The Medicare Advantage (MA) reimbursement model is based upon a shared risk between providers and payers. The associated risk adjustment model uses past claims data to predict future expenditures which ultimately lead to provider payments. The model, which was established using ICD-9-CM claims coded data, follows guiding principles to determine which diagnostic conditions are appropriate expense predictors. But when the industry transitioned to capturing and reporting ICD-10-CM codes in 2015, the model used ICD-10-CM codes in providing payments, even though the underlying foundation was still built upon ICD-9-CM codes.
Every year the Centers for Medicare & Medicaid Services (CMS) perform a model calibration based upon updated diagnostic and expenditure data. This allows for changes to the model to ensure reimbursement keeps pace with the industry. (Those changes are published on the CMS website).
As CMS was preparing for this year’s updates based upon model calibration, it was decided that the ICD-10-CM coded claims data was sufficiently stable to predict future case expenditures. This led CMS to clinically reclassify the model from the ICD-9-CM based foundation to an ICD-10-CM based foundation for calendar year 2024.
The clinical reclassification methodology
Following the risk adjustment guiding principles – which ensure that classification is clinically meaningful, can accurately predict expenditures, and encourage accurate coding – CMS classified over 72,000 ICD-10-CM diagnostic codes into approximately 1,500 diagnostic groups known as DXGs. Codes were placed in DXGs if they were related in clinical and cost characteristics. Hierarchical condition codes (HCC) were then established from the DXGs creating what CMS has identified as Version 28 of the CMS-HCC risk adjustment model.
Highlights from Version 28
The renaming and renumbering of HCCs is common throughout version 28 for three primary reasons.
- New HCCs were established increasing the total number of HCCs to 115 from 86. For example, HCC 35 Pancreas Transplant Status is a new HCC even though the ICD-10-CM code Z94.83 has been designated as an HCC in the current model, version 24.
- Even though the number of HCCs increased, the total number of ICD-10-CM codes designated as HCCs decreased by approximately 2,000 codes.
- Finally, the coefficient risk adjustment factors (RAF) also changed. For example, the chronic hepatitis RAF differs by .038 between the versions – .147 (V24) and .185 (V28) respectively.
Specificity will be key for two model versions
CMS finalized a phased transition from CMS-HHC version 24 to version 28 which will be employed until 100% of payments are determined using version 28 in 2026. Managing two versions will create challenges for providers due to the changes between systems. Conditions that are considered an HCC in one version may not be in the other. And even if a diagnosis is an HCC in both versions, the actual HCC and RAF may be different. For example, diabetes with and without complications have the same RAF in version 28 while a diabetic complication in version 24 carries a higher RAF than diabetes without complication. Organizations will want to identify the top HCCs amongst their patient population to examine and understand the potential impact of the two model versions.
While HCC models evolve, one thing that remains constant is the importance of documenting conditions to the fullest clinical specificity. The specificity captures the complexity of a patient population and provides CMS with coded data for future analysis in model recommendations.
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