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In 2020 Medicare reintroduced Alzheimer’s disease and related dementias (ADRD) Hierarchical Condition Categories (HCCs) to risk-adjust Medicare Advantage and accountable care organization (ACO) payments. The potential for Medicare spending increases from this policy change are not well understood because the baseline accuracy of ADRD HCCs is uncertain. Using linked 2016–18 claims and electronic health record data from a large ACO, we evaluated the accuracy of claims-based ADRD HCCs against a reference standard of clinician-adjudicated disease. An estimated 7.5 percent of beneficiaries had clinician-adjudicated ADRD. Among those with ADRD HCCs, 34 percent did not have clinician-adjudicated disease. The false-negative and false-positive rates were 22.7 percent and 3.2 percent, respectively. Medicare spending for those with false-negative ADRD HCCs exceeded that of true positives by $14,619 per beneficiary. If, after the reintroduction of risk adjustment for ADRD, all false negatives were coded as having ADRD, expenditure benchmarks for beneficiaries with ADRD would increase by 9 percent. Monitoring ADRD coding could become challenging in the setting of concurrent incentives to decrease false-negative rates and increase false-positive rates.