......................................................................................

Hospital Value-Based Purchasing Performance:

Do Organizational and Market
Characteristics Matter?
Aaron Spaulding, PhD, assistant professor, Department of Health Sciences Research, Mayo Clinic, Jacksonville,
Florida; Nick Edwardson, PhD, assistant professor, School of Public Administration, and senior
fellow, Robert Wood Johnson Foundation Center for Health Policy, University of New Mexico,
Albuquerque; and Mei Zhao, PhD, professor, Department of Health Administration, Brooks College
of Health, University of North Florida, Jacksonville

EXECUTIVE SUMMARY

The hospital value-based purchasing (HVBP) program of the Centers for Medicare & Med-
icaid Services challenges hospitals to deliver high-quality care or face a reduction in Medicare
payments. How do different organizational structures and market characteristics enable or
inhibit successful transition to this new model of value-based care? To address that question,
this study employs an institutional theory lens to test whether certain organizational struc-
tures and market characteristics mediate hospitals’ ability to perform across HVBP domains.
Data from the 2014 American Hospital Association Annual Survey Database, Area Health
Resource File, the Medicare Hospital Compare Database, and the association between ex-
ternal environment and hospital performance are assessed through multiple regression
analysis. Results indicate that hospitals that belong to a system are more likely than inde-
pendent hospitals to score highly on the domains associated with the HVBP incentive ar-
rangement. However, varying and sometimes counterintuitive market influences bring
different dimensions to the HVBP program. A hospital’s ability to score well in this new value
arrangement may be heavily based on the organization’s ability to learn from others, im-
plement change, and apply the appropriate amount of control in various markets.

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For more information about the concepts in this article, contact Dr. Spaulding at spaulding.
aaron@mayo.edu.
The authors declare no conflicts of interest.
© 2018 Foundation of the American College of Healthcare Executives
DOI: 10.1097/JHM-D-16-00015

