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Medicare HCC coding is mission critical for HMOs

Publish date: SEP 01, 2007


Al Lewis
Probably never before in the history of managed care have health plans tolerated a bigger gap between actual and potential reimbursement than in Hierarchical Condition Coding (HCC) for Medicare Advantage (MA).









Many plans currently receive radically lower premiums than those to which they are entitled. The reason, simply stated is because:

  • Medicare managed care reimbursement from CMS depends on accurate and complete diagnostic (ICD-9) physician coding, but physician-practice economics penalize those who take the extra time to code completely; and
  • The physician coding that health plans rely on to set their premium reimbursement levels is incomplete and extremely inaccurate.

Potentially, the average plan can increase its Medicare reimbursement by 20% by coding MA members more completely and accurately. The reality is a much more pedestrian 4%. Since that's the average, getting that increase will simply keep you even, since CMS is reducing the base reimbursement by that amount to stay budget-neutral. Closing this 16-point percentage gap is important.

Why is this so important? Contrast it to disease management. Best practice in DM saves maybe $200 per Medicare life. Best practice in coding achieves a $2,000 increase in reimbursement through identifying correct codes. So coding is 10 times as important as DM—yet you are likely spending 10 times as much on DM than coding.

How do we know whether we are close to best practice? Look at your Risk Adjustment Factor (RAF). If it's not 15% higher than it was last year or it's less than 1.15, you aren't.

You are probably licensing a data scoring tool. And you are probably sending your HEDIS coders into the physician practices to find codes in the charts and transcribe them to the scoring tool. But HEDIS coders aren't clinical. Often, the charts support diagnoses which aren't listed as such and, hence, get missed. Alternatively, there are sometimes diagnoses listed which are not supported by the progress notes. A HEDIS coder won't recognize either, and you, in turn, now face both inadequate code capture and a significant compliance risk when you get audited.

Counterintuitively, the plans which have the highest RAFs often do best on the CMS audits, too, since their documentation trail is comprehensive. Using your coders is the low-cost solution but the idea is to maximize total net revenue, not to reduce administrative cost.

In presentations you have been disproportionately focused on the homebound and nursing home residents. Why are these members only about 6% of our total?

The 6% or so of MA members who are homebound or institutionalized tend to be sicker than average. At the same time, clinical coding for these members tends to be poorer than average. This combination means that a comprehensive history and physical exam along with good chart documentation for this 6% of members represents up to 40% of the coding opportunity, in addition to being the most likely segment in which potential hospitalizations can be averted with a physician visit. The difference between a 15% bump and a 20% bump is in these members. The likelihood of cost savings through hospitalization avoidance adds the equivalent of another 2% to 3%.

What next?

There are a few best-of-breed HCC consulting firms in both the broad-brush 94% category and the 6% nursing-home category, but many others who won't approach that 15% to 20% best practice. Ask colleagues or DM consultants to recommend them.

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Medicare Advantage (MA) plans are increasingly under financial scrutiny. Some fear they might suffer the same fate as Medicare + Choice in the late 1990s when MCOs pulled the plug on plans because of low payments.

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IN THE WORLD OF professional sports, the competition isn't only on the gridiron, the court or the diamond. Just ask an MCO.


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