Risk Adjustment Factor: A Guide to Understanding Scores, Payment, and Patient Care

From payment rates to compliance audits, risk adjustment factors shape the financial health of both advanced primary care (APC) organizations and the Medicare Advantage (MA) plans they partner with. For APC providers, risk adjustment determines the resources available to manage high-risk populations and succeed under value-based care contracts. For health plans, it drives revenue, benefit design, and compliance obligations tied to member complexity.

Because APC organizations work closely with MA plans to meet quality benchmarks, manage chronic conditions, and control costs, risk adjustment serves as the bridge between financing and care delivery—linking fair payments with better patient outcomes.

Here’s what you need to know to manage risk scores effectively and turn them into a strategic advantage.

What is risk adjustment?

Risk adjustment is the method CMS uses to estimate the cost of treating a patient in a given year based on their demographics and health conditions.¹ It ensures Medicare Advantage plans are paid fairly for the risk profiles of their members. Plans receive higher payments for higher-need patients and lower payments for healthier ones, leveling the playing field so insurers can serve all populations—not just the lowest-cost groups.

What is a risk adjustment factor?

A risk adjustment factor is a numeric value used to predict the expected cost of care for an individual based on the individual’s demographics. It accounts for:

• Age

• Sex

• Diagnosed health conditions

• Socioeconomic status

CMS applies risk adjustment factors at the member level to calculate payments to Medicare Advantage plans.

What is a risk adjustment factor score?

A risk adjustment score represents the predicted cost of treating a specific patient or group of patients compared to the average Medicare beneficiary.

• Higher scores reflect members likely to need more services (e.g., multiple chronic conditions).

• Lower scores reflect healthier patients with fewer expected costs.

These scores determine how much CMS pays Medicare Advantage plans each month, directly influencing plan revenue and benefit design.

How risk adjustment scores are calculated

Risk adjustment scores are based on diagnosis codes. Providers must document each patient’s conditions during visits, which are then submitted on claims. CMS maps those ICD codes into Hierarchical Condition Categories (HCCs). Higher-severity conditions override less severe ones, and demographics are added to create a total risk adjustment factor score.²

The process includes:

1. Provider documentation: Diagnoses are captured during visits, screenings, and assessments.

2. Claims submission: Health plans submit this data to CMS.

3. HCC grouping: Diagnoses are mapped into HCCs, with higher-severity conditions overriding less severe ones.

4. Score calculation: Demographics and HCCs add up to the member’s total risk adjustment factor score.

How scores vary by patient complexity

Consider two hypothetical patients:

• A 72-year-old man with hypertension and moderate chronic obstructive pulmonary disease may have a risk adjustment score close to 1.1, slightly above average.

• An 80-year-old woman with heart failure, diabetes with complications, and depression might have a score around 2.5, more than double the average.

These examples highlight how risk adjustment scores scale with patient complexity, directly influencing the payments that plans receive and the resources available to APC organizations.

How CMS keeps risk scores accurate

Risk adjustment is designed to reflect real patient needs, but without safeguards, scores could drift upward or downward simply because of differences in coding practices. To keep the system fair, CMS applies two key adjustments:³

• Normalization: CMS recalibrates risk scores each year so that the average national score equals 1.0. This prevents the overall population from appearing “sicker” or “healthier” just because of coding changes or demographic shifts, keeping plan payments stable over time.

• Coding Intensity Factor (CIF): CMS also adjusts for variations in how thoroughly organizations document diagnoses. Some may capture more conditions than others, which could artificially inflate scores. To offset this, CMS applies a symmetric 3 percent cap on how much scores can grow or decline year over year for Standard and New Entrant Direct Contracting Entities.

Together, normalization and the CIF protect program integrity by ensuring payments reflect actual patient complexity, not just differences in coding behavior. For providers, the takeaway is clear: these adjustments don’t change how you should document. The goal remains accurate, comprehensive coding of every relevant diagnosis so patients are represented correctly and organizations are reimbursed fairly.

Why risk adjustment factors are critical

Risk adjustment factors directly determine whose revenue is at stake: for Medicare Advantage plans, they set monthly payments from CMS; for APC organizations, they define the budgets and incentives tied to those payments. In both cases, accurate scores ensure financial stability and reduce compliance risks by aligning payments with member complexity.

Beyond payment, risk adjustment also shapes both health plan and provider strategy in key ways:

• Financial sustainability: Monthly, risk-adjusted payments provide the foundation for benefits, care programs, and staffing.