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INTRODUCTION
Medicare’s hospital value-based purchasing
(HVBP) program challenges hospitals to
deliver high-quality care or face a reduction
in Medicare payments. To date, evaluations
of HVBP have yielded mixed results (Benzer
et al., 2014; Calikoglu, Murray, & Feeney,
2012; Damberg et al., 2014; Kuhn & Lehn,
2015; Ryan, Burgess, Pesko, Borden, &
Dimick, 2015; Spaulding, Zhao, & Haley,
2014; Zhao, Haley, Spaulding, & Balogh,
2015). However, HVBP scores depend on
implementation of defined best practices as
well as specified measurements, so it is rea-
sonable to assume that organizational char-
acteristics and membership within system
structures could help explain variance in
HVBP performance. This study applies in-
stitutional theory to evaluate how organiza-
tional structures and market characteristics
mediate hospitals’ ability to respond to and
perform across HVBP’s three domain scores
and total performance score (TPS).
Questions surrounding HVBP per-
formance and hospital structure, size, own-
ership, and market competition abound
(Al-Amin, Makarem, & Rosko, 2016; Borah
et al., 2012; Damberg et al., 2014; Gilman
et al., 2015; McFarland, Ornstein, &
Holcombe, 2015; Zhao et al., 2015). A num-
ber of reports and studies have identified
shortcomings of the program. Some have
argued that the penalty (or bonus) is not
enough to create meaningful change. For
example, more than 60% of hospitals expe-
rienced a net change in Medicare payment
of less than 0.25% after the program’s first
year (Rau, 2012). Another study found that
early improvements associated with HVBP
can also be found in non-HVBP-participat-
ing hospitals (Ryan et al., 2015). Still,
other studies suggest that HVBP favors
32
© 2018 Foundation of the American College of Healthcare Executives
non-safety-net hospitals over safety-net
hospitals (Dupree, Neimeyer, & McHugh,
2014), despite safety-net hospitals per-
forming better in adjusted mortality rates
(Gilman et al., 2015). A study by Spaulding
et al. (2014) identified little to no correla-
tion between HVBP TPSs and rates of
hospital-acquired conditions, suggesting
that HVBP’s domains were omitting at least
one major cost driver. Finally, policy experts
point out that early pay-for-performance
demonstrations (e.g., Premier and the Phy-
sician Group Practice Demonstration),
which served as blueprints for the HVBP
program, did not demonstrate significant
improvements in healthcare quality (Damberg
et al., 2014).
On the other hand, evidence of indus-
try improvement and programmatic influ-
ence has led the Centers for Medicare &
Medicaid Services (CMS) to drop at least
six of the original measures from the pro-
gram, as hospitals have topped out on
those scores (CMS, 2014). This suggests
that hospitals have routinized certain best
practices. CMS has also touted the program’s
tractability in allowing low-performing
organizations to improve their measures
year to year and be rewarded accordingly.
For example, in the program’s second year,
one third of bonus recipients had not been
bonus recipients in the previous year (
Conway, 2013). Similarly, in the program’s
third year, more hospitals had a positive
change in their base rate multiplier from
the previous year (1,714) than hospitals
with a negative change (1,375) (Conway,
2014). Assuming the program’s measures
are reliable indicators of quality, these re-
sults suggest that many hospitals are im-
proving the quality of care delivered
to patients.
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Therefore, to better understand orga-
nizational structures, market characteris-
tics, and system membership that may
mediate hospitals’ ability to respond to and
perform HVBP measures, we use the
American Hospital Association (AHA)
Annual Survey Database, Area Health Re-
source File (AHRF), and the Medicare
Hospital Compare Database and employ
institutional theory to help provide
perspective.
CONCEPTUAL FRAMEWORK
The HVBP domains for 2014 include process
of care (POC), patient experience of care
(PEOC), and outcomes (CMS, 2015). These
domains are weighted and combined to cal-
culate a hospital’s TPS (see Table 1 for specific
measures). These measures are intended to
encourage hospitals to standardize a variety
of POCs, focus on patient experience, and
pay special attention to the intermediate-
term mortality rates for pneumonia, con-
gestive heart failure, and acute myocardial
infarction discharges. Institutional isomor-
phism, the emergence of conformity across
distinct units over time (DiMaggio &
Powell, 1983), provides a logical approach
for hypothesizing how certain organization
structures and settings might impede or
enable a decrease in practice variance.
Specifically, isomorphism occurs
through three means: normative, mimetic,
and coercive. Normative isomorphism re-
fers to conformity occurring through social
networks and peer-to-peer interaction
(DiMaggio & Powell, 1983). System hos-
pitals include networks of clinicians and
hospital administrators who can readily
share best practices for achieving specific
measures such as those in the HVBP pro-
gram (Devers, Pham, & Liu, 2004). This
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© 2018 Foundation of the American College of Healthcare Executives
internal benchmarking capability, com-
bined with the economies of scale for effi-
cient implementations across many units
(Bazzoli, Chan, Shortell, & D’Aunno, 2000),
improves an organization’s responsiveness
to the “moving target” measures in the
HVBP program. Independent hospitals,
however, have a smaller internal market for
social learning and fewer opportunities to
share best practices. Clinicians and hospital
administrators in independent hospitals
often must look to external professional
networks and costly consultants to identify
and help implement best practices. Further-
more, system hospitals sometimes encour-
age internal competition between system
hospitals. This additional competition, along
with the relative transparency concerning
process, procedures, and policies that exists
in a system, may encourage better diffusion
of successful implementation and provide an
impetus for achievement (Chukmaitov et al.,
2009; Rosko, Proenca, Zinn, & Bazzoli,
2007). Thus:
Hypothesis 1 (H1): Hospitals that belong to
a system will exhibit higher domain scores
and TPSs than independent hospitals.
Mimetic isomorphism refers to conformity
occurring through imitation (DiMaggio &
Powell, 1983). When payment programs are
introduced to the market—particularly zero-
sum programs such as HVBP—organiza-
tions enter a period of uncertainty and pay
careful attention to their competitors’ reac-
tions. If a competitor’s reaction appears to
yield positive results, others quickly follow
suit and implement those practices. Hospi-
tals with low market concentration (and
thus more competition) are more sensitive
to the short-term economic gains of their
competitors (Abrahamson & Rosenkopf,
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TABLE 1
Hospital Value-Based Purchasing Quality Domains and Measures (Fiscal Year 2014)
Clinical Process of Care
AMI-7a: Fibrinolytic therapy received
within 30 minutes of hospital arrival.
AMI-8: Primary PCI received within
90 minutes of hospital arrival.
HF-1: Provided discharge instructions.
PN-3b: Blood cultures performed in
ED before initial antibiotic received
in hospital.
PN-6: Immunocompetent patient
received initial antibiotic selection
for CAP.
SCIP-Inf-1: Prophylactic antibiotic
received within 1 hour before
surgical incision.
SCIP-Inf-2: Surgical patients received
prophylactic antibiotics based on
current guidelines.
SCIP-Inf-3: Prophylactic antibiotics
discontinued within 24 hours
after surgery.
SCIP-Inf-4: Cardiac surgery patients
with controlled 6 a.m. postoperative
serum glucose.
SCIP-Inf-9: Postoperative urinary catheter
removed on postoperative day 1 or 2.
34
© 2018 Foundation of the American College of Healthcare Executives
Patient Experience of Care Outcome
Communication with nurses: Nurses AMI 30-day
explained things clearly, listened mortality rate
carefully, and treated patients with
courtesy and respect.
Communication with doctors: Doctors HF 30-day
explained things clearly, listened mortality rate
carefully, and treated patients with
courtesy and respect.
Responsiveness of hospital staff: Patient PN 30-day
was helped quickly when he or she mortality rate
used the call button or needed help in
getting to the bathroom or using
a bedpan.
Pain management: The patient’s pain
was well controlled, and hospital staff
did everything they could to help.
Cleanliness and quietness of hospital:
The patient’s hospital room and
bathroom were kept clean, and
the area around the patient’s room
was quiet at night.
Communication about medicines:
The staff told patient what the
medicine was for and what side
effects it might have before they
gave it to the patient.
Discharge information: Hospital staff
discussed help that patient would
need at home; patient was given
written information about
symptoms or health problems to
watch for during recovery.
Overall rating of hospital: Percentage of
patients whose rating was 9 or 10 on a
scale from 0 (low) to 10 (high).
(continues)
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TABLE 1
Hospital Value-Based Purchasing Quality Domains and Measures (Fiscal Year 2014),
Continued

Clinical Process of Care Patient Experience of Care Outcome

SCIP-Card-2: Surgery patients on a beta
blocker before arrival received a beta blocker
during the perioperative period.
SCIP-VTE-1: Venous thromboembolism
(VTE) prophylaxis ordered for surgery
patients if recommended.
SCIP-VTE-2: Surgery patients received
appropriate VTE prophylaxis within 24 hours.
Note. Adapted from CMS (2014, December 18). Fiscal year 2014 overview for beneficiaries, providers and stakeholders. Retrieved
from https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/
Downloads/NPCSlides071112.pdf; AMI = acute myocardial infarction; CAP = community-acquired pneumonia; Card =
cardiac; HF = heart failure; Inf = infection; P = pneumonia; SCIP = surgical care improvement project; VTE =
venous thromboembolism.

