40 Background: Payers increasingly use the Hierarchical Condition Categories (HCC) as a measure of patient severity, guiding assessment of outcomes, predicting costs, titrating reimbursement, and risk adjusting value-based care (VBC) arrangements. HCCs are assigned to patients based on diagnoses reported and coded in inpatient and outpatient hospitals, and physician practices. Conventional belief has been that higher HCCs correlate with increased hospitalizations and higher spending for patient care. However, the impact of hospitalizations on HCC coding practices remains largely unexplored. Methods: Using deidentified public use Enhancing Oncology Model (EOM) baseline episode files (between 2016 - 2020), we grouped episodes based on inpatient admissions (INP vs NoINP) and analyzed the two-way relationship with coded HCCs. Results: Of the 1,533,420 episodes, 89% had one or more HCC documented. Key distributions are provided in Table1. Mean HCCs were higher (T- test, p<0.0001) for INP episodes, with more (4 or more) HCCs documented per episode. Inversely, episodes with 0 and 1 to 3 HCCs had the same hospitalization rates. Conclusions: Our research aligns with anecdotal knowledge suggesting that hospitals demonstrate greater agility and proficiency in HCC coding, resulting in an increased measurement of patient severity. Coding practices in hospital settings usually involve comprehensive chart reviews, data curation in specialized registries, optimized coding workflows, coding staff specializing in risk-adjustment coding, etc. Similar practices are generally lacking in physician practices. Patients with more HCCs experience more hospitalizations, but the relationship is not linear and unidirectional. Although elevated HCCs for INP episodes support the expenditures linked to hospitalization, VBC efforts to reduce avoidable hospitalizations may result in an underrepresentation of patients’ HCCs when care is predominantly delivered in outpatient and physician office settings. The effectiveness of HCC coding in physician practices is apt for further exploration. The accuracy of risk-adjustment relies on the efficiency of HCC coding. We register our skepticism regarding the ability of HCCs to accurately represent the true severity of patients who are not hospitalized. Measure INP(n=461,316) NoINP(n=1,072,104) All(n=1,533,420) Mean Total Spend $69,939 $52,727 $57,905 Mean Hospital Spend $22,344 - $6,722 Mean HCCs 2.80 2.30 2.45 % of Episodes with HCCs 0 16% 19% 18% 1 to 3 50% 58% 55% 4 or more 34% 23% 26% 0(n=277,452) 1 to 3(n=853,942) 4 or more(n=402,026) % of Episodes with Hospitalizations 27% 27% 39%