American Association for Physician Leadership

Strategy and Innovation

Understanding and Utilizing Hierarchical Condition Categories and Adjustment Coding

Callie Torres, MS | Ashkon Nehzati | Janis Coffin, DO, FAAFP, FACMPE

October 8, 2019


Hierarchical condition categories and risk adjustment, first used by CMS, are important billing practices. Physicians today need to understand these coding methods, because they are increasingly being implemented by health insurance companies. These practices help insurance companies estimate future patient costs and also allow physicians to better understand the health status of their patient population. Risk adjustment and the correct use of hierarchical condition categories can affect physician reimbursement, so it is vital to understand, document properly, and code accurately.

Hierarchical Condition Categories and Risk Adjustment Come to the Forefront

In 2003, CMS mandated the use of the Hierarchical Condition Category (HCC) Risk Adjustment (RA) coding and payment model for Medicare Advantage plans. Medical coding companies and commercial insurance companies have joined CMS in using the HCC model to help predict future costs associated with chronic diseases in various patient population groups. For this reason, all medical professionals must understand HCC and RA. Risk adjustment removes demographic, socioeconomic, and medical differences between patient populations to allow insurance companies to compare data between providers. Typically, these differences are not under the provider’s control but can affect patient outcome. Thus, RA prevents unreasonable expenditure benchmarks that could potentially result in monetary loss for both insurance companies and healthcare providers.

Classification and Utilization of Hierarchical Condition Categories

HCCs are derived from the 10th revision of the International Classification of Diseases (ICD-10).(1) There are over 50,000 ICD-10 codes; however, only approximately 10,000 codes correlate with one of the 79 HCC codes.(1) Once a diagnosis is made, it is categorized with an ICD-10 code. If applicable, the chosen ICD-10 code can be mapped to a HCC code. The current mappings may be found on the CMS website (2) Each HCC code describes a diagnosis of a specific chronic condition. Acute issues (e.g., ileus), nonspecific diagnoses (e.g., headache), or medically insignificant conditions (e.g., polydactyly) are excluded from the HCC model, because these conditions either cannot be predicted or do not normally incur cost to the patient.(1) Ailments and maladies are grouped either by disease process or by body system. Examples of the most common HCC categories include diabetes, congestive heart failure, cancer, and angina.(3)

Creation of a Risk Factor Score

The risk adjustment model uses a risk factor score (RFS) for each patient based on medical and nonmedical factors, including age, gender, disability status, overall health, demographic characteristics, and chronic conditions and illnesses.(1) Each HCC code has an associated RFS. The respective RFSs for all of the HCC codes used for a patient are added up to calculate a total yearly estimated RFS. In general, the total RFS is normalized to a value of 1.0. Most patients fall in the range of 0.9 to 1.7. A healthy individual’s RFS will fall below the average of 1.0, whereas an individual with multiple chronic conditions will score above. Once a total yearly RFS is calculated, it is multiplied by a “denominator” value (determined annually by CMS), which converts the RFS into a monetary value. This estimates the expected annual cost of each patient. The use of a RFS aids CMS in allocating funds for the predicted annual cost of the patient’s medical care. Acute injuries are not included in HCC, because they are not reliably prognostic of an ongoing chronic issue and, ultimately, the patient’s projected total annual cost.

For example, we have a new patient, Ms. Edwards, who is re-enrolling into Medicare services. Ms. Edwards is an 88-year-old woman who has a medical history of rheumatoid arthritis of her right ankle and foot, a pulmonary embolism in 2014, and chronic right-sided heart failure. Ms. Edwards’s age gives her a base RFS score of 0.668. For her medical history, Ms. Edwards would be assigned two additional HCC codes: one for rheumatoid arthritis and one for heart failure. It is important to note that Ms. Edwards’s history of pulmonary embolism in 2014 is not indicative of long-term medical care; thus, no HCC code is assigned. Each HCC code maps to an RFS (Table 1). All of the RFSs are added together, yielding a total RFS—in this case, 1.404. The total RFS is then multiplied by the yearly published denominator to calculate a total expected annual expenditure (the 2019 yearly published denominator was $9,367.34). According to RA, this patient’s expected yearly cost is estimated to be $13,151.75. (RFSs were determined using the 2019 All HCC Count Model for Continuing Enrollees for demonstration purposes. All RFSs are taken from community-based, noninstitutionalized, non–dual status aged patient rates).(4)

By analyzing the RFS of patients, healthcare groups can estimate potential expenditures and make sure that the practice is not held to inaccurate and unreasonable expectations by CMS or the associated insurer. If this is not done regularly, practices can suffer financial losses through lower patient reimbursement. For healthcare groups and providers, it is more helpful to evaluate the RFS of assigned groups by insurer rather than on an individual basis, because HCCs were created to help model groups of patients. Thus, the costs incurred can be less accurate when directly applied only to individuals. A better understanding of HCCs and the process by which CMS calculates yearly patient costs allows healthcare groups to prepare more accurately for the expenditures associated with new patients or new-onset chronic disease in existing patients and provide correct yearly documentation to justify higher reimbursement costs for care. If done properly, both CMS and healthcare groups can budget for changing costs in assigned patient groupings and allow for more accurate reimbursements.

