The Role of HCC Coding in Dermatology

Hierarchical Condition Category (HCC) coding has become a cornerstone for risk adjustment in modern healthcare systems, serving to ensure appropriate reimbursement for providers managing patients with complex medical needs. Originating as part of the Centers for Medicare & Medicaid Services (CMS) risk adjustment model, HCC coding enables payers to predict healthcare costs by categorizing patients based on the severity and chronicity of their medical conditions. Each serious or chronic condition is given a code and a score. More serious conditions have higher scores, and scores add up to create a risk score for each patient. This system is useful because it helps insurance companies budget for patient care, ensures doctors and hospitals are paid fairly for treating complex patients, and enables Medicare to ensure that patients with serious illnesses get the care they need.¹ In bundled payment or shared savings contracts, hospitals are rewarded for positive patient outcomes. When patients who appear healthy on paper receive high-cost care and have poor outcomes, it reflects poorly on the hospital’s ability to deliver high-quality care in a value-based system.²

While HCC coding was originally developed for Medicare Advantage plans, it is used by other payers as well. Medicaid-managed care plans use similar risk adjustment models to manage costs. Commercial insurance plans can use HCC or similar models to predict costs and adjust provider payments. Accountable Care Organizations (ACOs) can use HCC scores to help estimate the resources needed for their patient population.³ While HCC coding and similar models are more frequently utilized by payers, the implementation of HCC coding within specialty fields like dermatology has revealed significant challenges and gaps that limit its efficacy. 

HCCs in Dermatology

Dermatology encompasses a diverse array of conditions, ranging from benign, self-limited disorders to chronic, systemic diseases with substantial morbidity. Despite the high prevalence of conditions such as psoriasis, ulcers, and nonmelanoma skin cancer, as well as the fact that dermatologists care for patients with other significant medical problems—all of which may contribute to a patient’s overall health risk—dermatology remains underrepresented in risk adjustment models.⁴ This underrepresentation stems largely from inconsistent documentation, inadequate coding practices, and a lack of awareness regarding the implications of HCC codes within the field. As a result, dermatological practices may fail to capture the full complexity of their patient population, potentially leading to reduced reimbursement and misaligned resource allocation within larger health care systems.⁵

Improving the utilization of HCC codes presents an opportunity to bridge these gaps. By enhancing documentation practices, increasing provider education, and leveraging technology to support accurate coding, dermatologists can better reflect the risk profiles of their patients.⁶ Moreover, optimized HCC coding has the potential to improve care coordination, facilitate value-based care initiatives, and drive equitable resource distribution across the healthcare system.⁷

This paper examines strategies for integrating HCC coding within dermatology, emphasizing the broader impact on the healthcare systems. While dermatologists may see little immediate advantage, improved coding practices can contribute to more accurate risk adjustment, leading to appropriate reimbursement at the system level and better recognition of the complex care that dermatologists sometimes provide. Addressing these challenges can highlight dermatology’s role in supporting a more sustainable and equitable healthcare funding model.

The M.E.A.T Framework

The foundation of accurate and effective risk adjustment in healthcare relies on proper HCC coding, which ensures that patient complexity is appropriately reflected in reimbursement models. Risk adjustment is a process used by CMS to estimate future healthcare costs and allocate adequate funding, while HCC coding categorizes diagnoses into weighted risk scores that influence these adjustments. Understanding the annual reporting cycle is crucial, as CMS resets its database each year, requiring conditions to be documented annually to maintain continuity in risk assessment. 

To support accurate coding and documentation, universal best practices emphasize the use of the M.E.A.T. framework: Monitoring, Evaluating, Assessing, and Treating to ensure that each diagnosis is well-supported. With monitoring, the status of the patient is assessed as stable, worsening, or improving. Evaluating requires documentation of exam findings, test results, and response to treatment. Assessment includes the review of previous records, ordering tests, patient education, and referral for treatment. Treating requires documentation of the modalities, medications, procedures, and other care offered to the patient. Each diagnosis must be supported by at least one element of M.E.A.T., but the use of more elements is encouraged.  

