No one’s using Z codes, but Medicaid cuts should change that

Remember the fuss and furor over the ICD-10 transition, way back in pre-pandemic times? The extensive wrestling over deadlines and delays. The memes mocking new codes to document rare events. The panic and frustration over requiring providers to learn a different way of documenting.  

Coming in 2015, amidst the peak frustration of the industry-wide adoption of EHRs, it felt like insult added to injury for overwhelmed organizations trying to implement a sweeping series of transformative changes all at once. 

Well, the healthcare community has certainly seen some things since then, some of which make the code switch seem like a breezy walk in the park. From COVID to the AI revolution to the potentially catastrophic loss of around $1 trillion in federal Medicaid funding over the next decade, industry veterans might actually be looking back fondly on the ICD-10 kerfuffle as a relatively manageable challenge that ended up not being as big of a deal as anticipated.  

The switch even came with some significant benefits, including the introduction of the Z codes: a set of standardized identifiers for common non-clinical social determinants of health (SDOHs), such as homelessness, food insecurity, and history of unstable social relationships. The code set was designed to help document these factors in support of value-based care models, in which providers often receive enhanced incentives for caring for higher-needs populations.  

With the fate of Medicaid funding now sealed by Congress, providers should start thanking their lucky stars that they have access to these Z codes that can help them be clear and precise about just how much reimbursement they need to cover the care of socioeconomically challenged patients.   

That’s because appropriate risk adjustment and risk stratification are going to become more crucial than ever in this fight-for-every-dollar environment, especially as cash-strapped states are likely to double down on ambitious value-based care models to make sure they’re maximizing the bang for their buck. 

Unfortunately, many providers are going to be playing catch-up in the coding arena, which could make them even more vulnerable to losing out on incentives they can’t afford to miss. 

That’s because in the past ten years they’ve been available, almost no one’s actually been using Z codes for their intended purpose, according to new research published in Health Affairs this spring.  For many provider types to survive, that’s got to change. 

Scarce adoption rates persist over a decade

In 2022, just 0.8% of person-years had a documented Z code among commercially insured Americans, the Health Affairs study found. Children were somewhat more likely to have Z-codes in their documentation than adults, and people of all ages with higher spending totals (i.e. more complex people who likely experience one or more chronic condition and at least one SDOH) were among the most likely to have Z-codes associated with their health records. 

For children, the most common codes included those related to education and literacy, social environment, and upbringing. Adults were more likely to have documentation around the social environment, employment/unemployment, and psychosocial circumstances. 

The use of Z codes also varied significantly by region, with the Deep South states among the least likely to include the structured SDOH information. California, Massachusetts, Oregon, Arizona, New Mexico, and North Dakota were at the other end of the spectrum with the highest utilization rates. 

This latest data adds to the almost-non-existent body of evidence about Z code adoption. In 2021, CMS published a brief report on Z code utilization rates in fee-for-service Medicare, which found that only 1.59% of beneficiaries had Z codes in their records during 2019. At the time, the most-used codes were related to homelessness, death/disappearance of family members, problems with living alone, problems with living in a residential institution, and problems with spousal/partner relationships. 

Around the same time, NORC at the University of Chicago shared data on Z code use in Medicaid, which revealed similarly low adoption rates. In 2018, just 1.42% of Medicaid beneficiaries had at least one Z code in their documentation, with similar geographic patterns and age patterns as those identified by the new Health Affairs commercial insurance data. 

The good news is that there has been some improvement over time. The Health Affairs study on commercial populations noted that the miniscule adoption rate of 0.8 percent in 2022 is actually double that of 2016, while the CMS similarly highlighted that the 1.59% in 2019 was an improvement over the 1.31% noted the year after the introduction of ICD-10 in 2015. 

Why Medicaid cuts might spur increased adoption

So what will spur providers to raise the utilization rate more than another fraction of a percent over the next five to ten years?  

Maybe the fact that healthcare organizations will now be competing for a much, much smaller pool dollars to care for populations struggling with even more restricted access to care.  

It will be absolutely essential for healthcare providers to develop a deep, accurate, and up-to-date understanding of exactly what factors might contribute to a less-than-optimal outcome in specific patients, especially under value-based care models that tie incentives to outcomes. Good data supports nimble action, so providers can adjust their care processes according to the identified needs of their panels and outperform the competition to earn a greater share of limited incentive payments. 

This won’t just be important for participants in Medicaid VBC models, but also for organizations like Federally Qualified Health Centers (FQHCs) who will be seeing a dramatic increase in uncompensated care.  Developing and maintaining a clear understanding of where their resources are going for the uninsured and underinsured will be crucial for adding revenue sources through other government programs and competing for grant funding targeted to specific needs – something that is going to become even more important, if possible, to keep community health centers open. 

A valuable tool for a new era of belt-tightening

Whether primarily serving commercial, Medicare, or Medicaid beneficiaries, providers are in for a wild ride over the next few years as the market attempts to adjust to a very different financial and regulatory paradigm. Value-based care seems to still be important to the CMS agenda, which bodes well for providers who can learn to wield Z codes and other risk adjustment and risk stratification methodologies wisely. 

Getting familiar with how to appropriately document social determinants of health using Z codes, and integrating these codes into the workflow via clinician training or automated coding technologies, may end up being a key factor in the ongoing survival of certain provider types. 

The option to improve the documentation of non-clinical factors is there – it has been for ten years. It’s time to take advantage of it in a manner that will support more personalized care for patients and enhanced financial sustainability of providers who serve high-needs populations. 

Jennifer Bresnick is a journalist and freelance content creator with a decade of experience in the health IT industry.  Her work has focused on leveraging innovative technology tools to create value, improve health equity, and achieve the promises of the learning health system.  She can be reached at [email protected].