• Compliance: CMS validates scores through Risk Adjustment Data Validation (RADV) audits to ensure accuracy.

• Program design: Risk adjustment factor data spotlights high-risk members who may need targeted interventions, chronic disease management, or social support.

Evolving risk adjustment models

Risk adjustment is not static, and CMS continually updates its methods to improve accuracy and reduce improper payments.

In 2026, CMS will complete the three-year transition to the 2024 CMS condition categories (HCCs) risk adjustment model, meaning all Medicare Advantage risk scores will be calculated using this updated methodology.⁴

The 2024 CMS-HCC model also reflects a major technical change: the shift from ICD-9 to ICD-10 coding. This update expands the number of HCCs but narrows the diagnosis codes that map to them, requiring providers to be more precise in their documentation.

RADV audits now extrapolate payment errors across entire populations,⁵ which means even small coding inaccuracies can have outsized financial consequences for Medicare Advantage plans—and by extension, for the APC organizations that rely on those payments to fund care management and incentive programs.

Best practices for health plans and providers

Accurate risk adjustment depends on strong collaboration between payers and providers. 

For MA health plans, especially those partnering with APC models, best practices include:

• Educating contracted providers on documentation standards.

• Conducting regular audits to catch errors before submission.

• Investing in analytics tools that track risk adjustment factors trends across populations.

These steps reduce compliance risks and help ensure payments align with the true complexity of members.

For APC providers, the priority is accurate and comprehensive documentation. Clinicians and care teams can:

• Capture all relevant diagnoses to reflect patient complexity.

• Use risk adjustment factor insights to identify high-risk patients and design targeted interventions.

• Reduce avoidable hospitalizations through proactive outreach and care management.

In advanced primary care settings, best practices go a step further. Organizations can embed risk adjustment factors data into population health dashboards, use scores to prioritize preventive visits, and train care teams to act quickly on risk alerts, turning payment data into actionable strategies that improve outcomes.

What risk adjustment means for advanced primary care

While risk adjustment is primarily a payment mechanism for Medicare Advantage, its impact extends directly into advanced primary care organizations. Risk adjustment factor scores help APC organizations see the full picture of patient complexity, prioritize outreach, and align with payer expectations.

In practice, APC teams can use risk adjustment data to:

• Direct resources toward chronic disease programs, preventive visits, or behavioral health support.

• Intervene earlier to reduce avoidable hospitalizations and improve outcomes.

• Maintain cost control while delivering more patient-centered care.

This makes APC organizations the clinical engine that allows Medicare Advantage plans to succeed under risk-based payment models—turning fair financing into effective, sustainable care delivery.

Connecting financing and care delivery

For Medicare Advantage plans, risk adjustment ensures payments match member complexity. For advanced primary care organizations, those payments translate into resources that support prevention, chronic disease management, and patient engagement.

Together, Medicare Advantage plans and their APC partners demonstrate two sides of the same value-based equation: fair financing and effective care delivery. By mastering risk adjustment—understanding how scores are calculated, how CMS safeguards accuracy, and how providers apply these insights—healthcare leaders can build both financial stability and better patient outcomes.

References

1. CMS. (n.d.). Risk adjustment key concepts. Centers for Medicare & Medicaid Services. https://www.cms.gov/priorities/innovation/key-concepts/risk-adjustment

2. CMS. (2024, April 1). Announcement of Calendar Year (CY) 2025 Medicare Advantage capitation rates and Part C and Part D payment policies. Centers for Medicare & Medicaid Services. https://www.cms.gov/files/document/2025-announcement.pdf

3. CMS. (2022). PY2022 Direct Contracting / Kidney Care Choices risk adjustment technical specifications. Centers for Medicare & Medicaid Services. https://www.cms.gov/priorities/innovation/media/document/dc-kcc-risk-adjustment-feb2022

4. CMS. (2025, April 7). CMS finalizes 2026 payment policy updates for Medicare Advantage and Part D programs [Press release]. Centers for Medicare & Medicaid Services. https://www.cms.gov/newsroom/press-releases/cms-finalizes-2026-payment-policy-updates-medicare-advantage-and-part-d-programs

5. CMS. (2023, January 30). Medicare Advantage Risk Adjustment Data Validation final rule (CMS-4185-F2) fact sheet. Centers for Medicare & Medicaid Services. https://www.cms.gov/newsroom/fact-sheets/medicare-advantage-risk-adjustment-data-validation-final-rule-cms-4185-f2-fact-sheet