Ever wondered if you could calculate a patient’s risk and healthcare costs before providing services? Well! A risk-adjustment methodology called Hierarchical Condition Category (HCC) coding can do that. Centers for Medicare & Medicaid Services (CMS) introduced the completed model in March 2003, and formally implemented it for payment purposes in January 2004. It was introduced to project future medical expenses and enhance patients’ capitation payments based on clinical risk and health condition.
What exactly does HCC coding and risk adjustment do? HCC coding estimates the healthcare resources patients may need. It groups certain ICD-10-CM diagnosis codes into categories based on specific health conditions and their expected impact on healthcare costs.
The word “hierarchical” matters because it lets you organize related conditions by severity, but not every ICD-10-CM diagnosis code maps to an HCC. Only certain diagnoses included in the applicable HCC model contribute to the patient’s risk adjustment calculation.
What is Risk Adjustment in Healthcare?
Let’s understand why exactly the Hierarchical Condition Category exists. Think of a healthy 68-year-old patient who visits a physician once or twice a year. He will usually require fewer healthcare resources than someone of the same age living with diabetes, congestive heart failure, and chronic kidney disease. Both patients will face different healthcare costs. This is exactly why HCC risk adjustment coding exists.
In simple terms, HCC risk adjustment turns documented patient diagnoses into information to estimate healthcare risk. The provider documents a patient’s conditions during an eligible encounter. Those conditions are translated into appropriate ICD-10-CM diagnosis codes. Under the applicable risk adjustment model, qualifying diagnosis codes may then map into Hierarchical Condition Categories.
But can you add every other ICD-10 code to calculate? No! This is the most misunderstood point: not every ICD-10-CM diagnosis produces an HCC that affects payment. CMS groups clinically related diagnoses into condition categories, and only selected categories are included as payment HCCs in the model.
The model recognizes that patients with serious or multiple chronic conditions are generally expected to require more medical care rather than treating every patient as if they carry the same financial risk.
How Does HCC Risk Adjustment Coding Work?
Let’s look at how HCC coding works in medical billing.
Data Collection
Patient data collection, including demographics and clinical diagnoses, is the basis for HCC coding. Providers can never perform proper risk adjustment without accurate data. The quality of data directly impacts the accuracy of the HCC coding.
ICD-10 Diagnosis Coding
Medical professionals record the diagnoses using ICD-10 codes. These codes also play an important role in risk adjustment coding as they directly affect the HCC assignment. Hence, accurate diagnostic coding is essential for efficient risk adjustment and equitable reimbursement.
Mapping
The corresponding HCC categories are then mapped to the ICD codes. Medicare risk adjustment model software and ICD-10-CM mappings are published by CMS. For the relevant models, CMS offers initial and midyear/final ICD-10 mappings for 2026.
Application of Hierarchy
The term “hierarchical” becomes significant at this point. Instead of just combining the values of all associated diagnoses, the model may identify the most severe condition when related disorders differ in severity.
Risk Assessment
There is a risk score attributed to each HCC category. The patient’s overall risk score is determined by adding the scores of all relevant categories. This total score directs reimbursement rates and forecasts future medical expenses. For remuneration to be in line with patient care requirements, accurate risk score computation is essential.
HCC Coding and the 2026 CMS-HCC Model
CMS has recently released a new version of the risk adjustment model called V28. It was introduced by CMS in 2024 and went into full effect for payments in 2026.
This latest model has significantly affected the HCC coding, increasing the number of HCC categories from 86 to 115 while decreasing the number of diagnostic codes that correspond to an HCC from about 9,800 to 7,770. Simply put, this means some diagnostic codes previously included in the CMS model are no longer included, and coding patterns that were effective under the prior model may now understate the complexity of a patient.
Providers should note that a diagnosis impacting a patient’s risk score under an earlier model shouldn’t be presumed to have the same impact under the current model.
HCC Coding Guidelines & Documentation Requirements
For medical practices, however, HCC coding isn’t simply about putting another diagnosis code on a claim. Accurate documentation, appropriate ICD-10-CM coding, annual condition capture, and compliance all play a role.
