Advancing Equity Versus Quality In Population-Based Models: Lessons From The New Proposed Rule

Editor’s Note:

This article is the latest in the Health Affairs Forefront series, Accountable Care for Population Health, featuring analysis and discussion of how to understand, design, support, and measure patient-centered, cost-efficient care under the umbrella of accountable care.

This article is written by Joshua Liao and Amol Navathe in response to the latest developments in policy and research affecting accountable care. Other authors will contribute to the series as well.

Additional articles will be published throughout 2023. Readers are encouraged to review the Call for Submissions for this series. We are grateful to Arnold Ventures for their support of this work.

In its Proposed Rule released in May 2023, The Centers for Medicare and Medicaid Services (CMS) put forward a significant change to the Hospital Value-Based Purchasing (VBP) program, a longstanding program that compares a hospital’s performance on a set of measures to performance from a full set of hospitals nationwide. Under the proposed change, hospitals serving a greater percentage of dual-eligible patients would receive an equity adjustment that increases their quality performance scores – and in turn, performance scores for the payment program overall.

While this change focuses on payments to hospitals, this proposed change echoes a similar strategy implemented in prior rulemaking among a subset of accountable care organizations (ACOs). The expansion of type of equity-adjusted approach signals policymakers’ intent for incorporating equity considerations into value-based payment policy, and poses implications for future ACO, primary care, and other population-based models.

Proposed Health Equity Adjustment

The statutory requirements of the Hospital VBP program are set forth in Section 1886(o) of the Social Security Act, and participation is mandatory for hospitals receiving inpatient prospective payments from CMS (with some exceptions). Through this program, the agency holds back a portion of total hospital payments and redistributes those funds based on hospital performance in domains first specified in the predecessor Hospital Inpatient Quality Reporting Program, such as patient safety, efficiency and cost reduction, and patient experience, and clinical outcomes (e.g., healthcare associated infections, complications, mortality). Hospitals are scored on a range of 0-100 and then compared to each other across the program: those with comparatively higher scores receive additional payments from withheld funds and those with lower scores receive payment reductions.

Against this backdrop, CMS is proposing to augment certain hospitals’ performance scores through what the agency is calling a health equity adjustment (HEA). This adjustment could translate into as many as 10 additional points and would be based on two factors: a hospital's relative performance on measures in the VBP program, and the proportion of a hospital's patients who are dually eligible for Medicare and Medicaid.

Hospitals’ Relative Performance

CMS would assess relative performance by comparing each hospital’s performance to other hospitals in a given domain. Hospitals in the top third of performance among participating organizations receive 4 points; hospitals in the middle third receive 2 points; and hospitals in the bottom third receive 0 points. These points are summed into what CMS calls a “measure performance scaler” (across 4 domains in the program, hospitals could receive a maximum of 16 measure performance scaler points).

Hospitals’ Proportion Of Dually-Eligible Patients

For each hospital, CMS would use baseline data to calculate an “underserved multiplier”, defined as the number of inpatient stays for dual-eligible patients out of the total number of inpatient Medicare stays.

Hospitals would earn up to 10 HEA bonus points as a product of their measure performance scalers and underserved multipliers. In its proposed change, CMS would not adjust how performance overall performance and points translate into hospital payment adjustments.

Implications For Population-Based Care

The HEA is not the first attempt at using a “bonus point” based approach to promote equity in value-based payment policy. In prior rulemaking from late 2022, policymakers implemented a similar health equity adjustment in population-based models, targeting ACOs participating in the Merit-Based Incentive Payment System (MIPS). Due to that rule change, MIPS-participant ACOs reporting all-payer electronic clinical quality measures are eligible for equity bonus points based on their quality measure performance as well as the proportion of their underserved populations (defined using Medicare and Medicaid dual-eligibility status, enrollment in low-income subsidy, and area deprivation index score).

