What risk adjustment is
Risk adjustment corrects for the fact that some patients cost more to care for than others. Without it, a practice with older, sicker patients would look expensive next to one with healthy patients. It would also lose money under any contract that pays a fixed amount per person.
Medicare uses the CMS-HCC model for Medicare Advantage payments and for ACO benchmarks. The model reads diagnosis codes from claims and encounter data and groups them into Hierarchical Condition Categories. It then adds demographic factors such as age and Medicaid eligibility. Each condition must be documented again every calendar year or it drops out of the score.
Accurate risk adjustment is about complete documentation, not inflated coding. CMS audits Medicare Advantage risk scores through Risk Adjustment Data Validation (RADV) reviews, and payments tied to unsupported codes can be recovered. The practical work is getting patients with chronic conditions seen each year so those conditions are assessed and recorded.