AI-generated ICD-10 and CPT codes from clinical notes — Medical Coding Online
How Risk Adjustment Works
Risk adjustment works by converting a patient's documented diagnoses into a Risk Adjustment Factor (RAF) score. The higher the RAF, the more the health plan receives in capitated payments to cover that patient's expected costs. Plans depend on complete and accurate diagnosis coding to support appropriate RAF scores.
- RAF score = sum of all applicable HCC coefficients for that patient
- Each Medicare Advantage plan member has an annual RAF calculated
- Higher RAF = higher monthly capitated payment from CMS
- Diagnoses must be coded annually — prior year diagnoses do not carry forward
- Only diagnoses from face-to-face encounters count for Medicare Advantage risk adjustment
- Diagnoses must be current, supported by documentation, and coded to ICD-10-CM
Hierarchical Condition Categories (HCCs)
HCCs are CMS's disease groupings used in the CMS-HCC risk adjustment model for Medicare Advantage. Related diagnoses are grouped into the same HCC, and in a hierarchy, only the highest-severity condition in a group counts toward the RAF.
| HCC Category | Example Conditions | Example ICD-10 Codes |
|---|---|---|
| HCC 18 — Diabetes with chronic complications | Diabetic nephropathy, neuropathy, retinopathy | E11.21, E11.40, E11.311 |
| HCC 85 — Congestive Heart Failure | Systolic CHF, diastolic CHF | I50.20, I50.30, I50.40 |
| HCC 111 — COPD | COPD with exacerbation, emphysema | J44.1, J43.9 |
| HCC 22 — Morbid Obesity | BMI ≥40 | E66.01 |
| HCC 8 — Metastatic Cancer | Cancer spread to secondary site | C79.51, C78.1 |
Documentation Requirements for RAF Coding
Diagnoses submitted for risk adjustment must be documented in the medical record by a licensed clinician during a qualifying encounter. 'Soft' diagnoses or codes without supporting documentation are targets for risk adjustment audits.
- Diagnosis must be present, active, and treated/monitored during the encounter
- Must be documented by a physician, NP, PA, or other eligible clinician
- Encounter must be a face-to-face visit — phone calls and portal messages do not qualify
- Document the chronic condition even if not the primary reason for the visit
- Code to the highest specificity (e.g., diabetic nephropathy, not just diabetes)
- Annual recapture required — all HCC conditions must be coded every year
Risk Adjustment Models
Different payer programs use different risk adjustment models. Understanding which model applies tells you which diagnoses matter most for payment.
| Program | Model Used | Key Features |
|---|---|---|
| Medicare Advantage (MA) | CMS-HCC v28 (2024+) | Fee-for-service diagnoses + MA encounter data |
| ACA Marketplace | HHS-HCC model | All metal tiers, age/sex + diagnoses |
| Medicaid Managed Care | State-specific models (CDPS, MedicaidRx) | Varies by state |
| PACE programs | CMS-HCC (modified) | Frail elderly-specific adjustments |
| End-Stage Renal Disease (ESRD) | CMS-ESRD model | Separate from standard CMS-HCC |
Common Risk Adjustment Coding Errors
Risk adjustment audits — including RADV (Risk Adjustment Data Validation) audits by CMS — target overstated RAF scores. These are the most common errors that trigger audit findings.
- Coding diagnoses not documented in the visit note
- Coding 'history of' conditions as if currently active
- Upcoding to a higher-specificity HCC diagnosis not supported by documentation
- Missing documentation to support the coded diagnosis (e.g., code for CHF but no exam findings)
- Not coding conditions to their highest specificity (e.g., unspecified diabetes instead of with complications)
- Counting diagnoses from non-qualifying encounters (telephone, home health, labs only)
How AI Improves Risk Adjustment Coding
AI-powered risk adjustment platforms use NLP to review clinical notes, identify undocumented HCC conditions visible in labs or vital signs, flag coding gaps, and generate coding suggestions — helping practices capture all appropriate RAF credit while maintaining compliance.
- Identify HCC conditions documented in notes but not coded
- Flag lab values and vital signs suggesting uncoded conditions (e.g., high HbA1c with no diabetes code)
- Generate annual HCC gap reports per patient
- Validate specificity — suggest higher-specificity codes when documentation supports
- Track which conditions need annual recapture for current year
- Alert providers to ask about and document relevant chronic conditions at each visit
Frequently Asked Questions
- What is an HCC code and how does it affect payment?
- An HCC (Hierarchical Condition Category) is a disease grouping in CMS's risk adjustment model. Each HCC has a relative factor (coefficient) that adds to a patient's Risk Adjustment Factor (RAF) score. The higher the RAF score, the higher the monthly capitated payment the Medicare Advantage plan receives for that member. For example, a patient with documented congestive heart failure (HCC 85) has a higher RAF — and the plan receives more to cover that patient — than a patient without CHF.
- Why do HCC diagnoses need to be recoded every year?
- In the CMS-HCC model for Medicare Advantage, diagnoses are only used for the payment year in which they are documented. Prior year diagnoses do NOT automatically carry forward. This means if a patient's diabetes was coded in 2024 but not documented and coded in 2025, the diabetes will not count toward the 2026 RAF calculation. Annual recapture through regular face-to-face encounters ensures all chronic conditions are represented in the current year's risk score.
- What is a RADV audit and how does it work?
- RADV (Risk Adjustment Data Validation) is a CMS audit program for Medicare Advantage organizations. CMS selects a sample of beneficiaries and requests the medical records supporting the diagnoses submitted for risk adjustment. If the medical record does not support a submitted HCC diagnosis, CMS extrapolates the error to the full population and recovers overpayments. RADV audits have resulted in multi-million dollar repayments by major MA plans.
- How is risk adjustment coding different from regular fee-for-service coding?
- In fee-for-service coding, a claim is submitted for a specific service and reimbursement is based on the procedure (CPT code). In risk adjustment, diagnoses (ICD-10-CM codes) are what drive payment — to a capitated plan, not per-service. The key difference in coding practice is that risk adjustment requires annual, comprehensive documentation of all chronic conditions at every encounter, even those not being actively treated that day. Missing a chronic condition in risk adjustment means lost revenue.
- Which providers can submit diagnoses for Medicare Advantage risk adjustment?
- For Medicare Advantage risk adjustment, diagnoses must come from face-to-face encounters with physicians (MD, DO), nurse practitioners, physician assistants, certified nurse specialists, and certified nurse-midwives. Hospital inpatient and outpatient encounters also qualify. Telehealth visits qualify when Medicare covers telehealth. Diagnoses from ancillary-only visits (lab-only, radiology-only, home health without a physician visit) do not qualify for risk adjustment.