An alternative to fee-for-service

Medicare Advantage (MA) is an increasingly popular alternative to fee-for-service Medicare; nearly half of all Medicare beneficiaries are enrolled in MA. Rather than pay health providers by volume, CMS pays the private plans that participate in Medicare Advantage a fixed amount per month based on the number of patients covered (adjusted for patient risk).

In theory, this capitated payment plan should reduce incentives for clinicians to perform low-value services since the plans are on the hook for the cost. However, previous research on low-value care among Medicare Advantage beneficiaries found that rates of low-value imaging and cancer screening were similar in both Medicare plans, and that rates of overuse of antibiotic prescriptions and other medications were actually higher among patients enrolled in MA than those in traditional Medicare.

Potential for less overuse in Advantage

Now, a recent study in JAMA Health Forum adds some support to the theory of less overuse in Medicare Advantage. Researchers from Humana, the second-largest Medicare Advantage company in the country by enrollment, used claims data from about 2.5 million patients to compare rates of overuse for about two dozen low-value services in 2019. They found that after adjusting for patient characteristics, geographic region, and patient risk, those enrolled in MA received fewer low-value services overall than those in traditional Medicare. In MA, the rate of low-value services was 23.07 for every 100 beneficiaries, compared to 25.39 for every 100 beneficiaries in traditional Medicare.

In particular, MA beneficiaries were less likely to receive arthroscopic knee surgery, vertebroplasty, low-value cervical cancer screening, unnecessary hormone measurement for chronic kidney disease, and low-value carotid artery screening.

However, MA plans did not avoid all types of overuse. MA enrollees were more likely to have stents for stable coronary disease, head imaging for uncomplicated headache, and back imaging for nonspecific low-back pain. For about one-third of the services measured, rates of overuse for MA beneficiaries were not significantly different from traditional Medicare.

How value-based care can reduce overuse

The study results indicate that Medicare Advantage plans can lead to reductions in certain low-value services. The study also provides clues as to the mechanisms behind this relationship.

The authors compared not only MA vs regular Medicare, but also different types of MA plans like Health Maintenance Organizations (HMOs), which have lower premiums but restrict patients to a particular network of clinicians, and Preferred Provider Organizations (PPOs) which are generally more expensive but allow for out-of-network visits. The results showed that HMO participants received less low-value care than those in PPOs. The authors suggest that there is less overuse in HMOs because these plans require a refer from primary care before seeing a specialist, which could cut down on unnecessary specialty care like cardiac or orthopedic tests and procedures.

The study also found that plans that included value-based primary care models had the largest reductions overuse, particularly plans with “2-sided risk,” meaning that primary care clinicians are both financially rewarded for reducing waste and dinged for overuse.

The disadvantages to MA

These study findings are encouraging, especially as Medicare Advantage continues to grow in popularity. However, MA is far from a panacea on reducing overuse. For one, the differences between MA and traditional Medicare, while statistically significant, were still pretty small — and some expensive low-value procedures like cardiac stents were more prevalent among MA participants.

Recent investigations of Medicare Advantage plans show other downsides to this payment model. When you pay plans a set amount for each patient based on their risk, it incentivizes “upcoding” — ascribing as many diagnoses as possible to patients to make them seem sicker than they really are, thereby increasing the payment the plan receives. Plans are also more likely to cherry-pick patients who are healthier and need less care, or even to deny needed care in order to save money.

“We’ve literally created a nonproductive industry where there are businesses that collect diagnoses on Medicare Advantage solely for the purpose of getting paid — not to improve the care that these folks receive, but to improve the payment that the plans receive,” said Sean Cavanaugh, former Medicare official.

There is still a lot we don’t know about the relationship between Medicare Advantage and overuse, especially when it comes to hospital care. Are hospitals with more MA patients less likely to deliver low-value care? Do hospitals change their behavior when taking care of patients in MA? We’ll be looking at this question more closely in next year’s Lown Hospitals Index — stay tuned!

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While it’s hard to nail down the primary drivers of gender pay gaps,  factors like choice of field, lower self-efficacy when advocating for raises, family, and unconscious bias all emerge as potential pieces of the puzzle. To control for these many variables, some studies have attempted to pair their participants as closely as possible to look for the presence of the gender pay gap in smaller sections of the population. One of these recent studies looked at primary care physicians to analyze how payment models value male versus female practice patterns. In medicine in particular, it appears that the pay gap may be due to the design of payment models themselves.

