“Risk adjustment is used to estimate the cost to treat a patient in a given year, based on the patient’s specific health needs.”
As CMS points out, risk adjustment isn’t only about numbers. It’s a guardrail. It helps ensure that the clinicians looking after patients with heavier medical needs receive reimbursement that actually reflects the effort involved.
At the center of this system are Hierarchical Condition Categories (HCCs), a coding framework that groups medical diagnoses based on their expected impact on healthcare costs. Each HCC links certain chronic or acute conditions to a numerical risk score, assisting in the prediction of patient-level expenses.
However, not all HCC models are the same. Two of the most widely used ones are CMS-HCC and HHS-HCC. Both aim to align payment with patient risk, but they’re different when it comes to purpose, structure, and application.
CMS-HCC handles Medicare Advantage plans, while HHS-HCC is used in the ACA marketplace and small-group plans. Knowing how each one works makes a big difference in getting the coding right, sending error-free files, and making sure the payments line up with the care actually given.
And this is exactly where MedCode fits in, helping plans, providers, and payers capture risk the right way, stay ready for audits, and keep both models compliant.
CMS-HCC Model: Capturing Risk in Medicare Advantage
The Centers for Medicare & Medicaid Services (CMS) developed the HCC model to adjust payments for Medicare Advantage organizations. It’s a prospective model, implying it uses the present year’s diagnoses to predict next year’s medical costs.
Every Medicare Advantage member receives a risk score based on
- Demographics: age, gender, and Medicaid eligibility
- Diagnoses: conditions coded and mapped to HCCs
- Interactions: combinations of certain conditions that raise predicted costs
Because the CMS-HCC model looks ahead, accurate documentation today has a direct impact on next year’s reimbursement. A missed chronic condition can result in significant underpayment for a plan, even if the care was delivered appropriately.
To reflect evolving healthcare data, CMS regularly updates this model. The latest version, V28, brings major refinements, updated disease groupings, new condition weights, and recalibrated coefficients for improved prediction accuracy. However, each update also adds on to the need for having coding precision and audit readiness.
MedCode Services supports Medicare Advantage organizations through every stage of this process. Our certified coders and reviewers help:
- Conduct thorough chart reviews to capture all reportable conditions
- Strengthen documentation accuracy for cleaner submissions
- Prepare for Risk Adjustment Data Validation (RADV) audits
- Smoothly transition to new CMS-HCC versions with minimal disruption
Our goal is simple: to ensure fair, compliant reimbursement by aiding plans to reflect the true complexity of the populations they serve.
HHS-HCC Model: Risk Adjustment for ACA Marketplace Plans
The Department of Health and Human Services (HHS) created its own HCC model to manage risk adjustment under the Affordable Care Act (ACA). This version is applicable to individual and small-group markets, where insurers can’t vary premiums based on health status.
The HHS-HCC model ensures that plans enrolling higher-risk individuals, those dealing with chronic or costly conditions, end up receiving compensation reflecting that risk. It operates as a concurrent model, meaning it uses data from the current benefit year to project that same year’s expected costs.
The model doesn’t stop at diagnoses. It pulls in metal levels and even “induced utilization,” which is just how patients behave when their out-of-pocket costs shift. Those small pieces add a lot of movement to the system, and they make the payer’s job a little tougher.
Compliance requirements add another layer of complexity. HHS mandates Initial Validation Audits (IVA) and, in some cases, Second Validation Audits (SVA) to ensure and aptly verify the accuracy of submitted data. Each audit involves a rigorous comparison between source medical records and reported diagnoses, a process where small errors can lead to major financial and reputational consequences.
With years of hands-on experience in this space, MedCode helps payers navigate these challenges through:
- Comprehensive IVA reviews and validation audits
- End-to-end documentation traceability between medical records and submissions
- Error reconciliation and root cause analysis
- Compliance-ready data aggregation for secure, efficient submissions
By pairing advanced auditing tools with highly experienced coding professionals, MedCode ensures that ACA marketplace plans meet HHS requirements without compromising on accuracy.
CMS-HCC vs HHS-HCC: What Really Sets Them Apart
Both models rely on the same foundation, accurate diagnosis coding, but the differences in how they function change everything about how payers manage data and compliance.
The CMS-HCC model focuses on long-term prediction. It’s used for older or disabled populations, where chronic conditions dominate cost patterns. The HHS-HCC model, on the other hand, places emphasis on current-year performance and risk balancing across marketplace insurers.
In simpler terms, while CMS looks forward, HHS looks within the same year.
CMS uses RADV audits to check reported diagnoses; HHS relies on IVA and SVA audits. CMS considers Medicaid dual eligibility and demographic weightings; HHS integrates plan metal levels and induced utilization.
For payers working across multiple markets, these differences mean that one documentation or coding process rarely fits all. The reporting windows, audit timelines, and submission rules vary, creating room for confusion or errors.
That’s where our integrated approach at MedCode makes a real difference. Our teams help unify documentation practices across both models, train internal coding teams on model-specific nuances, and ensure data readiness before submission.
By bridging gaps between CMS and HHS requirements, we help organizations strike a steady balance between compliance and operational efficiency.
Achieving Accuracy and Compliance Across Both Models
Whether under CMS or HHS, accuracy is non-negotiable. Missing a diagnosis, submitting incomplete data, or mismatching encounters can distort a patient’s risk score and impact overall reimbursement.
Some of the most common challenges we see include
- Incomplete or delayed encounter data from multiple systems
- Unlinked claims that fail to capture full patient complexity
- Coding variances caused as a result of inconsistent documentation
- Audit findings stemming from missing or ambiguous provider notes
At MedCode, we close risk-adjustment gaps with a clean mix of smart tools and seasoned coders. Our work centers on:
- Aligning data across EHRs, claims, and submission systems
- Getting ahead of RADV and IVA issues
- Training providers on practical CDI strategies
- Running mock audits that catch issues early
We focus on both documentation and coding so clients stay compliant and protected. The goal isn’t to fix errors later; it’s to build accuracy that holds steady through every audit and policy update.
Conclusion
The CMS-HCC and HHS-HCC models share one end goal, aligning payment with patient risk. But how they measure, calculate, and validate that risk is what makes them unique. Understanding those differences isn’t just a coding necessity; it’s a financial imperative.
With healthcare rules constantly evolving with time, having an experienced partner can make all the difference. MedCode helps payers, providers, and plans stay ahead, offering expertise that spans both Medicare Advantage and ACA marketplaces.
From HCC coding accuracy to audit readiness and compliance assurance, our approach helps your team work smarter and submit with confidence.
Partner with us today, and turn complex risk adjustment into a process you can rely on.