Proper documentation requires specificity; vague or unspecified codes should be avoided, and commonly underreported conditions such as transplants, ostomies, amputations, and dialysis (T.O.A.D.) should be considered. The use of vague or ambiguous documentation can drastically change the HCC score for a patient and thus underestimate healthcare costs. Table 1 demonstrates how increasing the level of detail for a diagnosis increases the risk score value. 

The following dermatologic cases will demonstrate the difference in total HCC scores when ambiguous documentation is used or when documentation does not include patient comorbidities, as compared to when specific documentation and codes are used. 

Case 1

Patient Presentation: A 62-year-old male with poorly controlled type 2 diabetes (HbA1c = 9.2%) presents with a chronic venous stasis ulcer on his right lower leg, complicated by osteomyelitis (Table 2).

• Incomplete documentation would only document the leg ulcer. This has an HCC code of 0.646. 
• Ambiguous documentation with unspecified codes might document leg ulcer (HCC: 0.646) and type 2 diabetes mellitus (HCC: 0.166).  The total HCC would increase to 0.812. 
• Specific documentation would paint the clearest picture of patient health status, the complexity of care, and estimated health care costs. This documentation would include recurrent venous stasis ulcer of the lower leg (0.646), type 2 diabetes mellitus, and osteomyelitis (HCC: 0.479). 
• The total score would increase from 0.646 to 1.291, better demonstrating patient complexity.    

Case 2 

Patient Presentation: A 55-year-old female with severe plaque psoriasis (30% BSA involvement) presents for evaluation and management. She also has obesity (BMI = 40) and malignant hypertension with CHF class 1, and psoriatic arthritis, which is being managed by her primary care provider (Table 3).

• An example of incomplete documentation would only document plaque psoriasis, which has an HCC of 0. 
• Ambiguous documentation with unspecified codes might document plaque psoriasis (HCC: 0), obesity (HCC: 0), and hypertension (HCC: 0). 
• Complete documentation would include psoriasis with arthropathy (HCC: 0.617), morbid obesity with BMI 40.0 to 49.0 (HCC: 0.186), and malignant hypertension with congestive heart failure NYHA Class I CHF (HCC: 0.36). 
• Original documentation has a total HCC score of 0, but utilizing best practices for coding demonstrates that management of psoriasis in a patient with morbid obesity, hypertension, and heart failure is more challenging than the management of psoriasis in a healthy patient with no comorbidities. 

Case 3 

Patient Presentation: A 73-year-old female with a history of liver transplant and metastatic melanoma to the lymph nodes presents for a skin exam. She is on immunosuppressant medication (Table 4).

• An example of incomplete documentation may only include history of melanoma (HCC: 0). 
• Documentation without specified codes may only include history of melanoma (HCC: 0) and history of liver transplant (HCC: 0.376). 
• Complete documentation would include metastatic melanoma to the lymph nodes (HCC: 2.341) and history of liver transplant (HCC: 0.376). 
• With proper documentation the HCC score increases from 0 to 2.717. 
• Note that using the “history of melanoma” code indicates to the insurer that melanoma has been fully treated and is no longer a health concern. However, this case, the patient is continuing to get treatment for metastatic melanoma and documentation must specify this difference. CMS and other insurers consider metastatic cancer to be active disease.9 The risk of subsequent metastasis and other health issues in a patient with metastatic melanoma and immunosuppression due to liver transplant is higher than in a patient with a history of shallow melanoma that has been completely excised.

Case 4 

Patient Presentation: A 45-year-old male with morbid obesity presents with recurrent intertrigo in the skin folds of his abdomen and axillae, complicated by fungal superinfection (candida). See Table 5. 

• Incomplete documentation for this encounter may only include a diagnosis of intertrigo (HCC: 0). 
• Ambiguous documentation may include intertrigo (HCC: 0) and obesity (HCC: 0). 
• More complete documentation of this patient encounter would include intertrigo (HCC: 0 0, morbid obesity with BMI of 40.0 to 44.9 (HCC: 0.186).  
• With proper documentation the HCC score increases from 0 to 0.186. Note that patient complexity and risk score increase with a diagnosis of morbid obesity. 

