Mastering HCC Coding: A Beginner’s Essential Guide for Success


Hierarchical Condition Categories (HCC) are the foundation of risk adjustment coding. They provide a complete picture of the patient’s diagnosis profile and impact quality and cost metrics in value-based payment models.

HCC is an essential aspect of Risk Adjustment and a hot healthcare topic. It involves submitting accurate diagnosis codes to the government agency overseeing the risk adjustment payment model a patient is enrolled in.

What Is HCC Coding?

What is HCC coding? Hierarchical condition category (HCC) coding is a system for grouping diagnoses into categories for risk adjustment models. These models, which rely on ICD-10 codes and demographic data, aim to predict an individual’s future healthcare costs. These models are a vital component of the Medicare Advantage Program and other commercial risk adjustment programs and incentivize healthcare providers to be aware of outcomes rather than simply focusing on billing for services rendered.

The Centers for Medicare and Medicaid Services (CMS) developed the HCC model to predict expected medical costs for Medicare Advantage Plan members. As the healthcare industry continues to shift away from traditional fee-for-service reimbursement and toward value-based care, HCC coding has become more prevalent.

HCC coding is conducted by professional medical coders either employed by the healthcare provider group, in a collaborative arrangement with a healthcare provider group, or by vendors working on behalf of a health plan. The coder abstracts data from the patient’s medical records and identifies supported diagnosis codes. The resulting data then assigns the patient a risk factor score.

The more accurate and specific the coding, the higher the risk adjustment score. Correct coding is essential to a healthcare organization’s success with the value-based payment model. Implementing a clinical documentation improvement (CDI) program to improve your practice’s ability to document HCC diagnosis codes is one way to help ensure accuracy. Another is running a diagnostic utilization report to determine which diagnoses are being billed most frequently and review them for coding at the highest level of specificity possible.

What Is HCC Diagnosis Coding?

Hierarchical Condition Categories, or HCCs, are medical codes that map to specific clinical diagnoses. HCCs are used by Medicare Advantage and commercial health plans as part of a risk-adjustment model that considers the severity of a patient’s chronic or acute health problems to project future annual cost of care.

The HCC coding process is essential because it directly impacts payer reimbursement. With the rise of value-based healthcare, accurate and optimized coding has become more critical. With a robust understanding of the HCC process, physicians can avoid lower rates of reimbursement and potentially even getting paid at all.

Physicians must document patients’ diagnoses utilizing ICD-10-CM codes, which are then submitted to CMS for HCC coding. Specifically, the codes are sent via the Electronic Data Submission (EDS) server for Medicare Advantage or the External Data Gathering Environment (EDGE) server for Medicaid and commercial risk adjustment.

The diagnosis code information is then translated to an overall score called the Risk Adjustment Factor or RAF score. The Centers for Medicare and Medicaid Services or a commercial health plan then uses this RAF score to determine how much to pay an enrollee’s provider. For example, a patient with a more severe disease who is likely to need more expensive treatments is assigned a higher RAF score than a healthy patient with a less severe disease.

What Is HCC Reporting?

In the health insurance industry, HCC coding is used to report on patient costs and reimbursement. The health insurance model is changing from fee-for-service to value-based care, shifting the risk to providers. As such, the healthcare industry relies on HCC reports for accurate reimbursements and quality measurements.

HCCs are created by combining similar diagnosis codes to predict the costs of caring for patients with certain conditions. This is an integral part of the risk-adjustment process as CMS and other healthcare payers use HCC scores to determine Medicare Advantage patient cost. Health plans receive a per-member per-month payment from CMS based on their HCC score and the risk of providing care to that patient.

To accurately report on a patient’s HCC diagnosis, medical coders must be familiar with all the relevant ICD-10-CM codes related to that condition and any additional diagnosis codes that may apply. In addition, coding for severe or chronic conditions is essential as they tend to have the highest cost risk.

Ultimately, a health plan’s reimbursement is mainly dependent on the risk level of its members and is determined through a combination of factors, including demographics, cost, and HCC codes. As a result, ensuring that all relevant diagnoses are documented and coded according to each program’s rules is essential to successful reporting.

How Does HCC Impact Billing?

Value-based care (VBC) is gradually replacing fee-for-service reimbursement in the healthcare sector. HCC coding has become an essential part of VBC models because it helps payers estimate the expected costs of a patient. HCC codes delineate the complexity of a patient’s medical condition profile, providing payers with the data they need to forecast future patient cost and quality performance better.

A primary way that HCC impacts reimbursement is through risk adjustment. Risk adjustment enables health plans to receive capitated annual payments for a specific group of enrollees. To ensure the accuracy of the risk score, providers must accurately report all HCC diagnoses documented in their medical records.

When a health plan misses an HCC code on a claim, it misses out on potentially receiving additional reimbursement. As a result, provider organizations must invest in training and resources that improve HCC coding workflows and overall understanding.

Providers should ensure the billing/coding team is trained on HCC coding best practices. Physicians should be reminded to document the most accurate diagnosis possible and avoid using templates with pre-populated options that can lead to inaccurate selections. Additionally, all missing codes must be verified and submitted every year. As a result, the path to improved HCC coding is comprehensive and requires clinical and billing/coding teams working together.

If you are a tech-savvy person, then maybe we have something in common. My name is Elena Davis, and I love everything technology. Testing new wearable technology products and review them is one of my favorite things. I’m contributing my 10+ years experiences in product reviewing for multiple digital brands and companies.