Compensation models can open and close the gap

In general, female and male primary care physicians (PCPs) differ in a few key ways that impact their compensation. According to a study from the Annals of Internal Medicine, female PCPs tend to have younger, female patients who are uninsured or insured by Medicaid instead of Medicare. Their patients tend to have diagnoses that are consequences of social determinants of health, equating to time-consuming care that is also rated with lower risk scores.

The extra time female physicians spend on their younger, “healthier” patients is directly impacting their compensation. This study indicates that the pay gap specifically between PCPs is around 21%, but other estimates have reached up to 25%.

“It’s not that women patients took more time, it’s that women doctors spend more time with all of their patients. It’s really about the different ways men and women doctors work.”

Lead Investigator Ishani Ganguli in Axios

The findings of Ganguli’s study indicate that capitated payments based on diagnosis or sex of the patient increased the pay gap, whereas risk-adjusting for both age and sex of patients can reduce this disparity. Capitation models were developed with the intention of leveling the playing field in terms of physician compensation, but these findings indicate that we should be cautious regarding unintended consequences of our chosen payment models. 

Ensuring appropriate compensation for physicians is a key part of maintaining a healthy, satisfied workforce. If we are penalizing female physicians for spending more time with their patients, and this study indicates that may be the case, then we need to pivot towards a model with better incentives than high patient volume.

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But their survival is uncertain. Rural hospitals operate with much lower margins than hospitals in urban areas and have been closing at high rates in recent years.

The Centers for Medicare and Medicaid Services (CMS) has established a new way to classify rural hospitals serving in healthcare deserts: Rural Emergency Hospitals (REH). This designation will purportedly prevent some rural hospitals from closing their doors, allowing for the provision of select services for patients under 24 hours annually. Will this new plan be enough to mitigate the struggles of rural hospitals serving their communities?

Rural hospitals have been struggling and so have their communities

Rural communities face intersecting social and health challenges. Despite comprising 15% of the U.S. population, people living in rural areas are more likely to die from heart disease, cancer, and chronic lower respiratory disease, amongst other conditions. Many of these conditions require frequent — and expensive — treatments in order to maintain good quality of life. Due to travel time, burden of cost, childcare, and a plethora of other reasons, it can be difficult for patients in rural communities to access care consistently. 

On the hospital side, an unsteady flow of patients translates to an unsteady flow of cash. This constant financial stress looming over rural hospitals has been getting worse, and COVID-19 didn’t help. With elective services canceled, increased purchasing of PPE, and variability in patient flow due to pandemic waves, rural hospitals were hit hard. The CARES Act was passed to mitigate the short-term financial impacts of COVID-19 and did help rural hospitals stay afloat during the early stages of the pandemic, but it remains unclear if this was sufficient enough to be a longer term solution.

When rural hospitals struggle financially, they’re left with the agonizing decision to close down sections of the hospital and deny care to those who need it, or shutting down the entire hospital. This is already starting to play out in a major way. One of the first departments to see cuts is typically obstetrics, as the number of deliveries per year is often not enough to fund the entire unit. With the Dobbs v Jackson decision, it’s likely that more pregnant people will find themselves in need of obstetrical care and have no easy access options as rural hospitals continue closing units. Obstetrics is just one example though – other specialized units may find themselves in the crosshairs depending on the financial situation. 

CMS has a plan, but it may not be enough

REHs are, according to CMS, an opportunity for rural hospitals to keep their doors open and continue providing crucial care to their communities. By definition, REHs have less than 50 beds and do not provide acute care services with the exception of distinct, skilled nursing facility units. With this new plan, REHs will receive a monthly facility payment and outpatient services will receive an additional 5% payment per service from CMS, without charging the beneficiary for coinsurance.  Outpatient services are defined in broad terms with the intention of easing financial burdens on REHs. 

The key question is whether or not this new plan will reimburse hospitals at a rate high enough to meet the needs of the community. The amount of the facility payment is “the linchpin for the whole program,” said Brock Slabach, chief operations officer for the National Rural Health Association, in Kaiser Health News. 