The integration of HCC coding into dermatology practice is essential for improving the accuracy of risk adjustment models, ensuring fair reimbursement, and appropriately representing patient complexity. The case studies provided illustrate how the quality of documentation directly impacts HCC scores and healthcare cost estimations.

Interventions to improve HCC documentation have financial benefits for organizations. A study involving the use of an HCC physician champion to drive better HCC documentation provided one-on-one mentoring and education for physicians scoring below the 50th percentile for documentation.¹⁰ 

“This approach allowed the intervention group to increase its risk adjustment factor by 4.1% (score of 1.0 raised to 1.041), which generated an additional $2,519,544 per 1000 intervention group members.”¹⁰

The Challenges of HCC in Dermatology

Despite these potential benefits, challenges persist in HCC coding that require attention. Certain conditions, such as kidney transplants, lack specific HCC codes, making it difficult to accurately reflect patient complexity. Additionally, because the HCC classification system is updated annually, inconsistencies can arise, and outdated codes may negatively affect reimbursement. A robust and adaptable computer system capable of tracking and incorporating coding updates is essential for maintaining accuracy and efficiency. Without technological support, providers may struggle to keep pace with evolving HCC requirements, potentially leading to documentation gaps and financial discrepancies. Of note, HCCs must be documented and coded at least once per year by at least one provider in the healthcare organization. If patients do not have an appointment within a year, the diagnoses are not documented or coded.¹¹ Addressing these systemic issues is crucial to ensuring that dermatology and other specialty fields can fully leverage HCC coding to enhance patient care and optimize resource allocation.

It is also important to note that, under the current healthcare system, there is little immediate personal benefit for dermatologists. HCC-related payments typically go to institutions and are not usually distributed to individual providers who care for patients during a single encounter. This may discourage clinicians from investing the extra effort required to thoroughly document relevant diagnoses. However, even if a physician is paid at a contracted rate, the rate will likely decrease over time when CMS begins to assume that it costs less to deliver patient care for an individual with a more complex case. Nevertheless, by implementing best practices such as the M.E.A.T. framework, increasing specificity in documentation, and identifying commonly underreported conditions, dermatologists can better align with value-based care models. Ultimately, optimizing HCC coding in dermatology contributes to a more sustainable and equitable healthcare system. 

1. AAPC. HCC coding in specialty practices. AAPC. Published 2023. https://www.aapc.com

2. AHIMA. The role of accurate coding in risk adjustment models. AHIMA. Published 2021. https://www.ahima.org

3. American Academy of Dermatology. Dermatology coding and documentation guidelines. AAD. Published 2023. https://www.aad.org

4. Centers for Medicare & Medicaid Services. Medicare risk adjustment and HCC guide. CMS. Published 2023. https://www.cms.gov

5. Dera J. How to succeed in value-based care. Fam Pract Manag. 2021;28(6):25-30. https://www.aafp.org/pubs/fpm/issues/2021/1100/p25.html

6. Health Affairs. Risk adjustment and value-based care: the role of accurate coding. Health Affairs. Published 2023. https://www.healthaffairs.org

7. Lim HW, Collins SAB, Resneck JS, et al. A risk adjustment approach to estimating the burden of skin disease in the United States. J Am Acad Dermatol. 2018;78(1):129-140.

8. Kautter J, Pope GC, Ingber M, et al. The HHS-HCC risk adjustment model for individual and small group markets under the Affordable Care Act. Medicare Medicaid Res Rev. 2014;4(3):mmrr2014-004-03-a03.

9. Magoon V. How to correctly capture patient risk for value-based care programs. Fam Pract Manag. 2021;28(6):6-10. https://www.aafp.org/pubs/fpm/issues/2021/1100/p6.html

10. Prasad VL, McGuire B, Lynch L, Mainous T, Fay KM. What is your risk adjustment factor? Documenting disease burden, hierarchical condition categories to optimize revenue in value-based payment models. J Med Pract Manage. 2021;36(5):260-265.

11. Smith DM, Moore LG. What is your risk adjustment factor? Healthc Financ Manage. 2017;71(10):44-51.