What is Risk Adjustment Coding in Healthcare?

what is risk adjustment coding

One of the most difficult parts of medical billing is assessing the risk factors of your patient. But what is risk adjustment coding meant to achieve in the long run? Continue reading to find out! 

If the whole process seems confusing, PracticeForces can help you with everything from risk score techniques to solutions for your healthcare revenue cycle management challenges.

What is Risk Adjustment HCC Coding?

In the context of medical billing, risk adjustment refers to the process health insurance companies use to assign diagnosis codes to patients to match the risk they pose to the overall plan. By pairing high-risk individuals with low-risk ones, the company can spread its costs to avoid losing money.

One primary way insurers code is through Hierarchical Condition Categories. It tracks a patient’s diagnoses and demographic information to group conditions and treatments with comparative costs. By assessing a risk score for each patient, the insurance company can reasonably predict how much a patient will cost them over time.

What Determines Your Risk Score?

When considering risk adjustment coding, the two most important factors bear equal weight in assigning a patient’s score.


Insurance companies consider demographic factors because these affect a person who doesn’t have a diagnosis. It’s a control figure. Companies receive the relevant information from your insurance application, such as:

  • Age
  • Sex assigned at birth
  • Socio-economic status
  • Whether the patient is disabled
  • Eligibility for Medicaid and so on

Health Status

A person’s diagnosis then plays an equal or greater part in assessing their risk to the insurance company. Chronic conditions typically have heavier weightings than acute conditions, but not always. For example, HIV/AIDS provides a low-risk designation for the insurer overall, but sepsis is a medium-risk code, and metastatic cancer constitutes an extremely high risk. 

Payment Models

The payment methodology of a risk adjustment model affects how an insurance company uses the money it receives to cover your patient’s medical services. Companies usually arrange these models into subgroups that include similar treatments, prescriptions, and diagnoses. There are three common payment models.


The Affordable Care Act created commercial payment models, which best serve individuals and small groups who purchase their insurance online. The defining feature of the commercial model is that it funnels the payments from low-risk patients to help fund the cost of high-risk participants.


States use the Medicaid payment model to fund state insurance programs. While they code and rank diagnoses slightly differently, the overall process is the same. But Medicaid focuses more on disabled individuals.


Most insurance companies use the Medicare payment model. It weights those over 65 as riskier and allows only the most recent diagnosis in a subcategory to affect the patient’s score.

Contact PracticeForces for All Your Medical Billing Needs

What is risk adjustment coding doing for your practice? If you would like to find out more about the ways you can streamline your medical billing, consider partnering with PracticeForces. With our proven methods and experience, we may be able to help increase your overall revenue and avoid common medical coding mistakes.

Call (727) 499-0351 today for more information.

Parul Garg, CEO and co-founder of PracticeForces, has significantly contributed to the growth of over 1,000 U.S. medical practices through her expertise in medical billing and coding since the company’s inception in 2003. With a background in Computer Science and an MBA in Human Resources, her leadership and AAPC-certified coding skills have been pivotal in managing the company’s operations effectively.

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