HCC Coding, Risk Adjustment, and Physician Income: What You Need to Know


Accurate coding drives accurate risk adjustment, which will increasingly affect your bottom line.

Fam Pract Manag. 2016 Sep-Oct;23(5):24-27.

Author disclosures: no relevant financial affiliations disclosed.

Most physicians are aware of new models of payment, including accountable care organizations (ACOs), bundled payments, and value-based purchasing, that are increasingly shifting financial risk to providers. However, many physicians may be unaware of how essential accurate coding is under these models to characterize risk, enhance shared savings, and provide patient-centered care. This article will explain the “HCC” method of risk adjustment and how it may be affecting you and your practice now and in the near future, even if you don't belong to an ACO. Hospital, group, and health system employers increasingly are paying physicians based on how their system performs in value-based care. In this environment, risk adjustment can greatly affect physician income, so it is important to get it right.

A shifting risk environment

The concept of risk bearing has existed in health care for decades. Medicare Advantage (MA) plans, which have been in operation in diverse forms since the 1970s, receive capitated, per member per month (PMPM) payments and thus bear financial risk for the total cost of care for a beneficiary. Yet MA plans have largely been administered by experienced commercial insurers, which have been able to leverage benefit design, geography, and enrollment to be financially successful in managing risk.

Increasingly, provider-led organizations such as Medicare Shared Savings Program (MSSP) ACOs are bearing risk without some of the benefits that MA plans enjoy but under the same risk-adjustment methodology. Risk adjustment is the process of modifying payments and benchmarks to reflect the degree of illness, which in turn allows the Centers for Medicare & Medicaid Services (CMS) to estimate future spending and allows providers to understand the health characteristics of their managed population. In both MA plans and MSSP ACOs, this risk adjustment methodology is called Hierarchical Condition Categories (HCCs).

MA plans have leveraged the HCC methodology with significant financial success, and providers should take heed. Understanding HCCs – which more accurately portray patients' conditions and prospective costs – and understanding how CMS uses them to calculate expenditure benchmarks or PMPMs is crucial to an ACO's ability to earn shared savings and avoid shared loss. This understanding will become increasingly relevant to the operational viability of independent practice owners and health systems as well. The ultimate goal is to improve patient outcomes at reduced costs, and to make providers accountable for both.

About the Authors

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Dr. Yeatts is a hospitalist at Duke University Hospital in Durham, N.C....

Dr. Sangvai is a family physician and associate chief medical officer at Duke University Health System.

Author disclosures: no relevant financial affiliations disclosed.



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1. Pope GC, Kautter J, Ellis RP, et al. Risk adjustment of Medicare capitation payments using the CMS-HCC model. Health Care Financ Rev. 2004;25(4):119–141....

2. Pope GC, Kautter J, Ingber MJ, Freeman S, Sekar R, Newhart C. Evaluation of the CMS-HCC Risk Adjustment Model: Final Report. RTI International for the Centers for Medicare & Medicaid Services; March 2011. https://www.cms.gov/MedicareAdvtgSpecRateStats/downloads/Evaluation_Risk_Adj_Model_2011.pdf. Accessed Aug. 1, 2016.

3. Final ICD-10 HCC and RxHCC Mappings. Centers for Medicare & Medicaid Services website. https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateS-tats/Risk-Adjustors-Items/IDC10Mappings.html. Accessed Aug. 1, 2016.

4. Kautter J, Pope GC, Ingber M, et al. The HHS-HCC risk adjustment model for individual and small group markets under the Affordable Care Act. Medicare & Medicaid Research Review. 2014;4(3):e1–e46. https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf. Accessed Aug. 1, 2016.


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