What’s Working in Value-Based Care: Unpacking Equity-Driven Payment Adjustments in ACO REACH

In an era where value-based care is promoted as the pathway to better outcomes and cost containment, the reality for many clinicians and organizations who serve high-need communities has been far more complicated. For years, safety-net practices that care for low-income, Black, Hispanic, and dual-eligible beneficiaries have faced structural barriers that traditional payment models have not adequately addressed.

A new wave of research is beginning to shift that narrative. With support from the Donaghue Foundation and others, a team led by Drs. Joshua Liao and Amol Navathe alongside colleagues at the University of Texas Southwestern Medical Center and the University of Pennsylvania are examining how changes in social risk adjustment can reallocate funding more equitably across Medicare Accountable Care Organizations, also known as ACOs. The team’s recent evaluation of the transition from the Area Deprivation Index, or ADI, to the newer Community Deprivation Index, or CDI, within Medicare’s ACO REACH model provides valuable insight into what is working and where additional attention is needed.

Social risk adjustment is intended to acknowledge that patients with similar clinical diagnoses may still require different types or intensities of care based on their socioeconomic circumstances, geographic context, and other non-clinical factors. In recent payment models, the Centers for Medicare and Medicaid Services (CMS) has used the ADI to help account for these differences when setting payment benchmarks for ACOs. However, ADI has been criticized for its potential to undervalue disadvantage in urban areas mis-adjusting payments to clinicians serving the most socially and structurally marginalized urban populations.

Researchers identified what they called a “methods error” in the ADI. In this case, communities with high social vulnerability, including those with large Black, Hispanic, and dual-eligible populations, were sometimes misclassified as less disadvantaged than they actually were. This was largely due to metrics that did not fully capture urban poverty or systemic inequities reflected in the lived experiences of these communities.

In response to these limitations, CMS adopted the Community Deprivation Index starting in 2025 for the ACO REACH model. Unlike its predecessor, the CDI standardizes the original variables used in ADI, introduces an eighteenth variable, and adjusts thresholds to more accurately reflect real-world deprivation. The implementation of CDI has resulted in a redistribution of payments, especially toward communities that were historically undercounted.

According to the research team’s findings, Black, Hispanic, and dual-eligible beneficiaries saw an increase in benchmark payments under the CDI. ACOs that serve a higher proportion of these populations received higher Health Equity Benchmark Adjustments, or HEBAs. In some cases, this translated into an average increase of nearly five thousand dollars per ACO. However, ACOs serving rural populations and those with high historical excess mortality experienced a decrease in payment under the new system.

While this shift represents a meaningful correction, it does not constitute a complete solution. The research team noted that many of the payment increases were only enough to restore funding that these providers arguably should have received in the first place. In other words, it helped make providers whole but did not necessarily equip them with additional resources to transform care.

One illustration of this limitation involves ACOs with higher percentages of dual-eligible patients. For example, an ACO with 30 percent dual-eligible patients might now receive approximately two thousand dollars more per month than an ACO with only 10 percent dual-eligible patients. Although this increased funding could be used to support care managers or build out partnerships to address social needs, the amount may not be enough to fund broader or more sustainable system changes.

Another open question is whether these payment adjustments are translating into actual improvements in care delivery. The research team is currently exploring how ACOs are responding to the new benchmarks in practice. They are asking whether providers understand the changes, and if so, whether they are using the additional funds to inform staffing decisions, improve service design, or invest in long-term solutions. More qualitative data is needed to determine whether these policy shifts are influencing care on the ground or merely balancing organizational budgets.

There is also concern about unintended consequences. While CDI may offer a more accurate reflection of urban disadvantage, some rural and suburban ACOs have lost funding as a result. In some cases, this may be a correction to previously overstated need. However, there is a risk that rural providers with ongoing access challenges or staffing shortages could lose critical support. The researchers caution against using a one-size-fits-all approach to equity. The structural challenges facing rural populations differ significantly from those in urban settings, and payment models must account for those distinctions.

As CMS continues to refine its approach to value-based payment, this research underscores the importance of using social risk adjustment methods that are not only precise and transparent but also grounded in accountability. When done well, risk adjustment can direct funding to where it is most needed, giving ACOs a better chance to close long-standing care gaps for historically underserved populations.

If value-based reform is to meet its full potential, it must do more than reallocate dollars. It must empower clinicians and organizations to make meaningful, lasting changes in the way care is delivered. The findings emerging from this research point the way forward, offering both validation and challenge as the field continues to evolve.