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In the last decade, the Centers for Medicare and Medicaid Services (CMS) has developed models and initiatives that focus on advancing health equity, especially to mitigate the consequences of poor health caused by adverse social determinants of health. However, approaches to address structural racism, bias, and health disparities through payment policy have had varying degrees of success. At AcademyHealth’s 2024 Annual Research Meeting’s session, “How Does Payment Policy Affect Minoritized Individuals and Communities?” brought together a panel of experts to discuss opportunities and challenges presented by current health care financing and payment reform efforts to address health inequities. This session was one of eight sessions included in the Structural Racism, Disparities, and Equity in Health Theme at ARM.
Session Highlights:
Two presentations during this session examined structural biases in payment incentives for providers and hospitals. Increased attention is being paid to adjustments in physician payments to account for health equity. Targeted provider incentives are purported to lower medical costs, boost provider engagement, and improve clinical effectiveness. However, these incentives have not been historically designed to align with services that address the structural determinants of health. This also comes at a time when nonprofit hospitals are under increased scrutiny for their tax exemption status and community-benefit spending levels.
- Dr. Aaron Schwartz presented research highlighting differential price incentives for physicians providing outpatient services across different racial and ethnic patient groups and found that physicians face substantial financial disincentives to serve Black patients compared to White patients, largely driven by insurance type.
- Aaron Hedquist presented research on the allocation of community benefit spending among nearly 2500 nonprofit hospitals across the country, finding that socially vulnerable and minoritized communities receive less benefit than more affluent and non-Hispanic White communities.
In addition to challenges, panelists highlighted some of the latest research on efforts from the Center for Medicare and Medicaid Innovation (CMMI) to align payment structures with health equity metrics, including Medicare’s Part D Senior Savings (PDSS) Model and the finalized health equity adjustment (HEA) to the Value-Based Purchasing (HVBP) Program's scoring methodology.
- Dr. Chi Chun Steve Tsang presented early research showing that the PDSS model helped reduce disparities in out-of-pocket insulin costs between Black and White beneficiaries.
- Michael Liu shared findings that hospitals serving minoritized and low-income populations would benefit most from HEA reclassifications.
Key Takeaways
Together these presentations highlighted the architecture of inequity embedded into health care payment and financing models, as well as policy opportunities to develop models that address racial and ethnic health disparities. Some key takeaways that emerged from this session are highlighted below:
- Continued funding of innovative payment models to make health care more affordable to patients is important to reduce health inequities. The PDSS model represents one CMMI model that helped decrease spending for Medicare beneficiaries with diabetes. Currently eleven Innovation Models are being tested at health care facilities across the country and three models are being run at the state level. CMMI, however, faces the challenge of delivering on its statutory mandate to reduce health care spending amidst reports and critique that the Center has spent more than it has produced in savings in its 14 years of operation.
- Finetuning health equity adjustment systems is an important stopgap solution but cannot undo decades of disinvestment and inequitable resource allocation that has contributed to rural hospital closures, workforce burnout and shortages, and public health funding cuts all of which have impacted safety-net populations the most. Therefore, strategies to improve value-based payment systems should occur in tandem with larger structural improvements (e.g., reinvestment, reallocation of revenues from tax benefits, capacity-building for community-based health delivery).
- Closing health disparities requires eliminating systems that financially disincentivize physicians from serving racially minoritized populations. Greater financial incentives to are needed to align provider payments with health equity goals and encourage practices to increase outreach to historically underserved populations. CMS just released the calendar year 2025 Physician Fee Schedule Proposed Rule. This rule includes a health equity benchmark adjustment (HEBA) which aims to adjust rates for ACO REACH contract holders to mitigate existing disincentives. CMS is currently requesting comments on this proposed rule, due September 9.
- Current evidence on community benefit spending indicates the need to reassess and improve investments: Limited evidence suggests community benefit spending reduces readmissions and recent work finds no associations between community benefit spending and selected health outcomes. This can be due in part to community benefit reporting practices and ambiguity around qualifying activities, but also underscores the need for strengthened health system and community partnerships. New strategies to address inequities experienced by minoritized populations may include diverting revenues generated to community-based organizations (CBOs) who have more direct impact on community wellbeing or for well-resourced non-profit hospitals to provide interest free loans to CBOs.
At a minimum, these insights highlight the importance of identifying strategies to rectify structural inequities embedded into health care financing models. While value-based payment models have not yet delivered the sweeping cost-savings and health improvements initially expected over a decade ago, a continued effort to reimagine health care financing is imperative. While our health system does not yet do a great job of paying for things that promote health equity, we can use the available evidence and emerging research to identify new incentive structures to reform payment policy and address health disparities experienced by minoritized communities.