Hierarchical Condition Categories for Pulmonary Diseases: Population Health Management and Policy Opportunities

Hierarchical condition categories (HCCs) are groups of diagnostic codes that are used to adjust federal payments to insurers and health systems based on differences in expected spending. Risk models built on HCCs improve on previous adjustment strategies that used demographic characteristics but did not include clinical diagnoses. Thus, accurate coding by clinicians of inpatient and outpatient encounters ensures capitated payments and reimbursements that are commensurate with predicted expenditures. Pulmonary diseases and various forms of critical illness play a significant role in this risk adjustment process both through their associated HCC codes and through interactions with other risk categories representing cardiac and psychiatric diseases. Ongoing uncertainty in federal health policy ensures a changing role for HCCs and risk-adjusted reimbursements across a variety of payment models and federal programs.