What happens when the government decides to reward skilled nursing facilities that perform better and penalize others that don’t do so well? The early results were not good for facilities that primarily serve vulnerable populations.

A new study led by Gerontology Institute Fellow Jennifer Gaudet Hefele looked at first-year results from the Medicare Skilled Nursing Facility Value-Based Purchasing (VBP) Program that provides bonus incentives and payment penalties to facilities based on performance. The research, recently published in Health Affairs, found facilities serving vulnerable populations got fewer bonuses and were subject to more penalties.

Facilities at which more than half of residents were Black had increased likelihood of being penalized, with 1.23 times the odds compared with facilities serving mostly White residents. Facilities at which a majority of residents were Hispanic or Latino were more than twice as likely to be penalized.

The study also found a strong relationship between poor value-based purchasing outcomes and facilities where at least 85 percent of residents were covered by Medicaid.

“The patterns of performance among facilities serving vulnerable populations underlie concerns about incentive-based approaches to quality improvement,” said Hefele. “While facilities that perform poorly should not be rewarded for delivering lower-quality care, it’s concerning that vulnerable populations may be disproportionately affected by penalties.”

The concern: A value-based purchasing program could cause or exacerbate disparities in care. If providers serving vulnerable populations are less likely to receive bonuses or are more likely to be penalized, those payment deficits may mean fewer resources for care and quality improvement.

“Many of the facilities have little leeway in terms of operating margins,” says Hefele. “Embarking on quality improvement takes resources, whether through re-trainings or new initiatives. Reducing payments to typically cash-poor facilities makes it even more difficult to deliver high quality care, never mind improve quality.”

The study, co-authored by UMass Boston gerontology graduate research assistants Xiao “Joyce” Wang and Emily Lim, is the first to examine performance of skilled nursing facilities serving vulnerable populations under the new value-based purchasing program. Its findings are consistent with previous research on the performance of hospitals serving racial/ethnic minorities or low-income patients under a similar value-based purchasing plan.

Under the VBP program for skilled nursing facilities, those facilities were evaluated on their risk-adjusted, all-cause readmissions performance for post-acute care patients with fee-for-service Medicare. More than 15,000 facilities were ranked on that basis.

The money to pay program incentives was collected by withholding 2 percent of Medicare payments in 2017. On Oct. 1, 2018, some facilities received higher payment rates that represented a return of the 2 percent withheld earlier, plus a bonus of up to 1.65 percent. Others broke even, getting back the 2 percent withheld but receiving no additional payments. Still others suffered a net loss by receiving less than 2 percent.

Among all facilities, just 26 percent received bonus payments after the first-year result. Another 2 percent broke even and 72 percent were penalized.

The researchers did not have access to the actual amounts of the payments made under the program, so they were unable to measure the magnitude of the impact experienced by different types of facilities. It’s also unknown whether first-year results will prove to be persistent.

“It will be important to examine multiple years of skilled nursing facility VPF performance data to determine whether there are cumulative effects of penalties on quality, operating margins or closure,” said Hefele.

Jennifer Gaudet Hefele is a senior lead scientist at Booz Allen Hamilton. The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of her employer.