Decoding the Essentials: An Introduction to HCC Risk Adjustment Coding in Healthcare

decoding the essentials an introduction to hcc risk adjustment coding in healthcare

HCC coding helps communicate patient complexity and paints a picture of the medical profile. It is critical to document and code HCCs to maximize risk adjustment revenue accurately.

As Medicare Advantage plans transition to V28, medical coding and clinical documentation integrity (CDI) professionals must ensure accurate coding. It can be challenging with numerous deletions and additions to the disease model.

What is HCC?

HCC stands for Hierarchical Condition Categories and is a system of medical coding that evaluates patient risk. HCC coding is an integral part of healthcare because it helps insurance companies and providers predict how much care patients will need over their lifetime, thus allowing them to manage costs better. HCC also plays a significant role in the reimbursement process. Having accurate and error-free coding can result in faster, smoother approvals and reimbursements.

Unlike other medical coding systems, HCC is not focused on individual diagnosis codes but groupings of diagnoses that indicate a patient’s overall risk for costly conditions over time. The Centers for Medicare & Medicaid Services (CMS) utilizes this data to create an expected cost of care or risk score for each Medicare Advantage plan participant. As the industry shifts to value-based care, having a solid understanding of HCC is essential for healthcare organizations to optimize reimbursement rates and improve clinical outcomes.

The most direct way that HCC impacts reimbursement is by ensuring the accuracy of diagnosis codes submitted on provider claims for CMS to calculate the patient’s risk score. It means that medical coders and providers must accurately document each patient’s health status to the highest specificity level. As a result, many HCC coders also play a critical role in educating their providers on improved documentation practices.


As a coding specialty, HCC is best performed by professional coders trained in diagnosing coding and regulations surrounding risk adjustment. In addition to ensuring all codes are documented accurately, these professionals should stay current on regulatory expectations and changes, as these can impact what coders must capture for Medicare Advantage, commercial, and Medicaid patients to meet HCC requirements.

For healthcare organizations implementing a value-based payment model, optimizing HCC coding is imperative. HCCs are used to calculate a patient’s risk score, which impacts the per-member per-month (PMPM) capitation payment sent to the health plan from CMS or the government agency overseeing the commercial or Medicare Advantage risk adjustment program.

While the vast majority of HCCs are chronic conditions, certain acute conditions also play a role. For example, if a patient is hospitalized with sepsis or pneumonia in one CY, these conditions would count as separate HCCs and are added together to determine a patient’s RAF score.

For this reason, capturing accurate diagnosis codes to the highest level of specificity is critical for successful HCC coding. HCC coders often fill the role of documenting educator, helping providers understand the importance of describing their patients’ conditions with the highest specificity in their medical records.


Hierarchical condition categories have been part of the Centers for Medicare & Medicaid Services (CMS) risk adjustment model since 2004. The model helps to adjust federal payments to insurers and healthcare systems based on the patient’s predicted cost of care over time. Capturing accurate HCC diagnoses for inpatient and outpatient encounters benefits patients, physicians, and payers. HIM professionals and clinical documentation integrity (CDI) specialists play a critical role in this model, accurately documenting the medical story of each patient, including all relevant HCCs.

HCC risk adjustment coding is essential for value-based care because it determines how much reimbursement a health plan will receive for treating the patient. It also helps to accurately forecast the expected costs of a patient for a given year. However, the accuracy of this information depends on the HCCs submitted and supported by the healthcare providers.

The ICD-10-CM codes submitted to CMS or HHS for a patient must be accurate and support the appropriate HCC. As a result, coders must be aware of all of the HCCs available in ICD-10-CM and how they relate to one another. It will help to ensure that all HCC-relevant conditions are captured and included in the RAF calculation. Improving the quality of reported patient data will lead to more accurate reimbursement rates for participating health plans in value-based payment models.


As we move into the value-based healthcare era, where providers are paid based on patient outcomes and health conditions, the importance of HCC coding in healthcare becomes more evident. HCC coding helps payers accurately communicate a patient’s true complexity by measuring their overall disease burden and determining the amount of risk they pose.

It’s also used in reimbursement to determine how much a provider is compensated. It’s more accurate than using demographic factors alone, and it enables providers to focus on improving patient care while generating revenue and optimizing revenue capture.

In addition, HCC coding provides a more complete picture of a patient’s chronic illness profile than simply using medical codes. It identifies the presence and severity of co-morbidities. For example, patients with both diabetes and chronic kidney disease have a more complex presentation of the disease than someone who only has one condition. HCC coding can help capture this more complete profile and result in higher and more appropriate reimbursements and improved care delivery for your patients with chronic illnesses.

Documenting a patient’s illness burden through HCC coding is essential for any healthcare organization. However, implementing an effective HCC coding process can be challenging for medical practices with the many different rules and guidelines. Coding must be more accurate to ensure accurate risk adjustment and reimbursement rates, which can be costly for your medical practice. Fortunately, there are tools and technology enablers that can streamline your HCC coding process to ensure that all of your claims are correctly coded.