Health Equity Adjustments in Medicare HVBP Program Will Benefit Safety Net Hospitals, Study Says

Medicare’s upcoming health equity adjustment (HEA) in the Hospital Value-Based Purchasing (HVBP) program will significantly benefit safety net hospitals and those serving high proportions of Black patients, determined a recent study published in JAMA Health Forum.¹

The policy change, which will take effect in fiscal year 2026, will assign additional points—and therefore favorably reclassify bonus and penalty statuses—to hospitals serving higher proportions of patients who are dually eligible for Medicare and Medicaid.

The HVBP program began in 2012² and has since been a cornerstone value-based initiative for Medicare, giving financial bonuses or penalties to acute care hospitals based on quality measures surrounding patient outcomes, the patient experience, safety, and efficiency. However, the study authors explained that previous research shows hospitals serving disadvantaged and historically marginalized populations are disproportionately penalized under the HVBP program, while hospitals that do not serve these populations receive more substantial financial bonuses.

“Because the program adjusts for medical risk factors but not social risk factors that are strongly associated with performance measures, many clinicians and policy experts have raised concerns that the HVBP program is widening disparities in care by unfairly redirecting resources away from disadvantaged hospitals,” the authors wrote. Considering those concerns, CMS finalized significant policy changes to the HVBP program aiming to advance health equity, including the HEA for hospitals serving large proportions of dual-eligible patients beginning in fiscal year 2026.

The HEA will be calculated with 2 values: an underserved multiplier and a measure performance scaler. The underserved multiplier assigns a score between 0 and 1 based on the proportion of dual-eligible inpatient stays, and the measure performance scaler allocates 0, 2, or 4 points to hospitals in the bottom, middle, or top performance tercile, respectively.

Hospital corridor | Image credit: VILevi - stock.adobe.com

To estimate the potential effects of the HEA on hospital performance and payment adjustments and identify the characteristics of hospitals that may see favorable reclassification with the HEA, the study authors analyzed data from all 2676 hospitals participating in the HVBP program in 2021. The researchers calculated HEA points and HVBP payment adjustments (bonuses and penalties) using publicly available data on program performance and hospital characteristics linked to Medicare claims.

During fiscal year 2021, 1470 (54.9%) of the hospitals participating in the HVBP program received bonuses and 1206 (45.1%) received penalties. Factoring in HEA, 119 hospitals (9.9%) were reclassified to bonus status and 102 hospitals (6.9%) were reclassified to penalty status. Overall, there was a mean (SD) payment adjustment decrease of $4534 ($90,033) after HEA, with a maximum reduction of $1,014,276 and a maximum increase of $1,523,765.

Safety net hospitals saw the largest net-positive changes in payment adjustments at $28,971,708 at the aggregate level. Hospitals caring for a greater proportion of Black patients saw net-positive changes of $15,468,445 after HEA. Safety net hospitals were significantly more likely to experience increases in payment adjustments (574 of 683 [84.0%]) vs non­–safety net hospitals (709 of 1993 [35.6%]), with an adjusted rate ratio (ARR) of 2.04 (95% CI, 1.89-2.20). Additionally, hospitals serving a high proportion of Black patients were more likely to experience payment adjustment increases (396 of 523 [75.7%]) compared with hospitals not serving a high proportion of Black patients (887 of 2153 [41.2%]), with an ARR of 1.40 (95% CI, 1.29-1.51).

Other factors associated with increased payment adjustments after HEA were rural location vs urban (ARR, 1.44; 95% CI, 1.30-1.58), being in the South vs Northeast (ARR, 1.25; 95% CI, 1.10-1.42), and being in a Medicaid expansion state vs nonexpansion state (ARR, 1.16; 95% CI, 1.06-1.28).

The study authors noted several limitations, including the use of historical data when actual performance and the proportion of patients dually eligible for Medicare and Medicaid will be determined by fiscal year 2026 data. Also, the determination of hospitals treating a high proportion of Black patients was done using Medicare hospitalizations, but the authors noted that recent evidence suggests the proportion of Medicare discharges for Black patients is nearly the same as the proportion of all discharges.

Overall, the findings suggest the addition of HEA to the HVBP program will help mitigate the disproportionate penalization of safety net hospitals, hospitals serving high proportions of Black patients, and others. The authors also highlighted the thoughtfulness of the policy change, which adjusts payments rather than the current quality measures to avoid changes in performance requirements. And while the HEA will lower penalties to disadvantaged hospitals, the measure performance scaler incentivizes high-quality care. Relative to alternative approaches, the authors argue the final policy change maximizes benefits to disadvantaged hospitals while optimizing the total payment adjustments overall.

“The findings of this study suggest that HEA is an important first step toward mitigating the regressive nature of value-based payment programs,” the authors wrote. “However, the HVBP program is still built on and constrained by the traditional fee-for-service architecture; the movement toward population-based models may enable more innovative and progressive approaches to advance health equity.”

Reference

1. Liu M, Sandhu S, Joynt Maddox KE, Wadhera RK. Health equity adjustment and hospital performance in the Medicare Value-Based Purchasing program. JAMA. Published online March 27, 2024. doi:10.1001/jama.2024.2440

2. CMS issues final rule for first year of hospital value-based purchasing program. CMS. Fact sheets. April 29, 2011. Accessed March 29, 2024. https://www.cms.gov/newsroom/fact-sheets/cms-issues-final-rule-first-year-hospital-value-based-purchasing-program