In the early days of Capitated Payment by insurers to physicians as well as by CMS to Medicare HMO the payments were based mainly on market averages of expenditures on the Medicare population with some adjustment for age and gender. In that methodology the medical group or health plan that attracted the members with a greater number of more serious, hence costly, medical problems than average while receiving average payment were at serious economic disadvantage. In that methodology the potential for adverse incentive is avoid the sicker patients and recruit healthier patients.
In the HCC system where the patients number and severity of medical problems is factored into the Capitated Payment using an actuarial prediction of costs there is actually incentive to recruit the sicker patients and help them achieve health. This is especially true in the context of long term contracts among the payer and provider and long term relationship between the provider and the patient.
HCC is an organization of approximately 3,300 of the approximately 16,000 ICD-9 codes into 70 plus disease categories. Each category is weighted as it bears on the prediction of health costs next year.
In Medicare Advantage the risk bearing entity has great incentive to code appropriately by identifying the medical problem, documenting its status and treatment and using the appropriate ICD-9 code especially if it happens to be a code among the HCC subset. Proper coding draws the appropriate revenue to be used to pay the medical bills of the membership and be prepared for those who have unpredictable medical problems.
Physicians must then focus attention to accurate and complete diagnosis reporting according to the official International Classification of Diseases, 9th Edition, Clinical Modification (ICD-9-CM) coding guidelines (i.e., coding diagnoses accurately and to the highest level of specificity). The codes submitted are derived from physician documentation of face to face encounters during that period.