Ensure Complete Provider Documentation
Clear and comprehensive provider documentation is the first step toward accurate HCC classification. Diagnoses that are clinically validated and pertinent to the patient’s care should be recorded by providers. The patient’s current health state should be clearly depicted in the medical record, which should also corroborate the reported diagnosis.
Avoid Unspecified Documentation
Additionally, specificity is important. Choosing the most accurate ICD-10-CM code and, where appropriate, figuring out the proper HCC mapping can be challenging when there is ambiguous or unclear paperwork. When known and supported, details including the nature of the condition, its severity, complications, or other clinically significant features should be recorded.
Do Not Refer to Unsupported Documents
Coders should never presume or infer a diagnosis that is not supported by provider evidence, according to another crucial guideline. In most cases, coders are unable to independently determine the diagnosis, even when test findings, prescription drugs, or other clinical facts point to a problem. Instead of assuming anything when the documentation is ambiguous, lacking, or contradictory, it could be better to ask the supplier for clarification.
Common HCC Coding Mistakes to Avoid
The following are some common mistakes that you can avoid in HCC coding and risk adjustment.
Missing Credentials
If the record isn’t correctly validated, even a well-documented encounter might cause issues. It may be challenging to determine who carried out and recorded the service if signatures, dates, or provider credentials are missing. Practices should include timely note completion and verification in their daily operations.
Missing Annual Re-Capture
To be included in risk adjustment, many chronic diseases must be recorded and reported once more within the relevant reporting period. A diagnosis from the previous year shouldn’t be taken for granted this year.
Previous diagnoses should not be automatically repeated by physicians. Rather, when continuing problems are pertinent to the patient’s treatment, they should be re-evaluated and recorded.
Using Unspecified Codes
Unspecified ICD-10-CM codes are not always incorrect because a more precise diagnosis may not always be supported by the clinical data. That’s why coders should avoid adding clinical information that isn’t truly documented and instead use the best suitable code that is supported by the medical record.
Diagnosis Doesn’t Match the Note
The medical record and the claim should be consistent. During a risk-adjustment review or audit, a diagnosis that appears on a claim but isn’t backed up by the encounter data may raise concerns.
Best Practices for HCC Coding & Risk Adjustment Compliance
Here are some best practices to comply with CMS’s HCC coding and risk adjustment policies.
Document Conditions Clearly and Specifically
When known and supported, provide specifics such as illness type, severity, complications, and other pertinent clinical information.
Code Only What the Documentation Supports
A diagnosis should never be added, assumed, or inferred only because it could raise a patient’s risk score.
Keep the Medical Record Consistent
In light of the entire interaction and the relevant clinical data, the diagnoses recorded in the evaluation and plan should make sense.
Review Chronic Conditions Regularly
Diagnoses from prior visits should not be automatically carried over. When conditions are addressed during the present encounter and are still clinically relevant, confirm and record them.
Use Current ICD-10-CM and HCC Resources
Teams should not rely on out-of-date code lists or earlier model references because Hierarchical Condition Category models and diagnostic mappings are subject to change.
Query Providers When Clarification is Needed
Instead of leaving the coder to make assumptions, a conforming provider query can assist in explaining the record if the documentation is ambiguous, contradictory, or incomplete.
Perform Routine Coding and Documentation Audits
Before they develop into more serious compliance problems, routine evaluations can help find missing documentation, unsupported coding, discrepancies, and training opportunities.
Train Both Providers and Coding Teams
While coders must remain up to date on ICD-10-CM rules, risk adjustment requirements, and relevant HCC model modifications, providers must understand what details should be reported.
Final Thoughts
It’s time to wrap up! To guarantee that you are properly compensated for the care services you provided, appropriate HCC coding is crucial. However, this latest 2026 update has created confusion and has become an administrative headache.
Therefore, feel free to connect with NeuraBill for medical billing and coding services if you need expert assistance. Our team of certified professional coders (CPCs) is prepared to help.
