New Marketplace

New Marketplace Survey: Value-Based Payment Gains Traction Amid Active M&A Environment

Insights Report · June 17, 2016

Analysis of the second NEJM Catalyst Insights Council survey on the New Marketplace theme. Qualified executives, clinical leaders, and clinicians may join the Insights Council and share their perspectives on health care delivery transformation.


  • In April and May 2016, an online survey was sent to the NEJM Catalyst Insights Council, which includes U.S. health care executives, clinician leaders, and clinicians at organizations directly involved in health care delivery. A total of 389 completed surveys are included in the analysis. The margin of error for a base of 389 is +/- 5.0% at the 95% confidence interval.

  • The majority of respondents were clinicians (49%), with executives (23%) and clinician leaders (28%) nearly evenly split. Most respondents described their organizations as hospitals (39%) or health systems (16%). These hospitals were predominantly midsized (36% had 200–499 beds) or larger (44% had 500 or more beds).

  • Only 9% of respondents indicated that their major affiliation was with a physician organization. Those physician organizations tended to be big — 56% had 100 or more physicians.

  • Nearly three-quarters of the organizations (73%) were nonprofit, with the remainder of respondents coming from for-profit organizations. Every region of the country was well represented.

In this second edition of our quarterly survey of the NEJM Catalyst Insights Council for the New Marketplace initiative, we posed questions designed to gauge the pace of adoption of value-based payment models, and to unpack the motivation underlying the recent consolidation wave among health care providers.

A better understanding of these issues can help organizations develop strategic roadmaps for success in the new marketplace. For instance, when it comes to value-based care, it’s critical to identify reality versus rhetoric to establish the best path forward, as well as a realistic timeline for change.

The Centers for Medicare & Medicaid Services is, in its own words, “promoting value-based care as part of its larger quality strategy to reform how healthcare is delivered and paid for.” The Department of Health and Human Services set a goal to make half of all Medicare payments in alternative payment models by 2018. CMS aspires to obtain better care for individuals and better health for populations, and clearly believes a transformation in payment mechanisms is a necessary ingredient for this vision to be realized.

Adoption of Value-Based Models Is Strong, Particularly in the Northeast

Despite these decisive moves by CMS, it has seemed to me like many health care institutions have been paying lip service to the concept of value-based payment models rather than actively taking steps to develop them. The NEJM Catalyst survey results offer some hope that (at least among the respondents) there is movement afoot. Nearly half of respondents reported medium to high use of value-based payment models in their local health care market.

Of course, there are many ways to interpret the term; it could reflect adoption of CMS payment regimes (which is not optional for participants in Medicare) or commercial insurers’ programs (for example, Blue Cross Blue Shield of Massachusetts’s Alternative Quality Contract). Gaining a better understanding of how respondents define “use of value-based payment models” is difficult when relying upon a short survey tool, but the overall response indicates broad awareness and adoption of some kind.

Status of Value-Based Payment Models

New Marketplace Insights Report. Click To Enlarge.

We also saw differences among regions in the United States in prevalence of value-based models. Insights Council members in the Northeast reported the heaviest utilization of such approaches — over 50%. Dense with academic, non-profit organizations — and weighed down by high spending — that region has generated many of the new models and also has incentive to adopt them. The lowest rate of adoption to date is in the South, where less than 40% of respondents reported widespread and mixed-use (“medium”) adoption. The Midwest and West hover in between.

An interesting question to consider is whether the greater prevalence of for-profit providers in the South plays a role in this slower adoption. Because providers earn more by doing more under a fee-for-service reimbursement model, such providers may be particularly loath to adopt the new approach. That said, a for-profit provider who can generate higher value per episode of care or member-month stands to be rewarded with more market share, just as is the case for not-for-profit providers. In fact, one could argue that for-profits might be nimbler and better able to make the leap to value-based care if they deem it in their interest to do so. The results do not allow us to distinguish between responses by ownership status of source organizations.

Value-Based Payment Is Poised to Grow Briskly

As we look toward the future, respondents predict the pace of adoption of value-based care will accelerate. Two-thirds of NEJM Catalyst Insights Council members anticipate their organizations will move toward value-based payment models at a fast (26%) or moderate (38%) pace in the next two to four years.

Pace of Value-Based Payment Adoption Next 2-4 Years

New Marketplace Insights Report. Click To Enlarge.

Interestingly, the West, which has some high-profile value-based care movements such as California’s Value-Based Pay-for-Performance program, ranked highest among the four regions in terms of its future projected pace of adoption, with a third of respondents in that region expecting a fast pace.

