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June 4, 2021

A National Goal to Advance Health Equity Through Value-Based Payment

Author Affiliations
  • 1Department of Medicine, University of Washington School of Medicine, Seattle
  • 2Leonard Davis Institute of Health Economics, University of Pennsylvania, Philadelphia
  • 3Department of Medical Ethics and Health Policy, Perelman School of Medicine, University of Pennsylvania, Philadelphia
  • 4Corporal Michael J. Crescenz VA Medical Center, Philadelphia, Pennsylvania
JAMA. Published online June 4, 2021. doi:10.1001/jama.2021.8562

Intention matters in health policy. Nearly a decade ago, federal policy makers set an intention to make health care more financially sustainable, affordable, and efficient by shifting the national health care system toward value.1 Setting that policy intention proved to be a critical step for signaling direction and informing expectations for the health care industry, prompting years of broad engagement and work to improve health care delivery. However, that progress has not translated into analogous progress in reducing the critical problem of health inequities in the US.

The specter of disparities looms large over value-based payment. There are no convincing data that payment programs have reduced the inequity that affects marginalized populations, such as racial and ethnic minorities and socioeconomically vulnerable individuals. Instead, payment models could worsen disparities for these groups. Early participation in accountable care organizations was higher in affluent communities than in communities with more Black residents and poor, uninsured, less educated, or disabled individuals.2 Communities with more socioeconomically vulnerable populations were less likely than others to be selected for joint replacement bundled payment programs.3 Value-based payment models also adjust for patient illness severity in determining financial bonuses or penalties. But these risk adjustment methods are incomplete for marginalized populations, potentially inducing practice changes that exacerbate disparities.

Policy and practice leaders have already started enacting some solutions, designing systems to monitor for disparities and prioritize research studying them. However, while essential, vigilance and evaluation alone are insufficient for achieving greater equity. The idea that disparities are “unintended” consequences of payment policy must be abandoned, and instead, an explicit new intention and goal must be set to reduce disparities through payment programs. To do so, policy makers should engage the clinical community and translate lessons from the early value-based payment movement into 3 changes to “pay for equity” (Table).

Table.  Changes to Health Care Payment to Pay for Equity
Changes to Health Care Payment to Pay for Equity

First, policy makers should set national pay-for-equity goals over the next decade. While this approach sounds aspirational, it is exactly the approach adopted to move from fee-for-service reimbursement toward value-based payment. In 2015, policy makers announced explicit goals to shift at least half of all Medicare payments to quality or value and 85% of all payments by 2018.1 Multiple states followed suit and set similar targets.

Achieving those goals has not been without challenges. But progress has been aided by clear, unapologetic goals, and a decade later, value-based payment is here to stay. The same boldness and cultural shift are needed to promote equity through payment reform. To achieve this shift, policy makers could seek input from the clinical community, particularly clinicians who provide care to large proportions of marginalized patients. Potential pay-for-equity goals could include deadlines for incorporating equity-focused measures into payment models and tying reimbursement to performance.

Second, policy makers could revise legislation by incorporating equity into definitions of value. As a direct function of statute, payment models have been evaluated based on whether they improve quality or save money. The Center for Medicare and Medicaid Innovation was created through section 1115A of the Social Security Act, which permits the Department of Health and Human Services to scale up payment programs only if that expansion is expected to “reduce spending…without reducing the quality of care” or “improve the quality of patient care without increasing spending.”4

Problematically, equity is not specifically included in section 1115 criteria, or any other laws governing payment policy for that matter. Policy makers could address this issue by revising statutes to include definitions of value that directly consider equity alongside cost and quality. One potential change could be to revise criteria and require that policy makers consider how programs affect equity, independent of cost savings.

For example, several bundled payment programs have targeted avoidable utilization of lower extremity joint replacement surgery and postsurgery care. However, as historically marginalized individuals, Black patients undergo joint replacement less frequently than White patients and are more likely to receive surgery at low-volume or low-quality hospitals. Black patients and White patients also differ in postsurgery skilled nursing facility use and readmission risk.

A statute could prompt policy makers to evaluate how payment models affect disparities in access to care by race, in part via “equity audits” that include input from participating clinicians. These audits could be incorporated as one component of formal evaluations assessing how programs affected health care access, use, and outcomes for marginalized patients. In the case of bundled payments, an equity audit could examine how the rates of elective joint replacement surgery, skilled nursing facility use, and surgical complications change for Black patients vs White patients over the duration of the program.

