The CMS-HCC model is arisk adjustmentmethodology used primarily to setcapitated paymentsfor Medicare Advantage (MA) organizations based on the expected cost of caring for their enrolled beneficiaries. Under this approach, CMS calculates a Risk Adjustment Factor (RAF) for each member using demographic variables (such as age/sex and certain entitlement factors) plus disease burden captured from ICD-10-CM diagnoses that map to Hierarchical Condition Categories (HCCs). The resulting RAF increases or decreases the plan’s payment to better match predicted healthcare needs—higher RAF for sicker, more complex patients and lower RAF for healthier patients. ACDIS outpatient CDI education emphasizes that the purpose is not physician reimbursement based on a “principal diagnosis” (an inpatient concept) and not payment distribution tied directly to quality performance (that aligns more with MIPS/VBP frameworks). It also does not adjust capitation payments specifically “to physicians,” nor does it exclude advanced practice providers in the way described. The correct use is todetermine MA plan capitation paymentsthrough risk-adjusted member-level projections.