1993; Haveman, 1993; Westphal, Gulati, &
Shortell, 1997). They also often share pa-
tients and lure away each other’s clinicians
and administrators. This, we propose, will
result in a higher degree of conformity,
which will yield improved HVBP scores.
Conversely, hospitals with high market
concentration (and thus less competition)
are likely to be less sensitive to their com-
petitors’ responses (assuming they have
competitors) to programs such as HVBP and
often represent the sole market of ideas in a
geographic area (Westphal et al., 1997). This
configuration may delay conformity, given
the lack of pressure to imitate others. Thus:
Hypothesis 2 (H2): Hospitals in more com-
petitive markets will exhibit higher domain
scores and TPSs.
Coercive isomorphism refers to con-
formity occurring through pressure ap-
plied by power-wielding organizations or
units (DiMaggio & Powell, 1983). In
healthcare, a highly centralized hospital
system affords more power to top admin-
istrators. This power can then be leveraged
to quickly implement specific practices for
improved care and patient experience
(Bazzoli et al., 2000). Conversely, in a highly
decentralized system, hospital system ad-
ministrators wield less power to coerce clini-
cians into conformity, deferring instead to a
more local level of decision-making. Thus:
Hypothesis 3 (H3): Degree of system cen-
tralization will be positively related to do-
main scores and TPSs.
METHODS
Data Sources
The following databases were used for
this analysis: the 2013–2014 AHA Annual
Survey Database, the 2014 AHRF, and the
2014 HVBP database. The AHA database
collects data from more than 6,000 U.S.
hospitals and focuses on hospital charac-
teristics, services, and functions (AHA,
2014). The AHRF database provides health
resource data and socioeconomic indicators

