Hierarchical Condition Categories (HCCs) are a system used in the United States healthcare landscape to categorize a patient’s health status and predict their future healthcare costs. This framework is primarily utilized by the Centers for Medicare & Medicaid Services (CMS) to manage payments to private health plans, particularly those participating in Medicare Advantage (MA). The system groups diagnoses that share similar expected treatment expenses and clinical complexity into specific categories. By assigning a patient a risk score based on their HCCs, the system determines the appropriate funding a health plan should receive to provide care.
Understanding the Risk Adjustment Model
The HCC system is the foundation of the CMS Risk Adjustment Model, which is designed to ensure fair payments across the Medicare Advantage program. The model accurately reflects the health status and anticipated medical spending of each enrolled beneficiary. By adjusting payments based on predicted costs, the system compensates health plans that enroll patients with more serious or chronic conditions.
This mechanism creates a level playing field among competing Medicare Advantage organizations. Without risk adjustment, plans might be financially motivated to select only the healthiest beneficiaries, undermining the goal of comprehensive coverage. The model assigns a Risk Adjustment Factor (RAF) score to each patient, measuring their predicted healthcare expenditures relative to the average beneficiary. A score above 1.0 indicates higher than average expected costs, while a score below 1.0 suggests lower expected costs.
The risk adjustment system is forward-looking, using a patient’s documented conditions from one year to predict expected costs for the following year. This prospective nature allows health plans to budget and allocate resources appropriately for their members.
The Process of Assigning Condition Categories
The assignment of an HCC begins with the medical provider’s thorough documentation during a patient encounter. Every diagnosis recorded is translated into a standardized code using the International Classification of Diseases, Tenth Revision, Clinical Modification (ICD-10-CM) system. These ICD-10 codes are the raw data that feed into the HCC model.
CMS uses specific mapping logic to group these individual diagnosis codes into the broader Hierarchical Condition Categories. Not every ICD-10 code maps to an HCC, as the system focuses on chronic, severe, or complex conditions associated with significant long-term healthcare costs. For a condition to be included in the risk score calculation, it must be documented by an authorized professional at least once during the calendar year.
A defining feature of the model is the “hierarchical” nature of the categories. If a patient has multiple diagnoses that fall into the same clinical group, only the most severe condition is counted toward the risk score. This structure prevents the over-counting of related conditions and ensures the final risk score reflects the highest level of clinical complexity present.
How HCCs Influence Healthcare Funding
The final HCC score assigned to a patient directly impacts the capitated, fixed monthly payment a Medicare Advantage plan receives from CMS. When a patient has a higher RAF score due to multiple or more severe HCCs, the health plan receives a larger payment to cover the expected increased cost of care. This funding provides the necessary resources for managing complex and chronic conditions.
The payment adjustment ensures that health plans have the financial capacity to offer comprehensive services, including specialized care coordination and disease management programs. If the total risk score for a plan’s population is higher than the national average, the plan receives a proportionately higher total payment. Conversely, a lower average risk score results in a lower payment.
This funding mechanism is designed to be budget-neutral across the entire Medicare Advantage program. The money is paid to the health plans, which use it to cover the cost of services provided to the patient. Higher payments resulting from accurate HCC coding can also influence the supplemental benefits an MA plan offers.
Ensuring Accurate Patient Documentation
Patients support the accuracy of the HCC system by being proactive about their health records. Attending annual wellness visits is a simple way to ensure a physician reviews and documents all current health conditions. These yearly reviews provide the necessary physician-patient encounter that officially captures a condition for risk adjustment purposes.
Patients should discuss all chronic and long-term conditions with their provider, even those that are stable and well-managed. Chronic conditions must be documented and assessed every calendar year to be counted in the risk score calculation. After an appointment, patients should review the summary of care documentation to verify that all conditions were recorded accurately by the provider.
This attention to detail ensures that the patient’s medical record fully reflects their true health status. Complete documentation ensures the health plan receives the appropriate funding to manage the patient’s needs, supporting the provision of quality care.