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Getting Full Recognition for the Hard Work of LTC: The New CMS Payment Models

Ann Longterm Care. 2019;27(8):6-9. doi:10.25270/altc.2019.08.00080

Richard G Stefanacci, DO, MGH, MBA, AGSF, CMD—Column Editor


Dr Stefanacci is the chief medical director for the managed markets agency of EVERSANA™. 

EVERSANA™, Berkeley Heights, NJ

Historically, all that long-term care (LTC) providers needed to know about coding was the current procedural terminology (CPT®) code that covered the intensiveness of the service they provided their patients. CPT, developed by the American Medical Association (AMA), is the primary way that provision of medical services is reported.1

As the US health system evolves away from fee-for-service (FFS) reimbursement and toward value-based care and reimbursement models, LTC providers will need to educate themselves on what new options are available and determine how their organization should evolve in response. Specifically, the Centers for Medicare & Medicaid Services (CMS) Hierarchical Condition Category (HCC) coding is becoming increasingly prevalent in the changing health care environment as CMS is creating new payment models. The below discussion examines these tools and programs from the angle of what is most significant for LTC providers. 

Basics of CPT Codes

CPT codes, updated annually, are copyrighted by the AMA, and practices purchase software that incorporates the ongoing changes to ensure correct coding.1 CPT codes consist of three types of five-character codes: Category 1 describes services and procedures performed by providers; Category 2 codes track follow up and outcomes; and Category 3 indicates the use of emerging technologies. Supporting these codes are rules and guidelines. Below are several of the most commonly used medical procedure codes:

New Patient Visit (99201-05): These medical codes are used to bill for patients never seen by any physician in the same specialty within the same group within the last 3 years. 99201: Problem-focused. 99202: Expanded problem focused. 99203: Detailed. 99204: Comprehensive, moderate. 99205: Comprehensive, high.

Established Office Visit (99211-15): These medical codes are used to bill for patients who have been seen by any physician in the same specialty within the same group within the last 3 years. 99212: Problem-focused. 99213: Expanded problem focused. 99214: Detailed. 99215: Comprehensive.1

The level of service depends on the amount of documentation of patient history, physical examination, and medical decision-making. The physician must provide enough detail to support the level of service. A problem-focused visit evaluates one to five elements within a system. An expanded problem-focused visit evaluates at least six elements. A detailed visit evaluates at least two elements in six systems or 12 elements in two or more systems. A comprehensive exam evaluates the entire review of systems, identifying one or two elements per system.1

In addition to the basic codes, there are also CPT codes for the annual routine physical exam for Medicare, which is 99387 (preventative medicine E/M new patient aged 65 and older) or 99397 (preventative medicine E/M established patient aged 65 or older). Also there are codes now available for work done involving advanced care planning; these two new CPT advanced care planning codes (99497 and 99498) are used to report the face-to-face service between a physician or other qualified health care professional (QHP) and a patient, family member, or surrogate in counseling and discussing advance directives, with or without completing relevant legal forms.1

Beyond CPT Codes

While providers in FFS payment models are paid based on the service provided, this is not the case for managed care plans, as they are paid based on the anticipated cost of care for each individual patient. Importantly, as providers increasingly take on risk through accountable care organizations (ACOs) and via other emerging payment models, their payment and bonuses or penalties will be based on how they perform on saving medical resources from being used. This is based on the anticipated use of resources by each patient calculated on the basis of their diagnoses. This system is referred to as the HCC risk adjustment model to calculate risk scores. CMS uses the HCC model to rank diagnoses into categories that represent conditions with similar cost patterns. Higher categories represent higher predicted health care costs, resulting in higher risk scores.2

Long-term conditions such as diabetes, chronic obstructive pulmonary disease, chronic heart failure, and diabetes will “risk adjust,” or fall within an HCC; whereas, acute illnesses and injuries will not because acute conditions are not reliably predictive of ongoing health care costs. To factor into risk adjustment, a diagnosis must be based on clinical medical record documentation from a face-to-face encounter, documented at least once per year, and coded according to the ICD-10-CM guidelines. 

