Medicare Policy Change Will Advance Equity Among Hospitals Caring For Low-Income and Minoritized Populations

Safety-Net Hospitals Likely to See Up to $29 million in Increased Reimbursements

In 2026, the Centers for Medicare & Medicaid Services will introduce a health equity adjustment to its determination of hospital performance and payments in its cornerstone value-based payment program. The health equity adjustment is intended to acknowledge socioeconomic inequities that differentially affect US hospitals by assigning additional points to hospitals that treat a greater proportion of patients who are dually eligible for Medicare and Medicaid—a population that often requires additional time and resources to care for due to greater medical and social needs. 

In a national cross-sectional study of all 2,676 hospitals participating in Medicare’s Hospital Value-Based Purchasing Program (HVBP) in 2021, investigators at Beth Israel Deaconess Medical Center (BIDMC) estimated the potential impact of health equity adjustment on hospital performance and payments and examined which hospitals will benefit most from this policy change. The researchers report in that safety-net hospitals and those that treat a high proportion of Black patients—currently disproportionately penalized by the HVBP—are expected to experience the largest penalty reductions, with projected net-gains of almost $30 million and more than $15 million, respectively. In addition, rural and Southern hospitals will be more likely to benefit and receive net-positive changes in payment adjustments after the health equity adjustment is implemented.

Implemented in 2011, the HVBP is a mandatory program intended to improve quality of care while controlling costs. It rewards or penalizes participating hospitals from a pool of nearly $2 billion by adjusting the amount reimbursed for services based on measures of clinical outcomes, patient experience, safety, and efficiency. However, subsequent studies have shown that the HVBP and other value-based payment programs disproportionately penalize hospitals that care for disadvantaged and historically marginalized populations, while providing greater financial bonuses to those that do not. These inequitable penalties may exacerbate the financial instability of safety-net and rural hospitals, which are already operating on thin margins and closing at alarming rates, leaving many Americans in ever-worsening healthcare deserts.

“Value-based programs enacted over the past 15 years have been regressive because they do not account for patient social risk factors when comparing health system performance; however, directly adjusting quality and outcome measures for social risk is also controversial because it could be perceived as lowering the standard of care or obfuscating poorer outcomes among socially-vulnerable patients,” said corresponding author Rishi K. Wadhera, MD, MPP, MPhil, associate director of the Richard A. and Susan F. Smith Center for Outcomes Research at BIDMC and associate professor of medicine at Harvard Medical School. “Our findings demonstrate that Medicare’s new health equity adjustment has been thoughtfully designed to simultaneously address these concerns, successfully lowering penalties for disadvantaged hospitals while still incentivizing the provision of high-quality care.”

Wadhera and colleagues showed that in 2021, 55 percent of 2,676 hospitals participating in the HVBP received bonuses, while 45 percent incurred penalties. Their analysis revealed that the health equity adjustment would change the status of 17 percent of hospitals, reclassifying 10 percent, or 119, hospitals from penalty to bonus status. Safety-net and high-proportion Black hospitals were significantly more likely to experience increases in payment adjustments. Rural hospitals, as well as those located in the South and in Medicaid expansion states were also more likely to see increased payment adjustments after health equity adjustment is implemented compared to their urban, Northeastern, and Medicaid non-expansion state counterparts, respectively.

“Our findings clearly show that health equity adjustment is an important strategy to reduce the regressive nature of the HVBP and should be considered in current and future value-based payment programs,” said lead author, Michael Liu, MPhil, a research fellow at the Smith Center at BIDMC and medical student at Harvard Medical School. “Although health equity adjustment will increase payments to hospitals caring for underserved populations, it remains unclear whether this policy change will have a meaningful effect on other important outcomes. Future studies should evaluate the downstream impacts of payment redistribution on hospitals and their patients, such as hospital closures, racial and ethnic disparities in quality of care, and investments in initiatives that aim to address health inequities.”

Co-authors included Sahil Sandhu, MSc, of Harvard Medical School; and Karen E. Joynt Maddox, MD, MPH, of Washington University School of Medicine.

This research was funded by the National Heart, Lung and Blood Institute (grants R01HL164561 and K23HL148525), part of the National Institutes of Health. Wadhera receives research support from the National Heart, Lung, and Blood Institute and serves as a consultant for Abbott, CVS Health, and Chambercardio, outside the submitted work. Joynt Maddox reported receiving research support from the National Heart, Lung, and Blood Institute, the National Institute of Nursing Research, and the National Institute on Aging and receiving personal fees from Humana and Centene, outside the submitted work. No other disclosures were reported.