HCC risk adjustment is a payment model that Medicare uses to pay health insurance plans more for sicker patients and less for healthier ones. HCC stands for Hierarchical Condition Categories, a system that groups thousands of diagnosis codes into clinically related categories, each carrying a cost weight. The goal is straightforward: plans that enroll people with serious chronic conditions should receive higher payments than plans whose members are relatively healthy, so there’s no financial incentive to avoid sick patients.
How HCC Categories Work
The CMS-HCC model takes more than 9,000 ICD-10 diagnosis codes and maps them into a smaller set of condition categories. Each category groups diagnoses that are clinically related and have similar cost implications. For example, several diabetes codes that involve kidney or circulation problems all land in one category, while diabetes codes involving nerve damage land in another.
The “hierarchical” part is what makes this system distinct. When a patient has multiple stages or severities of the same disease, only the most severe (and costly) version counts. If someone has both early-stage and metastatic cancer, the model captures the metastatic cancer and drops the less severe category. This prevents double-counting within the same disease group while still reflecting the patient’s true cost burden.
Some of the condition categories in the model include HIV/AIDS, septicemia and shock, metastatic cancer and acute leukemia, lung and upper digestive tract cancers, diabetes with renal or circulatory complications, and diabetes with neurologic complications. The categories span the full range of serious and chronic conditions that drive healthcare spending.
How a Risk Score Is Calculated
Every Medicare Advantage enrollee receives a Risk Adjustment Factor (RAF) score. This score is the sum of weighted factors based on two inputs: demographics (age, sex, disability status) and diagnosed health conditions. Each factor represents its estimated contribution to total healthcare costs relative to the average Medicare beneficiary.
A simple example illustrates the math. If the average expected cost is $1,000, a 57-year-old woman might carry a demographic factor of 0.5 (meaning her age and sex alone predict costs at half the average). If she also has a condition that adds a factor of 0.7, her total risk score is 1.2. That tells CMS her expected costs are 20% above average, and her plan’s payment is adjusted upward accordingly. A score of 1.0 represents average expected cost, scores below 1.0 mean lower expected cost, and scores above 1.0 mean higher.
The model also accounts for where someone lives and receives care. Enrollees living in the community, in institutions, or receiving certain types of ongoing treatment are scored using different model segments with independently developed cost weights.
Why Dual Eligibility Matters
People who qualify for both Medicare and Medicaid (dual-eligible beneficiaries) have different cost patterns than those on Medicare alone. CMS accounts for this by splitting the model into separate segments based on whether someone is a full-benefit dual, partial-benefit dual, or non-dual enrollee, and whether they are aged or disabled. Each segment has its own set of relative cost factors, so the same diagnosis can carry a different weight depending on the enrollee’s dual status. This segmentation was expanded in recent model updates to more accurately reflect the real spending differences across these groups.
Documentation Requirements
For a diagnosis to count toward a patient’s risk score, it has to be documented in the medical record during a face-to-face visit with a qualified provider. A simple list of diagnoses on a problem list is not sufficient. The clinical note must show that the provider actively managed the condition during that encounter.
The standard framework for adequate documentation is known as MEAT: the record should show the provider monitored signs, symptoms, or disease progression; evaluated test results or treatment effectiveness; assessed or addressed the condition through ordered tests, counseling, or record review; and treated it with medications, therapies, or other interventions. Every chronic condition that affects a patient’s risk score needs to be re-documented at least annually, because HCC codes do not carry forward from year to year. If a patient has diabetes with kidney complications but no provider documents it during a given calendar year, that condition drops off the risk score entirely.
The V24 to V28 Model Transition
CMS periodically updates the HCC model to reflect current medical coding and cost patterns. The most significant recent change is the shift from Version 24 (V24) to Version 28 (V28), which began phasing in during 2024. V28 significantly reduced the number of diagnosis codes that map to an HCC while increasing the number of condition categories that CMS uses to adjust payments. This three-year phase-in is completing in 2026, meaning plans are gradually shifting from the old model’s weights to the new ones.
The practical effect is that some conditions that previously generated risk adjustment payments no longer do under V28, while other conditions are captured with greater specificity. Health plans and provider organizations have had to closely review their coding practices to understand which diagnoses still map to payable HCCs under the new model.
How CMS Audits for Accuracy
Because higher risk scores mean higher payments, there is a built-in incentive for plans to report as many qualifying diagnoses as possible. CMS counterbalances this through the Risk Adjustment Data Validation (RADV) program, its primary tool for identifying overpayments to Medicare Advantage organizations.
In a RADV audit, CMS reviews enrollee medical records to confirm that every diagnosis submitted for risk adjustment is actually supported by clinical documentation. If a diagnosis cannot be verified in the medical record, CMS may collect the resulting overpayment from the plan. These audits occur after the final risk adjustment data submission deadline for a given contract year, and they represent a significant financial risk for plans with documentation gaps. The HHS Office of Inspector General also monitors trends and patterns in risk adjustment data across model versions to identify potential areas of concern.
What This Means for Patients and Providers
If you’re a Medicare Advantage member, HCC risk adjustment works mostly in the background. Your plan receives higher payments when your providers thoroughly document your health conditions, which in theory means the plan has more resources to cover your care. The system is one reason your doctor’s office may seem particularly focused on reviewing your full list of chronic conditions at annual wellness visits: each documented condition directly affects the plan’s revenue.
For providers working with Medicare Advantage populations, accurate and complete coding is the central task. Undercoding means the plan is underpaid for the care the patient actually needs. Overcoding, or coding without proper documentation, creates audit liability. The MEAT documentation framework is the practical standard for getting it right, ensuring every reported condition reflects genuine clinical management rather than a checkbox exercise.