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at the county level (U.S. Department of He-
alth & Human Services, 2014). The HVBP
database provides scores related to value-
based purchasing separated into the fol-
lowing domains: clinical POC, patient ex-
periences, outcomes, and overall HVBP
TPS (CMS, 2017).
Dependent Variables
The dependent variables of interest to this
study are the HVBP TPS and the three
domains that are used to calculate the
score: the POC (process) domain weighted
at 45%, the PEOC (patient experience)
domain weighted at 30%, and the outcome
domain weighted at 30% (CMS, 2015).
Independent Variables
The key independent variables in this study
include the self-reported descriptions of
hospital centralization as indicated in the
AHA database. Centralization is classified
as follows: centralized health system,
centralized physician/insurance health
system, moderately centralized health sys-
tem, decentralized health system, and in-
dependent hospital system. This variable
allows us to test both H1 (independent
versus system hospitals) and H3 (degree of
centralization). Similar to several other
studies, we combine centralized health
system and centralized physician/insur-
ance health system because we view the
two similarly in our theoretical framework
(Bazzoli et al., 2000; Bazzoli, Shortell,
Dubbs, Chan, & Kralovec, 1999; Burns
et al., 2015). The second key independent
variable of this study is the Herfindahl-
Hirschman index (HHI)—a measure of
competition in the market that is a continu-
ous variable between 0 (pure competition)
and 1 (pure monopoly) (Menachemi, Shin,
36
© 2018 Foundation of the American College of Healthcare Executives
Ford, & Yu, 2011). This variable allows us to
test H2.
Control Variables
Several hospital-specific variables are used to
control for confounding factors. Organiza-
tional size is defined through the number of
staffed beds and reported as a categorical
variable (fewer than 100, 100–199, and more
than 200 staffed beds). We also use owner-
ship, which has been demonstrated to play
an important role in organizations’ perfor-
mance and quality (McKay & Deily, 2005),
as a variable. Hospitals that provide medical
education often provide greater quality and
patient safety than nonteaching hospitals
(Shahian et al., 2012). Teaching status is
operationalized as a binary variable.
In addition, three variables are used
to control for market characteristics that
likely influence an organization’s degree of
centrality (Chukmaitov, Harless, Bazzoli,
Carretta, & Siangphoe, 2014). Census
population in 2010, per capita income, and
percentage of the population aged 65 years
or older are measured as continuous vari-
ables and provide indication of the avail-
ability of resources for the hospitals within
the analysis (Yeager et al., 2014). Percent-
age of Medicare and Medicaid population
is used to determine the financial health
of the organization as well as uncertainty
of the environment (Bazzoli, Chen, Zhao,
& Lindrooth, 2008; Bazzoli et al., 2007).
Number of hospital beds per 1,000 popu-
lation is measured as a continuous variable.
Analysis
Associations are assessed through multi-
ple regression analysis (Long & Freese,
2006). Two multiple regressions were
modeled. The first model used the full data
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set (N = 1,831) and used independent hos-
pitals as the reference. The second model
included only system hospitals (n = 1,647)
and used centralized health systems as the
reference to allow us to test H3. STATA 12
was used to run all analyses, and models
were estimated through maximum likeli-
hood. Coefficients, standard error, and
p levels are reported.
FINDINGS
HVBP is CMS’ long-standing effort to link
Medicare’s payment system to a value-based
system to improve healthcare quality. The
three domain scores (POC, PEOC, and out-
comes) and the TPS are the measures of
performance in VBP. This article tries to an-
swer whether certain organizational structures
and market characteristics mediate hospitals’
ability to perform across HVBP domains;
therefore, our results are linked to perfor-
mance in VBP (domain scores and TPS).
Table 2 describes the HVBP scores,
degree of centralization, and individual
and market characteristics of the hospitals
in this study; the table also provides a
comparison to the larger population from
which the sample was collected. Due to the
HVBP focus on hospitals under the inpa-
tient prospective payment system, the fol-
lowing are excluded:
• Specialty hospitals such as psychiatric,
rehabilitation, long-term care,
children’s, and cancer hospitals
• Hospitals that do not participate in
hospital inpatient quality reporting
during the HVBP performance period
• Hospitals cited by the U.S. Department
of Health & Human Services for
deficiencies that pose an immediate
jeopardy to patients’ health or safety
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© 2018 Foundation of the American College of Healthcare Executives
• Hospitals that do not meet the minimum
number of cases, measures, or surveys
required by the HVBP (CMS, 2012)
Furthermore, the process of merging
and cleaning multiple data sets and asso-
ciating scores, market characteristics, and
hospital structural variables reduced the
overall sample size from around 3,000 to
1,831 hospitals.
The average TPS is 47.34, the average
POC score is 61.14, the average PEOC
score is 39.59, and the average outcome
score is 31.81. In the study, 20% of the
hospitals identify themselves as part of a
centralized health system, 27% identify as
moderately centralized, 43% as decentralized,
and 10% as independent hospitals. The aver-
age HHI is 0.47. The sample contains 49%
not-for-profit hospitals, 23% for-profit hos-
pitals, and 28% government (nonfederal)
hospitals. In addition, 17% of the sample is
considered large (more than 200 staffed beds)
hospitals, 61% is considered medium
(100–199 staffed beds), and 22% is consid-
ered small (fewer than 100 staffed beds),
while 37% of the population provide medical
education. The average 2010 census for the
study is 0.87 per million; per capita income
is, on average, $38,300; and the average per-
centage of the population over the age of
65 years is 13%. Average hospital Medicare
percentage is 52%, and average hospital
Medicaid percentage is 19%. Last, the average
number of hospital beds per 1,000 population
is 3.15 beds.
The bivariate model results are provided
in Table 3. When looking at hospital cen-
tralization, we see a statistically significant
relationship between level of centralization
and each of the HVBP domains. In addition,
a statistically significant relationship exists
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TABLE 2
Descriptive Characteristics of Hospitals in Study
Frequency Sample Frequency Originating
or Mean Population or Mean Database
Value-based purchasing scores
Total performance 47.34 1,831 46.5 2,669
Process of care 61.14 1,831 58.96 2,669
Patient experience of care 39.59 1,831 40.37 2,669
Outcome 31.81 1,831 31.42 2,669
Hospital control variables
Centralization
Centralized health system 20% 1,831 18% 2,473
Moderately centralized health system 27% 1,831 25% 2,473
Decentralized health system 43% 1,831 46% 2,473
Independent hospital system 10% 1,831 11% 2,473
Herfindahl–Hirschman Index 0.47 1,831 0.60 4,414
Ownership
Not-for-profit 49% 1,831 50% 4,414
For-profit 23% 1,831 14% 4,414
Government (nonfederal) 28% 1,831 34% 4,414
Size
Large 17% 1,831 10% 4,414
Medium 61% 1,831 40% 4,414
Small 22% 1,831 49% 4,414
Teaching hospital 37% 1,831 25% 4,802
2010 census population (1,000,000) 0.87 1,831 0.61 4,414
Per capita income (1,000s) 38.30 1,831 36.66 4,412
Aging population (%) 13% 1,831 14% 4,412
Hospital Medicare percentage 52% 1,831 51% 4,414
Hospital Medicaid percentage 19% 1,831 0.19 4,414
Hospital beds/1,000 population 3.15 1,831 3.45 4,412

between HHI and each domain, with the
exception of the TPS domain.
In the multivariate model, independent
hospital systems are associated with lower
scores than moderately centralized health
systems across all four HVBP scores. The
same is true for independent hospitals and
centralized hospitals except for the out-
come domain, where the difference was not
significant. Finally, when compared with
decentralized health systems, independent
hospital systems are associated with a de-
crease of 5.12 and 9.32 points for TPS and
the POC domain, respectively.
HHI was only significant in the POC
and PEOC domains, with different direc-
tionality in each domain. In the POC do-
main, for each 1 unit increase in HHI
(indicating proximity to a monopoly), a
hospital’s POC score decreases by 3.57

