RAND: Provider M&A Fueled by Alternate Payment Models

Physician practices increasingly are affiliating or merging with other practices or aligning with or being acquired by hospitals in order to better support the investments needed to successfully implement alternative payment models, according to a new RAND report released in March.

The report, “Effects of Health Care Payment Models on Physician Practice in the United States,” was written by researchers from the RAND Corporation and sponsored by the American Medical Association.

The RAND researchers found that the major payment model-related reasons for these mergers and acquisitions were the need to make the capital investments (in the form of IT and data infrastructure) necessary to succeed in implementing these different payment models, negotiating contracts with health plans and gaining a sense of security that a larger organization can provide while transitioning to these alternative payment models.

Key findings

“We found that changing the payment system probably isn’t enough to ensure that patient care will improve,” said Mark Friedberg, MD, the study’s lead author and a senior natural scientist at RAND, a nonprofit research organization, in a release. “For alternative payment methods to work best, medical practices also need support and guidance. It’s the support that accompanies a new payment model, plus how well the model aligns with all of a practice’s other incentives, that could determine whether it succeeds.”

The report also detailed the following key findings:

  • The move to alternative payment models has encouraged the development of a “team approach” to care management, such as that found with the creation of care manager positions responsible for patient management between office visits.
  • Physician practices are investing heavily in their data management capabilities—ranging from implementing or upgrading electronic heath records or committing staff resources to data entry, management and analysis—to track and improve performance in alternative payment models.
  • Alternative payment models are having “negligible effects” on the aggregate income of physicians. In addition, some physicians want to see their incomes more closely linked to quality and efficiency of care and see a closer alignment between what they think they should do for patients and what they are actually paid to do.
  • Alternative payment models haven’t substantially changed the way physicians are delivering face-to-face patient care.  However, the quantity and intensity of physicians’ work seems to be increasing due to growing patient volumes and ongoing pressure for doctors to deal with high intensity patients (while leaving low intensity patients to allied health professionals). In addition, physicians are unhappy with the amount of nonclinical work they are required to perform, particularly documentation requirements.
  • Practices are encountering operational problems in these new payment programs that are limiting their effectiveness, as well as physician enthusiasm for the programs. For example, physicians are concerned that the implementation of a large number of performance measures under pay for performance, shared savings and capitation programs will actually distract practices from making the changes to patient care that are the ultimate goal of these payment programs.


Based on the experience of physicians, practice leaders and market observers with alternative payment models, the report offered the following conclusions.

Alternative payment programs have the potential to both increase physician satisfaction by reallocating their work towards more satisfying content, and add more work to overburdened physicians. “Developing physician leadership could help guide practices and health systems in their efforts to succeed in alternative payment models while preserving or enhancing physicians’ professional satisfaction,” the report stated.

Confusion about the operational details of alternative payment models can undermine their effectiveness. The report suggested that health plans can anticipate these problems by making dry runs of these programs before going live while clearly communicating program intent to physicians.

Physician practices need data and resources for data management and analysis in order to manage patient care effectively and track those performance measures underlying many of these alternative payment programs. While mergers and acquisitions can help practices get the resources necessary to invest in data infrastructure, RAND suggested that health plans should also consider investing in physician practice data management capabilities.

Health plans should take steps to align their payment models with each other in order to allow physician practices to free up resources they currently spend on hundreds of different performance measures and “trying to create a coherent response to the problem of ‘50 people shouting their priorities at you.’”

The report was based on case studies performed on 34 physician practices in six different geographic markets including Miami, Boston, Lansing, Mich.; Greenville, S.C.; Little Rock, Ark.; and Orange County, Calif. The researchers also spoke to leaders from 10 payors, nine hospitals or hospital systems, seven local medical societies, and five Medical Group Management Association chapters.