Research

JAMA | Original Investigation | HEALTH AND THE 2024 US ELECTION

Health Equity Adjustment and Hospital Performance

in the Medicare Value-Based Purchasing Program
Michael Liu, MPhil; Sahil Sandhu, MSc; Karen E. Joynt Maddox, MD, MPH; Rishi K. Wadhera, MD, MPP, MPhil

Supplemental content
IMPORTANCE Medicare’s Hospital Value-Based Purchasing (HVBP) program will provide a CME Quiz at
health equity adjustment (HEA) to hospitals that have greater proportions of patients dually jamacmelookup.com
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 Author Affiliations: Author
programs are more equitable. affiliations are listed at the end of this
article.
Corresponding Author: Rishi K.
Wadhera, MD, MPP, MPhil, Section of
Health Policy and Equity, Richard A.
and Susan F. Smith Center for
Outcomes Research, Beth Israel
Deaconess Medical Center, 375
Longwood Ave, Fourth Floor, Boston,
JAMA. 2024;331(16):1387-1396. doi:10.1001/jama.2024.2440 MA 02215 (rwadhera@bidmc.
Published online March 27, 2024. harvard.edu).

(Reprinted) 1387
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 Research Original Investigation Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program
T
he Centers for Medicare & Medicaid Services (CMS) des-
ignated health equity as the first pillar of its 2023 stra-
tegic plan and is undertaking a comprehensive effort to
advance equity through policy changes to its quality and value
programs.1-3 Since 2011, the Hospital Value-Based Purchasing
(HVBP) program has been one of Medicare’s cornerstone
value-based initiatives. The HVBP program is mandatory and
distributes financial bonuses or penalties to nearly 3000 US
hospitals according to quality measures related to clinical out-
comes, patient experience, safety, and efficiency.4
There has been substantial controversy surrounding the
HVBP program since its enactment.5 Several studies have shown
that the HVBP program disproportionately penalizes hospitals
that care for disadvantaged and historically marginalized popu-
lations while providing greater financial bonuses to those that
do not.6 For example, safety net hospitals,7,8 those serving more
patients with low income,5,9 and those caring for a higher pro-
portion of Black adults have all been more frequently penal-
ized by the HVBP program.10 Because the program adjusts for
medical risk factors but not social risk factors that are strongly
associated with performance measures,11-13 many clinicians and
policy experts have raised concerns that the HVBP program is
widening disparities in care by unfairly redirecting resources
away from disadvantaged hospitals.9,14
In response to these concerns, CMS recently finalized ma-
jor policy changes to the HVBP program.15 Beginning in fiscal
year (FY) 2026, hospitals with a greater proportion of pa-
tients dually eligible for Medicare and Medicaid and that pro-
vide high-quality care will receive a health equity adjust-
ment (HEA) that increases the scores used to determine
bonuses and penalties under the program.16 Although the
HVBP program is required to maintain budget neutrality, this
policy change has the potential to significantly redistribute pro-
gram payments across hospitals. However, which hospitals will
benefit most from HEA and to what extent are currently un-
known. Understanding the potential impact of this policy
change is critically important because CMS and other payers
are considering similar strategies to advance health equity un-
der current and future value-based payment models.17
Therefore, we aimed to address 3 questions by simulat-
ing the impact of Medicare’s new HEA on HVBP performance,
using FY 2021 data. First, does HEA change hospital perfor-
mance rankings and bonus or penalty status under the HVBP
program? Second, what is the magnitude of the financial im-
pact of HEA both overall and across hospital characteristics
(patient mix, structural, and geographic)? Third, which hos-
pital characteristics are associated with receipt of increased bo-
nuses or reduced penalties after HEA?
Methods
The HVBP Program and HEA
The HVBP program adjusts the amount that Medicare pays hos-
pitals under the Inpatient Prospective Payment System by pro-
viding financial bonuses or penalties (henceforth referred to
as “payment adjustments”) based on the quality of care de-
livered. The program evaluates 4 domains of quality: clinical
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Key Points
Question How will Medicare’s new health equity adjustment in
the Hospital Value-Based Purchasing (HVBP) program, which
assigns additional points to hospitals with more dual-eligible
patients for providing high-quality care, affect hospital
performance and payment adjustments?
