What are Hierarchical Condition Categories?

Author: Keisha Wilson CCS, CPC, CRC, CPB, CPMA, AAPC Approved Instructor

Hierarchical Condition Categories (HCC) or Risk Adjustment. On social media, it is one of the essential topics that many people write on daily, shedding light on the growing world of HCC/Risk adjustment, the importance of provider documentation and accurate reporting of acute and chronic conditions.   Where have you been if you have not heard of the HCC/Risk Adjustment? I am kidding; if you have not heard of it, you have come to the right article.  In this article, we go over HCC and risk adjustment in great detail.

What is HCC

HCC is not new and has been around for many years, but we are hearing more about it now as organizations become more value-based; actually, HCC was first used in 2004.   The HCC model was used initially in the inpatient setting, which only allowed the inpatient setting to receive additional payment. But then the government passed a law requiring outpatient ambulatory diagnosis to be counted for risk adjustment and not only in inpatient settings.  This was huge and very important for risk adjustment.  Think about it, not all patients with severe chronic conditions go to hospitals.  Their primary care doctors and specialists often manage them.  It takes a lot of teamwork and resources to care for those with chronic conditions, so it was important that the outpatient setting was recognized, and now they can receive additional payment as well.

Hierarchical Condition Categories (HCC) are a group of similar medical diagnosis codes linked together in various risk adjustment models. You don’t hear HCC without hearing the term risk adjustment.  Risk adjustment explains what HCC does within the various models and identifies patients/members with severe acute and chronic conditions. This allows the Centers for Medicare and Medicaid Services (CMS) to project the expected risk of the patient and the future annual cost to care for them. Each HCC represents diagnoses with similar clinical complexity, and the higher categories represent a higher predicted healthcare cost for the following year.

HCCs calculate payments to healthcare organizations for patients insured by Medicare Advantage (MA) plans, Accountable Care Organizations (ACOs), and commercial payers. Providers and their coding professionals add HCCs to a patient’s medical record, given documentation on the service date.  Providers should be educated on HCC/Risk adjustment, their documentation’s impact on patients’ care, and projected payment in the following year.

Risk Adjustment Factor

Risk Adjustment is a modern methodology that uses diagnosis codes to determine potential patient-level risks; the model compares levels of wellness among patients and groups.  A Risk score represents the predicted cost of treating a specific patient or group of patients compared to the average Medicare patient based on specific characteristics and health conditions.

Only some ICD-10- CM codes carry value in risk adjustment models, but that does not mean that the documentation should not be concise and coded to the highest level of specificity. The HCC RAF is calculated using the total score of all relative factors related to the patient in a year.  Risk adjustment models have many variations, but all programs collect diagnosis codes according to proper coding guidelines. Additional elements/factors are taken into consideration for the patients include the following:

  • Age
  • Gender
  • Socioeconomic Status
  • Disability status
  • Insurance Status (Medicare, Medicaid, Dual Eligible, etc.)
  • Claims data elements such as procedure codes, place of services etc.
  • Special patient-specific conditions (Hospice or ESRD patients)

Documentation and Coding

CMS requires a qualified healthcare provider to identify each patient’s chronic conditions and severe diagnoses to predict costs for the following year.  Incorrect diagnosis codes can affect patient care as well as reimbursement.  Reporting these diagnosis codes should occur at least once every calendar year (Jan – Dec) for CMS to recognize that the patient continues to have an active condition. Documentation should support the presence of the acute or chronic conditions and how the provider is managing and treating the conditions, and this should be documented in the assessment and plan.  The medical record is legal; documentation should always be complete and concise, and medical necessity should be apparent. If ambiguities are noted, the provider should be queried and also educated.

Those who have attended different educational sessions I have conducted over the years know I speak on the importance of diagnosis specificity.  It is a topic I can’t stress enough.  When auditing a record, we often see unspecified diagnosis codes.  After analyzing the documentation, we see that documentation supports more specified diagnoses or combination codes.  Then we have the records where maybe a more specified code was used, but the documentation did not support it. 

Specificity and clinical documentation are critical for general documentation & coding and HCC and risk adjustment coding.  Coding & Auditing professionals must be able to determine if a condition is current and active or a history.  ICD-10 CM guidelines should be reviewed when reporting codes.  It is also essential to ensure that coders review the appropriate coding guidelines for the date of service and year they are reviewing.  It’s best practice for risk adjustment professionals to continuously educate providers and other clinical staff about documentation requirements and their impact on reporting HCC. Conditions no longer being treated should be coded as a history of code.

Two of my favorite terms organizations use when reviewing medical record documentation for HCC/Risk Adjustment are M.E.A.T and T.A.M.P.E.R.

  • M – Monitor
  • E – Evaluate
  • A – Assessment
  • T – Treatment

Then we have:

  • T – Treatment   
  • A – Assessment
  • M – Monitor
  • P – Plan
  • E – Evaluate
  • R – Referral

Risk Adjustment Data Validation (RADV) 

The Medicare Advantage Risk Adjustment Data Validation (RADV) program is CMS’ primary way to address improper overpayments to Medicare Advantage Organizations (MAOs).  Many organizations have programs geared towards auditing and reviewing providers’ documentation and claim data to ensure compliance and not submitting improper codes.  The worst thing to do is to give back money for an overpayment made for the incorrect submission of codes. 


The best practice in the future for HCC/Risk Adjustment in all organizations and physician practices is to continue to educate providers on the importance of documenting and reporting diagnoses that are still current and being treated during each visit.  In life, things happen. You can see a patient today; for some reason, you may not see them again for the year.  If those conditions are not managed and addressed during that visit, you miss the opportunity to capture the patient’s condition. This includes acute conditions supporting medical necessity and chronic conditions that support the reporting of HCC.

Building rapport with the providers is also essential for coders in the HCC/Adjustment area and those looking to become risk adjustment coders or auditors. Everything is done better together as a team. Providers spend so much time going to school to become doctors; they spend time with their patients and then documenting. The last thing they want to hear is “what they didn’t do correctly”. So, you must communicate the findings with care, “soft skills”, and facts, allowing them to trust you and giving you the time to explain them.

If you want to become a certified risk adjustment coder, KW Advanced Consulting teaches the CRC virtually.  There is no better time to take your career to the next level.  As many organizations move to value-based, they continue to invest in hiring risk adjustment coders as a part of their teams to ensure accurate reporting of diagnosis codes.

To schedule training for your organization or private practice providers or schedule a chart review email us today at info@kwadvancedconsulting.com or visit the website and fill out the “contact us” form.





2023 AAPC CRC Course Manual

2023 Risk Adjustment Coding and HCC Guide

Leave a Comment

Your email address will not be published. Required fields are marked *