Study: Penetration of Value-Based Payment Models Not Sufficient to Realize Potential Cost Savings

Early years of value-based payment (VBP) models did not show a reduction of the total cost of care or improvement in clinical quality outcomes at the market level, according to researchers who analyzed performance results of accountable care organizations and other population-based VBP models. Unlike many other studies, this study focuses on market-level rather than model-level impacts of value-based payment.  

The study found no statistically significant correlation between the penetration of VBP models and growth in the total cost of care for Medicare (2012-2015 data) or commercial payers (2012-2014 data) in over 900 markets throughout the United States. Researchers attributed this finding to the limited prevalence of VBP models in many markets, the lack of strong financial incentives for managing the total cost of care, healthcare organizations’ preference for an incremental approach to risk, and employers’ reluctance to change benefit design, among other factors.  

“Many healthcare providers began making changes in how they provided care for patients during the years of this study,” reported David Muhlestein, chief research officer at Leavitt Partners. “But the penetration of value-based payments was generally quite low and appeared insufficient to drive market-level changes in cost growth for Medicare or commercial payers.”

This study also revealed several key findings regarding the impact of industry consolidation on Medicare’s total cost of care:

1. Markets that were less consolidated, or less aligned vertically, tended to have higher costs.
2. Conversely, costs were lower in markets with well-organized provider networks.
3. Consolidation in lower-cost markets had left between two and four health systems with good geographic coverage as competitors within the market.
4. Physicians in lower-cost markets were typically employed by or closely aligned with the health systems, and the market usually included at least one integrated delivery system with a health plan, a hospital, and clinician capabilities.

“These findings suggest that the type of competition may be more important than how muchcompetition is in a market,” said HFMA President and CEO Joseph J. Fifer, FHFMA, CPA. “This research is a valuable addition to the debate about the impact of consolidation on total cost of care.”

The study also sought to identify other market factors, including disease prevalence, socioeconomic factors, demographics, and quality, that may influence growth in the total cost of care for Medicare. Overall, baseline cost variation was more readily explained than cost growth; the 23 factors identified by researchers explained 82 percent of baseline cost variation, but just 27 percent of variation in cost growth. Additionally, researchers found that employers in most markets studied were reluctant to change benefit design or choose health plans that might be perceived as limiting their employees’ choice of provider. Some were skeptical about the merits of population-based VBP models. 

“At this stage of development, the intent of healthcare leaders is a key factor,” noted Keith Moore, CEO of McManis Consulting and one of the project leaders. “For example, leaders should ask themselves, ‘Do I believe my organization can do well under value-based payment? If so, is it time to make financial and cultural changes so our organization can be a leader?'”     

Most healthcare organization leaders interviewed agree that changes to payment and care delivery models are inevitable, particularly in Medicare and Medicaid programs, and these changes will likely include value-based components. It remains unclear when and how far different markets will shift. Researchers recommended that both government and commercial payers move toward population-based models that represent sufficient revenue to incentivize providers to actively manage the total cost of care, while acknowledging that other models may turn out to be more appropriate in some circumstances. Other action steps for key stakeholders are detailed in the full report, “What Is Driving Total Cost of Care? An Analysis of Factors Influencing Total Cost of Care in U.S. Healthcare Markets.” 

The study was conducted by the Healthcare Financial Management Association, Leavitt Partners, and McManis Consulting, with support from the Commonwealth Fund. It used commercial data from 2012-2014, and Medicare data from 2007-2015, to conduct two quantitative analyses: the first examined correlations between the penetration of population-based VBP models and total cost of care for Medicare and commercial payers; the second looked at other market factors related to baseline Medicare costs and cost growth. A qualitative study of nine geographically and demographically diverse markets was also conducted. 

About HFMA

The Healthcare Financial Management Association (HFMA) is the nation’s premier membership organization for healthcare finance leaders. HFMA builds and supports coalitions with other healthcare associations and industry groups to achieve consensus on solutions for the challenges the U.S. healthcare system faces today. Working with a broad cross-section of stakeholders, HFMA identifies gaps throughout the healthcare delivery system and bridges them through the establishment and sharing of knowledge and best practices. We help healthcare stakeholders achieve optimal results by creating and providing education, analysis, and practical tools and solutions. Our mission is to lead the financial management of health care.   

About Leavitt Partners

Leavitt Partners is a healthcare intelligence business. The firm helps clients successfully navigate the evolving role of value in health care by informing, advising, and convening industry leaders on value market analytics, alternative payment models, federal strategies, insurance market insights, and alliances. Through its family of businesses, the firm provides investment support, data and analytics, member-based alliances, and direct services to clients to support decision-making strategies in the value economy. 

About McManis Consulting

McManis Consulting provides services to the healthcare and selected other industries. Typical services include strategic planning, ongoing strategic advice, new business planning, feasibility analysis, financial and market modeling, mergers and other strategic linkages, governance, policy analysis and executive coaching. Typical clients include hospitals, health systems, physician groups, integrated care networks, payers, healthcare industry vendors, associations, state and federal government, and investors. The firm also maintains an ongoing research practice in improving the delivery and financing of care.

About the Commonwealth Fund

The Commonwealth Fund, among the first private foundations started by a woman philanthropist—Anna M. Harkness—was established in 1918 with the broad charge to enhance the common good. The mission of the Commonwealth Fund is to promote a high performance health care system. The Fund carries out this mandate by supporting independent research on health care issues and making grants to improve health care practice and policy. An international program in health policy is designed to stimulate innovative policies and practices in the United States and other industrialized countries.  

Support for this research was provided by the Commonwealth Fund. The views presented here are those of the authors and not necessarily those of the Commonwealth Fund or its directors, officers, or staff.

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