Findings In this cross-sectional study of 2676 hospitals
participating in the HVBP program, health equity adjustment
reclassified 119 of 1206 hospitals (9.9%) from receiving penalties
to receiving bonuses. Safety net and high-proportion Black
hospitals were significantly more likely to experience increased
payment adjustments, as were hospitals located in rural areas and
the South. The largest net-positive changes in total payment
adjustments were $29.0 million among safety net hospitals and
$15.5 million among high-proportion Black hospitals.
Meaning Medicare’s new health equity adjustment in the HVBP
program will significantly reclassify hospital bonus and penalty
status and redistribute program payments, with hospitals caring
for minoritized populations and those with low income benefiting
the most.
outcomes, patient experience, safety, and efficiency. Each do-
main is scored, weighted, and summed into a total perfor-
mance score, which is subsequently used to determine pay-
ment adjustments for each hospital. More details regarding the
methodology for estimating HVBP payment adjustments are
provided in eMethods 1 in Supplement 1.18 The HVBP pro-
gram does not currently account for race and ethnicity, rural-
ity, or other social risk factors.
In the Inpatient Prospective Payment System final rule is-
sued by CMS,15 hospitals with a greater proportion of patients
dually eligible for Medicare and Medicaid will be rewarded for
providing high-quality care. Hospitals will have the opportu-
nity to earn up to 10 additional HEA points, which will be added
to the total performance score (revised from a range of 0-100
to 0-110). The HEA is computed as the product of 2 values: the
underserved multiplier and the measure performance scaler.
The underserved multiplier is calculated by ranking hospi-
tals according to the proportion of dual-eligible inpatient stays
and applying a logistic exchange function to generate values
between 0 and 1 (eMethods 2 and eFigures 1 and 2 in Supple-
ment 1). The measure performance scaler is determined by al-
locating 0, 2, or 4 points to hospitals for being in the bottom,
middle, or top performance tercile, respectively, of each HVBP
domain and summing all points to generate values between 0
and 16. To illustrate, a hospital whose proportion of dual-
eligible inpatient stays is 0.4 after the logistic function is ap-
plied (underserved multiplier = 0.4) and that performed at the
top tercile in all 4 HVBP domains (measure performance
scaler = 16) would earn 6.4 bonus points, whereas another hos-
pital with an underserved multiplier of 0.8 performing at the
same level would earn 10 points owing to the cap.
Data Sources
We used publicly available CMS files to identify all hospitals
participating in the HVBP program in FY 2021, as well as their
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 Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program
HVBP domain and total performance scores.19,20 The corre-
sponding baseline and performance periods for FY 2021 are
listed in eTable 1 in Supplement 1, which extend through 2019
across most measures. We chose this FY to avoid the exten-
sive modifications applied to the HVBP program during the
COVID-19 pandemic beginning in 2020. To determine the pro-
portion of dual-eligible inpatient stays in FY 2021, we ob-
tained data on all Medicare inpatient stays (fee-for-service and
Medicare Advantage) and patients dually eligible for Medi-
care and Medicaid at each hospital from the Medicare inpa-
tient files and the Master Beneficiary Summary File.
The FY 2021 CMS Impact Files and 2020 American Hos-
pital Association survey were used to determine hospital struc-
tural and geographic characteristics. Additionally, we ex-
tracted hospital-level case mix indices (average relative
diagnosis related group weight of Medicare discharges) and
total relative diagnosis related group weights by using the
FY 2021 CMS case mix index file. Medicare inpatient and sum-
mary files were used to determine the proportion of Medi-
care hospitalizations for Black patients at each hospital.
Financial information on base operating payment rates and
area-level wage indices was acquired from FY 2021 Inpatient
Prospective Payment System final rule data files. Data on state-
level Medicaid expansion status were assembled by KFF.21
Outcomes
Our primary outcomes were changes in hospital performance
(bonus or penalty status) and payment adjustments under the
HVBP program after simulated HEA. We also examined
hospital-level and total changes in HVBP payment adjust-
ments across hospital patient mix characteristics (case mix in-
dex, safety net status,22 and high-proportion racial minority
status10), as well as structural (size, ownership, and teaching