The CMS-HCC risk adjustment model is prospective: it uses health status in a “base year” to predict costs in the following year. In addition to diagnoses, base year factors include Medicaid status (defined as having at least one month of Medicaid eligibility during the base year), as well as gender, aged/disabled status, and whether a beneficiary lives in the community or in an institution. The community segment of the model predicts costs for beneficiaries who reside in the community or have been in an institution for fewer than 90 days. The institutional segment of the model predicts costs for beneficiaries who have been in an institution for 90 days or longer.2 

Risk scores are applied to adjust capitated payments made for beneficiaries enrolled in Medicare Advantage (MA) plans and certain demonstration projects. Different patients have different payment rates based on each patient’s predicted level of risk (eg, the expected cost to maintain the patient’s health). Ideally, this allows CMS to reimburse plans based on the actual costs of care for each individual beneficiary, rather than to apply an “average” per-capita payment for all beneficiaries.2

The Balanced Budget Act (BBA) shifted plan reimbursement from an unadjusted per member payment to payments being risk adjusted for variations in per capita cost based on enrollee health status and demographic factors.3 Plans that disproportionately enrolled healthy beneficiaries would be paid less than they would have been if they had enrolled beneficiaries with the average risk profile, while plans that disproportionately enrolled the sickest patients would be paid more than if they had enrolled beneficiaries with the average risk profile. The specific method of risk adjustment was detailed in a 1999 Report to Congress, “Proposed Method of Incorporating Health Status Risk Adjusters into Medicare+Choice Payments” that was also required by the BBA.4 Risk adjustment that included an adjustment for health status (the same method that is employed in MA today) was first authorized by the BBA in response to how individual enrollee’s risk was taken into account in Medicare private health plans, ie, risk contract health maintenance organizations (HMOs) or so-called “risk HMOs.” Prior to the establishment of the M+C program by the BBA, Medicare beneficiaries could choose private health maintenance organizations or prepaid health plans under contract with Medicare for Medicare benefits. These Risk HMOs were paid a capitated (per person) rate for each beneficiary set at 95% of the “average area per capita cost” (AAPCC) for a given beneficiary’s county of residence. Payments were discounted 5% based on the assumption at the time that HMOs could operate more efficiently than FFS. Final payment amounts were adjusted for the relative risk associated with individual enrollee’s demographic characteristics: age, sex, institutional status, and eligibility for Medicaid (or welfare).5 

Enrollment in Medicare HMOs grew to around 6 million beneficiaries, approximately 15% of Medicare enrollment at the time, but the Government Accountability Office, among others, expressed concerns over studies that found excess payments to Medicare HMOs as a result of Medicare’s rate-setting method, which did not accurately reflect the healthier-than-average population that was enrolled in the Medicare HMOs.6 By broadening CMS authority to implement a risk adjustment methodology that took into account health status as part of payment in the M+C program, which was in many ways similar to the HMO risk program, the intention was to reduce the incentive for plans to prefer enrolling healthier-than-average beneficiaries and the disincentives for caring frail individuals such as those common for LTC providers.

The current HCC system more accurately captures the risk of enrolling beneficiaries with varying health status, thus addressing the BBA mandate that MA organizations (MAOs) be paid based on the variation in expected health care costs of the population they enroll, and reducing the incentive for biased selection in Medicare’s risk-based payment program. Risk-adjustment provisions in the 21st Century Cures Act7 (since the Medicare Modernization Act was enacted in 2003),8 the methodology for determining the fixed monthly rate per MA enrollee, and calculating the risk score has changed as Congress and other policymakers have made changes to pay more accurately, improve the quality of care provided to MA beneficiaries, and promote competition among MAOs. While the statute governing the structure of the risk adjustment model has not changed, adjustments are coming soon.  

Getting HCC Coding Right

Capturing HCC coding is more complex than simply submitting a Medicare claim with the correct diagnosis. Rather, this requires providers to include in their documentation of each diagnosis a reference that they either provided monitoring, evaluation, and assessment of treatment for that condition (Box 1).

box 1

While there are currently 83 condition categories used for HCC, the highest ranked conditions are those that result in the most expensive care. As such, there are just a few conditions to keep at top of mind with the knowledge that the higher the stage, the higher the HCC risk adjustment. (Box 2).

box 2

Of interest is the fact that “Pressure Ulcer of Skin with Necrosis” through to muscle, tendon, or bone is the highest of all HCC codes. While “Protein-calorie malnutrition” is not far beyond. These are two conditions commonly found among LTC patients, representing the high level of frailty that LTC providers manage.2

Changing Reimbursement Models

In an effort to reward providers for improved clinical and financial outcomes, CMS, in addition to their risk adjustment work, is innovating more payment models. The most recently proposed is Direct Contracting (DC), which is a set of three voluntary payment model options aimed at reducing expenditures and preserving or enhancing quality of care for beneficiaries in Medicare FFS.9 The payment model options available under DC create opportunities for a broad range of organizations to work with CMS in testing the next evolution of risk-sharing arrangements to produce value and high-quality health care. Building on lessons learned from initiatives involving Medicare ACOs, such as the Medicare Shared Savings Program and the Next Generation ACO Model, the payment model options available under DC also leverage innovative approaches from MA and private sector risk-sharing arrangements.9

The payment model options are anticipated to appeal to a broad range of physician practices and other organizations because they are expected to reduce burden, support a focus on beneficiaries with complex, chronic conditions, and encourage participation from organizations that have not typically participated in Medicare FFS or CMS Innovation Center models. 

