Risk-Adjustment & Hierarchical Condition Category Coding: What Are They and Why Do They Matter?

By AGS Health

February 1, 2023

This article is the first of a series of articles by AGS regarding Risk-Adjusted and Hierarchical Condition Category (HCC) Coding. Follow along as we explore the requirements and nuances.

What is the significance of risk-adjustment coding?

Healthcare is transitioning from a fee-for-service model to a value-based care model. One significant piece of the value-based care model involves shifting the financial risk away from payers and to providers. Under this new model, providers will be paid a capitated payment for patient care, and provider organizations will need to manage patients’ costs. As such, providers must have clear, concise, and comprehensive pictures of their patients’ health and medical conditions.

The deployment and refinement of ICD-10 over the last decade have allowed for more detailed coding, providing a more comprehensive picture of patient health. The objective now is to code patient medical records using the ICD-10 code sets accurately.

Risk-adjustment coding is an end-to-end coding system that is used by payers to forecast medical costs by patient, specifically patients with complex medical conditions and multiple chronic conditions. Providers receive higher payer reimbursements for patients requiring more of the providers time due to the complexity of medical conditions under value-based care model.

What is value-based care’s role in risk-adjusted coding?

Value-based care models with capitated payments will continue to grow. Risk-adjustment coding and HCCs help payers forecast annual costs for individuals with complex medical conditions or multiple chronic conditions, creating a capitated annual reimbursement amount under the value-based care model. Again, the financial risk transitions to the providers for patient care. If the provider organizations properly document, align evidence, and code correctly, their reimbursements will be higher.

What is Hierarchical Condition Category (HCC) coding?

HCC coding is a risk-adjustment model, originally created by the Centers for Medicare and Medicaid Services (CMS), to help in forecasting medical costs for patients over 65 with more complex healthcare needs. This is known as the CMS HCC model. The Department of Health and Human Services (HHS) has expanded on this by creating a new model, based on a similar scoring mechanism and category structure but for the general population. This is known as the HHS HCC model. Both models identify patients with serious or chronic illnesses and assign risk factor scores based on health and demographic details.

The CMS model (v24) has 86 HCC group categories. Some of the most common HCCs include:

  • Major depressive and bipolar disorders
  • Asthma and pulmonary disease
  • Diabetes
  • Specified heart arrhythmias
  • Congestive heart failure
  • Breast and prostate cancer
  • Rheumatoid arthritis

Of the approximately 70,000 ICD-10-CM codes, about 9,500 of them map to 86 HCC categories.

Risk-Adjustment & Hierarchical Condition Category Coding

Challenges Providers Face with HCCs

The challenge with HCCs is the end-to-end capture of clinical documentation and data, with supporting clinical evidence, and the specific requirements as defined by CMS and HHS. Then coding that detail using appropriate ICD-10 HCC codes. The onus falls to providers to accurately demonstrate and provide detailed records of patient health. The various HCC ICD-10 codes are gathered and assessed using a RAF score. The more chronic conditions (with proper documentation and supporting evidence), the higher the RAF score. This deeper assessment of patient health provides all parties - payers, providers, and healthcare organizations – an accurate view of patient health and risk. HCC coding allows providers to forecast costs for high-risk patients appropriately.

The future of healthcare spending will rely significantly on risk adjustment models because it allows all parties to forecast patient care costs across the higher-risk population, aligning to population health efforts and helping provider organizations and payers predict costs.

How Do HCCs Impact Reimbursement?

HCCs directly impact healthcare providers’ reimbursements from payers. Primary care physicians, family medicine physicians, specialists, and internists overseeing comprehensive patient care all manage HCCs. Providers managing patients with HCC conditions require more time with the patients. Because of this, the RAF score provides additional time to support those patients’ needs. Providers managing patients with higher HCC scores are reimbursed at higher rates determined by these scores.

If providers and healthcare organizations don’t document and include evidence with properly coded HCC encounters, they will not receive the additional reimbursement amounts for their HCC patients. Coders must document with great precision and specificity. Doing so can dramatically impact reimbursements.

The Role of AI in HCC Documentation

The combination of AI and other technology advancements, such as computer-assisted coding platforms, are helping to ensure the proper identification of conditions, documentation, and coding. When evaluated for quality assurance, these technologies rarely contain errors. Additionally, these tools can:

  • Help identify missing documentation or evidence
  • Recommend appropriate HCC ICD-10 codes
  • Assist with the management of quality metrics and a host of other needs provider organizations have.

If you are interested in learning more about how AGS Health’s AI-enabled computer-assisted coding platform and high-quality services can help improve your HCC data capture, contact us today.

Join the webinar by Eric McGuire, SVP of Coding Services at AGS Health, to Learn more about risk adjustment and HCC coding, including the differences between the CMS and HHS models and when they are applied.

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AGS Health


AGS Health is more than a revenue cycle management company–we’re a strategic partner for growth. By blending technologies, services, and expert support, AGS Health partners with leading healthcare organizations across the US to deliver tailored solutions that solve the unique needs and challenges of each provider’s revenue cycle operations. The company leverages the latest advancements in automation, process excellence, security, and problem-solving through the use of technology and analytics–all made possible with college-educated, trained RCM experts. AGS Health employs more than 10,000 team members globally and partners with more than 100 clients across a variety of care settings, specialties, and billing systems.

Related resources

RCM Maturity Framework A 4-Stage Journey to Digital
The RCM Maturity Framework: A Path to Digital Transformation and Operational Excellence

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