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TABLE 3
Bivariate Analysis
Total Process of Patient
Performance Care Experience of Outcome
Score Domain Care Domain Domain
Hospital Control Variables Coef Sig Coef Sig Coef Sig Coef Sig
Centralization
Independent hospital system
Centralized health system 5.27 *** 6.85 *** 3.92 ** 3.48 **
Moderately centralized health system 5.71 *** 6.99 *** 5.64 *** 3.44
Decentralized health system 4.98 *** 10.52 *** 1.14 0.37
Herfindahl–Hirschman index −0.86 −2.95 ** 11.37 *** −11.78 ***
Ownership
Not-for-profit
For-profit 0.10 1.79 * −0.73 −1.93
Government (nonfederal) −0.61 4.54 *** −5.72 *** −3.75 ***
Size
Large
Medium −0.45 1.81 1.51 −6.88 ***
Small 0.46 0.02 13.84 *** −14.79 ***
Teaching hospital 0.03 −1.16 −3.39 *** 7.38 ***
2010 census population (1,000,000) −0.01 −0.11 −2.06 *** 2.62 ***
Per capita income (1,000s) 0.03 0.01 −0.24 *** 0.40 ***
Aging population (%) −6.34 −5.30 −5.74 −8.95
Hospital Medicare percentage 5.21 ** 6.62 ** 4.06 4.06
Hospital Medicaid percentage −12.86 *** −12.18 *** −18.72 *** −7.03
Hospital beds/1,000 population −0.05 −0.24 0.08 0.16
*p < .10. **p < .05. ***p < .01.

Note. Coef = coefficient; Sig = significance.

points. However, in the PEOC domain, for
each 1 unit increase in HHI, a hospital’s
PEOC score increases by 4.42 points. No
significant relationships were found
between HHI and TPS scores or outcome
domain scores.
Ownership is statistically significant in
the POC and PEOC domains, where gov-
ernment (nonfederal) hospitals are associ-
ated with a 2.92-point increase in the POC
and a 5.01-point decrease in the PEOC
when compared to not-for-profit hospitals.
The only other significant variable within
the TPS analysis is the hospital’s Medicaid
percentage, which indicates that, for every
1 unit increase in the Medicaid percentage
of the hospital, a 12.59-point decrease oc-
curs in the TPS.
The PEOC domain has the greatest
number of significant variables. Small and
medium hospitals score better than large
hospitals, with small hospitals scoring
13.3 points higher than large, and medium
hospitals scoring 2.62 points higher. The

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2010 census population is associated with
a decrease of 1.05 points for every 1-unit
increase in the population, and there is a
0.09-point decrease in the PEOC for every
1-unit increase in per capita income. The
percentage of the population over the age
of 65 years is associated with a 32.11-point
decrease in PEOC. Both hospital Medicare
and Medicaid percentages are significant—an
increase of 1 unit in either results in a decrease
in the PEOC score of 18.49 and 23.13, re-
spectively. Finally, the number of hospital
beds per 1,000 population is significantly as-
sociated with PEOC: For every 1-unit increase
in beds per 1,000 population, there is an as-
sociated 0.44 increase in the PEOC score.
The outcome domain analysis reveals
associations with size and a number of the
market characteristics. Both medium and
small hospitals are significantly different
from the large hospitals in their scores in
the outcome domain. Medium hospitals
score 5.00 points lower and small hospitals
score 11.16 points lower than large hospitals,
and teaching hospitals score 3.47 points
higher than nonteaching hospitals. In addi-
tion, for every increase in the 2010 census
population, there is an associated increase in
the outcome domain score of 2.48. An in-
crease in per capita income also results in an
increase in the outcome domain score of
0.25. The percentage of the population over
the age of 65 years is moderately significant
and indicates that, for every 1-unit increase
in the percentage of the population over the
age of 65 years, there is also an increase in
the outcome domain score of 31.42. Last, the
percentage of the hospital’s Medicare per-
centage is also associated with an increase
in the outcome domain score, in that an
increase in the hospital’s Medicare per-
centage is associated with an increase in the
40
© 2018 Foundation of the American College of Healthcare Executives
outcome domain score of 17.11, holding all
else constant (Table 4).
When looking at system hospitals
only (Table 5), the multivariate models
demonstrate significant differences between
the degree of centralization and HVBP do-
main scores, but not for TPS. For the PEOC
and outcome domains, moderately central-
ized hospitals are associated with an average
increase of 3.54 and 2.54 points, respectively,
compared to decentralized hospitals. In the
POC domain, moderately centralized hospi-
tals are associated with an average decrease of
2.21 points compared to decentralized hos-
pitals. No significant differences exist be-
tween decentralized and centralized hospitals
across any of the domain scores or TPS.
DISCUSSION
DiMaggio and Powell’s (1983) first publi-
cation on institutional isomorphism
highlighted the phenomena of organiza-
tional decision-makers becoming aware of
an environmental pressure, learning about
an appropriate response, and then adjust-
ing organizational behavior accordingly.
As the theory predicts, hospital adminis-
trators are in the midst of both discovering
appropriate responses to HVBP and ad-
justing their organization’s behavior ac-
cordingly. We set out to examine if certain
organizational structures and market
characteristics mediate hospitals’ ability to
respond to and perform across HVBP’s
three domain scores and TPS.
Independent vs. System
Our first organizational structure inquiry
(H1) compared independent hospitals to
system hospitals. Our results suggest that
independent hospitals perform poorly on
TPS and POC scores compared to system
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TABLE 4
Multivariate Analysis

