (or severity of disease). Commercial payers and CMS use a baseline to estimate total costs for the coming year. To do that accurately they use risk-adjusted factors (RAF).

HCC coding is at the heart of RAF scoring. There are 19 different HCC categories with 86 total HCC codes. Categories broadly define a condition. The HCCs within the category help doctors refine the level of specificity. Diabetes, for example, has multiple HCC codes ranging from “diabetes without complications” to “diabetes with acute complications.” Someone in the first category would likely require less care - or less costly care – than someone in the second, so their risk-adjusted cost projection would be lower.

Benefits of HCCs

Many clinicians see HCC coding as an administrative burden. However, it actually has several clinical benefits. It is a concise way to capture the true clinical picture for a patient – so that patient ends up on appropriate registries; and is eligible for and offered proactive care programs from their provider or payer partners. That's especially useful for payers who will never meet a patient in person and only see a glimpse of their care based on billing and coding.

How HCC Coding Works

Doctors enter HCC codes into a patient’s EHR during or after an encounter. The provider selects the most appropriate HCC code based on the severity of the patient’s condition. Providers must include documentation that supports the chosen HCC code. Then the billing team chooses the correct ICD-10 code(s) to bill for the healthcare services.

Providers can select multiple HCC codes, if appropriate, for each patient. Numerous conditions can put someone at higher risk of complications and result in more total healthcare costs. Including every applicable HCC code is essential to measure the patient’s actual risk levels and estimate future healthcare costs.

The HCC Changes You Need to Know for 2022

In previous years, CMS used a combination of data to determine a patient’s risk levels, including HCC codes when they were available. But that calculation is going away. For 2022 and beyond, CMS will identify a pre-established rate for reimbursements based on three things:

  • Patient demographics (age, sex)
  • Major conditions (documented with HCC codes)
  • Number of conditions (also tied to HCC codes)

Inaccurate or inconsistent documentation can leave healthcare systems and payers exposed to a much higher level of financial risk. For example, suppose a clinician is treating a patient for diabetes, and they have not entered the HCC code for that condition. In that case, the cap for reimbursements will be lower based on the payer’s assumption that the patient is actually healthier. It’s a dramatic shift from previous years when HCC codes were essential but not directly linked to reimbursement.

There’s another critical caveat here: payers will use this year’s HCC codes to calculate next year’s reimbursements. Capturing accurate coding now can help avoid reimbursement reductions in the 2022 calendar year, especially for the most complex patients likely to have the highest healthcare costs.

How Software Can Help with Accurate HCC Capture

Understanding how HCC codes work and why they matter is essential for reimbursement in 2022 and beyond. One of the best ways to ensure accurate HCC coding now and in the future is having the right tools to capture codes for every patient.

The good news is that providers don’t have to remember every HCC code. Enter Premier’s PINC AI™ Clinical Intelligence, with smarter clinical decision support tools to identify all the appropriate HCC codes for each patient in real time. Here’s how it works:

  • Providers select an HCC code after an encounter based on the patient’s condition or providers order medications related to certain conditions
  • The clinical decision support tool uses algorithms to search the clinical data from the patient’s medical record for additional codes that might be applicable
  • If applicable, the provider is alerted that there might be additional (or more specific) HCC codes for this patient and can accept or reject the suggestions
  • If the provider accepts the suggestion, the HCC code is automatically added to the visit documentation

This helps providers eliminate the need to sift through encounter notes and EHR documentation to make sure all applicable HCC codes are captured. The clinical decision support tools use data from labs, symptoms and medications to find other potential codes, all while leaving the final clinical decision up to the provider.

Payers can also benefit with reduced back-office retrospective work and increased physician engagement in the HCC process. This helps lead to more accurate coding and reimbursements. This is especially critical given the CMS phase out of 25 percent Risk Adjustment Processing System (RAPS) data.

The Bottom Line for Providers, Payers and Healthcare Organizations

Hospitals implementing HCC coding via the clinical decision support tools are seeing a tremendous impact. In just one example, Community Health Network saw a $5 million difference in their baseline spend calculation in 2020 despite COVID-19. Payers can increase their ROI with improved coding standardization among their physicians. With the shift to value-based care and encounter-based payment, thorough documentation and appropriate coding are essential to the bottom line.

Download our e-book, CARE MORE, CODE LESS: Using Actionable HCC Alerts to Increase Efficiency, Improve Outcomes and Increase Revenue, to discover how you can put the PINC AITM Clinical Intelligence tools to work to improve your HCC coding.

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