Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program

Area of Science:

• Health Policy
• Healthcare Economics
• Health Equity

Background:

• Medicare's Hospital Value-Based Purchasing (HVBP) program incentivizes hospitals to improve care quality.
• A new Health Equity Adjustment (HEA) will be implemented in fiscal year 2026 to support hospitals serving dual-eligible Medicare and Medicaid patients.
• The impact of HEA on hospital performance and payment distribution remains largely unknown.

Purpose of the Study:

• To estimate the potential changes in hospital performance due to the HEA.
• To identify hospital characteristics associated with increased payments under the HEA policy.
• To analyze the redistribution of payments across different hospital types.

Main Methods:

• Cross-sectional analysis of 2676 hospitals in the HVBP program (fiscal year 2021).
• Linked public program data with Medicare claims for dual-eligible beneficiaries.
• Calculated HEA points and HVBP payment adjustments to simulate policy impact.

Main Results:

• 102 hospitals shifted from bonus to penalty, while 119 shifted from penalty to bonus status after HEA simulation.
• Mean HVBP payment adjustments decreased by $4,534 post-HEA, with wide individual hospital variations.
• Safety net hospitals and those serving a higher proportion of Black patients received the largest net-positive payment adjustments.
• Rural hospitals and those in the South or Medicaid expansion states were more likely to see increased payments.

Conclusions:

• The HEA in the HVBP program is expected to significantly reclassify hospital performance and redistribute payments.
• Safety net and high-proportion Black patient-serving hospitals are projected to benefit the most.
• The HEA represents a significant strategy for enhancing equity within Medicare's value-based payment initiatives.