Significant Changes Coming in Medicare Coding Methodology

March 1, 2013

Here are some steps medical practices should take to stay ahead of the curve financially when CMS moves to a new data source for calculation of HCC factors.

If it seems that medical billing and coding is becoming more complex than ever, you’re right. By now, medical practices should be well aware that the ICD-9 code sets used to report medical diagnoses and inpatient procedures will be replaced by ICD-10 code sets on October 1, 2014. And to accommodate the ICD-10 code structure, the transaction standards 4010/4010A should have already been upgraded to Version 5010. However, there are other changes that practices with Medicare patients need to be mindful of in order to protect their cash flow.

Since 2004, CMS has used the Hierarchical Condition Category (HCC) model to fix capitation payments to practices providing services to Medicare Advantage (MA) plan patients. This is in contrast to reimbursement for services provided to original Medicare patients, which are based on procedure coding that documents traditional fee-for-service interactions.

HCCs are complex formulas that take into account clinical, geographic, and historical data to calculate payments to providers. HCCs are cumulative descriptors that quantify the "disease burden" of each patient. They correlate diagnosis codes to 70 clinical categories such as chronic obstructive pulmonary disease, heart failure, or diabetes. To determine HCC payments, CMS then factors in the age and risk profiles of members to calculate the “medical spend” necessary for a given population. Currently, the calculations for setting capitation payments to Medicare Advantage plans is based on cost data collected from fee-for-service providers. That is about to change. CMS has begun basing payments on the fee-for-service equivalent pricing using “encounter data” submitted by Medicare Advantage Plans. What does that mean for physicians who see significant numbers of Medicare Advantage plan patients?

While practices treating original Medicare patients will continue business as usual, groups primarily treating MA patients will lose money if they do not adopt a more comprehensive approach to data capture and submission to the health plans, which forward this information to CMS. Specifically, it will be critical for clinicians to document and submit both procedure and diagnostic codes within the full encounter data format, including precise coding that correlates to each condition with which the patient has been diagnosed. Reimbursement to physicians - and to the Medicare Advantage plans that pay them - will be based on how accurately they enter the complete data into the correct payment format. In addition, both services provided (CPT codes) as well as diagnoses assigned will need to be correctly documented in the medical record, not only for clinical accuracy but in the event of an audit.

Full data capture and submission is important for the documentation and support of quality care. This translates to preserving cash flow for the immediate future. But there are longer-term concerns for improving coding accuracy now. CMS recalculates its HCC factors (coefficients) on a regular basis and while the 2013 payments to MA plans are based on 2008/2009 fee-for-service claims data, the next recalibration is slated to be based on encounter data received from Medicare Advantage Plans which began with a date of service in 2012.

Fortunately, physicians and their medical billers have all of 2013 to road test the new rules necessary for collecting and submitting data according to the more precise protocols. Here are some steps practices should take to ensure they stay ahead of the curve financially when CMS moves to the new data source for calculation of the HCC factors.

• Be sure your practice management software can accommodate the demands of larger code sets. Data management requirements will be much higher in order to accommodate the number of procedure and diagnosis codes your claims system must handle in the future.

• If you have not done so already, activate the software functionality that allows billers to generate reports on claims rejections on a timely and regular basis. Be sure to track any rejections by reason codes so ongoing problems can be corrected and re-submitted quickly, in order to recoup dollars that may otherwise be lost. This will be critical for preserving long-tem cash flow.

• Establish a protocol of checks and balances in documentation to ensure that all services are not only documented and coded appropriately, but diagnoses and linked conditions are fully noted and submitted in the patient encounter record.

• As a failsafe, audit a sampling of charts quarterly to determine if the documentation protocols for correct coding is being applied appropriately. Identifying and correcting problems now can save practices thousands of dollars in rejected claims once the HCC “weight setting” based on MA encounter data goes into effect.

• If practices have not yet made a selection on an EHR, now is the time to do so. There is still time to receive meaningful use dollars and having the electronic capabilities for claims and encounter data submission will quite simply become the standard in years to come.

Employing fee-for-service “rules” for collecting and submitting procedure codes as well as correct coding “rules” for diagnosis documentation will mean maximized revenue for physicians. Those that fail to do this correctly risk losing billions of dollars if they do not work with MA plans to arrive at accurate risk scores and pricing (calibration) data.

Pam Klugmanhas more than two decades of healthcare experience, specifically in the area of Medicare in both the health plan and provider arenas. She is currently vice president and chief operating officer of Clear Vision Information Systems.  E-mail her here.