How to do risk-adjusted diagnosis coding the right way

Medical practices with risk-adjusted contracts must sharpen their diagnosis coding. Practices that are part of accountable care organizations (ACOs) or that have risk-adjusted contracts with commercial payers have an economic incentive to accurately report the disease burden of their patients. In fee-for-service medicine, physicians are paid based on the fee schedule associated with a CPT code, and any modifier attached to that code. The diagnosis code establishes the medical necessity for the service. Under a risk-based contract, the payment for an individual claim is still based on the CPT code.

However, the end-of-year adjustment can bring a bonus or a decrease in future reimbursement rates. The insurance company bases its assessment of the disease burden of an individual patient or a panel of patients on the diagnosis codes submitted on a claim form in a calendar year. The most well known risk-adjusted model is Hierarchical Condition Categories (HCCs) developed by Medicare to predict future costs in Medicare Advantage plans.


Risk models have two things in common. They are based on demographics and diagnosis. The demographics calculation includes the age and gender of the patient, whether the patient is living at home or in institution, if the patient is dually eligible for both Medicare and Medicaid, and if the patient has end-stage renal disease (ESRD).


Certain ICD-10-CM codes are assigned a risk-adjusted score. The HCC model assigns a risk score to about 9,000 diagnosis codes of the 70,000 ICD-10 codes. The assigned weight varies by the severity of the condition. A clinician does not need to have a list of these codes if he or she understands the key principles of risk-adjusted diagnosis coding.

The diagnosis codes that are counted in the risk calculation are those submitted for inpatient admissions, outpatient hospital services, and by medical practices and certain other professional claims. Diagnosis codes that are submitted on diagnostic tests are not included in the risk calculation. The payer calculates the risk score for each patient annually. Only diagnosis codes that were submitted on a claim form in a calendar year are counted in an individual patients risk score.

The ICD-10 rule

Medical practices must follow ICD-10 rules when reporting claims. ICD-10 says, “Code all documented conditions, which coexist at the time of the visit that require or affect patient care or treatment.” This is particularly important for medical practices that have risk-based contracts. When seeing the patient include conditions in the assessment and on the claim form, which are either treated at that visit or which affect patient care or treatment. And orthopedist who sends the patient to their cardiologist or family physician for a pre-surgical evaluation of heart disease should add the diagnosis code for the heart condition to the assessment. The heart disease affects the care of the orthopedist and should be added to the claim form when following ICD-10 rules.

Medical groups may be reluctant to ask physicians to learn another coding model. However, there are a few key principles that medical conditions need to remember. First, report all serious chronic and acute conditions that are treated or that affect treatment annually. The risk calculation is made for each patient each year based on the codes submitted on claim forms during that year. Second, if the patient has a manifestation or complication of a condition, report that specifically. These types of descriptions in a code are “with ulcer,” “with spasm,” “with bleeding.” Be specific. And finally, review and report the few status codes that risk-adjust. If a patient is hospitalized, the coders at the hospital will submit a claim that includes the acute condition. For patients who are seen in the office, following these principles will provide an accurate picture of their disease burden.

Primary care clinicians

Many primary care providers use the annual health assessment visit as an opportunity to review the patient’s chronic conditions. Others address wellness issues at the health assessment visit and schedule provide care for the patient’s chronic conditions at other visits. Whenever the patient is seen, document the patient’s serious chronic conditions once in a calendar year, and add those conditions to the claim form. Use specific codes whenever possible.

Acute visits also provide an opportunity to report underlying conditions, if they affect the decision making of the acute problem. Consider a diabetic patient who needs a short-term course of oral steroids. If the physician documents consideration of the effects of the steroids on blood sugars, also report diabetes in the claim form.


While our goal is to bill all conditions to the highest degree of specificity, it is especially important that physicians use specific codes for conditions they are treating. The cardiologist knows the type of heart failure, the psychiatrist the severity of the depression, and the surgeon the location of the Crohn’s disease and complications.

Status codes

The final chapter of the ICD-10-CM book is called “Factors influencing health status and contact with health service,” or status codes. There are many codes in this chapter from Z00—Z99, but only a few of them are assigned a risk-adjusted score.

These include:

  • Attention to/or status of artificial opening status, such as colostomy, ileostomy
  • Acquired, non-traumatic absence of toes or feet
  • Aftercare for/or status of heart, lung or liver transplant or bone marrow transplant
  • BMI ≥ 40, or BMI ≥ 35 with two significant chronic conditions, in which the obesity complicates the conditions
  • Renal dialysis status
  • Dependence on ventilator status
  • HIV positive
  • Long term, current use of insulin

Accurate and specific diagnosis coding of serious acute and chronic conditions provides insurers with a complete picture of the disease burden of individual patients and the panel of patients being cared for. No physician ever said, “My patients aren’t as sick as everyone else’s patients.” Communicate that to payers by the diagnosis codes submitted on claim forms.

Betsy Nicoletti is president, Medical Practice Consulting and author of Auditing Physician Services. She blogs at Nicoletti Notes.

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