It is clear that something needs to be done to address the decreasing access to healthcare in our nation’s rural communities. Our system of incentivizing volume — specifically elective procedures — is failing rural hospitals. We won’t know for a while if the CMS plan to support rural emergency hospitals will be effective, or if rural hospitals will participate at high enough rates to make a difference. It’s promising that something is being done on the national policy level to alleviate the financial burdens on rural hospitals. In the meantime, the federal government should keep looking at options to restructure how we pay hospitals to maximize patient health rather than volume.

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For example, during the first year of Covid-19, about 100,000 older Americans were brought to the hospital for unnecessary procedures like stents, spinal fusions, and hysterectomies. From June to December 2020–when there were no vaccines available to vulnerable older adults–hospitals still delivered low-value procedures to Medicare patients at rates similar to 2019.

See the hospitals that do best on avoiding overuse for Medicare patients in your state!

Hospital overuse is ubiquitous in the US, particularly among older patients who have more interactions with the healthcare system. Research from the Lown Index published in JAMA Network Open last year found that more than a quarter of Medicare patients that came to the hospital for fainting were given unnecessary head imaging and 11% received unnecessary carotid artery imaging. Additionally, more than 20% of the spinal fusions and stents delivered in hospitals met criteria for overuse, along with 65% of hysterectomies.

What about overuse in the VA?

Research from the Lown Hospitals Index shows how prevalent overuse can be for Medicare patients. But what about the 9 million veterans who receive care at Veteran’s Health Administration (VA) hospitals and outpatient facilities?

The VA has unique features that make low-value care in the system worth studying. Unlike providers in the Medicare fee-for-service or Medicaid systems, VA providers are paid salaries rather than reimbursed for each service provided, giving them less of an incentive to deliver unnecessary tests and procedures. Additionally, VA providers are well-protected from malpractice lawsuits, so these doctors are under less pressure to perform low-value services defensively.

However, that does not mean that the VA is immune from overuse, a new analysis in JAMA Internal Medicine shows. Researchers at the Center for Health Equity Research and Promotion in the VA Pittsburgh Healthcare System examined the prevalence of 29 low-value tests and procedures in the VA in 2018. The low-value services studies included unnecessary cancer screening, diagnostic and preoperative testing, imaging, and cardiovascular procedures. They found that about 14% of veterans were exposed to at least one low-value service, at a cost of $206 million to the system.

And that’s the lower bound estimate. When researchers used broader criteria for the low-value services, the rate at which veterans were subject to low-value care doubled, and the cost of these services more than tripled.

The rate of overuse in the VA varied greatly depending on the type of service. Screening and testing were more prevalent than low-value procedures, likely because there is less perceived harm. Many doctors perform tests and imaging “just to be safe,” despite the very real risk of cascade events — follow-up tests, biopsies, and procedures that can lead to psychological and physical harm. For example, a whopping 99% of VA facilities performed prostate cancer screening tests for men 75 and older, for whom this screening is not recommended.

However, the most costly low-value services in terms of money were procedures. Spinal injections for low-back pain cost the VA system $44 million and stents for stable heart disease cost $37 million in 2018.

Reducing overuse throughout the system

These results provide valuable guidance to providers and administrators, showing them areas to focus on to reduce cost and harm from overuse in the VA system. More broadly, this study shows that physician salaries and global budgets are not a cure-all for overuse. While aligning physician incentives toward value is important, we also need to challenge the prevalent “more is better” culture in medicine to meaningfully reduce overuse.

Patient incentives need to align with high-value care as well. In an interview for the New England Journal of Medicine, Lown president Dr. Vikas Saini argued that we need economic incentives for patients and communities as well as doctors to reduce overuse. “If we reduce low-value care, the money doesn’t go back to communities to invest in health. If you don’t have parties who can clearly see how they gain, they’re not motivated,” he said.

“The challenge is that overuse is a systemic problem. It needs systemic solutions.”

Vikas Saini, New England Journal of Medicine

On the other hand, ensuring that patients are engaged and trust their clinicians may help reduce overuse. As our late founder Dr. Bernard Lown wrote, “Fully informed patients, trusting their physicians, do not insist on tests or procedures.”

