Hospital Risk Stratification Leads To Equitable Value-Based Payment

When hospitals in the Hospital-Acquired Condition Reduction Program (HACRP) were stratified by social risk, value-based penalties for safety-net hospitals decreased, according to a new study published in JAMA Internal Medicine. 

Researchers used performance data and hospital cost reports for a total of 3,102 hospitals participating in the HACRP during fiscal year 2020 (spanning data from July 1, 2016, to December 31, 2018).

To assess the impact of HACRP social risk stratification on value-based penalties, the study authors divided hospitals into five groups based on their “proportion duel,” the ratio of patients dually enrolled in Medicare and Medicaid. Proportion duel is a factor strongly associated with adverse patient outcomes. Penalties were assigned to the lowest-performing hospitals in each quartile rather than the lowest-performing quartile overall.

Before stratification, approximately 34 percent of safety-net hospitals were penalized, compared to 25 percent after stratification, leading to a net savings of $32 million. Safety-net hospitals that treat patients with highly medically complex conditions had greater odds of moving from penalized to nonpenalized status.

“Safety-net hospitals, which have low operating margins and rely on volatile, nonclinical sources of revenue to offset costs, are disproportionately affected by value-based payment programs, as are the patients they serve,” the study authors wrote. “Stratification of the HACRP provides substantial financial relief for the safety net while narrowing disparities among the hospitals selected for and spared from penalization.”

Public hospitals, hospitals in Medicaid expansion states, and hospitals caring for the most patients from racial/ethnic minority backgrounds or patients with disabilities were also less likely to receive penalties post-stratification.

The difference in penalties was most significant for California hospitals, which received $17 million less in penalties after stratification.

As CMS implements value-based payment programs, social risk stratification may help establish equitable quality measures to ensure hospitals are not penalized simply because they are operating in communities with greater poverty and social risk factors.

“The HACRP has been controversial, in part because hospitals serving a greater proportion of patients from minority, low-socioeconomic, and other disadvantaged backgrounds, as well as those serving more patients with medically complex conditions, are more likely to have worse performance scores than the national benchmark and to receive penalties,” the authors wrote.

Therefore, evaluating all hospitals in the HACRP in one group could exacerbate health disparities by withholding Medicare dollars from hospitals that care for the greatest number of vulnerable patients.

Another value-based payment scheme, the Hospital Readmissions Reduction Program (HRRP), uses social risk stratification. In 2016, Congress passed the 21st Century Cures Act which mandates that HRRP hospitals be stratified into quintiles based on their proportion duel.

Under this new policy, safety-net hospitals in the HRRP were significantly more likely to see a reduction in penalties compared to pre-stratification, with an estimated total decrease of $22 million.

Based on the success of stratification in the HRRP and this new study’s findings, CMS should consider adopting stratification by proportion dual when assessing hospital performance in the HACRP.

The researchers noted that one possible critique of stratifying hospitals within the HACRP is that safety-net hospitals may do worse under the program because they have fewer resources and perform less quality improvement work.

“Stratification would not let any hospitals off the hook per se; it would simply acknowledge that underlying differences in patient population that impact susceptibility to infection and other adverse in-hospital outcomes need to be accounted for,” the authors wrote. “Safety-net hospitals would still have strong incentive to reduce adverse events but would be more fairly judged against other facilities with a more similar case mix."