Along with accelerating the Food and Drug Administration (FDA) approval processes, funding the Cancer Moonshot, and strengthening mental health and substance abuse treatment programs, the wide-ranging 21st Century Cures Act, signed into law on December 13, 2016, also directs the Secretary of Health and Human Services (HHS) to change the way pay-for-performance penalties are applied to safety-net hospitals. This is a move in the right direction.
The Hospital Readmissions Reduction Program (HRRP), authorized by the Affordable Care Act, aims to improve care and outcomes for patients by assessing hospitals' risk-standardized readmission rates. Hospitals that do not meet the readmission standard receive a penalty of up to 3 percent of their Medicare payments. Before the program's inception, hospitals and academics raised concerns that readmissions penalties would have disproportionate impact on safety-net hospitals and might lead to worsening disparities. And, in fact, studies have shown that safety-net hospitals were more likely to be penalized than non-safety-net hospitals in the first years of the program.
The Cures Act changes this by instructing HHS to set different penalty thresholds for hospitals, based on the portion of Medicare-Medicaid dual eligible patients that are served by a hospital. What is critical to note is that this law—in contrast to prior proposals, which argued for changes to the readmission measures—directly mitigates the impact of penalties on safety-net hospitals.
Every pay-for-performance program essentially has two components. One is the performance assessment: the quality measure. The other is the policy that translates the quality measure score to an incentive payment or penalty. It is not surprising that most stakeholders at first sought changes to the way the readmission measures are calculated. Patient socioeconomic factors, like education level or income, can influence the risk of future hospitalization. The theory was: change the risk adjustment in the measures to account for these factors and the measures will be more fair, and safety-net hospitals will be less likely to be penalized.
However, adjusting the readmission measures for patients' social risk factors has two key limitations. The first is that altering the measures themselves does not actually provide relief to safety-net hospitals. Despite the fact that social risk factors predict an increased risk of readmission, including these factors in the measures does not substantially alter hospitals' performance. Even the hospitals caring for the poorest patients would only see their rates adjusted by a fraction of a percentage, and therefore would see little change in their penalties.
The second limitation is that incorporating social risk factors into the measures invisibly sets separate standards for patients who are socially disadvantaged compared with those who are not. As physicians who have always worked in safety-net settings, we understand the challenges of caring for patients with few resources, and the desire to have our quality of care compared to doctors, or hospitals, that care for a similar mix of patients. But when it comes to measuring patient outcomes, such as readmission rates or mortality rates, quality measures that are adjusted for patient poverty-level will essentially set lower expectations for the care and outcomes of certain populations.
To understand the moral hazard associated with changing the measures to account for social risk, imagine the equivalent solution applied to education. For example, if high schools in poor neighborhoods needed to achieve lower scores on standardized achievement tests than schools with wealthy families in order to maintain their funding, schools would, in effect, be incentivized to perpetuate the current achievement gap. This is particularly problematic because we know that some of the disparities in health outcomes experienced by socially disadvantaged patients can be addressed by improving the quality of care available to them. It is not good policy to have our national quality measurements, our yardsticks of health care quality, enshrine socioeconomic disparities, especially when we have demonstrated that many hospitals caring for low-income populations are achieving the readmission rates of the best hospitals.
The 21st Century Cures Act rightly sets the focus on adjusting penalties and avoids the pitfalls of changing the way we assess quality. And it does so in a budget-neutral fashion. Indeed, this is what the Medicare Payment Advisory Committee recommended to Congress three years ago. Recognizing that safety-net providers may have low financial margins and may need to make significant investments to improve readmission rates, the law allows for penalties to be set among peer hospitals, while maintaining a national standard for quality. This is a more proactive, transparent, and effective approach to addressing concerns about worsening disparities, which allows more resources to be committed by safety-net providers to close current gaps in health outcomes. It will allow hospitals to engage with communities in the work needed to minimize health disparities, a goal highlighted in the recent National Academies of Sciences, Engineering, and Medicine report on how to achieve health equity in communities.
Congress has puzzled over how to address social risk factors in Medicare quality and payment programs for some time now. In the 2014 IMPACT Act they provided funding for the Office of the Assistant Secretary for Planning and Evaluation (ASPE) to produce a series of reports on this topic. ASPE's first report and an associated National Academies of Sciences, Engineering, and Medicine report were published just after the Cures Act passed. Fortunately, the Act's approach is consistent with the recommendations of both.
To be sure, questions remain about the exact approach set forth in the Cures Act, such as whether dual eligibility is the right marker of socioeconomic status to use in selecting safety-net hospitals, whether Congress should be so precisely defining Medicare policy and limiting flexibility in approach, and whether many safety-net hospitals will still be penalized at high rates.
Nonetheless, the Cures Act has illuminated options for adapting pay-for-performance policy beyond just re-setting quality standards. It is a model for seeking solutions that simultaneously sets high standards for the care and outcome of all patients and also supports providers caring for those with fewer resources. This is a combination, that when paired with greater illumination of disparities, is the only likely policy path toward improving health equity.
Authors' Note
Drs. Bernheim and Dorsey are funded by the Centers for Medicare and Medicaid Services to develop and evaluate outcome quality measures for national reporting programs.
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