Total Patient
Performance Process of Experience of Outcome
Hospital Control Score Care Domain Care Domain Domain
Variables Coef Sig Coef Sig Coef Sig Coef Sig
Centralization
Independent Reference
hospital system
Centralized health 4.84 (1.01) *** 6.87 (1.61) *** 3.63 (1.48) *** 2.66 (1.8)
system
Moderately centralized 5.66 (0.94) *** 6.81 (1.51) *** 5.08 (1.39) *** 4.29 (1.69) ***
health system
Decentralized health 5.12 (0.93) *** 9.32 (1.49) *** 1.52 (1.37) 1.85 (1.67)
system
Herfindahl–Hirschman 0.22 (1.11) −3.57 (1.77) ** 4.42 (1.63) *** 1.98 (1.98)
index (HHI)
Ownership
Not-for-profit Reference
For-profit −0.21 (0.71) −0.09 (1.13) 0.34 (1.04) −1.09 (1.27)
Government −0.56 (0.69) 2.92 (1.1) *** −5.01 (1.01) *** −1.47 (1.23)
(nonfederal)
Size
Large Reference
Medium −0.22 (0.78) 0.55 (1.24) 2.62 (1.14) ** −5 (1.39) ***
Small 0.59 (1.01) −1.36 (1.61) 13.3 (1.48) *** −11.16 (1.81) ***
Teaching hospital 0.24 (0.61) −0.84 (0.97) −0.82 (0.9) 3.47 (1.09) ***
2010 census population 0.16 (0.19) −0.33 (0.3) −1.05 (0.28) *** 2.48 (0.34) ***
(1,000,000)
Per capita income 0.03 (0.03) −0.02 (0.05) −0.09 (0.04) ** 0.25 (0.05) ***
(1,000s)
Aging population (%) −5.03 (7.97) −7.23 (12.71) −32.11 (11.72) *** 31.42 (14.26) **
Hospital Medicare −0.21 (2.74) 2.36 (4.38) −18.49 (4.03) *** 17.11 (4.91) ***
percentage
Hospital Medicaid −12.59 (3.18) *** −9.27 (5.08) * −23.13 (4.68) *** −5.9 (5.69)
percentage
Hospital beds/1,000 0.09 (0.12) −0.23 (0.19) 0.44 (0.18) *** 0.27 (0.22)
population
R2 .0376 R2 .0464 R2 .1717 R2 .1231
Adj. R2 .0297 Adj. R2 .0385 Adj. R2 .1648 Adj. R2 .1159
Prob > F .000 Prob > F .000 Prob > F .000 Prob > F .000
Note. Coef = coefficient; Sig = significance; R2 = coefficient of determination; Adj. R2 = adjusted coefficient of determination;
F = F statistics; Prob = probability.
*p < .10. **p < .05. ***p < .01.

www.ache.org/journals 41
© 2018 Foundation of the American College of Healthcare Executives
Journal of Healthcare Management
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TABLE 5
Multivariate Analysis: System Hospitals Only
Total Patient
Performance Process of Care Experience of Outcome
Score Domain Care Domain Domain
Coef Sig Coef Sig Coef Sig Coef Sig
Centralized health system Reference
Decentralized health system −0.02 (0.81) 1.94 (1.3) −2.19 (1.2) −0.95 (1.46)
Moderately centralized health 0.68 (0.77) −0.26 (1.23) 1.34 (1.14) 1.59 (1.38)
Moderately centralized health Reference
Decentralized health system −0.7 (0.67) 2.21 (1.06) ** −3.54 (0.99) *** −2.54 (1.2) **
Centralized health system −0.68 (0.77) 0.26 (1.23) −1.34 (1.14) −1.59 (1.39)
Decentralized health system Reference
Centralized health system 0.02 (0.81) −1.94 (1.3) 2.20 (1.21) 0.95 (1.46)
Moderately centralized health 0.7 (0.67) −2.21 (1.06) ** 3.54 (0.99) *** 2.54 (1.2) **
Note. Coef = coefficient; Sig = significance.
*p < .10. **p < .05. ***p < .01.

hospitals and also underperform in the
PEOC and outcomes domains, although
not across all types of system hospitals. These
findings provide strong support for H1.
The directionality and significance
found for the POC domain suggest that
system hospitals are better at diffusing the
standards of care that score well in HVBP.
Recall that normative isomorphism occurs
through social and professional networks.
These findings suggest that the formal and
structured networks of physicians and ad-
ministrators in health systems may aid in
the exchange of the best practices and
protocols encouraged by HVBP.
Our results suggesting that indepen-
dent hospitals underperform in the patient
experience domain can be at least partially
explained by other research that has shown
that independent hospitals typically oper-
ate with older physical plants and cannot
offer the same amenities as their system
counterparts (Bazzoli et al., 2000; McCue &
Diana, 2007). These findings also support
the assertion that quality depends on the
structure, process, and outcomes frame-
work. When any of the three areas lag, an
associated decline in quality may be real-
ized (Donabedian, 1966, 2003). Whether
hospitals ought to be punished for having
older physical plants is an issue for policy
makers to address.
Finally, the outcome domain findings
suggest that independent hospitals have
poorer outcomes compared to moderately
centralized system hospitals, but not to the
other two categories of system hospitals.
This finding could be interpreted two ways.
First, it runs in opposition to research that
has shown that independent hospitals do
not differ in similar measures of outcomes
(Cuellar & Gertler, 2005; Ho & Hamilton,
2000). However, those studies observed
independent hospitals as they transitioned
into systems through merger or acquisi-
tion. Perhaps, there were no short-term