status) and geographic characteristics (region, rurality, and
state-level Medicaid expansion status). These variables are de-
scribed in further detail in eMethods 3 in Supplement 1. In-
creased payment adjustments refer to larger bonuses, smaller
penalties, or both, whereas decreased payment adjustments
refer to smaller bonuses, larger penalties, or both.
Statistical Analysis
We use descriptive statistics to summarize HVBP perfor-
mance scores, proportion of dual-eligible inpatient stays, and
patient mix, structural, and geographic characteristics by hos-
pital bonus or penalty status under the HVBP program in
FY 2021.
We then assessed the extent to which the bonus or pen-
alty status of hospitals would change after HEA is incorpo-
rated into the HVBP program. To do so, we first calculated
the HEA points that would have been allocated to each hospi-
tal in FY 2021 according to their HVBP domain scores and
proportion of dual-eligible inpatient stays. These HEA points
were then used to calculate new hospital-level total perfor-
mance scores. Next, we determined the proportion of hospi-
tals that received a bonus or penalty under the HVBP pro-
gram in FY 2021 that would be reclassified into a different
bonus or penalty group after implementation of the HEA
(eg, from receiving a bonus to receiving a penalty or vice versa).
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Original Investigation Research
We also examined changes in average hospital-level payment
adjustments, as well as total payment adjustments, after HEA
across hospital patient mix, structural, and geographic char-
acteristics. Statistical significance of changes in HVBP pay-
ment adjustments after HEA was assessed with Wilcoxon
signed rank tests. To quantify the likelihood of receiving an
increased payment adjustment after HEA across each hospi-
tal characteristic (eg, safety net status), we fit robust multi-
variable Poisson regression models adjusting for all other hos-
pital characteristics.
We conducted several additional analyses in response to
a CMS request for information regarding the potential impact
of alternative approaches to calculate HEA points.15 For each
alternative approach, we evaluated the proportion of hospi-
tals reclassified to a different bonus or penalty group and total
changes in HVBP payment adjustments across hospital char-
acteristics after HEA. First, we calculated HEA points with-
out a 10-point cap. Second, to calculate the measure perfor-
mance scaler, we allocated 0, 0, or 4 points to hospitals for
being in the bottom, middle, or top performance tercile, re-
spectively, of each HVBP domain. Third, we determined the
underserved multiplier with a linear exchange function by res-
caling hospital dual-eligible rank between 0 and 1. Fourth, we
calculated the underserved multiplier with actual scoring by
directly using the proportion of dual-eligible inpatient stays
at each hospital.
All analyses were conducted with R version 4.3.1 (R Foun-
dation for Statistical Computing), and a 2-sided P < .05 was con-
sidered statistically significant. Institutional review board ap-
proval was obtained from the Beth Israel Deaconess Medical
Center, with a waiver of informed consent owing to the dei-
dentified nature of the data.
Results
Hospital Characteristics
Of 2676 hospitals participating in the HVBP program in
FY 2021, 1470 (54.9%) received bonuses and 1206 (45.1%)
received penalties (Table 1). The mean (SD) percentage of
dual-eligible inpatient stays was 26.3% (14.0%) among hospi-
tals receiving bonuses and 29.5% (13.1%) among those receiv-
ing penalties. The distribution of dual-eligible inpatient stays
across hospitals is shown in eFigure 3 in Supplement 1 and
the proportion of such stays across hospital characteristics is
presented in eTable 2 in Supplement 1. Mean (SD) total per-
formance scores were 41.9 (9.2) and 24.2 (4.8) among hospi-
tals receiving bonuses and penalties, respectively.
Hospital characteristics differed by HVBP bonus vs pen-
alty status. Safety net hospitals (391 [57.2%] vs 292 [42.8%] of
683), high-proportion Black hospitals (300 [57.4%] vs 223
[42.6%] of 523), and hospitals in the top (most medically com-
plex) case mix index quintile (260 [53.5%] vs 226 [46.5%] of
486) were more likely to receive penalties than bonuses. In ad-
dition, large hospitals (234 [65.9%] vs 121 [34.1%] of 355), pub-
lic hospitals (173 [52.3%] vs 158 [47.7%] of 331), and teaching
hospitals (704 [52.0%] vs 650 [48.0%] of 1354) were also more
often in the penalized group, as were hospitals located in the
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 Research Original Investigation Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program

