Penguins are Jumping…Payment Reform is Leaping!

…(The) 2014 National Scorecard on Payment Reform tells us 40 percent of commercial sector payments to doctors and hospitals now flow through value-oriented payment methods, defined as payment methods designed to improve quality and reduce waste. This is a dramatic increase since 2013 when the figure was just 11 percent. Suzanne Delbanco, Executive Director of CPR, in the Health Affairs blog.

I’ve written before about what economists call “The Penguin Problem” — No one moves unless everyone moves, so no one moves.


The healthcare Payment Penguin Problem goes something like this:

Care Providers: “We’re hesitant to jump into the water. While we understand that fee-for-service payments are perverse, they ARE in our best economic interests. We won’t invest in infrastructure and processes toward value-based care until we believe payers are serious in making the transition.”

Payers: “We’re hesitant to jump into the water. While we understand that value-based payments could improve quality and reduce costs, we don’t know whether care providers are serious in making necessary investments and changes. We also question whether they can pull it off. We’d like to see that providers are serious in making the transition.”

Today’s message:

  • The 2014 CPR National Scorecard for Payment reform documents that the Payment Penguin Problem has been solved!
  • The implications are huge!

CPR and It’s Take on the National Scorecard for Payment Reform

Catalyst for Payment Reform (CPR) is an independent, non-profit employer coalition pushing for better value in health care. Representative members include AT&T, Boeing, GE, IBM and Walmart.

The 2014 National Scorecard for Payment Reform (Scorecard) study represents 65% of commercially-insured lives in the U.S.  You can read the details about the Scorecard — the press release, infographic, and methodology — by clicking here.

Let me put the Scorecard findings on the migration toward value-oriented payments even more plainly and simply:

FROM: 3% in 2010

TO: 11% in 2013

TO: 40% in 2014

In her article explaining Scorecard results, CPR Executive Director Delbanco acknowledges the significance of these findings:

…potentially exciting news

Traditional fee-for-service…may rapidly be becoming a relic

On the face of it, this is thrilling news for CPR

Delbanco also expresses some caution:

But we are not closing up shop just yet. The proliferation of value-based payment arrangements only matters if they succeed at reducing costs and improving the quality of care. And for many value-oriented payment models, we still don’t have the evidence. We also remain a bit circumspect because only about half of the value-oriented payments (out of that 40 percent figure) put providers at some financial risk if they fail to improve care or spend over budget.

Fair enough. CPR has yet to prove that value-oriented payments improve quality…and we still have a way to go in changing payment systems.

The Penguin Problem Has Been Solved

The role of expectations is crucial in getting penguins to move off of ice floes and in the successful adoption of new network technologies and systems. Economists typically use The Penguin Problem metaphor when discussing adoption of network technologies. One lens to view  healthcare transformation is that U.S. healthcare  is shifting from fragmented silos to coordinated, integrated delivery networks.

Put simply, the 2014 National Scorecard documents that The Payment Penguin Problem has been solved.  Payer and Provider Penguins are rapidly jumping into the water.


The evidence is breathtaking and unanticipated. The magnitude and pace of this shift toward value-oriented payment is greater than anyone expected.  CPR itself had set a goal of 20% of payments to be value-oriented by 2020.

The Scorecard isn’t proof of healthcare transformation, but rather it’s the best leading indicator — a sign of readiness for transformation and the inevitability of reform.

To many readers of this blog, this won’t be news. It’s simply an affirmation and hard evidence of what you already know–that healthcare transformation is well underway.

To some healthcare incumbents who benefit from the perverse financial incentives of the Old World–it’s your final wake up call.


It’s time for a shift in mindset. For hospitals and physicians hoping that all this healthcare reform fuss goes away, that’s not going to happen.

It’s time for a shift in business strategy. For hospitals and physicians hoping  that all this healthcare reform fuss goes away, that’s not going to happen.

Expect the pace to pick up even more.  Anticipate even more rapid investment into technologies and processes that are critical for success with value-oriented payments: EHRs, population heath, payer/provider accountable care initiatives.

Healthcare transformation is on the cusp…and we now have the evidence to prove it.


5 thoughts on “Penguins are Jumping…Payment Reform is Leaping!

  1. While I’m as thrilled as anyone about this kind of momentum, it’s still shocking to me how many “penguins” are still only dipping their toes in the water. There is an implicit statement that they think their traditional competitors will move as slowly as they are. Not only are some traditional competitors “jumping in”, it’s the new entrants they should be most concerned with. They don’t have sacred cows to protect and are move rapidly moving to grab market share. Often, it’s via direct contracting. The old iceberg is melting and it’s time to move to the new one.

    • Dave, thanks for your comment. I agree w/ all your points. I’ll again note that I see “percentage of value-based payments” as a key leading indicator, not yet evidence of systemic transformation. We both seem to be excited by the dramatic shift in this indicator, but let’s be patient for a year or two to see how it plays out.

  2. This is good momentum! But I also believe there is a strong case for transformation just by the current numbers. Every hospital is at risk for their medicare patients with a (5.4) margin, a LOS of 4.95 days, and 41% of the total days occupied of a 61% occupancy rate. Unless the process of care is transformed, providers will make less money faster with every patient they see. The business case is here for transfomation of the business. I think patient engagement is a very strong transformational approach. I would love to talk more about this next time we get together.

    • Thanks Les. My take on your comment is that it’s worth considering and parsing the causes vs. effects here.

      The major EFFECT noted is the statistic indicating that value-oriented payments have risen from 11% to 40%.

      You begin to itemize some of the causes. Weak hospital margins, especially for medicare inpatients, are (reluctantly) making hospitals consider value-oriented payment approaches. Savvy patients are becoming much more savvy about prices and whether treatments are even necessary. Other causes might include:
      * Unrelenting pressures from all stakeholders to move AWAY from fee-for-service payments
      * Penalties for readmissions and hospital acquired infections
      * Competitve pressures from accountable care initiatives
      * Incentives for participating in inpatient quality reporting programs (revenue at-risk)
      * Incentives to achieving meaningful use of EHRs
      * Payment reductions due to Federal budget deficit reduction policy
      * and others….

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