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 Variation in Hospital Value-Based Purchasing Performance
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differences at that point, but our results are
picking up intermediate- or long-term dif-
ferences. A second consideration of these
findings is that outcome scores did not
differ in two of the three system hospital
types. That independent hospitals scored
so poorly for POC, PEOC, and TPS—but
only partially underperformed in the
outcomes domain—begs the question
about the interrelatedness of all four mea-
sures. If a hospital can avoid following
recommended procedures and provide a
subpar patient experience, yet still deliver
similar outcomes, are we sure the HVBP
program is measuring and recommending
high-leverage processes in the delivery
of care?
Market Concentration
Our market structure inquiry (H2) looked
at how concentration might lead to higher
mimetic isomorphism. Our results suggest
that, as market competition increases, POC
scores increase and PEOC scores decrease.
No significant relationships were found
between competition and outcomes or
TPS. These findings do not support H2.
The directionality and significance
found for the POC domain suggest that
hospitals with greater local competition are
better at diffusing the standards of care that
score well in HVBP. This lends partial
support to our prediction that hospitals
that share patients and often hire away
providers from one another may quickly
learn and implement the best practices of
their nearby competitors. This finding
aligns with previous research that suggests
that a fear of below-average performance
produces stronger “bandwagon effects” in
areas of greater competition (Abrahamson
& Rosenkopf, 1993).
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© 2018 Foundation of the American College of Healthcare Executives
The directionality found for the PEOC
domain is opposite of our prediction—that
competition creates an improved patient
experience. However, our finding aligns with
one study that found a positive relationship
between HHI and Hospital Consumer As-
sessment of Healthcare Providers and Sys-
tems (HCAHPS) scores (Kazley, Ford, Diana,
& Menachemi, 2015). It has been theorized
that hospitals operating in a hypercompeti-
tive environment may employ cost minimi-
zation strategies to the detriment of patient
satisfaction (Rivers & Glover, 2008; Ware,
Davies-Avery, & Stewart, 1977); others have
argued that competition ought to improve
patient satisfaction, albeit indirectly, via im-
provements in quality of care and decreased
costs (Rivers & Glover, 2008). Our study is
one of the few to consider this relationship
and makes a case that the HVBP’s market
competition approach may not ensure high
patient satisfaction.
Centralized vs. Decentralized System
Hospitals
Our third organizational structure inquiry
(H3) compared the degrees of centralization
among system hospitals. Our results suggest
that moderately centralized hospitals out-
perform decentralized hospitals in the out-
come and PEOC domains but perform
worse than decentralized hospitals in the
POC domain. Highly centralized hospitals
perform no better or worse than decen-
tralized or moderately centralized hospitals
in any of the four domains. These findings
do not support H3.
That moderately centralized hospitals
perform better in PEOC and outcomes but
worse in POC when compared to decen-
tralized hospitals is vexing but has been
documented elsewhere (Gilman et al.,
43
Journal of Healthcare Management
......................................................................................
2015). Research using financial metrics has
shown that moderately centralized hospi-
tals outperform all other hospital system
types (Bazzoli et al., 2000). It is hypothe-
sized that this occurs due to diminishing
returns—that centralized control is better
than no control, but leaving some autonomy
to local hospitals may lead to improved
performance due to market and patient dif-
ferences. However, this does not explain why
decentralized system hospitals produce
higher POC scores. Perhaps our centraliza-
tion variable is capturing a structural mech-
anism (e.g., which services are offered
where) instead of an administrative mecha-
nism (e.g., how POCs are carried out). Re-
gardless, the weighting of the three domains
“balances” the disparate results across de-
grees of centralization, as there are no sig-
nificant differences in TPS.
PRACTICAL IMPLICATIONS
As we view the current state of HVBP
through the lens of institutional theory, we
are reminded that social, structural, and
market contexts can have a large and
meaningful effect on how organizations
behave. What seems clear is that hospitals
that belong to a system are more likely to
score highly in HVBP incentive arrange-
ments. One could argue that this success is
due to competition within hospital systems,
which may encourage diffusion of successful
practices present in networks that are
attempting to provide similar services.
Within system hospitals, it appears that a
“Goldilocks” phenomenon occurs where
some central control is better than none, but
too much can also lead to negative conse-
quences. Given that this phenomenon has
been observed elsewhere in the literature
(Bazzoli et al., 2000), system leaders should
44
© 2018 Foundation of the American College of Healthcare Executives
carefully consider how much autonomy to
leave in the hands of system affiliates.
A key finding of this research for policy
makers involves the negating effect ob-
served of domain scores in relation to the
TPS. Across two of our three independent
variables, we observed a particular hospital
type significantly underperforming in one
domain score but outperforming others in
another domain. With the domain weighting,
however, we observed no significant differ-
ences in TPS for those independent vari-
ables. It could be argued that this weighting
ends up masking poor performances and
results in little scoring separation despite
significant differences in the delivery of care.
This critique has been cited elsewhere (Rau,
2012), although not based on similar mea-
sures. In the HBVP program’s defense, the
weighting will continue to be adjusted in
future years, with more weight being given to
the outcome domain (25% in 2014 to 40% in
2016) and less weight given to the POC do-
main (45% in 2014 to 10% in 2016). This
shift ought to create more separation in TPS
for those organizations that relied on strong
POC scores to counter poor performances in
PEOC or outcomes.
Finally, our findings concerning the
inverse relationship between competition
and patient satisfaction, as well as the lack
of relationship among competition, TPS,
and the outcome domain, provide insight
into the current political and legislative
debate. Through the implementation of the
Affordable Care Act, accountable care or-
ganizations (ACOs) were established.
ACOs are an attempt to provide greater
coordination of care that should in turn
provide greater quality of care at a reduced
cost through a patient-centered focus that
delivers the right care at the right time
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 Variation in Hospital Value-Based Purchasing Performance
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without duplication (Yeager, Zhang, &
Diana, 2015). However, there are concerns
that ACOs will not increase market compe-
tition but instead will only increase market
concentration (Scheffler, Shortell, &
Wilensky, 2012). Our findings suggest that
increased competition may not produce de-
sired outcomes in HVBP, so the desired out-
comes associated with ACOs may fail to reach
the desired status as well. Should competi-
tion not drive ACO performance, markets
with greater healthcare concentration may
see higher costs and negative outcomes in
the form of anticompetitive strategies.
Therefore, policy makers should carefully re-
view and monitor the influence of competi-
tion on desired outcomes related to ACOs.
Limitations and Future Research
This study uses the AHA database, and
its self-reported data may be incorrect or
slightly out of date compared to other data
sets. The process of merging multiple data
sets yields some organizational differences in
comparison to the total population. As such,
generalizability is reduced. In addition, this
cross-sectional study allows for some bias
associated with changes over time, which
complicates assessing the ability of hospitals
to take advantage of HVBP arrangements.
However, because the program has been in
place for several years, we can expect hospi-
tals to actively pursue strategies associated
with improving scores related to HVBP.
Future research should focus on the
association of a hospital’s system standing
and any associations with ACOs, dedicated
(employed) physician providers, and med-
ical home arrangements to determine if the
diffusion of these arrangements is more
likely to occur in system hospitals than in
nonsystem hospitals.
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© 2018 Foundation of the American College of Healthcare Executives
CONCLUSION
This study applied the lens of institutional
theory to evaluate how organizational
structures and market characteristics mediate
hospitals’ ability to respond to and perform
across HVBP’s three domain scores and TPS.
Our results suggest that independent hospi-
tals perform poorly on TPS and POC scores
compared with system hospitals and also
underperform in the PEOC and outcomes
domains. However, the degree to which
system hospitals are centralized (decen-
tralized, moderately centralized, or highly
centralized) does not consistently influence
HVBP scores. In addition, this study pro-
posed that market concentration should
produce higher scores based on mimetic
isomorphism. The results do not provide
consistent support for this assertion. Based
upon these findings, it seems clear that hos-
pitals that belong to a system are more likely
to score highly on the domains associated
with the HVBP incentive arrangement. Fur-
thermore, a hospital’s ability to score well in
this new value arrangement may be heavily
based on the organization’s ability to learn
from others, implement change, and apply
the appropriate amount of control in
various markets.
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PRACTITIONER APPLICATION:
Hospital Value-Based Purchasing Performance: Do Organizational
and Market Characteristics Matter?
Dereesa Purtell Reid, CPA, senior vice president, The Innovation Institute, Newport Beach, California

