How Hospitals Are Preparing for Health Equity Adjustment Bonus

The Centers for Medicare & Medicaid Services has created a Health Equity Adjustment Bonus for hospitals as part of its Hospital Value-Based Purchasing Program. In a conversation with Healthcare Innovation, Venson Wallin, managing director in BDO’s Healthcare Advisory practice and a member of BDO’s Center for Healthcare Excellence and Innovation, recently explained what’s at stake for hospitals. 

Healthcare Innovation: Can you explain what CMS is hoping to achieve with this Health Equity Adjustment Bonus? 

Wallin: I like to think of it as more of a carrot than a stick. They’ve got the CMS Framework for Health Equity, which through 2032 has a goal of further advancing health equity, expanding coverage and improving health outcomes across all populations. Part of that is this Health Equity Adjustment Bonus, which is part of the Value-Based Purchasing Program. 

HCI: Does it have to do with hospitals and health systems that see large numbers of underserved patients?

Wallin: Well, it’s for everybody, but the ones that will benefit more significantly are those that are serving the underserved populations.

HCI: And how how will those underserved patients be defined by CMS? 

Wallin: They’re going to use the dual-enrollment population [Medicare and Medicaid]. CMS is on record as saying they feel like that has been a pretty good predictor of what the underserved population is.

HCI: So how will the health equity adjustment be calculated?

Wallin: Are you familiar with advanced calculus?

HCI: No, I’m not very good at math.

Wallin: So there’s really a two-step process in calculating health equity. The first metric is the measure performance scaler. And the second is the underserved multiplier. So you’ll multiply those two together to get what your health equity adjustment points are. 

The measure performance scaler measures the hospital’s performance across four domains: clinical, cost and efficiency, safety, and person and community engagement. Then within each of those domains, they break it down into thirds. So if you’re in the top third, based on your comparison to all the other hospitals in the country, you get four points. If you’re in the middle third, you get two and if you’re in the bottom third, you get zero. So you could earn up to 16 points for each of the domains, or you can get zero. That’s the first part of the calculation. The underserved multiplier is where the advanced calculus comes in. There’s a logistic exchange function, which looks very much like logarithmic calculations. 

At the end of the day, it’s applied to your dual-eligible population, and depending on how you come out on that, you get a range from zero to 1.0 and then that is multiplied times the first number to get what your equity adjustment is. So the maximum health equity adjustment bonus points you can get is 10. If you’re doing an excellent job in your value-based purchasing program, you’re going to have 100 points. And then, if you do the same great job with your health equity, that means you can get up to 110 points.

HCI: Is that enough of a motivator to make people work on some of these issues you mentioned such as patient and community engagement?

Wallin: The hope is that this will incentivize people to focus on it because, you know, as tight as margins are, any additional reimbursement is important. Medicare can range anywhere from 40 to 50 percent of a hospital’s revenue. When you’re looking at break-even margins, that’s something that hopefully will incentivize them. It would not surprise me at all if there were tweaks to the program, as time went on, based on whether it’s moving the needle on health equity and quality.

HCI: What’s the timeline for this bonus program?

Wallin: It goes into effect for fiscal year 2026. People might think they’ve  got time to worry about it later, because they’ve got all these other things going on now, and this is two years off. But it is really not because the 2026 calculations are going to be based on 2024 data. So you need to be focusing on this, because we’re already well into 2024. You need to be focusing on that and understanding what those measures are, and trying to make sure that you are performing at the highest level that you can be so that when you are compared against other hospitals, you’re coming out in a favorable light.

HCI: What are some things that you advise hospitals to be doing now to prepare?

Wallin: The first is getting your hands around your dual-enrollment population. How are they doing in comparison to the rest of your population? Are the outcomes better or worse? If they’re worse, why is that and how can you address that and improve that? Does it involve moving out into the community to try to focus more on prevention?

That’s how you can impact at least one of those domains, of person and community engagement, And as you impact that, then hopefully, it will also impact the clinical domain and the cost and efficiency domain. 

Another thing you can do is look at the readmissions reduction program that you’re involved in, because those things are already stratified based on your dual-eligible patients. That might give you an indication of how you’re going to do under the health equity adjustment program as well. Also there are predictive analytic tools out there that you can utilize.