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More Complex Patients Linked to Higher Penalties for Hospitals

Analysis  |  By Amanda Norris  
   July 12, 2023

Reporting SDOH is a primary approach to achieving health equity, but a new study says it may be costing you.

As revenue cycle leaders place a heavier focus on social determinates of health (SDOH) code capture, a new study says hospitals with these more medically complex patients are more likely to receive a penalty under CMS’ value-based payment programs.

The study published in Health Affairs suggests that value-based payment programs do not adequately account for health equity factors when determining incentive payments.

The study analyzed value-based program penalty results for various groups of hospitals across three programs and assessed the impact of patient and community health equity risk factors on hospital penalties.

According to the study, there was a significant positive relationship between hospital penalties and several factors that affect hospital performance but that hospitals cannot control including medical complexity, uncompensated care, and the portion of patient populations who live alone.

As hospitals leaders know, addressing SDOH is a primary approach to achieving health equity, but the study found that patients that “live alone” had a strong association with hospital value-based penalties across all three of CMS’ programs. Other SDOH like poverty and unemployment “might or might not” be predictive of penalties though, the study says.

The study also found that hospitals with less complex patients were generally less likely to receive a penalty compared to hospitals with patients with the highest complexity. Hospitals with the highest relative portion of uncompensated care cost were somewhat more likely to receive penalties in two of the three CMS programs.

Hospitals have placed a larger focus on capturing circumstances in patients’ lives that can influence the quality of their life and overall wellbeing as SDOH will sometimes need to be reported on a claim form to support the medical necessity for specific services. The reporting of these codes is also tracked by government agencies, such as CMS for its value-based payment programs.

SDOH are wide-ranging and include five main classifications according to the U.S. Office of Disease Prevention and Health Promotion:

  • Economic stability
  • Education
  • Health and healthcare
  • Neighborhood and built environment
  • Social and community context

Amanda Norris is the Associate Content Manager of Finance, Payer, Revenue Cycle, and Strategy for HealthLeaders.


Hospitals have placed a larger focus on capturing SDOH.

But, according to a new study, patients that were documented as living alone had a strong association with hospital penalties across CMS’ value-based payment programs.

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