Value-based reimbursement is driving expanded complexity in the healthcare industry, increasing the need for revenue cycle leaders to ensure patient conditions are captured accurately. One of the primary ways to do this is through hierarchical condition category (HCC) risk adjustment coding.
To help you keep your HCC risk adjustment coding up with the challenges of 2025, 3Gen Consulting has put together this update of the latest research and findings in HCC risk adjustment.
Why Research in HCC Risk Adjustment Coding Matters
One of the primary reasons that research in HCC risk adjustment coding is so important is that differences in calculations can shift incentives for different healthcare stakeholders. These codes are based on the complexity of a patient’s health condition, so coding can make a significant difference in reimbursement received.
For example, highly complex patients will often receive higher reimbursement, so accurate coding of a patient’s chronic condition can increase their risk score, resulting in higher reimbursement. This is considered acceptable since the provider is assumed to be expending more time and resources managing more complex patients that require greater care.
While this dynamic can be used for unethical purposes, not all coding differences are used illegally. Sometimes, there is an issue of coding simply being applied differently between Medicare and Medicare Advantage (MA) programs, which should ideally be similar in coding practices and reimbursement. This is of particular concern to government agencies since Medicare Advantage is growing at a significant rate. The Congressional Budget Office (CBO) has projected that the share of beneficiaries of Medicare Advantage will increase from 54% of eligible Medicare beneficiaries in 2024 to around 64% 10 years from now. Today, it is believed that Medicare Advantage plans are significantly overpaid in comparison to traditional Medicare plans. The Medicare Payment Advisory Commission (MedPAC) has estimated that, in 2024, MA payments were 22% higher than traditional Medicare, a difference of $83 billion [1]. These overpayments tend to benefit plans rather than beneficiaries, meaning that there is a financial incentive for plans to restrict care after members are enrolled, something that can result in delays and denials of service and ultimately, poorer outcomes for patients.
Medicare Advantage Risk Adjustment Can Be Strengthened with Diagnosis Codes and Survey Responses
As things stand now under the existing Medicare Advantage risk-adjustment system, participating plans face questionable incentives. These include incentives to report diagnosis codes on their enrollee medical claims that reflect more severe health conditions and additional conditions. This action increases enrollee risk scores and payments. With the goal of improving risk adjustment integrity, some researchers have released a proposal including four alternative methods for constructing risk scores [2]:
- Calculating Hierarchical Condition Categories scores while excluding diagnosis codes from health risk assessments and chart reviews
- Calculating HCC risk adjustment coding scores excluding diagnosis codes most subject to score inflation
- Using pharmaceutical claims only
- Using self-reported survey responses alone or potentially in conjunction with diagnosis codes
They compared the predictive accuracy of each of these strategies against the standard HCC risk adjustment coding approach. The researchers did this using 2016–19 medical and pharmaceutical claims linked to Consumer Assessment of Healthcare Providers and Systems survey responses gathered from 151,432 Medicare Advantage enrollees. They found that, in relation to the standard HCC risk adjustment model, the models that combined survey responses with risk scores did a better job of predicting healthcare use. This approach explained 5.8-6.0 percent of the individual variation in total price-standardized Medicare Advantage utilization in comparison to 5.1%. The findings suggest that diagnosis codes can be used in conjunction with survey responses to improve Medicare Advantage risk adjustment results.
Lack of Persistent Medicare Coding May Widen Risk-Score Gaps
Research from HealthAffairs has revealed that risk-score gaps could be attributable to differences in capture of diagnostic codes [3].
Medicare Advantage payments are adjusted using a risk-score model calibrated on demographic data and diagnostic data from traditional Medicare beneficiaries. This data is in turn applied to Medicare Advantage beneficiaries. If Medicare Advantage plans are capturing more diagnostic codes in comparison to traditional Medicare, they can receive higher payments in comparison.
Researchers analyzed Medicare Advantage encounter data and Medicare claims from 2017-2019 to compare persistence of diagnostic coding under sixteen chronic conditions. Analysis found that the difference accounted for 2.85 percentage points (22.3%) of the Medicare/MA risk-score gap in 2020, amounting to $8.1 billion in Medicare spending.
Work with 3Gen Consulting
As the complexity of HCC risk adjustment scoring increases and the need for certified risk adjustment coders grows, 3Gen Consulting is here to help support your revenue cycle needs. Schedule a call today to discuss how we can improve the efficiency and effectiveness of your risk adjustment efforts.
References
[1] P. N. Van de Water, “Growth in Medicare Advantage Raises Concerns,” Center on Budget and Policy Priorities, 10 January 2025. Available: https://www.cbpp.org/research/health/growth-in-medicare-advantage-raises-concerns.
[2] M. Bellerose, H. O. James, J. Shroff, A. M. Ryan and D. J. Meyers, “Combining Patient Survey Data With Diagnosis Codes Improved Medicare Advantage Risk-Adjustment Accuracy,” Health Affairs, vol. 44, no. 1, 2025.
[3] N. Ghoshal-Datta, M. E. Chernew and J. M. McWilliams, “Lack Of Persistent Coding In Traditional Medicare May Widen The Risk-Score Gap With Medicare Advantage,” Health Affairs, vol. 43, no. 12, 2024.
