Which Risk Adjustment Model Is Most Commonly Used By Medicare

Since its establishment in 1965, Medicare has been helping senior citizens access quality healthcare. If your healthcare facility works with Medicare beneficiaries, you have to continuously predict the future cost of treating them based on their current and previous health records.

This is why it’s important to have the most effective risk adjustment model for Medicare. With this model, you can easily predict your patients’ future healthcare spending and adjust the risk quality and cost metrics accordingly. So, which risk adjustment model does Medicare use? Let’s dive in!

What Is Medicare?

Medicare is a public health insurance program that offers health coverage to senior Americans. This program was signed into law in 1965. Each year, it provides health coverage for approximately 65 million Americans. This program is financed through general revenues, premiums, and payroll tax revenues.

Other common sources of funds include state payments, taxes on social security benefits, and interests. It’s important to also mention that this program is financed through the Hospital Insurance Trust Fund (HITF) and the Supplementary Medical Insurance Trust Fund (SMITF). 

Every American state has its specific Medicare rules, including annual birthday rules, disability plan rules, guaranteed issue rights, and excess charge rules. These rules are quite broad, giving states the flexibility to set their own Medicare implementation guidelines.

What Is a Risk Adjustment Model?

A risk adjustment model is a system used by healthcare facilities and health data technicians to equate a patient’s health status to a risk score. This score helps healthcare providers estimate the likely cost of treating the patient.

Essentially, the risk posed by patients with anticipated high healthcare costs to the health insurance plan is adjusted by including patients with expected low healthcare costs. Medical data technicians and coders use the patient’s health record to estimate their future spending.

This is why it’s best to have a reliable coding and data extraction tool to help you obtain accurate data and review your patients’ records and documentation from different healthcare providers. When a patient leaves a healthcare facility after treatment, medical coders review their medical records and convert their data to billable codes.

Which Risk Adjustment Model Does Medicare Use?

The Center for Medicare and Medicaid Services (CMS) uses several risk adjustment models to estimate the capitated payments to Medicare Advantage (MA) plans and implement periodic updates to enhance the effectiveness of these models.

One of the key components of the risk adjustment models that the CMS uses to evaluate payments to the MA plans is the Hierarchical Condition Categories (HCC) model. The HCC model has two main categories: the CMS-HCC and the HHS-HCC models.


The CMS-HCC model is used to calculate risk for patients who are sixty-five years and older. It’s a prospective risk adjustment model that only predicts the healthcare spending for the next year.

The HHS-HCC model is a risk adjustment model used by healthcare providers and medical coders to calculate risk scores simultaneously. This means that it relies on the diagnostic data from a specific period to estimate the costs of healthcare in that same duration.

The HHS-HCC model is mainly used for commercial payers. Although Medicare is primarily for elderly patients, this model isn’t limited to older patients like the CMS-HCC model. Therefore, it can be used to evaluate the healthcare spending for patients of all ages, including infants.

Both models use the risk adjustment factor (RAF) score to estimate the anticipated health costs for patients. While the CMS mainly uses the HCC risk adjustment model to predict healthcare spending, note that different states use different risk adjustment models.

Therefore, it’s safe to conclude that the CMS-HCC risk adjustment model is the most suitable model for Medicare.

An Overview of the CMS-HCC Model

First, CMS combines International Classification of Disease, 10th edition ICD-10 codes into analytic groups known as ‘DxGroups.’ These groups consist of diagnosis codes for covering similar medical conditions.

CMS also groups the DxGroups into Condition Categories (CCs) that are based on equal expected costs. It further enforces orders on the model by disregarding a less severe manifestation of the medical condition if there is a more severe manifestation.

When these orders are applied, CMS issues a list of categories commonly referred to as Hierarchical Condition Categories (HCCs) in its yearly rate announcement. This list is usually included in a table of the supplemental attachment.

Every HCC uses a related factor (weight) along with the HCC for age and gender to estimate the beneficiary’s risk score. CMS determines the cost associated with each risk score according to the FFS Medicare expenditure and usage data. 

Next Steps

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