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Promoting Health Equity by Changing How We Pay for Care

Photo, pills lay on top of twenty dollar bill
  • Celli Horstman
    Celli Horstman

    Senior Research Associate, Delivery System Reform, The Commonwealth Fund

  • Celli Horstman
    Celli Horstman

    Senior Research Associate, Delivery System Reform, The Commonwealth Fund

  • To advance health equity, more payers should implement advanced value-based payment models

  • Well-designed value-based payment models can help providers address the underlying causes of health inequities, rather than just treating the effects

Health inequities in the United States are persistent and pervasive, resulting from well-documented discrimination inside and outside the health system. These inequities are both preventable and treatable.

Reforming how we pay for care is one of the many tools the health system has to improve equity. Yet reform efforts have fallen short and have only recently begun to focus on reducing inequities.

The Status Quo Doesn’t Promote Health Equity

The health system’s historic approach to paying for care — fee-for-service (FFS), in which providers are reimbursed for each service they provide — is designed to treat a patient’s symptoms, instead of promoting long-term health and well-being.

In addition to making care less efficient and more costly, FFS pays less for preventive and primary care services, which are proven to promote equity. As a result, providers are disincentivized from delivering those services and populations who face barriers to care are left worse off.

Reforming how we pay for care through value-based payment (VBP) may offer a solution.

In VBP arrangements, providers are paid based on results, including the cost and quality of care. By paying providers in ways that make them focus on improving health, instead of providing specific services, providers have greater flexibility to deliver efficient and equitable care.

With VBP, providers can address the underlying causes of health inequities, instead of just treating the effects. A health center in California, for example, used VBP to manage transportation problems and expand access to care by sending community health workers to visit patients at home to manage their chronic conditions.

Health Equity Not Established in VBP Models

Despite VBP’s potential to promote equity, models were historically not designed to do so, and as a result, unintentionally harmed patients and providers. The early models fell short in three areas:

No requirements to address inequities.

To encourage providers to improve specific outcomes, payers rely on financial and nonfinancial levers, like reporting requirements or bonus payments. Yet few models historically used these levers to reduce inequities and advance equity.

Models did not require participating providers to collect patient demographic information, like race and ethnicity, which is critical to identifying and measuring inequities. They also haven’t included financial incentives, like penalties for failing to lessen inequities in cancer screenings or upfront payments to support demographic data collection.

Without a focus on equity, models penalize providers.

Historically, providers participating in VBP models were expected to achieve certain outcomes, regardless of inequities that affect their ability to realize these outcomes. By not factoring in inequities, models have inadvertently penalized providers, instead of supplying necessary resources.

For example, in the Centers for Medicare and Medicaid Services Innovation Center (CMMI) Hospital Readmission Reduction Program, providers serving more low-income patients and patient populations reported worse outcomes and received greater financial penalties relative to other providers.

The providers weren’t necessarily delivering worse care. Instead, the outcomes they were expected to meet didn’t account for the longstanding health inequities related to readmissions that likely exist in these communities, For example, low-income patients are more likely to be readmitted to a hospital, compared to higher-income patients, because of limited access to preventive care and higher rates of chronic conditions.

Similarly, model payments have not been adjusted to account for the structural resources necessary to adequately treat patients, leaving providers without the financial support necessary to reduce inequities.

Design shortcomings affected participation and access.

Providers from areas with higher shares of low-income patients and Black patients have avoided participating in these models. This has effectively kept their patients from benefiting from high-value care, including team-based care that engages physical, behavioral, and social care providers, and potentially exacerbated inequities.

Some models have targeted providers who might avoid VBP models with upfront capital investments as a way to increase participation.

Payers Are Responding to Evidence that VBP Neglects to Advance Health Equity

Public and private payers are considering the unintended consequences of models and intentionally designing new ones or revising older models to promote equity.

CMMI recently evaluated its models to understand how they have hindered or supported health equity to improve the design of future models.

It also launched the Accountable Care Organization Realizing Equity, Access, and Community Health model, which explicitly focuses on addressing inequities. The model takes a multipronged approach to equity, including seeking a diverse range of participating providers and adjusting payments to account for patients’ social needs. This will increase providers’ capacity to treat disadvantaged patients.

Blue Cross Blue Shield Massachusetts is expanding its existing model to financially incentivize providers to reduce inequities for several clinical outcomes. The model also will invest in provider capacity.

Increasingly, payers are making equity a core goal of their models, but if these efforts don’t address the structural flaws of past models, then efforts to advance equity will be limited.

Publication Details



Celli Horstman, Senior Research Associate, Delivery System Reform, The Commonwealth Fund

[email protected]


Celli Horstman, “Promoting Health Equity by Changing How We Pay for Care,” To the Point (blog), Commonwealth Fund, Aug. 15, 2023.