The proposed equity adjustment in the hospital VBP program builds on this prior work among ACOs while representing several potential precedents itself. The proposed HEA is the first time Medicare has used equity considerations to augment performance scores for organizations at national scale in a mandatory value-based payment model. Additionally, the proposed HEA goes beyond MIPS ACO adjustments by augmenting organizations’ performance across all domains, not just quality performance. Finally, the proposed HEA would be implemented within a program in which organizations are exposed to the risk of financial loss. This contrasts prior policies, as MIPS ACOs have tended to be those not subject to downside financial risk (ACOs exposed to such risk are categorized as advanced alternative payment models.

Therefore, if finalized, the proposed HEA would set the stage and indicate a broader approach for incorporating equity into other broader, more advanced, and potentially mandatory future payment programs. The implications of this shift would be particularly salient to population-based care amid efforts to shift all Medicare beneficiaries and most Medicaid beneficiaries to such arrangements by the end of this decade.

Importantly, policy and practice leaders should recognize that despite its name, the HEA is not truly an equity adjustment strategy. Rather, it is as a performance adjustment approach to more generously support health care delivery organizations that serve more low-resourced patients compared to those serving fewer. Ostensibly, the underlying rationale is that hospitals may need to expend more resources and effort to achieve a level of performance for lower-income patients than would be needed for higher-income patients.

It is certainly laudable to reward organizations that achieve high quality outcomes while serving low-income or other historically marginalized populations. As policymakers noted in their prior rulemaking around MIPS ACOs, an “equity points”-based approach could also incentivize population-based model participants to serve more individuals from marginalized groups.

While worthwhile, adjusting payments on the basis of populations served is different than adjusting payments on the basis of disparity reduction across populations. The proportion of admissions accounted for by dual-eligible individuals does not itself reflect the presence or extent of disparities that exists between dual-eligible and other populations. A hospital’s dual-eligible share also does not necessarily reflect if and how performance in the VBP program reduces, exacerbates, or otherwise fails to affect disparities in care. In other words, a hospital serving a relatively high proportion of dual-eligible patients will still garner outsized benefit from performance increases among its non-dual-eligible patients, even if those performance increases widen disparities gaps.

This distinction – performance adjustments that reward high performance across populations versus equity adjustments that reward closing disparities between populations – is highly salient as policymakers continue to design population-based payment programs directly intended to address equity, such as the recent ACO REACH and forthcoming Making Care Primary models. In fact, by emphasizing overall performance versus disparity reduction, the HEA mirrors other emerging strategies, such as health equity benchmark adjustments that increase financial benchmark targets for lower-income individuals living in more socioeconomically disadvantaged areas.

To promote true equity – that is, reducing or eradicating disparities between historically marginalized and other patient groups –population-based models must go beyond bonus points and incorporate strategies that directly address disparities and promote equitable outcomes.

For instance, ACOs, direct contracting and other population-based programs could directly measure population-level inequities in relevant quality outcomes by assessing performance stratified by measures of equity, not just assessing overall performance. As another example, payment incentives in population-based models could reward participating organizations that achieve relative and/or absolute reductions in quality disparities. Measuring both relative and absolute progress could help encourage performance improvement from any starting point without creating a “two-tiered” model with lower standards for historically marginalized groups. These strategies could pair with equity bonus point adjustments, as well as an array of other policy design approaches, to drive equity through population-based payment and care.

Equity In Adjustment

The recent proposed rule includes a health equity adjustment that would for the first time, augment organizations’ performance at a national scale in a mandatory value-based payment program involving downside financial risk. Though directed at hospitals, this change builds on precedent in population-based models and signals a broader potential policy direction.

While potentially beneficial for population-based care, the proposed equity adjustment should be recognized for what it is (a way to encourage organizations that the care for many patients from historically marginalized populations to achieve good performance) and despite its name, what it is not (a way to incentivize greater equity in outcomes between historically marginalized and other populations). Amid efforts to scale up population-based models nationwide, this recognition can help policymakers precisely align program design with policy intent. Doing so can encourage an array of policy strategies alongside bonus point-based adjustments that directly address health inequities.