Another solution could be to revise statutes so that policy makers can expand payment models that reduce disparities, even if those models are found to increase spending. Currently, payment models that increase spending are widely viewed as policy failures, a perspective that will stifle progress toward equity given the potential trade-offs between equity and cost-efficiency.5 New payment models could address questions such as “What makes care more equitable?” or “What addresses underuse among marginalized groups?,” not just “What programs save money?” Policy makers could also seek clinician input on equity-focused programs by using existing forums such as the Physician-Focused Payment Model Technical Advisory Committee. To increase equity, the US must pay for it and signal that commitment in law and model creation.

Third, policy leaders could convene clinicians, insurers, community organizations, and patient advocates into a multidisciplinary group to guide an agenda for achieving new equity goals. In 2015, when policy makers set value-based payment targets, they helped organize insurers and other health care organizations into the Health Care Payment Learning & Action Network, a group dedicated to supporting and providing direction for value-based payment policy.6 Policy makers could adopt a similar strategy to help ensure that equity-based payment policies of the next decade succeed.

One early focus area could be to build on work from the Department of Health and Human Services and other groups to invigorate performance measurement around equity.7 These efforts could involve promoting collection of data related to factors that can drive disparities, such as education; economic, racial, and ethnic minority status; housing stability; and food security. These data could then be used to create dedicated disparity measures and capture the gaps in performance for different patient groups. For instance, disparities could be defined based on performance differences between marginalized and other patient groups and improvement as reductions in those gaps over time.

As new measures are created, existing performance measures could also be used not only to measure how clinicians perform overall, but how they perform for marginalized patients. Early candidates for this use could include measures that capture conditions and areas of care where both clinicians can influence outcomes and marginalized patients face well-known disparities (eg, hypertension and cancer screening). Using this approach, which would harmonize with and support statutory payment model equity audits, the multidisciplinary group could also guide efforts to link equity-based measures to risk adjustment, incentives, and other components of payment programs. The adage rings true: it is not possible to address what is not measured and encouraged.

Admittedly, these steps are simply a start. Policy makers must translate policy intention into programs that meet the needs of specific populations, including those that target root causes of inequity. Clinicians need to engage in new programs, which must account for patients who experience disparities due to multiple factors. Ultimately, no policies are perfect, and no payment models are impermeable to unintended consequences.

Nonetheless, policy and practice leaders could work together to make progress toward equity using value-based payment. The last decade has underscored the fact that policy intention precedes policy implementation. It is time to build on that experience and set a national intention to pay for equity.

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Article Information

Corresponding Author: Joshua M. Liao, MD, MSc, University of Washington, 1959 NE Pacific St, Seattle, WA 98195 (joshliao@uw.edu).

Published Online: June 4, 2021. doi:10.1001/jama.2021.8562

Conflict of Interest Disclosures: Dr Liao reported personal fees from Kaiser Permanente Washington Research Institute; textbook royalties from Wolters Kluwer; and honoraria from Wolters Kluwer, the Journal of Clinical Pathways, and the American College of Physicians. Dr Lavizzo-Mourey reported board membership for General Electric, the Howard Hughes Medical Institute, the Intel Corp, Merck, and the Smithsonian Institution. Dr Navathe reported grants from Hawaii Medical Service Association, Anthem Public Policy Institute, Commonwealth Fund, Oscar Health, Cigna Corp, Robert Wood Johnson Foundation, Donaghue Foundation, Pennsylvania Department of Health, Ochsner Health System, United Healthcare, Blue Cross Blue Shield of North Carolina, Blue Shield of California, and Humana; personal fees from Navvis Healthcare, Agathos Inc, NavaHealth, YNHHSC/CORE, Maine Health Accountable Care Organization, Maine Department of Health and Human Services, National University Health System–Singapore, Ministry of Health–Singapore, Elsevier Press, Medicare Payment Advisory Commission, Cleveland Clinic, Analysis Group, and VBID Health; and equity from Embedded Healthcare and NavaHealth; as well as noncompensated board membership with Integrated Services Inc.

 Disclaimer: This article does not necessarily represent the views of the US government or the Department of Veterans Affairs.

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    3 Comments for this article
    Present Value-Based Care Entirely Wrong
    Michael Longley, MD | Immanuel Medical Center
    The present push for cost efficiency as stated by the author is entirely biased to make providing care for those who are financially/ educationally / socially disadvantaged the most disadvantageous for the clinician.

    Bundled care programs to date simply make those who need care after admission the most expensive to care for and simple analysis will make clinicians turn those away. Example - if the patient is likely to need skilled care after a total joint replacement over 50% of the allocated reimbursement may be easily consumed by the SNF costs.