A
s Spaulding, Edwardson, and Zhao note, performing well in the hospital value-based
purchasing (HVBP) program of the Centers for Medicare & Medicaid Services (CMS)
requires an infrastructure that can extract relevant data and enable timely action.
Several years before CMS initiated the HVBP, many health systems adopted patient satisfaction
surveys and clinical quality measures. However, improvement in satisfaction and quality was
often not remarkable until the implementation of the HVBP, which promoted market trans-
parency and a way for consumers to compare hospitals.
Specialty hospitals also can achieve favorable results in HVBP initiatives. In Irvine,
California, the Hoag Orthopedic Institute’s atypical organizational structure—a joint
venture including orthopedic surgeons and a community-based nonprofit hospital—
resulted in exceptionally high performance in multiple HVBP domains (Haas, Kaplan,
Reid, Warsh, & West, 2015). Value-based data analytics and performance incentives were
designed to ensure that all Hoag Orthopedic employees and physicians were hyperfocused
on patient satisfaction, clinical quality, and outcomes. Education initiatives and best
practices were developed internally (outside the parent health system) through synergy
between empowered physicians and staff. As examples, medical staff bylaws and physician
......................................................................................
Dereesa Purtell Reid was formerly CEO of Hoag Orthopedic Institute, Irvine, California.
The author declares no conflicts of interest.
© 2018 Foundation of the American College of Healthcare Executives
DOI: 10.1097/JHM-D-17-00186

48 Volume 63, Number 1  January/February 2018

© 2018 Foundation of the American College of Healthcare Executives