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The Merit-based Incentive Payment System (MIPS) in particular has come under increased scrutiny for not achieving its intended goals. MIPS is part of a mandatory value-based payment program that gives clinicians either penalties or bonuses (up to 4% of their Medicare reimbursement) based on their performance. A significant amount of time and money has gone into developing and reporting these quality measures (an estimated 15 hours/week per physician and more than $1 billion by CMS), so there is a lot riding on these metrics being valuable.

Unfortunately, the evidence increasingly shows a disconnect between MIPS results and meaningful outcomes. In a recent study in JAMA Open, researchers at the University of Rochester School of Medicine compared clinicians’ MIPS scores and hospital-level outcomes. They looked at performance on both an individual and hospital level for several specialties, including cardiac surgery, anesthesiology, critical care medicine, general surgery, and orthopedics.

They found no connection between MIPS quality scores and hospitals’ rates of postoperative complications for any specialty. For hospital performance on failure to rescue (the inability to prevent death after a complication), only anesthesiologists showed a pattern between low MIPS performance and greater risk of FTR. Another exception to the rule was in cardiac surgery; the researchers found that low MIPS scores for cardiac surgeons were associated with higher hospital-level rates of mortality and readmissions after coronary artery bypass grafting.

Why don’t physician performance scores match more closely to hospital-level outcomes? The authors point to several issues within the MIPS program that could lead to this discrepancy:

First, although physicians are required to report on 6 quality measures, they may select any 6 measures from the list of 271 available MIPS measures. Unlike Hospital Compare, in which hospital performance is rated using a standard set of uniform metrics, such as mortality and readmissions, physician performance in MIPS is measured using a composite score based on self-selected metrics that vary between physicians. Second, physicians are free to report the measures on which they perform best, rather than those that may best reflect their overall quality of care. Third, of these 6 measures, only 1 is required to be an outcome measure, while the others can be process measures. Process measures only reflect quality of care if they are anchored in best practices that lead to better outcomes.

In an accompanying editorial, Dr. Richard Dutton, Chief Quality Officer for US Anesthesia Partners explains more of the complexities behind MIPS measures. While physicians report performance individually, in reality health care is a team effort, and it’s not always clear whose “fault” it is for a bad outcome. Because there is money on the line, physicians less likely to accept blame for a bad outcome if they can help it. “Applying financial incentives to the process motives participation but also inspires gamesmanship at multiple levels,” writes Dutton.

“As presently constructed, MIPS does little but contribute to the 34% of US health care dollars spent on administrative activities, with only marginal gains in quality improvement.”

Dr. Richard Dutton, JAMA Open

Additionally, Dutton notes that many of the MIPS metrics are designed to make physicians look good, because the metrics are developed by physician groups themselves. The process of developing MIPS metrics takes so much time and money that only groups that stand to gain something want to go through the process. “The result is a set of measures that might be reassuring to the public because performance is uniformly high but do nothing to demonstrate variations in care that might enable quality improvement,” Dutton writes.

So what to do about MIPS? Are there changes CMS can make to the program to make it more meaningful? Dutton notes some “glimmers of hope” in MIPS, such as the uptake of more evidence-based practices. However, there is a long way to go. “As presently constructed, MIPS does little but contribute to the 34% of US health care dollars spent on administrative activities, with only marginal gains in quality improvement,” Dutton writes. He suggests that clinical registries fueled by interoperable medical records would be more useful for improving outcomes and transparency than the current patchwork system physicians are struggling with every day.

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The movement away from fee-for-service payment in Medicare is encouraging. But as many experts have pointed out, our current value-based payment models have a huge blind spot when it comes to equity. These payment systems also don’t reward hospitals for reducing racial health disparities; in fact, they may exacerbate disparities, because safety net hospitals and hospitals caring for Black patients get financially penalized in certain value-based models.

