HCC and Risk Adjustment

Michael Rose

It’s that time of year again – annual health plan enrollment.  As you know, I’ve been researching the topic of Payer–Provider collaboration.  My last blog post looked at one component of Payer–Provider collaboration: Gaps in Care.  This month, I want to focus on Medicare Advantage (MA) Risk Adjustment.

My mother, who is 83, a long-term smoker with emphysema and has a history of breast cancer recently asked me to help her determine which MA plan she should go with.  Needless to say, MA Risk Adjustment became a more interesting topic for me.

When one wants to learn about anything in the world, they usually turn to the ubiquitous Google.™  I Googled “MA Risk Adjustment” and my search returned 1,110,000 results.  Of course, with further search refinement one could narrow it down to six figures.

As I started to learn more about MA and Risk Adjustment, I was reminded of a presentation I sat in on at a recent Washington/Alaska Regional HFMA.  The presenter shared a quote regarding Medicare financing that also feels very relevant to MA and Risk Adjustment.

“There can be no doubt but that the statutes and provisions in question, involving the financing of Medicare and Medicaid, are among the most completely impenetrable texts within human experience. Indeed, one approaches them at the level of specificity herein demanded with dread, for not only are they dense reading of the most tortuous kind, but Congress also revisits the area frequently, generously cutting and pruning in the process and making any solid grasp of the matters addressed merely a passing phase”1

So what are Risk Adjustment and HCC and where did the concept originate? In 2003 the Medicare Prescription Drug Improvement and Modernization Act (MMA) was created.  In conjunction with MMA, the Centers for Medicare & Medicaid Services (CMS) formally implemented a fully risk-adjustment capitation model now known as Medicare Advantage.  MA plans are financially dependent upon specific documentation of each patient’s diagnoses as classified within the highly specific CMS HCC system.  2, 913 ICD-9 codes are mapped to 1 of 79 HCC (with the implementation of ICD-10, the number of codes and mapping is expected to be extensive and complex).  Risk adjustment modifies payments to insurers on the basis of a consumer’s expected cost, which is estimated using diagnostic information recorded in insurance claims. Some common HCCs are:

  • Angina: HCC 83
  • Breast Cancer: HCC 10
  • Chronic Obstructive Pulmonary Disease: HCC 108
  • Congestive Heart Failure:  HCC 80
  • Diabetes without complications: HCC 19
  • Ischemic Heart Disease:  HCC 92

Here’s a good example of why HCCs are important to payers and ultimately providers who enter gain sharing agreements.  An 85 year old female is seen by her physician for symptoms of a Urinary Tract Infection (UTI).  She has a history kidney disease, diabetes, myocardial infarction and a below the knee amputation.  If the physician only addresses the patient’s diabetes and UTI, reimbursement would be approximately $481.  If, however, the physician addresses the other issues found in her history, reimbursement from Medicare will be approximately $2,500, which accurately reflects the higher cost (risk) to the MA plan2.  Diagnoses from the previous year are used to establish capitation payments to the MA plan. The HCC must be captured every 12 months for CMS to reimburse the MA plan so it is critical that each condition is addressed and documented against at least once in a 12 month period.

For consumers (like my mother) accurate and complete risk adjustment information helps the MA plan identify patients who may benefit from chronic disease management programs.  Risk adjustment also helps to more accurately match healthcare needs with the appropriate level of care.

The next critical question is how IT can be applied to manage and streamline the process.  Stay tuned for my next blog on how HCC and Risk Adjustment are addressed today and how IT can help.



  1. Justice Ervin.  Rehabilitation Association of Virginia v. Kozlowski
  2. Anthem Blue Cross:  Risk Adjustment 101

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