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

Importance Medicare’s Hospital Value-Based Purchasing (HVBP) program will provide a health equity adjustment (HEA) to hospitals that have greater proportions of patients dually eligible for Medicare and Medicaid and that offer high-quality care beginning in fiscal year 2026. However, which hospitals will benefit most from this policy change and to what extent are unknown. Objective To estimate potential changes in hospital performance after HEA and examine hospital patient mix, structural, and geographic characteristics associated with receipt of increased payments. Design, Setting, and Participants This cross-sectional study analyzed all 2676 hospitals participating in the HVBP program in fiscal year 2021. Publicly available data on program performance and hospital characteristics were linked to Medicare claims data on all inpatient stays for dual-eligible beneficiaries at each hospital to calculate HEA points and HVBP payment adjustments. Exposures Hospital Value-Based Purchasing program HEA. Main Outcomes and Measures Reclassification of HVBP bonus or penalty status and changes in payment adjustments across hospital characteristics. Results Of 2676 hospitals participating in the HVBP program in fiscal year 2021, 1470 (54. 9%) received bonuses and 1206 (45. 1%) received penalties. After HEA, 102 hospitals (6. 9%) were reclassified from bonus to penalty status, whereas 119 (9. 9%) were reclassified from penalty to bonus status. At the hospital level, mean (SD) HVBP payment adjustments decreased by 4534 (90 033) after HEA, ranging from a maximum reduction of 1 014 276 to a maximum increase of 1 523 765. At the aggregate level, net-positive changes in payment adjustments were largest among safety net hospitals (28 971 708) and those caring for a higher proportion of Black patients (15 468 445). The likelihood of experiencing increases in payment adjustments was significantly higher among safety net compared with non–safety net hospitals (574 of 683 84. 0% vs 709 of 1993 35. 6%; adjusted rate ratio ARR, 2. 04 95% CI, 1. 89-2. 20) and high-proportion Black hospitals compared with non–high-proportion Black hospitals (396 of 523 75. 7% vs 887 of 2153 41. 2%; ARR, 1. 40 95% CI, 1. 29-1. 51). Rural hospitals (374 of 612 61. 1% vs 909 of 2064 44. 0%; ARR, 1. 44 95% CI, 1. 30-1. 58), as well as those located in the South (598 of 1040 57. 5% vs 192 of 439 43. 7%; ARR, 1. 25 95% CI, 1. 10-1. 42) and in Medicaid expansion states (801 of 1651 48. 5% vs 482 of 1025 47. 0%; ARR, 1. 16 95% CI, 1. 06-1. 28), were also more likely to experience increased payment adjustments after HEA compared with their urban, Northeastern, and Medicaid nonexpansion state counterparts, respectively. Conclusions and Relevance Medicare’s implementation of HEA in the HVBP program will significantly reclassify hospital performance and redistribute program payments, with safety net and high-proportion Black hospitals benefiting most from this policy change. These findings suggest that HEA is an important strategy to ensure that value-based payment programs are more equitable.