Compensation is the parent of what employees, including executives and managers, do. The proper mix of compensation types and metrics can help an organization attain the behavior it wants. The approach, common in most of business, is entering healthcare, which means a significant change for many in leadership roles.
Tying executive and management pay to outcomes is nothing new in most industries. In the first half of the 20th century, companies were largely owned and run by family, which meant a natural interest in the fortunes of a firm. But as outside professional management was increasingly installed to run businesses that swelled in size, executives lacked the natural ties to improving results for shareholders.
With a change in tax rules in the 1950s that permitted favorable treatment, executives stock options became popular. They were an economical way to make compensation dependent on company success. The practice, and variations on it, continued.
Healthcare did follow the pattern, emphasizing better pay for desired financial results. However, that has begun to change. Rather than looking only at monetary outcomes, some providers now based at least part of compensation for leaders on how patients are doing. Increasingly, patient health and outcomes are becoming measures for executive compensation in the industry, as Modern Healthcare reports.
Trinity Health system executives take home heftier paychecks when they keep patients healthy and out of the hospital. The annual incentive pay for each executive, including the 93-hospital system’s CEO, is docked if Trinity’s total patient population doesn’t show reduced rates of obesity, smoking, readmissions and hospital-acquired conditions. Hitting financial targets, on the other hand, receives little weight in the incentive plan.
At Trinity, ten percent of executive compensation is tied to various outcomes, with the following five specific factors each representing an equal amount of that part: reduction of hospital infections and readmissions, smoking and pediatric obesity rates, patient satisfaction, workforce engagement, and operating performance.
The mix, especially with patient satisfaction, is important to keep executives from consciously or unconsciously directing strategy or tactics to focus primarily on those factors that directly affect their income. Such an overall shift is necessary. Healthcare industry compensation, including Medicare, increasingly looks at quality and care value, which affects provider revenue. Better care and patient satisfaction become a potent marketing tool and drivers of word-of-mouth, whether good or bad.
But there are challenges. Providers must become far more adept at monitoring and measuring population health and the industry has widely varying standards and expectations. Executives and managers will need to shift their thinking and emphasize data-driven decisions. There is the question of whether an organization can have enough influence on the decisions of patients. In addition, good data integrated into existing systems and decision-making processes is necessary but still lacking for many.
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