Health Policy$ense

Payment Reform and Health Disparities: Two New Views

Shifting Focus and Frames

The concern that value-based payments will worsen health disparities is not new. Much ink has been spilled about the best way to avoid penalizing hospitals that care for disproportionately poor populations, without rewarding poor performance. The big question has been whether and how to adjust value-based payments for socioeconomic factors.

But maybe that’s not the big question at all. Two new perspective pieces take a fresh look at the issue, highlighting the potential for value-based payments to reduce disparities rather than to exacerbate them.


(Top) Robert Burke, MD, MS; Said Ibrahim, MD, MPH, MBA;
(Bottom) Krisda Chaiyachati, MD, MSHP; Jane Zhu, MD, MPP

In JAMA, LDI Senior Fellow Robert Burke and Said Ibrahim see an opportunity to address racial disparities in post-acute care, an opportunity prompted by bundled payments for elective joint replacement. They note that 70% of these patients are discharged home (with home health care), while 30% are discharged to an institution, either a skilled nursing facility (SNF) or inpatient rehabilitation facility. Black patients are far more likely to be discharged to an institution than white patients, although the destination decision is not clearly grounded in patient preferences or clinical need. And that’s where the opportunity comes in.

Institutional care is expensive, and bundled payments have caused hospitals to focus on the discharge decision. In fact, hospitals that have saved money through bundled payment have done so by reducing levels of institutional post-acute care, without reductions in quality of care. Burke and Ibrahim note that no evidence-based guidelines exist to guide discharge decisions. Payment policy now provides hospitals with incentives to understand decision points along the care continuum for black patients, and to improve decisionmaking to reduce disparities. They recommend supporting patient decisionmaking with a structured approach that could occur at the same time the surgical decision is made. This builds on the success of a similar approach using a decision aid to increase the rate that black patients choose appropriate joint replacement.

In Annals of Internal Medicine, LDI Associate Fellows Krisda Chaiyachati and Jane Zhu take it a step further, calling for a “frame shift” in payment reform to address disparities. That frame would integrate measures of equity into a hospital’s financial calculus, and directly reward hospitals for reducing disparities. How might that work? One approach they mention is to pay hospitals to improve outcomes in populations known to be at high risk, such as minority, low-income, and dual-eligible patients. Another approach is to pay directly for services that are underpaid and could drive improvements in these populations, such as mental health treatment. 

With disparities-sensitive incentives in place, Chaiyachati and Zhu note, the specific interventions to achieve equity could be driven by local circumstances and community needs. They acknowledge that payment reform is not a panacea for all that ails the health system, and that methodological work remains to define which metrics matter most in addressing disparities. They conclude:

[A]s a starting point, we can shift our conversation away from health care disparities as an unintended consequence of payment models and toward incentivizing hospitals to tackle this problem directly. If we want a rising tide to lift all boats, a disparities-sensitive frame shift in payment reform may help us get there sooner.