What is the CMS Health Equity Adjustment Bonus?

When CMS proposed adding a Health Equity Adjustment (HEA) bonus to its Hospital Value Based Purchasing (HVBP) Program, it was a nice palette cleanser to some other recommendations that it released as part of the FY 2024 IPPS Proposed Rule.(See: more sepsis requirements...yay?) Bonus points are always something to get excited about, especially when, in this case, it can lead to real financial rewards for your hospital.

If all goes as planned with August’s final rule, the Health Equity Adjustment bonus points will be up for grabs starting in FY 2026. And while that may seem far away, some measures begin in 2024. So let’s not waste another minute. Welcome to your first official guide to CMS’s New Health Equity Adjustment Bonus...

Why is CMS Offering a Health Equity Adjustment Bonus?

Last year, CMS introduced three health equity measures to its IQR Program—Hospital Commitment to Health Equity (HCHE), Screening for Social Drivers of Health (SDOH-01), and Screen Positive Rate for Social Drivers of Health (SDOH-02). Additionally they added a health equity bonus for certain ACOs reporting on the ambulatory side. They were the first, CMS promised, of many health-equity-focused initiatives to come.

This year, CMS is making good on that promise by expanding its health equity focus into the HVBP Program. In the proposed rule, CMS states that the Health Equity Adjustment Bonus is designed to support its ongoing plan to “achieve health equity, address health disparities, and close the performance gap on the quality of care.”

What’s Up For Grabs?

Starting in FY 2026, hospitals participating in the HVBP Program will be eligible to receive up to 10 Health Equity Adjustment bonus points on their Total Performance Score. The bonus points are designed to reward hospitals that serve larger populations of underserved patients while maintaining higher quality performance.

How Will CMS Define “Underserved Patients?”

For the purposes of this bonus, CMS will define your underserved patient population as the number of dual enrollment status (DES) patients—i.e., patients who are enrolled in both Medicare and Medicaid—who receive inpatient services at your hospital. Why DES? Because, as CMS points out in the proposed rule, “despite the multitude of indicators available for assessing vulnerability and health risks, [the research shows that] dual eligibility remains the strongest predictor of negative health outcomes.”

How Will the Health Equity Adjustment be Calculated?

CMS has devised two new metrics—your measure performance scaler and your underserved multiplier—that, when multiplied together, will determine your Health Equity Adjustment Points.

While that multiplication problem looks simple enough, it is a rather complicated bonus to calculate. Let’s break down how CMS will calculate each element individually to arrive at your final score.

Step 1: Adding Up Your Measure Performance Scaler Points

Your Measure Performance Scaler gauges the quality of your hospital’s overall performance across all 4 domains of the HVBP Program. For each domain, you can earn either 0, 2, or 4 points based on how you perform relative to all hospitals nationwide. Thus, the max number of points you can earn here is 16 (4 points for each of the 4 domains).

Step 2: Calculating Your Underserved Multiplier

Your Underserved Multiplier starts off simple enough: identify the number of dual enrollment status (DES) inpatient stays your hospital logged for the performance year being measured. The performance year is defined as two years before the start of the respective program year. For example, the first year of the program, FY 2026, will evaluate you based on your calendar year 2024 inpatients.

Now, here’s where things get tricky. CMS will take your number of patients with DES and apply a “logistic exchange function” to give you a final Underserved Multiplier number on a scale of 0.0 to 1.0. Think of that final number as a ranking of where you fall against all hospitals in terms of percentage of DES patients served, with 1.0 being the highest ranking.

Step 3: Multiplying the Two to Get Your Total Health Equity Adjustment

Now it’s time to multiply the two numbers! Remember our equation:

As illustrated with Hospital 1 on the chart below, the maximum bonus you can receive is 10 points, even if your final tally is higher than 10. CMS believes it’s important to cap the bonus at 10 in order to avoid tipping the scales unfairly or creating “unintended incentives.”

Step 4: Adding Your Health Equity Adjustment Bonus to your Total Performance Score

And now for the fun part! Once your Health Equity Adjustment bonus points have been calculated, they’ll simply be added to the combined total of your weighted domain scores and...voila...you have your HVBP Total Performance Score (TPS) for the program year. Since the combined weighted domain score maxes out at 100, and the health equity bonus is capped at 10, the max TPS for any hospital will be 110 points.

Sound Good...But What Should I Be Doing Do Now?

Assuming that the Health Equity Adjustment makes it into the final rule this fall, there are a few things you should be doing now to prepare for a better bonus:

• Keep in mind that the first program year (FY2026) will rely on your 2024 inpatient data (refer back to Step 2 for a refresher), so...
• Use the rest of 2023 to truly understand your DES patient population. Review the data with key team members and make sure you’re capturing the most accurate numbers.
• Rely on what you’ve learned under the Hospital Readmissions Reduction Program, which already stratifies you into one of 5 peer groups based on the number of DES patients you serve. It could be a good predictor of what your Underserved Multiplier might look like.

Last but not least, if you don’t already have already one, consider investing in a predictive analytics tool, like Medisolv’s Value Maximizer, which will help you forecast your HVBP performance, up to 3 years out. Any predictive analytics company worth its salt should already be working on integrating the Health Equity Adjustment and other proposed HVBP changes into its models in preparation for this summer’s final rule. The more intelligent data you have today, the better your HVBP Program score—and pay-outs—will be tomorrow.

More Ways to Improve Your HVBP Program Performance:

• Guide: How to Prepare for the HVBP’s New Sepsis Requirements
• Slideshow: Major Changes from the 2024 IPPS Proposed Rule
• Article: Improving Your Odds of Winning the Value-Based Care Trifecta
• Solutions: Value-Based Performance Forecasting