Otolaryngology Coding Alert

Risk adjustment — and the intricate nature of the processes involved — is often misunderstood. If you’re looking to gain a better understanding of how risk adjustment works and the rules to follow in your practice, look no further. These tips and insight from instructor Sheri Poe Bernard, CPC, COC, CRC, CDEO, CPC-I, CCS-P, will help you conquer any risk adjustment coding challenges you may encounter.

Define Risk Adjustment

If you ask around, you’ll learn that the term “risk adjustment” means different things to different people, depending on their roles. The Centers for Medicare & Medicaid Services (CMS) textbook definition is that risk adjustment is “a statistical process that takes into account the underlying health status and health spending of the enrollees in an insurance plan when looking at their health care outcomes or health care costs.” (www.healthcare.gov/glossary/risk-adjustment/)

Conversely, a coder would tell you that risk adjustment is about making sure the medical record accurately reflects the diagnoses and procedures captured on a claim, whereas administrators at a health plan would say that risk adjustment ensures that the insurer is properly compensated for its clinical burden.

Brush Up on Risk Adjustment Basics, Lingo

Simply put, “risk adjustment is a process by which health insurance plans are compensated based on the health status of the people they enroll, thereby protecting the insurer against losses due to high-risk, high-cost patients,” Bernard says. The payment is adjusted based on patient demographics such as age, disability, financial status, and institutional status. You report the diagnoses with ICD-10 codes.

“Under the Medicare Access and CHIP Reauthorization Act [MACRA], the merit-based incentive payment system [MIPS] looks at risk to determine severity of illness of patients,” Bernard adds. “Efficiency is measured based on severity of illness versus resources extended across all sites.” Here’s an overview of some key terms and concepts.

Hierarchical condition categories (HCCs): Insurance companies determine the risk scores for their members using a HCCs list, which is a list of diagnoses that have values assigned to them to calculate the risk adjustment. The severity of illness is HCC-based, Bernard says. HCCs are also ICD-10-based, so ICD-10 coding compliance is paramount.

You have to be sure that you’re doing your ICD-10 coding correctly “because if not, you could be overcoding [upcoding], which leads to many problems,” Bernard notes. Or you could be downcoding, which will hurt your practice because you may not receive deserved MIPS bonuses.

Accountable care organizations (ACOs): With ACOs, the shared savings are based on severity of illness and expenditures, according to Bernard. If a patient’s comorbidities do not result in increased utilization because they are being well-managed, for example, then the ACO providers share in the cost savings.

“Many Medicaid plans use risk adjustment to reimburse payers and federal disability. The chronic illness and disability payment system [CDPS] also employs risk adjustment for payers,” Bernard adds.

Affordable Care Act: Risk pools established under the Affordable Care Act provide risk-adjusted coverage to members, Bernard says. The members pay premiums that go into a risk pool involving multiple layers.

“The HCCs associated with each plan’s members are calculated to determine how the monies are subdivided between plans: the sicker a plan’s patients and the more members insured, the bigger that plan’s piece of the pie,” according to Bernard. “More than 12 million Americans are enrolled in these plans. These are paid using Health and Human Services [HHS]-HCCs and include pediatric and obstetrical diagnoses.”

Discern Which Diagnoses Risk-Adjust

It’s easiest to consider what is chronic (such as chronic obstructive pulmonary disease — COPD) and what is acute, severe, and resource-intensive, such as hip fracture, pneumonia, and acute myocardial infarction (AMI), when talking about risk adjustment, according to Bernard.

Remember that diagnoses are additive, Bernard notes. The more risk-adjusting diagnoses, the more cumulative risk the patient carries, and the higher the payment made to the Medicare Advantage organization (MAO) insuring the patient (or credit given to providers paid through risk adjustment).

Diagnoses are grouped into less than 90 HCCs. Not all diagnoses risk-adjust, but thousands do. Some common risk-adjustable diagnoses include the following, according to Bernard:

• Ear, nose, and throat disorders
• Hearing loss
• Heart disease
• Vascular disease
• Hypertension
• Diabetes
• Most cancers
• COPD
• Shock
• Septicemia
• Morbid obesity
• Hypothyroidism

Abide by These 4 Risk Adjustment Rules

Follow these risk adjustment rules in your practice to stay compliant.

Rule 1: Make sure you meet CMS’ documentation requirements such as the following:

• Signature: Records must contain a valid provider signature and credentials.
• Date: Each face-to-face date of service (DOS) should stand alone for outpatient reporting.
• Patient name: Record must be for the correct member/ patient.
• Acceptable encounter: Acceptable services should be billed and processed.

Rule 2: Be sure to code all active medical conditions for each patient encounter and DOS from acceptable document sources by acceptable provider types such as medical doctor (MD) or nurse practitioner (NP). You should use documentation only from providers who are treating the patient.

Unacceptable provider types include independent diagnostic testing facilities, licensed practical nurses (LPNs), licensed vocational nurses (LVNs), medical assistants (MAs/CMAs), ambulatory surgery centers, medical supply companies, nursing assistants (NAs/CANs), ambulance service providers, and anesthesiology assistants.

Rule 3: Avoid unacceptable document sources. These include the following:

• Diagnosis-related group (DRG) coding summaries
• Nursing notes
• All documents with DOS outside the data collection period
• Any document that was clearly not a face-to-face visit (except for compliant telehealth encounters during the public health emergency and extended telehealth period, ending Dec. 31, 2024)
• A diagnostic report that has not been interpreted, such as a lab report, radiology report, electrocardiogram (EKG), or Holter monitor report, as stand-alone documents

Rule 4: Always be up to date on ICD-10 codes and guidelines.