In a recent JAMA viewpoint, Dr. Joshua Liao of the University of Washington School of Medicine, and Dr. Risa Lavizzo-Mourey and Dr. Amol Navathe of the Perelman School of Medicine provide a roadmap for how value-based payment models can prioritize and advance health equity. Here are a few of the key takeaways:

• Pay for equity. To advance equity, CMS will have to pay for equity, and set national long-term “pay for equity” goals, in the same way they previously set goals for “pay for performance.” These could include a deadline for incorporating equity benchmarks into performance metrics, and tying reimbursement to meeting these deadlines.
• Define equity as part of value. Currently, CMS’ definition of high-value care is only defined as care that improves quality or decreases spending. CMS should incorporate equity into definitions of value, so that improvements in quality or decreased spending are not only helping a subset of patients. This would then allow policymakers to evaluate the impact of value-based models on health disparities to ensure that all patients benefit. For example, policymakers could conduct an “equity audit”to examine how the bundled payments program impacted the rates of elective joint replacement surgery, skilled nursing facility use, and surgical complications for people of color compared to white patients.
• Create an equity agenda. The authors argue that we need a multidisciplinary group of “clinicians, insurers, community organizations, and patient advocates” to guide policymakers toward achieving equity goals. Part of the equity agenda could be directing CMS to collect valuable data on patient demographics, socioeconomic status, and other factors that drive disparities.

The authors acknowledge that these policies would be just a start, but they would help set the government’s intention to pay for equity. In the same way that paying for performance has become commonplace, paying for equity can be part of the payment landscape as well — if we commit to starting the work now.

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However, there has been little research on whether countries with public or private health systems differ in how they provide surgical procedures to patients of various income levels. In their new paper in JAMA Open, University of Toronto medical student Hilary Y. M. Pang, Lown Institute data scientist Kelsey Chalmers, director of the Centre for Health Policy at the University of Melbourne Adam Elshaug, and colleagues explore this topic by looking at differences in utilization of certain cancer procedures across income levels in Ontario, New South Wales, and New York State.

(This research was funded in part by Arnold Ventures, and is part of a series of papers on low-value services led by Elshaug and Chalmers, in partnership with the Lown Institute.)

Using an international approach allowed the researchers to compare utilization across different types of health care systems: Canada only has public health insurance, which covers everyone; Australia has public insurance for all, but also has supplemental private insurance available; and the US relies on private health insurance for younger adults, which leaves millions uncovered. The researchers looked at three common cancer surgeries: pancreatectomy (removal of the pancreas), nephrectomy (removal of the kidney), and radical prostatectomy (removal of all or part of the prostate gland).

They found that overall, all three surgeries were done more in the US and Australia, compared to Canada. In all three locations, residents of high-income neighborhoods were more likely to get all three surgeries — although the gap between low- and high- income patient utilization was smallest in Ontario.

“Our findings highlight how countries’ health care systems can exacerbate or alleviate wealth-based differences in access to surgical procedures.”

Pang, Chalmers, et al. JAMA Open, 2021

This has important implications for both underuse and overuse of cancer surgeries across health systems. For pancreatic and kidney cancer, surgery is one of the only treatment options, so if low-income patients in the US and Australia have trouble accessing these surgeries, that will exacerbate health disparities. And the fact that Canadians of all incomes had less access to these surgeries shows that wait times for elective procedures may be a tradeoff for universal coverage.

For prostate cancer, watchful waiting and radiation are other potential treatment options, so higher rates among high-income people in the US and Australia may indicate that these patients are at risk of overuse.

“These findings suggest that income-based disparities are larger in the United States and Australia and smaller in Canada and highlight trade-offs inherent in the health care systems of different countries,” the authors write.

For more on this research, read the full paper in JAMA Network Open!

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Paying for performance sounds great in theory, but in practice, researchers have found that safety net hospitals and clinicians caring for poorer patients often get penalized in these programs. This happens in part because social risk factors are not included in the risk adjustment formulas that determine hospital performance on outcomes. Another reason is because safety net hospitals often need more resources to reach their quality goals, so financial penalties may be another barrier, rather than an incentive, to improving quality. In fact, a study last year found that value-based incentive programs didn’t improve hospitals’ health care–associated infection rates or disparities in infection rates among safety net and non–safety net hospitals.

Now, two recent studies in JAMA have found that value-based payment programs not only penalize safety net hospitals, but specifically punishes hospitals and clinicians that care for more racial and ethnic minorities.

