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Adjusting Payment Models For SDoH

Adjusting Payment Models For SDoH

Adjusting Payment Models for Social Determinants of Health

This article reviews strategies outlined in a book by the National Academies of Sciences, Engineering, and Medicine (NASEM) to account for social risk factors in alternative payment models. Adjusting the incentives offered to providers is one of the most direct ways providers can close persistent health outcome gaps.

A robust literature demonstrates that health disparities exist across racial, ethnic, wealth, and educational lines. However, persistent health equity gaps do not have simple root causes and may be influenced by racial bias, life course stress, intergenerational mobility, and other factors.

What are social determinants of health?

The CDC defines Social Determinants of Health (SDoH) as “conditions in the environments where people are born, live, learn, work, play, worship, and age that affect a wide range of health, functioning, and quality-of-life outcomes and risks.” Health inequities have deep cultural, social, and economic roots. Addressing them may require designing, rigorously testing, and scaling interventions targeted towards barriers, groups of patients, and/or reinventing health care delivery philosophies. All these efforts require additional financial investment from providers.

Making health equity a "value" in value-based care

Most health plans currently operate or are developing Value-Based Payment Models (VBP) designed to reward providers for providing higher quality, more efficient care. Although improving health equity is consistent with the goals of VBP models to improve outcomes, the additional investment required to reduce inequities creates a disincentive for providers participating in a VBP model to care for patients experiencing social risks. Most existing payment models include few features specifically designed to correct this problem and are not monitored for their health equity impacts (we expect the emphasis on monitoring to increase in coming years). 

Alternative payment models – Incentives for providers, better care for patients

At the most basic level, payment models shift provider behavior through payment incentives. Thus, to promote health equity, a payment model must a) identify population(s) experiencing social risk and b) make providing higher quality care to the patient cohort more attractive to providers. 

Three methods of putting health equity at the core of payment models (detailed by the National Academies of Sciences, Engineering, and Medicine) include: 

  • Adjusting performance measure scores to account for social risk
  • Directly altering payments using data on patient social risk factors
  • Incentivizing providers to improve outcomes for all patients regardless of their social risk status

Adjusting value-based payment performance measure scores

In most VBP models, performance measures are used to determine whether providers are eligible to receive bonus payments. If performance measures penalize providers for caring for patients experiencing social risks regardless of providers' actions, providers may seek to avoid these patients. When calculating performance measures, controlling social factors would allow health plans to estimate provider quality fairly and remove incentives to choose patients selectively. 

However, not all performance measures are good candidates for social risk adjustment. In a recent report to Congress about accounting for social risk factors in Medicare’s Value-Based Purchasing Program, the Assistant Secretary for Planning and Evaluation (ASPE) suggests that adjusting measures meeting the following criteria leads to fairer comparisons across providers:

  • Measure is related to patient factors
  • Measure has a plausible direct link to the social risk factor
  • Patient need or complexity, rather than provider performance, drives performance differences

Meanwhile, measures that are poor candidates for social risk adjustment are predominantly under provider control, lack a direct link to social risk factors, or are easily influenced by provider bias. In a 2017 research report by the National Quality Forum, only 26.2 percent of measures with a conceptual basis for social risk adjustment were ultimately endorsed for social risk adjustment. Thus, providers should carefully choose measures to adjust for social risk and rely on empirical guidance when possible. 

Directly adjusting payments within value-based payment models

A second method of accounting for social risks within VBP models is to simply adjust payments to providers depending on their patients’ social risk profile. 

For instance, payers could increase the payments available to providers for improving health outcomes for at-risk populations (increase ROI approach) or stratify providers according to the proportion of at-risk patients they serve. Payments could then be adjusted so that each strata receives equal mean payouts (stratification approach). The former approach directly rewards improvements in health outcome disparities. In contrast, the latter approach ensures that providers caring for a high proportion of at-risk patients receive a fair share of payments. 

In either scenario, providers are more incentivized to focus attention on patients experiencing social risk.

Potential disadvantages of the ROI approach include rewarding providers despite poor overall performance and entrenching low payments for providers whose patient outcomes do not improve. A disadvantage of the stratification approach is that it is sensitive to how the strata are selected (both the metrics and cut-points used to define strata). Additionally, providers may manipulate the strata approach by altering their patient mix to move into more favorable strata. 

Paying for the improvement of all patients

A third way to promote social equity within alternative payment models is incentivizing providers to improve outcomes for all patients—regardless of their social risk status. This approach assumes that providers can more easily improve health outcomes for patients whose initial outcomes are poorer. In contrast to the first two approaches which explicitly adjust performance measures or payments for social risk factors, this method implicitly accounts for social risk. It avoids the problems caused by selecting inaccurate or inappropriate social risk measures to adjust payments with. 

However, the key assumption that improving patient outcomes for those experiencing social risks is easier than improving outcomes for other patients is suspect, given the deep-rooted inequities afflicting the healthcare system and society at large. Additionally, this method may result in “ceiling effects” where providers close health outcome gaps only up to the point where generating further improvements is too expensive.

Putting health equity theory into practice

Although several methods of accounting for social risks in VBP models exist, each method has disadvantages and requires careful choices about measure selection, payment formula design, or stratification. In addition, the data necessary to employ these approaches are not available in many cases, and most commercial, state, and federal payment models do not account for social risk in calculating payments. Thus, health plans looking to orient their payment models towards health equity may find a dearth of ready-made examples. 

Given the increasing emphasis on health equity, commercial payers administering payment models have an opportunity to influence national policy and establish best practices. Despite these opportunities, they may need help identifying or implementing specific policies. At RTI Health Advance, we view ourselves as partners to health plans attempting to reduce inequities. We are eager to help simulate the impact of payment model adjustments, construct social risk-adjusted performance measures, incorporate health-equity focused adjustments into payment model, and evaluate the equity impacts of existing models. 

Learn more about our payment reform and health equity solutions.

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