Table 1. Characteristics and Performance of Hospitals Participating in the HVBP Program by Bonus or Penalty Status Before Health Equity Adjustment

No. (%)
Characteristics Hospitals receiving penalties Hospitals receiving bonuses
Total No. of hospitals 1206/2676 (45.1) 1470/2676 (54.9)
Dual-eligible inpatient stays, mean (SD), %a 29.5 (13.1) 26.3 (14.0)
Total performance scores, mean (SD)b 24.2 (4.8) 41.9 (9.2)
Weighted domain scores, mean (SD)c
Clinical outcomes 9.6 (3.9) 13.0 (4.8)
Patient/caregiver experience of care 6.3 (3.3) 10.8 (6.1)
Safety domain 7.6 (4.0) 12.4 (5.4)
Efficiency and cost reduction 1.8 (3.1) 9.1 (8.7)
Patient mix characteristics
Case mix indexd
Quintiles 2-5 946/2190 (43.2) 1244/2190 (56.8)
Quintile 1 (most complex) 260/486 (53.5) 226/486 (46.5)
Safety net status
Non–safety net hospital 815/1993 (40.9) 1178/1993 (59.1)
Safety net hospitale 391/683 (57.2) 292/683 (42.8)
Proportion minority
Non–high-proportion Black hospital 906/2153 (42.1) 1247/2153 (57.9)
High-proportion Black hospitalf 300/523 (57.4) 223/523 (42.6)
Structural characteristics
Size (No. of beds)
Small (<100) 204/783 (26.1) 579/783 (73.9)
Medium (100-399) 768/1538 (49.9) 770/1538 (50.1)
Large (≥400) 234/355 (65.9) 121/355 (34.1)
Ownership
Private, for profit 248/492 (50.4) 244/492 (49.6)
Private, nonprofit 769/1829 (42.0) 1060/1829 (58.0)
Public 173/331 (52.3) 158/331 (47.7)
Teaching status
Nonteaching 502/1322 (38.0) 820/1322 (62.0)
Teachingg 704/1354 (52.0) 650/1354 (48.0)
Geographic characteristics
Region
Northeast 228/439 (51.9) 211/439 (48.1)
Midwest 237/648 (36.6) 411/648 (63.4)
South 531/1040 (51.1) 509/1040 (48.9)
West 210/549 (38.3) 339/549 (61.7)
Rurality
Urban 999/2064 (48.4) 1065/2064 (51.6)
Rural 207/612 (33.8) 405/612 (66.2)
Medicaid expansion status
Nonexpansion state 482/1025 (47.0) 543/1025 (53.0)
Expansion stateh 724/1651 (43.9) 927/1651 (56.1)
d
Abbreviation: HVBP, Hospital Value-Based Purchasing. A measure of the average relative diagnosis related group weight of Medicare
a
Defined as the proportion of inpatient stays for patients with dual-eligible discharges.
e
status out of the total number of inpatient Medicare (fee-for-service and Defined as hospitals in the top quartile of the Disproportionate Share Hospital
Advantage) stays in 2019. A stay was defined as dual eligible if it was for a index nationally.
patient with Medicare and full Medicaid benefits for the month the patient f
Defined as hospitals in the top quintile of proportion of Medicare
was discharged. If the patient died in the month of discharge, dual-eligible (fee-for-service and Advantage) hospitalizations for Black patients in 2019.
status was determined by using the previous month. Data on inpatient stays g
Defined as hospitals with medical school affiliations reported to the American
were obtained from Medicare inpatient files. Data on dual-eligible status were
Medical Association or members of the Council of Teaching Hospitals and
drawn from the Master Beneficiary Summary File.
Health Systems.
b
The score ranges from 0 to 110. h
Adopted and implemented Medicaid expansion by 2019.
c
Higher scores indicate better performance on measures.

