Navigating Risk Adjustment in a Changing Healthcare Landscape
Written by: Joy Rose, MSA, RHIA, CCS, CHA, CHPS
In 2026, Hierarchical Condition Category (HCC) coding continues to evolve as a central pillar of risk adjustment in value-based care. Initially introduced by the Centers for Medicare & Medicaid Services (CMS) to project healthcare costs and determine payments for Medicare Advantage (MA) plans, HCC coding has become a strategic necessity across multiple payers and care settings.
Medicare Advantage Organizations (MAOs) are paid at a higher rate for patients who have conditions with greater levels of severity and multiple conditions, as their RAF scores and anticipated costs of care will be higher.
Key 2026 Medicare Advantage (MA) Cost Reporting Requirements
CMS requires Medicare-certified acute care hospitals reimbursed under the IPPS (inpatient prospective payment system) to report median negotiated payment rates from Medicare Advantage (MA) plans by MS-DRG on their annual cost reports for cost reporting periods ending on or after January 1, 2026.
This mandate aims to collect market-based data to set future inpatient prospective payment system (IPPS) relative weights.
- Data will be used to set future MS-DRG weights likely by Fiscal Year 2029.
- This requirement adds significant complexity to an already error-ridden annual Cost Report process.
Providers must ensure the accurate reporting of MA negotiated rates to avoid potential audit findings, as this data will influence future payment setting.
New in 2026 - Full transition to V28 Model has occurred
One of the biggest updates in 2026 is the full implementation of the CMS-HCC V28 model, which was first introduced in 2023. This model includes significant changes:
- More clinically relevant or accurate groupings, especially for chronic conditions like diabetes and congestive heart failure.
- Expanded but refined HCC categories: V28 increases the number of HCC categories from 86 to 115, creating more granular groupings while reducing additive combinations.
- Renumbering and changing HCC categories.
- Removal of some condition codes that were found to be less predictive of future healthcare costs.
- Reduction in the number of ICD-10-CM codes from 9,797 to 7,770 (approximately 2294 codes deleted and 268 codes added)
- More accurate clinical data and the use of data-drive results with the use of 2018 ICD-10-CM codes and 2019 payment information.
Healthcare providers must now re-map workflows for diagnosis coding processes and re-educate coding staff to ensure accurate code assignment based on the documentation provided by clinicians.
Greater Emphasis on Documentation Integrity - With more sophisticated audits by CMS and private payers, clinical documentation improvement (CDI) remains a top priority. Inaccurate or unsupported codes now carry steeper compliance risks, and real-time documentation tools are being widely adopted to assist clinicians. Clinicians must be educated and trained about the new model which will require even greater specificity in documentation and code assignment to ensure that the true level of the Medicare Advantage patients’ illness severity is captured and transmitted to CMS for appropriate costs analysis.
AI and NLP Integration - Natural Language Processing (NLP) and artificial intelligence (AI) tools are increasingly embedded in EHR systems to assist in identifying undocumented HCCs and improving capture rates. These tools help flag missed conditions, identify hierarchical overlaps, and ensure that chronic conditions are properly documented and reported annually. AI has its limitations according to a colleague managing denials.
Important Note - The AI tool that is being tested a major Boston medical facility is not intelligent enough to find HCCs, or even ICD-10 codes to ensure a robust denial can be created. The medical team working with the denials team does not approve the AI findings in about 80% of the AI suggestions.
Key Challenges - Training and education remain critical as coding teams and clinicians adjust to new rules and technology. In addition, there is coding fatigue from increased workload and regulatory pressure may affect coder accuracy and job satisfaction.
Providers must also balance HCC optimization with ethical standards and compliance, avoiding aggressive or unsupported upcoding practices. It is important for organizations to realize there is increased CMS scrutiny, by flagging providers as high-volume billing outliers or submitting claims with unusually high severity levels.
Opportunities:
- Risk-adjustment data analytics now allow organizations to benchmark performance and track documentation trends in real time.
- Proactive condition management enabled by accurate HCC coding allows payers and providers to better target care management and reduce preventable costs.
- Interoperability and FHIR-based data exchange in 2026 enable smoother sharing of clinical data across systems, improving longitudinal risk tracking.
- Increased focus on severity of patient diagnosis and claims by CMS
Real World Impact
As CMS moves further into outcome-based models and enhances its oversight of MA payments, the role of HCC coding will only grow in significance. Health systems that invest in robust CDI programs, AI-assisted coding tools, and clinician training will be better positioned to thrive in this value-based future.
Some analysts warn the shift could lower RAF scores 10-20% for providers still relying on V24-era documentation habits, since patients whose only qualifying condition was deleted in V28 effectively disappear from risk registries. Plans with large diabetic populations that previously captured a lot of complication-related detail are seeing the steepest declines, though expanding documentation breadth across different disease families can partly offset this.
Because of the revenue pressure, CMS/OIG have signaled they'll be watching closely for organizations overcompensating with inflated severity coding.
About the Author
Joy Rose, MSA, RHIA, CCS, CHA, CHPS is a member of the American Institute of Healthcare Compliance (AIHC) and serves as a subject matter expert on the AIHC Volunteer Education Committee.
References:
- Chirok Health, 2026, https://chirokhealth.com/blog/cms-hcc-v28-model-raf-score-drop-2026/
- The Centers for Medicare and Medicaid, https://www.cms.gov/newsroom/press-releases/cms-rolls-out-aggressive-strategy-enhance-accelerate-medicare-advantage-audits
- American Medical Association, 2026, https://www.ama-assn.org/practice-management/payment-delivery-models/aligning-payment-and-care-value-based-practice-models
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