Organizations have expressed interest in a model that draws upon private sector approaches to risk-sharing arrangements and payment and reduces administrative burden commensurate with the level of downside risk. The payment model options available under DC take significant steps toward providing a prospectively determined revenue stream for model participants. Relative to existing initiatives, the payment model options also include a reduced set of quality measures that focus more on outcomes and beneficiary experience than on process. By providing flexible payment model options with regard to, for example, risk-sharing arrangements, financial protections, and benefit enhancements, CMS expects that the payment model options under DC will be attractive to providers not currently engaged in risk models.

The population-based payment (PBP) model options available under DC seek to reduce program expenditures and improve quality of care and health outcomes for Medicare beneficiaries through alignment of financial incentives and an emphasis on beneficiary choice and care delivery while maintaining access to care for beneficiaries, including patients with complex, chronic conditions and seriously ill populations (Box 3). Specifically, to help ensure that care quality is improved and beneficiary choice and access are protected, CMS will tie a meaningful percentage of the benchmark to performance on quality of care while also monitoring to ensure that beneficiaries’ access to care is not adversely affected as a result of the model.9

box 3

These new payment model options also present an opportunity to test novel methods for organizations to manage Medicare FFS expenditures and better integrate care delivery for those dually eligible for Medicaid and Medicare, including through coordinated efforts with Medicaid managed care organizations. Further, through refinements in CMS benchmarking methodology and risk adjustment, CMS is aligning financial incentives to attract organizations that manage the complex, chronic, and seriously ill beneficiary populations that are typical in LTC.

Beyond the introduction of new reimbursement models like DC, HCC is also evolving to more accurately describe the resource need for each individual patient. This is resulting in the inclusion of additional factors beyond a patients’ diagnostic conditions. The recognition that factors, such as social determinants of health (SDoH), play in the use of resources by individuals is causing CMS to incorporate these factors into each patient’s risk score. The available code groups10 cover a wide range of common social, economic, environmental, and interpersonal issues, including the codes at Box 4.

box 4

To stay ahead of this inclusion, LTC providers will be well served to start including this information in their documentation and coding to ensure the most accurate capture of their patients’ risk factors. This is especially true for those providers in “poor” SDoH regions such as rural and inner-city practices.

Call to Act

So, what does all this mean for LTC providers? This means that in addition to getting the right CPT code, LTC providers will need to accurately capture the correct ICD-10 diagnostic codes for their patients, as this is the only method to demonstrate the severity of the patients they are caring for. Failure to capture all of this information will cause a practice to appear to be “healthier” than the reality. As a result, when it comes to payment for demonstrating clinical and financial outcomes, one will be vastly under-credited as their practice will look less frail than they actually are. For LTC providers that deal with the frailest population, this coding is essential to ensure appropriate assessment and, most critically, appropriate reimbursement for all efforts and services. Thus, HCC and the CMS DC models should now be considered a critical element of everyone’s job, so that LTC providers are recognized for their hard work in caring for the frailest patient population. 


1. Advancing the Business of Healthcare (AAPC). What is CPT? aapc website. Accessed August 1, 2019.

2. Centers for Medicare & Medicaid Services. Report to Congress: risk adjustment in Medicare
Advantage. ttps:// Published December 2018. Accessed August 1, 2019.

3. Balanced Budget Act of 1997, HR 2015, 105th Cong, 1997-1998.

4. Health Care Financing Administration, Office of Strategic Planning, Research and Evaluation Group, Division of Payment Research. Report to Congress: proposed method of incorporating health status risk adjusters into Medicare+choice payments. Published March 1, 1999. Accessed August 1, 2019.

5. Brown RS, Gurnick Clement D, Hill JW, Retchin SM, Bergeron JW. Do health maintenance organizations work for Medicare? Health Care Financ Rev. 1993;15(1):7-23.

6. Henry J. Kaiser Family Foundation (KFF). Medicare Advantage. website. Published June 6, 2019. Accessed August 1, 2019. 

7. US Food and Drug Administration. 21st century cures act. website. Updated March 29, 2018. Accessed August 1, 2019.

8. Medicare Prescription Drug, Improvement, and Modernization Act of 2003, HR 1, 108th Cong, 2003-2004.

9. Centers for Medicare & Medicaid Services. Direct contracting model options. website. Updated May 22, 2019. Accessed August 1, 2019.

10. Bresnick J. ICD-10 allows non-physician documentation of social determinants. Health IT Analytics. June 13, 2018. Accessed August 1, 2019. 

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