    Thus the best
    and busiest clinicians will avoid these patients.
    Disparity is Built in to Value-Based Payment
    Stephen Kemble, M.D. | University of Hawaii John A. Burns School of Medicine
    The authors correctly point out that value-based payment has a problem with aggravating disparities in access to care. At its core, "value-based" payment means shifting insurance risk onto providers of care, with a fixed payment for an episode of care (bundled payment) or population (capitation) so that the provider makes more money by restricting care or achieving specified outcome measures. But far too much of the risk in health care is predictable due to pre-existing conditions, social determinants, and demographics, so the incentive becomes risk avoidance above all, instead of improving care. This means targeting low risk patients and populations and avoiding care of higher risk individuals and populations, hence aggravation of disparities. Factors affecting risk are quite complex and available risk adjustment formulas are far too crude to deter this problem. Risk adjustment cannot be made more accurate without encountering prohibitive escalation in administrative burdens and costs.

    This is a fundamental problem with risk-shifting that is at the heart of "value-based" payment. It cannot be fixed with tweaks to incentives that, like risk adjustment, cannot be made accurate or robust enough to solve the problem without escalating administrative burdens and costs. There are perverse incentives built into shifting risk onto providers when risk is too predictable. The reason "value-based" payment has not achieved reduced cost or improved equity is that correcting its perverse incentives requires too much data and administrative cost and burdens, and even then the corrections always fall short. This is a problem that cannot be fixed within the "value-based" payment paradigm.
    Mere "Intention" Cannot Fix Value-Based Payment
    Kip Sullivan, JD | Healthcare for All Minnesota
    This is a baffling article. On the one hand, Laio et al. concede value-based payment (VBP) schemes are worsening disparities because risk adjustment is inaccurate. On the other hand, they call on policy makers to announce they intend to double down on VBP, not because it’s working, but because “intention matters in health policy.” In other words, even though VBP schemes are harming sicker and poorer patients, policy makers should praise VBP so doctors and hospitals know “value-based payment is here to stay.”

    The authors rely on two assumptions: (1) VBP schemes have improved value so substantially that
    they should continue despite the damage they inflict on “marginalized populations”; (2) if someone collects enough data on factors such as “education; economic, racial, and ethnic minority status; housing stability; and food security,” risk adjustment could be made so accurate that VBP schemes will no longer unfairly punish providers who treat “marginalized populations.” Neither assumption is correct.

    VBP schemes are not improving, and may be degrading, value. Research on the most pervasive VBP schemes – ACOs, medical homes, bundled payments, the Merit-based Incentive Payment System (MIPS), and the Hospital Readmissions Reduction Program – demonstrate they are neither cutting costs nor improving quality (their impact on quality is mixed and miniscule). When the implementation and overhead costs incurred by providers are included, VBP raises costs. (Bundled payment for joint replacement might be an exception to the rule that VBP schemes do not lower costs.) When the damage done to sicker and poorer patients, and to patients whose care is not measured and who therefore suffer from the “teaching to the test” effect, is taken into account, VBP is probably damaging quality on balance.

    The authors’ assumption about risk adjustment is also wrong. Risk adjustment is crude now, and will never become accurate enough to end VBP’s “reverse Robin Hood” effect – the transfer of resources away from providers who treat the sick and the poor to those who treat the healthy and better off. There are several reasons why this is true. I mention just three here.

    First, the data collection cost imposed on providers by VBP schemes is already enormous; the additional cost of collecting data on all the other factors proposed by Liao et al. will be back-breaking. For example, JAMA recently reported that the data-collection requirements imposed on doctors by the MIPS program are costing each doctor about one-fifth of their income from Medicare [1]. The additional cost of collecting accurate information on education, income and other social determinants of health for hundreds of millions of Americans will be even higher than the onerous data-collection costs providers incur already.

    Second, turnover among doctors and patients within VBP entities (ACO, medical homes, MIPS) is very high – about 30 percent per year.

    Third, the sample sizes used to calculate “performance” on VBP cost and quality measures are far too small to produce accurate assessments. For example, in a study of the Partners HealthCare ACO (one of the largest of the Medicare ACOs), Hsu et al. reported that doctors in the ACO had an average of 91 ACO patients [2].

    Rote expressions of “intention” cannot fix these problems.


    [1] Time and Financial Costs for Physician Practices to Participate in the Medicare Merit-based Incentive Payment System, JAMA Health Forum

    [2] Substantial Physician Turnover and Beneficiary “Churn” in a Large Medicare Pioneer ACO, Health Affairs.