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 Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program
South (531 [51.1%] vs 509 [48.9%] of 1040) and Northeast (228
[51.9%] vs 211 [48.1%] of 439).
Reclassification of HVBP Bonus or Penalty Status
The distributions of HVBP bonus or penalty status before and
after HEA are shown in eFigure 4 in Supplement 1. Of 1470 hos-
pitals that received bonuses before HEA, 102 (6.9%) were re-
classified to instead receive penalties after HEA. Of 1206 hos-
pitals that received penalties before HEA, 119 (9.9%) were
reclassified to instead receive bonuses after HEA. Results of
HVBP performance reclassification based on total perfor-
mance score quintiles appear in eFigure 5 in Supplement 1.
Changes in HVBP Payment Adjustments
Before HEA, the mean hospital-level HVBP bonus and pen-
alty were $155 250 (range, $90 to $5 215 069) and $196 996
(range, $163 to $2 125 735), respectively. After HEA, the mean
hospital-level HVBP bonus and penalty were $151 390 (range,
$18 to $6 547 164) and $207 410 (range, $20 to $2 140 874). Ac-
cordingly, average hospital-level payment adjustments de-
creased by $4534 after HEA, ranging between a decrease of
$1 014 276 to an increase of $1 523 765. Distributions of HVBP
payment adjustments before and after HEA are shown in eFig-
ure 6 in Supplement 1.
As expected, HVBP payment adjustments increased across
increasing proportions of dual-eligible inpatient stays after HEA
(eFigures 7 and 8 in Supplement 1). Changes in hospital-level
HVBP payment adjustments also varied significantly across
hospital characteristics (Table 2). The largest mean (SD) in-
creases in HVBP payment adjustments were observed among
safety net ($42 418 [$73 233]) and high-proportion Black hos-
pitals ($29 576 [$87 126]), with corresponding reductions
among non–safety net ($20 625 [$89 634]) and non–high-
proportion Black hospitals ($12 820 [$88 787]). Public hospi-
tals ($15 698 [$72 559]), rural hospitals ($6503 [$33 946]), and
Southern hospitals ($4436 [$93 577]) also experienced in-
creases in mean (SD) payment adjustments, whereas pay-
ment adjustments decreased among nonprofit ($10 942
[$99 098]), urban ($7807 [$100 610]), Northeastern ($12 234
[$82 405]), and Midwestern hospitals ($26 016 [$92 834]). Sig-
nificant reductions in mean (SD) payment adjustments were
also experienced by teaching hospitals ($7984 [$116 704]) and
those in the top case mix index quintile ($13 843 [$163 698]).
At the aggregate level, safety net ($28 971 708) and high-
proportion Black hospitals ($15 468 445) had the largest in-
creases in total HVBP payment adjustments after HEA, fol-
lowed by Western ($5 482 175) and public hospitals ($5 196 138).
Non–safety net hospitals ($41 105 588), non–high-proportion
Black hospitals ($27 602 325), nonprofit hospitals ($20 013 225),
and Midwestern hospitals ($16 858 606) experienced the larg-
est reductions in total HVBP payment adjustments. The varia-
tion in total HVBP payment adjustment changes across states
is shown in the Figure.
Hospital Characteristics Associated With Increased
HVBP Payment Adjustments
Of all hospitals participating in the HVBP program, 1283 (47.9%)
received increased payment adjustments after HEA (Table 3).
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Original Investigation Research
The likelihood of receiving increased HVBP payment adjust-
ments after HEA was significantly higher among safety net hos-
pitals (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 (396 of 523 [75.7%] vs 887 of 2153 [41.2%]; ARR,
1.40 [95% CI, 1.29-1.51]) vs their non–safety net and non–high-
proportion Black counterparts. Medium-sized hospitals (755
of 1538 [49.1%] vs 373 of 783 [47.6%]; ARR, 1.12 [95% CI, 1.02-
1.24]) were also more likely than small hospitals to receive in-
creased payment adjustments, whereas nonprofit hospitals
were less likely to do so than their for-profit counterparts (775
of 1829 [42.4%] vs 272 of 492 [55.3%]; ARR, 0.91 [95% CI, 0.83-
0.99]). A higher likelihood was observed among hospitals lo-
cated in the South (598 of 1040 [57.5%] vs 192 of 439 [43.7%];
ARR, 1.25 [95% CI, 1.10-1.42]) relative to those in the North-
east, whereas a lower likelihood was observed among hospi-
tals in the Midwest (211 of 648 [32.6%] vs 192 of 439 [43.7%];
ARR, 0.82 [95% CI, 0.72-0.95]). Rural hospitals (374 of 612
[61.1%] vs 909 of 2064 [44.0%]; ARR, 1.44 [95% CI, 1.30-
1.58]) and those located 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 receive increased payment ad-
justments. State-level variation in proportion of hospitals re-
ceiving increased HVBP payment adjustments is shown in
eFigure 9 in Supplement 1.
Additional Analyses
The impact of alternative approaches to calculate HEA points
on HVBP bonus or penalty status and changes in payment
adjustments are presented in eFigures 10 through 13 and
eTables 3 through 6 in Supplement 1, respectively. Using the
point allocation approach (0, 0, or 4) for the measure perfor-
mance scaler or calculating the underserved multiplier with
actual scoring substantially decreased the number of hospi-
tals reclassified from penalty to bonus status compared with
the current CMS methodology. These approaches also
resulted in reduced total HVBP payment adjustments across
nearly all hospital characteristics. Minimal changes in hospi-
tal performance or payment adjustments were observed after
removing the 10-point cap or calculating the underserved
multiplier with linear scoring.
Discussion
In this national study of US hospitals, we found that incorpo-
rating Medicare’s HEA into the HVBP program will signifi-
cantly redistribute program payments across hospitals, rang-
ing from hospital-level reductions of just over $1 million to
increases of greater than $1.5 million. Our findings indicate that
the degree of change in HVBP performance and payment ad-
justments will vary markedly across hospital patient mix, struc-
tural, and geographic characteristics. Safety net and high-
proportion Black hospitals that are currently disproportionately
penalized by the HVBP program are projected to experience
the largest penalty reductions, with collective net-positive
changes in payment adjustments of $29.0 million and $15.5 mil-
lion, respectively. In addition, rural and Southern hospitals will
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 Research Original Investigation Health Equity Adjustment and Hospital Performance in the Medicare Value-Based Purchasing Program