Hierarchical Condition Category Coding Guidelines

The intricacies and nuances of HCCs and RAs must be understood in order to use them properly. Multiple diagnoses may overlap and fall into a single HCC, but all must be coded. Associated signs, symptoms, and complications also may fall into a single HCC, but, again, all must be coded. Some disorders may have several different HCCs that relate to the severity of the disease. In such a case, the patient is classified into the HCC that corresponds with the most severe symptomatology present.(1) Continuing with the aforementioned example, Ms. Edwards had the code HCC85 assigned to her for her heart failure. If Ms. Edwards also had a history related to hypertensive heart disease, chronic kidney disease without heart failure (HCC94), or any variation of hypertension (HCC95), her current HCC85 code is the only one that is weighted with a RFS by CMS, because it is the most severe disease group—but all are recorded.

Several important protocols must be followed to document HCCs properly. The first guideline requires that documentation of an individual’s medical diagnosis must be submitted at least once each calendar year. If the patient’s condition and plan of treatment is not completed properly every year, CMS and other insurance companies will fail to recognize that the individual still has the condition and may erroneously adjust the risk score downward, potentially leading to lower reimbursement.(1) Each document must include: the patient’s name and date of birth on each page, the date of visit, the healthcare provider’s signature, and proper description of the medical condition.(5)

A common mnemonic used to help with proper documentation is MEAT(6):

  • Monitor: includes the relevant symptomatology and course of the disease;

  • Evaluate: includes any pertinent test results and patient outcome secondary to treatment;

  • Assess: describes patient and family member counseling and education, tests to be ordered to monitor the disease process, and a review of patient records; and

  • Treat: lists medications, procedures, and other therapies used, as well as the modality via which they were administered or performed.

It is vital to remember each patient’s plan of care, and their approach to disease management must be justified with documentation (i.e., the subjective portion must include the appropriate social history, family history, and so on). All of the information about a patient’s disease must be properly recorded in order to report it. Using the MEAT mnemonic is one way of making it easier to remember what is required to report.

Physicians may use and access various electronic health record (EHR) software to document patient encounters. Documentation style and ICD-10 code utilization varies from software to software, and each may have its own limitations. One must keep this in mind while determining which clinical impression to document. Additionally, the complete ICD-10 code description may be available only by leaving the EHR software and opening another window. This can slow down charting and cause frustration. Some software limits the number of impressions assigned and can overwrite ICD-10 codes using a more generalized category. These “unspecified” ICD-10 codes do not always correlate to a HCC code as intended. The “unspecified” ICD-10 code also could be assigned to a different HCC code with an improper, smaller RFS that does not match the severity of the patient presentation. Use of a reference guide that lists the most common ICD-10 codes as well as the associated HCC code and RFS can reduce time spent charting and coding by allowing the healthcare provider to accurately choose the code that matches the severity of the diagnosis.(7) This, in turn, can help busy practices save time and also can ensure that the chart and code contain a correct depiction of the patient’s condition. With time, practice, and awareness of HCC coding, charting correctly can benefit practices that are a part of risk-based assessment contracts as payments are adjusted appropriately in future contract renewals.

The Bottom Line

Although the intricacies of medical coding and billing can be challenging, it is vital for healthcare providers to understand the basic organization of HCCs and RA. With most of the burden of RA being on the provider, physicians must understand the documentation process to ensure they earn the shared savings they are entitled to and avoid potential shared loss. Patient notes must contain the necessary components and level of specificity required to accurately assign a HCC diagnosis code. Keeping quick reference sheets also can help busy practices make fast decisions regarding how to select clinical impressions in EHR software. If this is not done properly, providers could potentially receive reduced payment for services. With HCCs and RA in mind, physicians and insurers have the same end goal: to make reimbursements more accurate and efficient.


  1. Yeatts JP, Sangvai D. HCC coding, risk adjustment, and physician income: what you need to know. FPM Bull. 2016;23(5)24-27.

  2. Risk Adjustment. Centers for Medicare and Medicaid. July 31, 2018. . Accessed December 28, 2018.

  3. Fernandez V et al. HCCs: the cost of chronic conditions. ICD-10 monitor. . Accessed December 28, 2018.

  4. Advance notice of methodological changes for calendar year (CY) 2019 for the Medicare Advantage (MA) CMS-HCC Risk Adjustment Model. . Accessed December 28, 2018.

  5. Risk adjustment & hierarchical condition categories documentation basics. Security Health Plan . Accessed December 28, 2018.

  6. Watson MM. Documentation and coding practices for risk adjustment and hierarchical condition categories. Journal of AHIMA. June 2018.

  7. Belatti D, Lykke M. Diagnosis coding for value-based payment: a quick reference tool. Fam Pract Manag. 2018;25(2):26-30.

  8. Nicoletti B. Is your diagnosis coding ready for risk adjustment? Fam Pract Manag. 2018;25(2):21-25.

Take Home Points

  • A RFS is a predictive measure of how costly a patient’s yearly medical expense is expected to be. It is based upon patient demographics and medical history.

  • HCCs are assigned for chronic conditions based upon an ICD-10 code. Not all ICD-10 codes will map to a HCC code.

  • A higher RFS is indicative of a patient with more chronic conditions, and a lower RFS is indicative of a patient with less or no chronic conditions.

  • A patient’s condition must be reestablished annually. If this is not done, CMS may erroneously reduce the patients RFS.

  • Remember to include “MEAT” when documenting HCCs.

Callie Torres, MS

Kansas City University—Joplin, Joplin, Missouri.

Ashkon Nehzati

Third Year Medical Student, Kansas City University, Kansas City, Missouri

Janis Coffin, DO, FAAFP, FACMPE

Janis Coffin, DO, FAAFP, FACMPE, Chief Transformation Officer, Augusta University, Augusta, Georgia; email:

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