'Risk adjustment', 'HCC coding' and 'Value-based payment' in US healthcare

A.

 Risk adjustment in the U.S. healthcare system is a method used to account for the differences in the health status of individuals when making payments to healthcare providers or health insurance plans. It is a crucial tool for ensuring that the payment systems are fair and that resources are allocated appropriately, particularly in government programs like Medicare and Medicaid and within the health insurance marketplaces established by the Affordable Care Act (ACA).

Here are some key points to understand about risk adjustment in the U.S. healthcare system:

1. Purpose: Risk adjustment is designed to prevent healthcare payers, such as insurance companies or government programs, from avoiding sicker or higher-risk individuals. Without risk adjustment, payers might be incentivized to select healthier patients, leaving others with higher healthcare needs in a financially precarious situation.

2. Data Collection: Risk adjustment relies on data to measure the health status and expected healthcare costs of individuals. This data typically includes factors such as age, gender, chronic conditions, and other health-related variables. It is collected through electronic health records, claims data, and other sources.

3. Risk Score Calculation: Risk adjustment models calculate a risk score for each individual based on their health status and expected healthcare needs. These scores are used to adjust payment rates for health insurance plans or providers. Individuals with higher predicted healthcare costs will have higher risk scores.

4. Payment Adjustment: In the context of government programs like Medicare, risk adjustment can result in higher payments to health insurance plans or providers that cover individuals with more complex and costly healthcare needs. Conversely, lower-risk individuals will result in lower payments.

5. Risk Adjustment Models: There are different risk adjustment models in use, such as the Hierarchical Condition Categories (HCC) model in Medicare Advantage and the risk adjustment model for the ACA's health insurance marketplaces. These models are periodically updated to reflect changes in healthcare trends and demographics.

6. Fairness and Equity: Risk adjustment aims to create a level playing field for healthcare payers, ensuring that they do not have incentives to cherry-pick healthier individuals or avoid those with complex healthcare needs. This promotes fairness and equity in healthcare financing.

7. Challenges: Risk adjustment is not without its challenges. It relies on accurate and complete data, which may not always be available. There can also be concerns about the accuracy of risk adjustment models and potential gaming of the system. Adjusting for social determinants of health, like income and education, is an ongoing challenge.

In summary, risk adjustment is a critical component of the U.S. healthcare system, used to ensure that healthcare payers are fairly compensated based on the health status of the individuals they cover. It promotes fairness and equity in healthcare financing and helps prevent discrimination against sicker or higher-risk individuals.

B.

HCC coding:

Hierarchical condition category (HCC) coding is a risk-adjustment model originally designed to estimate future health care costs for patients. The Centers for Medicare & Medicaid Services (CMS) HCC model was initiated in 2004 and is becoming increasingly prevalent as the environment shifts to value-based payment models.

HCC coding relies on ICD-10-CM coding to assign risk scores to patients. Each HCC is mapped to an ICD-10-CM code. Along with demographic factors such as age and gender, insurance companies use HCC coding to assign patients a risk adjustment factor (RAF) score. Using algorithms, insurance companies can use a patient’s RAF score to predict costs. For example, a patient with few serious health conditions could be expected to have average medical costs for a given time. However, a patient with multiple chronic conditions would be expected to have higher health care utilization and costs.

Ref https://www.aafp.org/family-physician/practice-and-career/getting-paid/coding/hierarchical-condition-category.html

C.

Value-based payment (VBP)

Risk adjustment can play an important role in payment, and this is particularly true in value-based payment (VBP). VBP arrangements use a practice’s performance on cost and quality metrics to determine revenue, which means risk adjustment can have a direct impact on a practice’s revenue. When risk scores do not accurately reflect patient complexity, it may appear patients had higher costs and/or lower quality outcomes than would be expected. In certain payment models, this may cause a practice to fall below quality and cost performance targets and potentially miss out on the opportunity for shared savings.

Examples:

(a) A 68-year-old female patient with type 2 diabetes with no complications, hypertension, and a body mass index (BMI) of 38.2 

(b) A 68-year old female patient with type 2 diabetes with diabetic polyneuropathy, hypertension, morbid obesity with a BMI of 38.2, and congestive heart failure

Above are given on this page: https://www.aafp.org/family-physician/practice-and-career/getting-paid/coding/hierarchical-condition-category.html