Table 2. Mean Change in HVBP Payment Adjustments After Health Equity Adjustment by Hospital Characteristics

Mean (SD), $
Hospital-level payment adjustmentb Total change
Change in hospital-level in payment
Characteristic Before HEA After HEA payment adjustmentc P valuea adjustment, $
Overall (n = 2676)d −3498 (320 292) −8032 (323 262) −4534 (90 033) <.001 −12 133 880
Patient mix characteristics
Case mix index
Quintiles 2-5 (n = 2190) 4240 (214 679) 1772 (215 944) −2469 (62 808) .16 −5 406 318
Quintile 1 (most complex) (n = 486) −38 366 (596 923) −52 208 (602 910) −13 843 (163 698) <.001 −6 727 563
Safety net status
Non–safety net hospital (n = 1993) 15 306 (339 762) −5319 (338 919) −20 625 (89 634) <.001 −41 105 588
Safety net hospital (n = 683) −58 366 (247 291) −15 947 (272 555) 42 418 (73 233) <.001 28 971 708
Proportion minority
Non–high-proportion Black hospital 11 186 (325 970) −1634 (327 089) −12 820 (88 787) <.001 −27 602 325
(n = 2153)
High-proportion Black hospital −63 946 (288 279) −34 370 (305 899) 29 576 (87 126) <.001 15 468 445
(n = 523)
Structural characteristics
Size (No. of beds)
Small (<100) (n = 783) 50 236 (87 817) 46 937 (82 146) −3298 (23 451) <.001 −2 582 616
Medium (100-399) (n = 1538) 2314 (247 685) −1802 (245 235) −4116 (70 685) .06 −6 331 127
Large (≥400) (n = 355) −147 192 (681 589) −156 263 (696 228) −9071 (195 754) .047 −3 220 138
Ownership
Private, for profit (n = 492) −24 885 (231 406) −19 412 (242 365) 5472 (59 136) .06 2 692 430
Private, nonprofit (n = 1829) 11 080 (351 914) 138 (352 472) −10 942 (99 098) <.001 −20 013 225
Public (n = 331) −50 278 (246 712) −34 579 (262 618) 15 698 (72 559) <.001 5 196 138
Teaching status
Nonteaching (n = 1322) 21 752 (158 442) 20 751 (164 463) −1001 (49 396) .22 −1 323 292
Teaching (n = 1354) −28 151 (420 881) −36 135 (422 604) −7984 (116 704) <.001 −10 810 588
Geographic characteristics
Region
Northeast (n = 439) −17 502 (282 554) −29 736 (275 391) −12 234 (82 405) <.001 −5 370 895
Midwest (n = 648) 43 267 (355 918) 17 251 (315 832) −26 016 (92 834) <.001 −16 858 606
South (n = 1040) −53 619 (338 510) −49 183 (369 121) 4436 (93 577) .02 4 613 446
West (n = 549) 47 449 (244 995) 57 435 (254 445) 9986 (80 038) .07 5 482 175
Rurality
Urban (n = 2064) −12 992 (356 718) −20 799 (359 032) −7807 (100 610) <.001 −16 113 837
Rural (n = 612) 28 522 (134 751) 35 025 (140 917) 6503 (33 946) <.001 3 979 957
Medicaid expansion status
Nonexpansion state (n = 1025) −37 097 (329 000) −41 254 (356 776) −4157 (88 131) .002 −4 261 123
Expansion state (n = 1651) 17 362 (313 055) 12 593 (298 842) −4768 (91 220) .01 −7 872 758
Abbreviations: HEA, health equity adjustment; HVBP, Hospital Value-Based before and after HEA were −$3498 ($320 292) and −$8032 ($323 262),
Purchasing. respectively, which corresponded to a mean (SD) change in hospital-level
a
Comparisons were conducted with paired Wilcoxon signed rank tests. payment adjustment across all hospitals of −$4534 (−$90 033) and a total
b
change in payment adjustment across all hospitals of −$12 133 880. The total
Positive values represent bonuses and negative values represent penalties.
change in payment adjustment across all hospitals was not neutral owing to shifts
c
Positive values represent increased payment adjustments and negative values in the distribution of HVBP payment adjustment factors after HEA.
represent decreased payment adjustments.
d
To illustrate, mean (SD) hospital-level payment adjustments across all hospitals

be more likely to benefit and receive net-positive changes in
payment adjustments after HEA is implemented.
The HVBP program and other value-based initiatives have
been increasingly criticized for unfairly penalizing resource-
constrained hospitals serving disadvantaged populations.9,23
These disproportionate penalties may exacerbate the financial
instability of safety net and rural hospitals, which are already
operating on thin margins and closing at alarming rates.24,25 Cli-
nicians, health system leaders, and policy experts have voiced
concerns that current quality measures fail to adequately ac-
count for patient social risk factors.14,23,26-29 However, directly
adjusting quality measures for social risk is controversial be-
cause it could be perceived as lowering the standard of care or
obfuscating poorer outcomes among underserved patients.30,31

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

Figure. Geographic Distribution of Total Changes in Hospital Value-Based Purchasing (HVBP)

Payment Adjustments After Health Equity Adjustment

Total HVBP payment adjustments, $

–3 494 148 to –1 500 000
California and Louisiana experienced
–1 499 999 to –500 000 the largest increases in total HVBP
–499 999 to 0 payment adjustments, at $9 449 300
1 to 250 000 and $2 377 184, respectively.
250 001 to 750 000 Pennsylvania and Minnesota
750 001 to 9 449 300 experienced the largest decreases in
Maryland hospitals exempt from HVBP total HVBP payment adjustments, at
$3 494 148 and $3 479 801,
respectively.

