Hospitals with Health Equity Factors Face Value-Based Penalties

Hospitals with more medically complex patients, uncompensated care, and patients who live alone are more likely to receive a penalty under CMS value-based payment programs, according to a new study calling for change to the programs.

The study from the Federation of American Hospitals and Dobson DaVanzo and Associates, LLC suggests value-based payment programs like the Hospital Readmissions Reduction Program (HRRP), the Hospital Value-Based Purchasing (VBP) Program, and the Hospital-Acquired Condition (HAC) Reduction Program do not adequately account for Health equity factors when determining incentive payments. The first two programs were implemented in 2012, while the latter launched in 2014.

The CMS value-based payment programs aim to promote quality improvement by adjusting inpatient reimbursement based on hospital performance on quality measures. Other goals include decreasing adverse events and making hospital quality more transparent.

But some of a hospital’s performance is beyond its control, the study finds.

Larger hospitals, major teaching hospitals, and some hospital groups with higher disproportionate share hospital (DSH) percentages were more likely to be penalized in fiscal year (FY) 2015 and FY 2021, according to the analysis. This was especially true in the Hospital VBP Program.

For the HAC Reduction Program, hospitals whose catchment-area communities were more resilient (meaning lower-risk communities) were less likely to receive penalties compared with the quartile of hospitals with the least resilient communities. Additionally, hospitals in the first and third quartiles were more likely to receive a penalty than hospitals in the last quartile under the HRRP.

Researchers also found that “living alone,” a proxy for lack of caregiver support and a risk factor for poor health outcomes, had a strong association with hospital value-based penalties across all three programs, while other health equity factors like poverty and unemployment were not statistically significant variables. Poverty and unemployment are generally considered social drivers of health, but they might or might not be predictive of penalties, the study says.

Finally, hospitals with lower average HCC scores (less complex) were generally less likely to receive a penalty compared to hospitals with the highest average HCC scores (more complex). And these findings were statistically significant for hospitals with the lowest average HCC score under the HAC Reduction Program and for hospital quartiles one and two under the Hospital VBP Program and the HRRP.

Hospitals with the highest relative portion of uncompensated care cost were somewhat more likely to receive penalties in two of the three programs (the HRRP and the HAC Reduction Program).

“The ideal is for CMS value-based programs to use measures that are valid, feasible, and accurate (in that they accurately assess hospital performance) and for the payment adjustments applied (penalties and bonuses) to incentivize better health outcomes,” researchers explain in the study. “To reach this ideal, a critical component is to ensure that value-based programs account not only for hospitals’ risk-adjusted performance but also for patient and community health equity risk factors—largely beyond hospitals’ control—that influence patient outcomes.”

CMS has taken steps to account for health equity factors. For example, the agency implemented dual-eligible peer groups in the HRRP. However, the study shows that more analysis is needed to identify individual factors influencing hospital performance and reimbursement.

“Exploring which community-based explanatory variables are statistically and programmatically meaningful through additional research and beginning to collect these data for Medicare patients will advance understanding and support future policy options that adjust penalties, and perhaps broader quality measures and payments, on the basis of the identified community health equity risk factors,” the study states.