Take the Guesswork Out of HCCs

Posted on 13 Feb, 2018 |comments_icon 0|By Elizabeth

In a nutshell, HCCs are groups of diagnosis codes that are categorized in disease hierarchy. These groups of similar diagnoses consume similar resources, known as a clinical disease burden, which are grouped in disease hierarchies (e.g., diabetes mellitus is grouped into several HCCs depending on whether the disease has complications/ manifestations, or controlled/uncontrolled, type 1 or 2, etc.).

Example: An uncomplicated stable type 2 diabetes would fall under a different HCC compared to a type 1 uncontrolled diabetes with complications or manifestations.

Under the Centers for Medicare and Medicaid Services (CMS) HCC model, there are about 11,000 ICD-10-CM codes that fall under 80 different HCC categories. The HCC model has been updated with the annual ICD-10-CM diagnoses codes changes.

Take away: HCCs were developed as a way to report and track the health status (major risk factors) of the enrollee, focusing on the greater costs and longer term care needed.

There are the two HCC models – the CMS HCC model and the Health and Human Services (HHS) HCC model.

Nail Down Common Acronyms for HCCs

ACA Affordable Care Act
BBA Balanced Budget Act 1997
BMI Body Mass Index
CDI Clinical Documentation Improvement
ESRD End-stage renal disease
FFS Fee-for-service
HCCs Hierarchical Condition Categories
HHS Health and Human Services
MA/MAP Medicare Advantage/ Medical Advantage Plans
MAO Medicare Advantage Organization (see MAP)
MA-PD MA Prescription Drug (Plans)
Medicare Part C MAPs
Medicare Part D MA-PDs
MMA Medicare Modernization Act 2003
OIG Office of the Inspector General
PDPs Prescription Drug Plans
PFFS MAO Private Fee-for-Service Medicare Advantage Organization
PMPM Per Member Per Month (capitated payment)
PPACA Patient Protection and Affordable Care Act 2010
RA Risk Adjustment
RADV Risk Adjustment Data Validation (audit)
RAF Risk Adjustment Factor
RAPS Risk Adjustment/Adjusted Payment System
RxHCC Prescription-based HCC


Risk adjustment (RA) applies to individual risk scores based on the individual’s demographics and health status information. The Medicare risk adjustment models used data from a large pool of beneficiaries (e.g., full sample sizes over 1 million for the CMS-HCC models) to estimate predicted costs on average for each of the component factors (e.g., age-sex, low income status, individual disease groups).

Risk scores measure the individual beneficiary’s relative risk. The scores are similar to Medicare Severity Diagnosis Related Groups (MS-DRGs), as each HCC is assigned a specific “weight” that impacts each patient’s risk score. The final calculated risk score is used to adjust payments for each beneficiary’s expected expenditures.

The RA program is designed to ensure that premiums cover patients who require above average care. It simultaneously lowers premiums for patients expected to require fewer resources, and thus is geared to provide healthcare access to all patients while protecting the financial well-being of providers and payers.

In other words, the risk adjustment program provides payments to plans that disproportionately attract high-risk populations, sharing risk in the individual market for high claims costs for these enrollees. This payment is based on the predicted health status of each member.

Without risk adjustment, plans that enroll a higher proportion of high-risk enrollees would need to charge a higher average premium (across all of their enrollees) to be financially viable. Enrollees in health insurance plans differ in their expected cost, or risk, because of differences in their health status. The intent of risk adjustment is to allow a plan enrolling a higher proportion of high-risk enrollees to charge the same average premium (other factors being equal) as a plan enrolling a higher proportion of low-risk enrollees, shifting the focus of plan competition to plan benefits, quality, efficiency, and value.


Know the Facts: Medicare Risk Adjustment Factors (RAFs) Calculate a Patient’s Risk Score

A risk adjustment factor (RAF) is an actuarial tool used to determine a risk score that can predict healthcare costs based on factors pulled from claims and medical records collected by physician offices, hospital inpatient visits, and various outpatient settings.

These factors include demographics, severity or “disease burden,” and ICD-10-CM codes. Forms of risk adjustment methodologies include DRGs, CMS-HCCs, HHS-HCCs, Chronic Illness and Disability Payment System (CDPS), and Value-Based Purchasing (VBP).

Important: Under the RA payment model, patients in the same hospital or medical practice can have different payment rates, depending on their RAF scores, which project the amount of care expected to be involved in maintaining their health.

RAF Fast Facts

  • RAF is a tool used to predict the cost of healthcare for covered individuals in a health plan.
  • Payment to healthcare providers is driven by members’ risk score.
  • HCC is used for determining the risk adjust payment.
  • If two or more diagnoses are mapped to the same HCC category, payment will be paid only toward the highest code.

Note: After Medicare Advantage Plans started requiring Risk Adjustment Factor (RAF) scores for reimbursement, Accountable Care Organizations (ACOs) and the Hospital Value-Based Purchasing (HVBP) program followed suit. The protocol, since adopted by a growing number of commercial payers, is here to stay.

Clear up the Confusion when Calculating Risk Adjustment Scores

The following factors come into play when calculating risk adjustment scores:

  • Demographic Indicators
    • Age, sex,
    • Eligibility status
      • Dual eligible (Medicare & Medicaid)
      • Current eligibility
      • Original eligibility
    • Sub model type (PACE, ESRD)
    • Long term (residing in institution)
  • Chronic Disease Burden
    • ICD-10-CM diagnoses
  • Disease Hierarchies (severity)
  • Disease Interactions (complexity)

The purpose of the risk adjustment model is to ensure adequate payment based on expected medical costs. Without risk adjustment, payment would be based on demographics alone—meaning, a patient’s age, sex, and other characteristics. It’s not in anyone’s best interest, including yours, to discount chronic and severe illnesses. We want to consider all health factors related to a patient.

Learn More

To learn more about Risk Adjustment, RAF scores, and HCC code selection, pick up TCI’s end-to-end Risk Adjustment Primer.



Elizabeth works on an array of projects at TCI, researching and writing about modern reimbursement challenges. Since joining TCI in 2017, she has also covered the nuts and bolts of cybersecurity, compliance with federal laws, and how to tap into the advantages of telehealth services.

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