CMS has thoughtfully designed HEA specifications to simulta-
neously address concerns related to both health equity and ap-
propriate performance measurement.17 First, the forthcoming
HVBP policy change adjusts payments rather than the quality
measures themselves, thereby avoiding shifts in performance
expectations or inaccurate quality measurement. Second, the
HEA successfully lowers penalties for disadvantaged hospitals
through the underserved multiplier while incentivizing the pro-
vision of high-quality care through the measure performance
scaler. Our additional analyses demonstrate that the finalized
policy change, compared with alternative approaches, maxi-
mizes the benefit for disadvantaged hospitals and optimizes total
payment adjustments across all hospitals.
Although our findings demonstrate that HEA will in-
crease aggregate HVBP payment adjustments for hospitals
caring for underserved populations, it remains unclear
whether this policy change will have a meaningful effect on
hospital finances, operations, and quality at the individual
hospital level.32,33 For example, average payment adjust-
ments were projected to increase by only approximately
$42 000 among safety net hospitals and $6500 among rural
hospitals. Nevertheless, many hospitals are expected to
experience substantial net-positive changes in payment
adjustments of nearly $250 000. Future studies should
evaluate the downstream impacts of payment redistribution
on hospitals and their patients, such as hospital closures,
racial and ethnic disparities in quality of care, and invest-
ments in initiatives that aim to address health inequities.
The use of dual-eligible status in the HVBP program
builds on other recent CMS policy changes and fosters align-
ment across its programs. In the 21st Century Cures Act,
Congress directed CMS to assess hospital performance rela-
tive to other hospitals with similar proportions of dual-
eligible patients in the Hospital Readmissions Reduction Pro-
gram rather than comparing all participating hospitals to one
another.34 This decision was informed by a 2016 Assistant
Secretary for Planning and Evaluation report to Congress,
which demonstrated that dual-eligible status was the stron-
gest predictor of poor outcomes across quality measures, a
finding that persisted even when beneficiaries receiving care
at the same hospital were compared. 35,36 However, this
approach in both programs can result in significant state-
level heterogeneity in the effects of HEA owing to variations
in Medicaid policies. Hospitals located in states with less gen-
erous Medicaid coverage, ineffective enrollment strategies,
and burdensome recertification processes will likely benefit
less from HEA based on dual-eligible status,37-39 which may
explain why we found that hospitals located in Medicaid
expansion states were more likely than those in Medi-
caid nonexpansion states to experience increased payment
adjustments, consistent with analyses of the recent Hospital
Readmissions Reduction Program policy change.34

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

Table 3. Rates of Receiving an Increased Bonus or Reduced Penalty After Health Equity Adjustment
by Hospital Characteristics
Hospitals receiving
increased bonus
or reduced penalty, Adjusted rate ratio
Characteristic No./total No. (%) Rate ratio (95% CI)a (95% CI)b
Overall 1283/2676 (47.9) NA NA
Patient mix characteristics
Case mix index
Quintiles 2-5 1101/2190 (50.3) 1 [Reference] 1 [Reference]
Quintile 1 (highest) 182/486 (37.4) 0.74 (0.66-0.84) 0.76 (0.67-0.86)
Safety net status
Non–safety net hospital 709/1993 (35.6) 1 [Reference] 1 [Reference]
Safety net hospital 574/683 (84.0) 2.36 (2.21-2.53) 2.04 (1.89-2.20)
Proportion minority
Non–high-proportion Black hospital 887/2153 (41.2) 1 [Reference] 1 [Reference]
High-proportion Black hospital 396/523 (75.7) 1.84 (1.71-1.97) 1.40 (1.29-1.51)
Structural characteristics
Size (No. of beds)
Small (<100) 373/783 (47.6) 1 [Reference] 1 [Reference]
Medium (100-399) 755/1538 (49.1) 1.03 (0.94-1.13) 1.12 (1.02-1.24)
Large (≥400) 155/355 (43.7) 0.92 (0.80-1.05) 1.08 (0.93-1.26)
Ownership
Private, for profit 272/492 (55.3) 1 [Reference] 1 [Reference]
Private, nonprofit 775/1829 (42.4) 0.77 (0.70-0.84) 0.91 (0.83-0.99)
Public 225/331 (68.0) 1.23 (1.10-1.37) 1.07 (0.96-1.19)
Teaching status
Nonteaching 662/1322 (50.1) 1 [Reference] 1 [Reference]
Teaching 621/1354 (45.9) 0.92 (0.85-0.99) 0.97 (0.90-1.05)
Geographic characteristics
Region
Northeast 192/439 (43.7) 1 [Reference] 1 [Reference]
Midwest 211/648 (32.6) 0.74 (0.64-0.87) 0.82 (0.72-0.95)
Abbreviation: NA, not applicable.
South 598/1040 (57.5) 1.32 (1.17-1.48) 1.25 (1.10-1.42) a
Rate ratios are estimated from
West 282/549 (51.4) 1.17 (1.03-1.34) 1.07 (0.94-1.21) robust Poisson regression models.
Location b
Adjusted rate ratios are estimated
Urban 909/2064 (44.0) 1 [Reference] 1 [Reference] from robust Poisson regression
models adjusting for case mix index,
Rural 374/612 (61.1) 1.39 (1.28-1.50) 1.44 (1.30-1.58)
safety net status, high-proportion
Medicaid expansion status racial minority status, size,
Nonexpansion state 482/1025 (47.0) 1 [Reference] 1 [Reference] ownership, teaching status, region,
location, and Medicaid expansion
Expansion state 801/1651 (48.5) 1.03 (0.95-1.12) 1.16 (1.06-1.28)
status.

