Two decades ago, value-based purchasing (VBP) and health equity were emerging concepts in healthcare, largely unknown outside of policy conversations or schools of public health or health administration. Today, they are driving principles in American healthcare. But some are asking if they are oppositional goals and, if so, how the two can be reconciled.
Parallel paths
VBP and health equity each gained momentum at the beginning of the century as the United States confronted the fact that even though our healthcare spending exceeds that of all other countries, we lag behind on many key healthcare metrics.
A seminal publication simultaneously captured the concepts’ emergence from academic policy discussions, while promoting them not only as practical goals, but as imperatives in healthcare reform.
A year after its startling examination of medical errors, To Err is Human, the Institute of Medicine (IOM) published “an urgent call for fundamental change” in the nation’s healthcare system. In Crossing the Quality Chasm: A New Health System for the 21st Century, the IOM highlighted what we now call VBP and health equity in its vision of healthcare that was “safe, effective, patient-centered, timely, efficient, and equitable.”
Value-based pricing
Crossing the Quality Chasm’s chapter on Aligning Payment Policies with Quality proposed that “all existing payment methods could be modified to create stronger incentives for quality improvement” through the VBP model of pay-for-performance.
VBP, in which provider payment is linked to performance, with reimbursement based on the cost and quality of care provided, was an attractive alternative to the fee-for-service model which previously typified American healthcare and which many characterized as incentivizing volume of services rather than quality of care.
The Centers for Medicare & Medicaid Services (CMS) first explored small-scale VBP models in 2008. They became an integral part of CMS’s Medicare reimbursement strategy with the passage of the Patient Protection and Affordable Care Act (ACA) of 2010.
VBP models established under the ACA included pay-for-performance models, in which providers’ payments are tied to meeting defined performance measures; accountable care organizations (ACOs), based upon shared population-based payment models or savings payments; and bundled payments.
One of the first ACA VBP programs was the Hospital Value Based Purchasing Program (HVBP) under which more than 3,000 U.S. hospitals are currently paid with their compensation linked to safety and patient experience rather than volume of service.
Health equity
As Applied Policy has previously reported, the federal government’s commitment to health equity can be traced to the Secretary’s Task Force Report on Black and Minority Health of 1985. Also known as the Heckler Report, the groundbreaking study led to the formation of the Office of Minority Health (OMH) within HHS.
OMH originally addressed not health equity, but health disparities. In fact, the term health equity has evolved over time, only coming into its current usage within the past two decades.
In the late 1900s, health equity was associated with the World Health Organization’s and United Nations’ discussions of global health and the goal of reducing disparities in health metrics between developed and developing countries.
But U.S. public health experts and social justice advocates successfully turned the focus of health equity inward, shedding light on disparities within our own borders and calling for their elimination.
Today CMS defines health equity as “the attainment of the highest level of health for all people, where everyone has a fair and just opportunity to attain their optimal health regardless of race, ethnicity, disability, sexual orientation, gender identity, socioeconomic status, geography, preferred language, or other factors that affect access to care and health outcomes.”
Although the term itself emphasizes social justice, achieving health equity can also have important economic consequences. In a study published in June of last year, Deloitte described the cost resulting from health inequities an “unsustainable crisis” contributing to an estimated $320 billion in annual health care spending. And the costs don’t stop there. According to Deloitte, health disparities cost the country as much as $42 billion annually in lost productivity.
The intersection
Some healthcare advocates and academics argue that CMS’s current VBP payment models impose de facto barriers to the achievement of health equity. In a study shared in Frontiers in Public Health in October 2022, researchers found that hospital VBP programs actually tend to exacerbate disparities in care.
The majority of CMS’s VBP programs are budget-neutral, meaning that there will be winners and losers within each: penalties imposed on some providers will offset bonuses paid to others. While budget neutrality makes VBP attractive option politically, it can result in a misalignment of incentives depending upon how risk adjustment is calculated in individual programs.
Rishi K. Wadhera, a cardiologist at Beth Israel Deaconess Medical Center, is among those who argue that although “well-intentioned” CMS’s VBP programs are “regressive” as a result of their failure to “fully account for medical factors like frailty and social risk factors like poverty and housing instability.” As a result, he says, safety-net hospitals and providers with socially disadvantaged patients are hamstrung from the outset.
In fact, one study of CMS’s Merit-based Incentive Payment System (MIPS) found that providers with a high percentage of socially at-risk patients were almost twice as likely as their peers to incur negative payment adjustments. And research in 2019 found that “high-proportion Black hospitals were more likely than other hospitals to be penalized under HVBP.
Melding ideals
Reflecting President Biden’s executive order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, CMS has affirmed its commitment to “Advance Equity” as the first pillar in its strategic plan. The agency has committed to a health equity component in all its work going forward.
Accordingly, The Center for Medicare and Medicaid Innovation is exploring new options for addressing health equity within VBP models. Among these is the ACO Realizing Equity, Access, and Community Health (ACO REACH) Model, an updated version of the previous Global and Professional Direct Contracting Model (GPDC) Model which includes a health equity adjustment.
In an interview with the New England Journal of Medicine, VBP critic Rishi K. Wadhera endorsed the ACO REACH Model as a major shift from previous payment models. He praised the model’s tacit acknowledgement “that providers may need to spend more, not less to meet the needs and advance the health of individuals from historically marginalized populations.”
The future
We can expect CMS to continue to wrestle with reconciling payment models with its commitment to health equity for the foreseeable future.
As management consultant Peter Drucker once observed, “There is no perfect strategic decision. One always has to pay a price. One always has to balance conflicting objectives, conflicting opinions, and conflicting priorities. The best strategic decision is only an approximation – and a risk.”