HCC Risk Adjustment Coding Update for 2025

HCC Risk Adjustment Coding Update for 2025

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.

It’s Time to Adjust Your Risk Adjustment Coding Strategy

At 3Gen, we’ve talked for a while about the growing importance of risk adjustment coding—and our rationale is being proven true. 

Part of the OIG’s responsibility is conducting health plan audits of Medicare Advantage organizations to identify fraud and reduce waste and other abuses of this taxpayer-funded program. The government spends more than $403 billion every year on managed care, and half of that goes to Medicare Advantage Organizations. The issue is, that as of August of last year, their audit had identified around $377 million in risk adjustment overpayments—and this number was for inaccurate coding alone [1]. 

This means that providers should expect more audits coming in the future—and a smart response is to get ahead of this by adjusting your approach to risk adjustment coding

Most providers will need to focus on coding to the highest level of specificity for chronic conditions and consider coding reviews by certified risk coders to ensure accuracy. But if you want to stay ahead of the OIG, this is just the beginning. 

  • Make it a priority to review your current tools and workflows, looking for opportunities to supplement with outsourced risk adjustment coding where possible.
  • Take time to review your health risk assessments. This will help you make sure that the diagnoses you’re billing match what patients are being treated for. 
  • All of these suggestions rest on the need to analyze your claims data. This will give you a strong starting point for evaluating your practices and charting a path forward. 

Ultimately, the OIG is cracking down on overpayments, so prioritizing risk adjustment coding is a smart strategic focus for all impacted providers in the near term. To learn more about how your organization can build a proactive risk adjustment coding strategy, contact 3Gen Consulting today.

 

Reference
[1] “OIG Strengthens Oversight Strategy for Managed Care Organizations,” Healthcare Payer Intelligence, 08 August 2023. Available: https://healthpayerintelligence.com/news/oig-strengthens-oversight-strategy-for-managed-care-organizations.

 

Hemant Apte, Chief Executive Officer in

Hemant Apte, Founder & Chief Executive Officer of 3Gen Consulting, is a seasoned executive leader with deep domain expertise in US healthcare management practices. He founded 3Gen Consulting in 2006 and has been instrumental in offering thought leadership to his clients and providing services and solutions that are unique in the market.

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