The findings of this study suggest that HEA is an impor-
tant first step toward mitigating the regressive nature of value-
based payment programs. However, the HVBP program is still
built on and constrained by the traditional fee-for-service ar-
chitecture; the movement toward population-based models
may enable more innovative and progressive approaches to
advance health equity.23 For example, payment models could
provide increased up-front payments to safety net and rural
hospitals that would allow these institutions to invest in equity-
centered infrastructure and care delivery innovations.40,41 An-
other option is for value-based payment programs to incen-
tivize the measurement and reduction of health inequities as
part of performance assessment.42 The recently announced
CMS States Advancing All-Payer Health Equity Approaches and
Development model is one such example and will enable states
to implement hospital global budgets with social risk adjust-
ment and bonuses for hospitals that improve performance on
disparity-focused measures.43
Limitations
Our study has several limitations. First, we used FY 2021 data
to project the impact of HEA under the HVBP program. The
true impact will depend on actual hospital performance and
proportion of dual-eligible inpatient stays in FY 2026. None-
theless, our analysis used the most recent performance data
available before the COVID-19 pandemic, which resulted in
the suspension of the HVBP program and other value-based
payment programs.44 Second, our estimation of hospital-
level HVBP payment adjustments relied on standardized
operating amounts for hospitals designated as meaningful

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

electronic health record users. However, national data have

shown that almost all acute care hospitals have achieved mean-
ingful electronic health record use, with even higher rates
among hospitals participating in the HVBP program.45,46 Third,
high-proportion Black hospitals were identified by using Medi-
care hospitalizations. However, recent evidence suggests that
the share of Medicare discharges for Black patients is nearly
identical to their share of all hospital discharges.10,47 Fourth,
although there is no standard method for defining safety net
hospitals, we followed an approach that has been most con-
sistently used in past studies.48-50
Conclusions
The incorporation of HEA in the HVBP program will signifi-
cantly reclassify hospital bonus or penalty status and redistrib-
ute program payments. Hospitals that are currently dispropor-
tionately penalized, such as safety net and high-proportion
Black hospitals, will benefit most from this policy change. These
findings suggest that HEA will help reduce the regressive na-
ture of the HVBP program and should be considered in other
value-based payment programs.

ARTICLE INFORMATION
Accepted for Publication: February 13, 2024.
Published Online: March 27, 2024.
doi:10.1001/jama.2024.2440
Author Affiliations: Section of Health Policy and
Equity, Richard A. and Susan F. Smith Center for
Outcomes Research, Beth Israel Deaconess Medical
Center, Boston, Massachusetts (Liu, Wadhera);
Harvard Medical School, Boston, Massachusetts
(Liu, Sandhu, Wadhera); Cardiovascular Division,
John T. Milliken Department of Internal Medicine,
Washington University School of Medicine in
St Louis, St Louis, Missouri (Joynt Maddox); Center
for Health Economics and Policy, Institute for Public
Health, Washington University in St Louis, St Louis,
Missouri (Joynt Maddox); Associate Editor, JAMA
(Joynt Maddox); Department of Health Policy and
Management, Harvard T.H. Chan School of Public
Health, Boston, Massachusetts (Wadhera).
Author Contributions: Mr Liu and Dr Wadhera had
full access to all of the data in the study and take
responsibility for the integrity of the data and the
accuracy of the data analysis.
Concept and design: Liu, Joynt Maddox, Wadhera.
Acquisition, analysis, or interpretation of data: All
authors.
Drafting of the manuscript: Liu, Sandhu.
Critical review of the manuscript for important
intellectual content: All authors.
Statistical analysis: Liu, Wadhera.
Obtained funding: Wadhera.
Administrative, technical, or material support: Liu.
Supervision: Wadhera.
Conflict of Interest Disclosures: Dr Joynt Maddox
reported receiving grants from the National
Institutes of Health (NIH) and consulting fees from
the Centene Health Policy Advisory Council outside
the submitted work. Dr Wadhera reported receiving
grants from the National Heart, Lung, and Blood
Institute and consulting fees from Chamber Cardio
and Abbott outside the submitted work. No other
disclosures were reported.
Funding/Support: Dr Joynt Maddox was
supported by Humana and received research
support from the National Heart, Lung, and Blood
Institute (R01HL143421 and R01HL164561),
National Institute of Nursing Research
(U01NR020555), National Institute on Aging
(R01AG060935, R01AG063759, and
R21AG065526), and National Center for Advancing
Translational Sciences. Dr Wadhera received
research support from the National Heart, Lung,
and Blood Institute (R01HL164561 and
K23HL148525) at the NIH and the Donaghue
Foundation.
Role of the Funder/Sponsor: The funders had no
role in the design and conduct of the study;
collection, management, analysis, and
interpretation of the data; preparation, review, or
approval of the manuscript; and decision to submit
the manuscript for publication.
Disclaimer: Dr Joynt Maddox is an Associate Editor
of JAMA but was not involved in any of the
decisions regarding review of the manuscript or its
acceptance.
Data Sharing Statement: See Supplement 2.
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