Is Your Diagnosis Coding Ready for Risk Adjustment?


As payment models change, diagnosis coding is more important than ever. Here's how to be sure your codes capture your patients' severity of illness.

Fam Pract Manag. 2018 Mar-Apr;25(2):21-25.

Author disclosure: no relevant financial affiliations disclosed.

As family physicians and their employers enter into risk-based contracts with payers and join accountable care organizations (ACOs), they are increasingly finding that payment depends on more than just the CPT and ICD-10 codes in their claims. Patient health status is one of several factors, including cost, utilization, and patient satisfaction, that are driving new models of physician payment. To quantify the severity of illness of patient panels, Hierarchical Condition Category (HCC) codes, long used by the Centers for Medicare & Medicaid Services to predict costs and set Medicare Advantage rates, are finding wider use.

Family physicians do not need to learn all the ins and outs of HCCs. However, understanding a few straightforward concepts and selecting ICD-10 codes that map to HCCs will contribute to a more accurate picture of patient health status and, in a growing number of practice arrangements, have a positive effect on payment.


  • ICD-10 codes mapped to Hierarchical Condition Category (HCC) codes are used to determine the severity of illness of patient panels.

  • New payment models include risk-adjustment factors for patient health status.

  • Physicians should report not only the diagnosis codes that describe why a patient was seen but also any diagnosis codes associated with chronic conditions that affect treatment choices.

  • Patient risk scores are reset each year, so physicians should comprehensively code chronic conditions at annual visits.


First it may be helpful to briefly review the connection between coding, risk adjustment, and payment. Risk-adjustment models assign each patient a risk score based on demographics and health status. Demographic variables may include age, gender, dual Medicare/Medicaid eligibility, whether the patient lives at home or in an institution, and whether the patient has end-stage renal disease. Health status is based on the diagnosis codes submitted on inpatient, outpatient, and professional claims in a calendar year. Certain diagnosis codes map to disease groups (HCCs). Demographics and HCCs are weighted and used to calculate a risk-adjustment factor (RAF) score.

The risk score is reset each contract year for individual patients, and only diagnoses reported within that year are used to calculate the score. Individual claims are paid at the contracted rate, but payers use the group's overall risk score to calculate future payment rates and bonuses. (For more information, see “HCC Coding, Risk Adjustment, and Physician Income: What You Need to Know,” FPM, September/October 2016.)


Betsy Nicoletti is a speaker and consultant in coding education, billing, and accounts receivable. She lives in Northampton, Mass.

Author disclosure: no relevant financial affiliations disclosed.


1. 2017 midyear final ICD-10 mappings. Centers for Medicare & Medicaid Services website. December 2016. Accessed February 15, 2018.

2. Announcement of calendar year 2017 Medicare capitation rates and Medicare Advantage and Part D payment policies and final call letter. CMS website. April 2016. Accessed February 15, 2018.


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