A majority of executives, clinical leaders, and clinicians surveyed agree on a moderate to fast pace of adoption, but these respondents differ on the top advantages of the transition to value-based care. More than half of executives and clinical leaders ranked improvement of care quality as the top advantage of a value-based payment model, while clinicians pointed to mounting pressure from payers.

Top Advantages of Moving to Value-Based Care

New Marketplace Insights Report. Click To Enlarge.

Choosing which value-based payment model(s) to adopt — pay-for-performance, shared savings, global capitation, and/or bundled payments — is a tough decision for many organizations and likely dependent on their ability to bear risk.

For instance, respondents noted physicians would be best served by the less risky pay-for-performance model, which is built on a fee-for-service chassis that is supplemented with quality measures. Insights Council members also thought patients would benefit from pay-for-performance.

Meanwhile, they consider global capitation and bundled payments as preferable for payers. This may be due to the cynical view that these models enable payers to offload risk onto providers, or to the optimistic view that these models give providers the freedom to organize care optimally for patients (and to finance services that ordinarily may not be reimbursable), and to maximize quality for an entire episode or patient-time period.

Top Value-Based Payment Model Considered Best for Each Stakeholder

New Marketplace Insights Report. Click To Enlarge.

Effects of M&A

A second major interest of health care leaders is market consolidation – which is sometimes linked to organizational ambitions to shift toward value-based payment.

More than half of Insights Council members say their organizations are currently engaged in, planning, or have been involved in M&A activity during the last two years. These numbers are larger — 60%-plus — in the Northeast and Midwest. And the prevalence of M&A activity is far greater among health systems (72%) than hospitals (55%).

Merger and Acquisition Activity

New Marketplace Insights Report. Click To Enlarge.

Executives and clinical leaders responding to the survey cited the need for scale as the primary driver for M&A activity, while clinicians said it was more about positioning for payer negotiations.

This disconnect is intriguing, suggesting executives may have ideas or expectations about achieving cost savings via scale that practitioners doubt or, at a minimum, are unaware of.

An interesting area for future exploration is understanding why executives believe scale is valuable. Is it to spread fixed costs across a larger population of patients, or do executives believe health care providers must be larger in order to bear the risk that is expected of them in new payment models? And are there new solutions that will crop up to address that risk, perhaps reinsurance of various kinds or risk pooling across different markets outside of one’s own? Possibilities abound.

Primary Factor Driving Merger and Acquisition Activity

New Marketplace Insights Report. Click To Enlarge.

To sum up, this edition of the NEJM Catalyst New Marketplace survey reveals a shift in mindset vis-à-vis value-based payment. If not there already, organizations realize value-based payment is likely to dominate the landscape in the next two to four years. It remains to be seen whether the M&A on the horizon is the best way to get there.

Check NEJM Catalyst for monthly Insights Reports not only on New Marketplace, but also on Care Redesign and Patient Engagement.


What impact does the M&A and/or contractual affiliation activity in your local marketplace have on quality and cost?

“So far, the cost and activity needed to capture improvements consumes the expected benefit.”
— Physician at a midsized hospital in New England

“We are joining a larger organization based in the Northwest that is already ahead of most organizations in terms of pursuing a value-based strategy.”
— Chief Medical Officer of a large physician organization in the Southwest

“Our competitors are overpaying for weak assets. They improve the quality, but raise unit cost in a non–value-based model.”
— Executive Vice President and Chief Population Health Officer of a large hospital in the Northeast

“Leverage for negotiating contracts with payers with no obligatory emphasis on quality improvement.”
— Chief Administrative Officer of a small physician organization in the South

“We are bringing in community partners who appreciate the support of an academic health system in improving quality, and with reducing cost.”
— Medical Director of a midsized health system in the Pacific Northwest

“It’s a fee-for-service market, thus it’s zero sum between plans and providers, especially larger provider groups.”
— Chief Medical Officer of a small health system in the Midwest

“Incentivizes standardization of care, consolidated market requires less competitive pricing.”
— Director of Strategy for a large health system in the South

“Our costs decrease by centralizing many functions and by negotiating with suppliers and contractors. It has pushed us to standardize care using best practices, and we are doing that in numerous areas right now.”
— Chief Medical Officer of a midsized hospital in New England

“You have the same players and systems, they are just joined financially but not really integrated or reinvented.”
— Physician and department chair of a midsized hospital in the Midwest

“It increases cost by increasing administrative cost (no economies of scale); it reduces quality by limiting physician autonomy, making patient-centered care difficult, especially for patients who don’t read the textbooks; and the continued heavy emphasis on productivity limits time with complex patients.”
— Physician at a clinic in the Mid-Atlantic

Join the NEJM Catalyst Insights Council and contribute to the conversation about health care delivery transformation. Qualified members participate in brief monthly surveys.

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