Associate Professor of Health Management and Policy at Saint Louis University Dr. Kenton Johnson and colleagues looked at the association between MIPS performance scores and clinicians’ caseloads of people of color (including Black, Hispanic, Asian/Pacific Islander, and Native American patients). They found that clinicians caring for more people of color had lower MIPS scores by one point and were 6% more likely to get a penalty, compared to clinicians caring for mostly white patients. For clinicians caring for a large number of poor patients, race and ethnicity seemed to matter even more, with clinicians caring for more people of color having scores 4.2 points lower and 44% more likely to get a penalty compared to clinicians caring for mostly white patients.

Dr. Rahul Aggarwal, Clinical Fellow in Medicine at the Beth Israel Deaconess Medical Center and colleagues recently published a study looking at whether hospitals that care for a high proportion of Black patients were more likely than other hospitals to be penalized in three federal value-based payment programs (HVBP, HRRP, and HACRP). Of the “high-proportion Black hospitals” (hospitals in the top quintile of Medicare hospitalizations for Black patients), 56% received a penalty from HVBP, compared to 41% of other hospitals. Even adjusting for hospital teaching status, size, and safety net status, there was an 8 percentage point difference in the proportion of hospitals receiving this penalty.

The same pattern persisted in the other two value-based payment programs as well, with 5% more high-proportion Black hospitals receiving a penalty in the hospital readmissions program compared to other hospitals, and 10% more receiving a penalty in the hospital-acquired conditions program — even when adjusting for safety net status. Hospitals serving a high proportion of Black Medicare patients were more likely to receive penalties from all three federal programs.

Clearly, penalties from value-based payment models are not just based on income — racial inclusivity has a significant impact. In fact, among hospitals and clinicians caring for poorer patients, there is an even larger penalty for those caring for people of color.

The Lown Institute Hospitals Index data has found a similar pattern between hospital patient inclusivity and worse patient outcomes — not necessarily due to differences in quality, but also because of the impacts of structural racism on health.

The disparity in penalties for hospitals serving more Black patients is extremely concerning because it punishes these hospitals without helping improve outcomes. Aggarwal et al write, “High-proportion Black hospitals are more likely to be underresourced and have lower operating margins. If value-based programs unintentionally result in disparate penalties being imposed on these institutions, their ability to improve care may be hampered and racial disparities in outcomes widened.”

To fix this problem, equity needs to be a central goal in value-based payment programs. As Harvard Medical Students Ayotomiwa Ojo and Parsa Erfani, and Harvard Medical School professor Dr. Neel Shah wrote in Health Affairs recently, value-based care models should set health equity benchmarks (and base incentives on these benchmarks), reward hospitals for reducing health disparities within their institutions, and reward hospitals that spend more on upstream community benefit spending and community health care workers.

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As we’ve previously written, value-based payment initiatives, such as bundled payments, have had mixed results in terms of reducing costs. In a recent JAMA Viewpoint piece, Associate Professor of Health Management and Policy at Saint Louis University Dr. Kenton Johnson and colleagues outline some of the lessons learned from Medicare’s experiments in value-based payments.

The Medicare Quality Payment Program is a mandatory value-based payment program that gives clinicians either penalties or bonuses (up to 4% of their Medicare reimbursement) based on their performance. Almost all clinicians use the Merit-Based Incentive Payment System (MIPS), which allows clinicians to choose between 400 different performance measures on which they would like to be evaluated.

What’s going wrong?

While moving to value-based payments is a necessary change, Johnson et al. identify several problems with the MIPS program that may hinder progress:

• While the MIPS program incentivizes doing less, it is based within the fee-for-service system. Because the MIPS payments/penalties are relatively small, it is likely not enough of an incentive to stop doing more procedures overall.
• Doctors caring for patients dealing with poverty, food insecurity, and housing instability are more likely to receive penalties, because social risk factors are not included in the risk adjustment formulas.
• The measures on which doctors are graded are not always correlated with outcomes that patients care about. Measures like quality of life and functional status are not usually included. These programs “often designed to improve value for CMS rather than patients,” write Johnson et al.
• Doctors take on even more administrative burden because they have to report MIPS measures manually.

What’s going right?

