Hierarchical Condition Category (HCC) Risk Adjustment

CMS compensates the Medicare Advantage (a.k.a Medicare Part C) Health Plan a premium and this premium is based on underlying health conditions of enrollees in Medicare Advantage Health Plan. The health conditions of enrollees is determined by risk adjustment factor which is calculated using the enrollees's age, sex, disability, medicaid, and diagnosis codes. Hierarchical Condition Category (HCC) is a risk adjustment model that Medicare uses to predict risk of future medical cost.

HCC risk adjustment and coding is a payment model that uses a patient’s health status and demographic information to calculate a risk score in order to establish a baseline for how much it will cost to provide care to that patient. A patient’s health conditions are identified through ICD-10 diagnosis codes submitted on claims which are mapped to HCC codes in the risk adjustment model.

The higher the risk score, the more at-risk and the health plan is compensated annually for providing care to that patient. However, CMS requires documentation of the condition at least once a year. Each January 1, the risk adjustment calendar restarts, and all your Medicare Advantage patients are considered completely healthy until diagnosis codes are reported on claims. CMS regularly conducts Risk Adjustment Data Validation (RADV) audits to ensure accurate HCC coding. If medical record documentation for the patient is incorrect or incomplete, your reimbursement for that patient may be adjusted downward.

HCC Risk Score Calculator

These are the steps how the risk score is calculated:

  1. Sum the demographic and disease factors to determine the raw risk score. This requires adding all of the relative factors from the demographic indicators (age/sex/Medicaid/disability) and all of the relative factors from the disease indicators(HCCs, Interactions)
    Raw Risk Score = Demographic Relative Factors + Disease Relative Factors
  2. Normalize the risk score by dividing the raw risk score by the normalization factor, and then rounding to 3 decimal places. It is important to remember to round at each step, as not doing so could cause a discrepancy in the final calculation.
    Normalized Risk Score = Raw Risk Score / Normalization Factor
  3. Apply Coding Difference Adjustment by multiplying normalized risk score times (1‐Coding Difference Adjustment) and then rounding to three (3) decimal places.
    Risk Score with Coding Intensity Adjustment =
           Normalized Risk Score * (1 – Coding Intensity Factor)

HCC Risk Score Calculator »      New HCC Risk Score Calculator »

Risk Adjustment Opportunities

Risk Adjustment is a process for quantifying a patient health condition into a risk score for Value-based Care Reimbursement. Successful capture of risk adjustment ensures proper reimbursements. Here are the common failures for Risk Adjustment capture:

Common Failures »

To accurately report the severity of a member’s illness that affects care and treatment and to comply with the Centers for Medicare and Medicaid Services for a valid HCC, a provider must document in the medical record the clinical findings with supportive details:

HCC Coding Tips »

Under Value-Based Care payment models, effective risk capture is not easy to achieve. It’s crucial for healthcare providers to develop Risk Adjustment Strategies so that they can position themselves for financial success in risk-sharing arrangements.

Common Risk Reduction Strategies »

Analytics Engine is used to develop effective strategies to manage risks by modelling historical clinical records and performing analytical tasks on modeled datasets. It is used to analyze known and discovered data to mitigate future risks.

Risk Adjustment Analytics »