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Accounting for Social Risk Factors in Medicare Payment: Third National Report

Committee lays out criteria, methods

How should social risk factors enter into Medicare’s value-based payments to hospitals? The answer goes beyond an arcane discussion of payment policy; it has a direct impact on hospital bottom lines and the quality of care provided to underserved communities.  A new report from the National Academies of Sciences, Engineering, and Medicine—the third in a series of five—lays out criteria and methods to account for social risk factors in Medicare payment.  

Changing the status quo (where social risk factors are not part of value-based payment) is a heavy lift. As the expert committee of the NAS notes, current payment policy may underpay or penalize providers who disproportionately serve socially at-risk populations, and encourage providers and insurers to avoid serving patients with social risk factors. But adjusting for social risk factors can worsen disparities if it lowers expectations for quality of care or if it dilutes provider incentives to improve the quality of care for patients with those factors. 

The expert committee of the NAS, which includes LDI Executive Director Daniel Polsky, admirably threads the needle in this debate, offering guidance on which social factors to consider, without recommending that Medicare payment policy actually take these factors into account. But the panel’s systematic discussion of the selection criteria for the factors and the methods of incorporating them into payment policy take us many steps further in the process.

The criteria for selecting social factors are simple yet powerful. Each social risk factor should be conceptually and empirically related to the outcome; precede care delivery and not be modifiable through provider actions; and resist manipulation or gaming. Applying the criteria to measurable social risk factors, the committee identified indicators that could be incorporated into Medicare payment policy in the short term. As shown in bold in the figure below, they include: income, education, and dual eligibility; race, ethnicity, language, and nativity; marital/partnership status and living alone; and neighborhood deprivation, urbanicity, and housing.  The factors in italics indicate potential candidates that pose considerable measurement challenges at this point.

The committee also identified four ways to account for social risk factors, should policymakers choose to do so. Two methods are quality-based, and two are cost-based, and the committee noted that the trade-offs are different for each. For example, lower cost is not always preferable (if it indicates unmet needs), but higher quality is always better. Policymakers could choose to consider social factors by:

1. stratifying public reporting (making overall quality visible to consumers, providers, payers, and regulators);

2. adjusting performance measure scores (accounting for social risk factors statistically, to more accurately measure true performance);

3. directly adjusting payments (explicitly using social risk factors in payment but not in performance measure scores); and

4. restructuring payment incentive design (implicitly accounting for social risk factors in payment).

Although the NAS committee was not charged with taking a position on adjusting for social factors in payment policy, others have already weighed in.  An expert panel convened by the National Quality Forum recommended that NQF change its policy of excluding socioeconomic factors in measuring quality, and consider these factors in pay-for-performance measures such as hospital readmission penalties; in response, the NQF’s Board of Directors approved a two-year trial of risk adjusting certain performance measures for socioeconomic factors. But as LDI Fellows Josh Liao and Krisda Chaiyachati note in a recent blog post, risk adjustment should only be one part of the discourse about readmissions penalties and socioeconomic status; in the end, risk adjustment may need to be paired with incentives for hospitals to adopt public health-minded organizational strategies and community collaborations to address the health needs of populations at risk.