Yet Johnson et al. also identify several successful alternative payment models in Medicare, such as Medicare Shared Savings Program for Accountable Care Organizations and population-based payments in Medicare Advantage. Why did these programs have a greater impact?

First, these were not small penalties layered onto value-based programs, but population-based models that gave both primary and specialty care groups global spending targets. The measures used were better metrics of patient care quality and clinical outcomes, there were fewer measures, and clinicians got feedback throughout the year on how they were doing. These models also judged participants not against each other– which can exacerbate penalties to safety net institutions that have more complex patients–but against their own historical performance.

Global budgeting in Covid-19

Experiments in global budgeting have also shown to be helpful to hospitals in the Covid-19 pandemic. While many health systems are in financial free-fall due to lack of volume, all 13 hospitals in Pennsylvania’s Rural Health Model have stayed afloat during the pandemic. This global budget experiment provides a stable lump sum in revenue regardless of volume, allowing hospitals to plan their year with more security. While costs have yet been reduced in this system, the growth rate is lower and more stable for these hospitals, according to Modern Healthcare.

The change has required hospitals to rethink their strategies since they can no longer depend on doing more to get more revenue. This frees up hospital administration to consider ways of keeping their communities healthy from the start. “It’s liberating for healthcare executives to get the money upfront because they don’t have to chase MRI scans,” said Dr. John Chessare, CEO of Maryland-based GBMC HealthCare.

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Be intentional about reducing disparities

First, institutions that implement value-based models must be intentional in their goal of advancing equity. We must recognize the impact of structural racism on health disparities and medical care, and make sure that our models are explicitly designed to reduce these disparities. Otherwise, we risk baking inequality into the system all over again.

This means that our measures of quality cannot be based only on whether we’ve improved quality on average; we also have to measure the impact of quality improvement efforts on those with the greatest need. Payment models that seek to reward quality over quantity, like Medicare’s Merit-based Incentive Payment System (MIPS), often do not reward providers for reducing health disparities within their practice, Ojo and colleagues note. As a result, these payment models have had only a mixed effect on reducing disparities. In fact, providers that care for more low-income people of color are sometimes punished financially because it’s harder to meet the clinical targets.

Add equity metrics to value-based care

Ojo and colleagues recommend that pay-for-performance models include benchmarks for health equity, such as measures of what the hospital is doing to proactively reduce health disparities. These can take the form of disparities impact assessments and health equity reports within hospitals’ quality improvement assessments. And importantly, these metrics should have some weight– there should be financial consequences for hospitals not tracking their progress on equity.

The authors also point out that health outcomes are often compared across hospitals to measure performance, but rarely are disparities within hospitals being measured. This is why hospitals that care for patients with greater social risk are often penalized. While some policy experts have recommended adjusting quality measures for social risk, Ojo and colleagues point out that this method “pathologizes race and threatens to normalize lower quality of care for Black patients.” However, if we measured disparities in health outcomes within hospitals, all hospitals would be held accountable for how they serve the most vulnerable in their community.

Focus on upstream community benefits

Nonprofit hospitals are required to invest in charity care and other community benefits, activities that are supposed to promote community health and the social determinants of health. However, the vast majority of community benefit spending from nonprofit hospitals is on Medicaid shortfall, charity care, and health professions education– not on programs that prevent or improve chronic conditions before they require hospitalization.

“Given that health disparities are rooted in social inequities and nonprofits divert as much as $4 billion in tax dollars from local governments through property tax exemptions, health systems should prioritize community benefit spending on upstream social factors to maximize community impact,” the authors write.

One important investment hospitals can make is by employing more community health workers to improve access and outcomes. Community health workers (CHWs) are frontline public health workers who has a close understanding of the community they serve (often they are members of the community themselves). CHWs serve as an intermediary between health and social services and the community to increase access to serves, improve the quality and cultural competency of health care delivery, advocate for patients, and increase health knowledge in the community. CHW models have shown to improve primary care access, health care knowledge, chronic disease management, and reduce emergency department visits.

Since June, many hospitals and payers have put out statements promising to fight systemic racism in health care. Ojo and colleagues point out that “such gestures will remain nominal if they are not followed by major shifts in the way we care for Black patients.” Focusing on equity within value-based care models is an important way for hospitals to put their money where their mouth is.

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