Practice Management News

Practices Upping Healthcare C-Suite Bonuses for Value-Based Care

Healthcare C-suite bonuses and total compensation grew in 2017 as group practices tried to achieve value-based care outcomes, an AMGA survey showed.

Value-based care and healthcare C-suite compensation

Source: Thinkstock

By Jacqueline LaPointe

- Bonuses and incentive payments for healthcare C-suite executives are on the rise as medical groups and practices transition to value-based care, according to the most recent AMGA Medical Group Executive and Leadership Compensation Survey.

The survey of 55 participants primarily from large, multispecialty group practices uncovered a 4.5 percentage point increase in the median earned bonus to base compensation ratio for physician Chief Executive Officers (CEOs) between 2016 and 2017. The 2017 ratio for physician CEOs was 22.7 percent.

The ratio measures the proportion of compensation driven by performance-based incentives beyond base salary.

The median earned bonus to base ratio similarly increased for non-physician CEOs. The ratio jumped 4.9 percentage points in 2017 compared to the previous year, reaching a ratio of 24.9 percent.

Other healthcare C-suite executives who saw greater bonuses and incentive payments in 2017 included Chief Financial Officers (CFOs), with the median earned bonus to base ratio increasing from 15.7 percent in 2016 to 19.6 percent in 2017, and Chief Operating Officers (COOs), with the ratio rising from 15 percent in 2016 to 21.9 percent in 2017.

“At this time, value-based care is driving executive compensation incentives in a manner similar to physician compensation for many groups,” stated Fred Horton, President of AMGA Consulting.

“With the effort required to align resources for success under value-based care, it may be that more organizations are deciding that incentives to promote consistency in the leadership team are key to success,” he added.

As value-based care spurred executive bonuses and incentives, the move away from fee-for-service also prompted an increase in pay for Directors of Care Coordination/Case Management, the survey showed. Median total cash compensation year-over-year for Directors of Care Coordination/Case Management jumped over 14 percent by 2017.

Healthcare executive compensation also generally grew in 2017. Traditional C-suite positions experienced a median total cash compensation increase of up to 4.4 percent compared to 2016.

However, some C-suite level executives saw larger increases in 2017. The following executive positions experienced a greater increase in median total cash compensation:

• Chief Medical Officer (CMO) increased by 25.7 percent, reaching a median of $460,827

• CEO (non-physician) increased by 11.1 percent, reaching a median of $476,897

• CEO (physician) increased by 7.5 percent, reaching a median of $645,784

• COO increased by 7.2 percent, reaching a median of $320,000

“Some of the larger increases may be driven, in part, by differences in the demographics of survey participants year-over-year,” AMGA noted. “However, the general upward trend is consistent with other compensation survey data.”

Notably, the only C-suite position to see compensation fall in 2017 was the Chief Nursing Officer (CNO)/Patient Care Executive. Compensation for the executive-level position dropped 11.2 percent between 2016 and 2017, resulting in a median total compensation of $218,386 in by 2017.

The general increase in healthcare C-suite compensation reflects the efforts by medical groups to motivate their leaders to improve outcomes, explained Wayne Hartley, COO of AMGA Consulting.

“As we work in the field with medical group executives, we commonly hear that there is a renewed focus on operations,” he said. “Many resources have gone into payer strategy and care model design in recent years and now organizations are focused on orchestrating those investments to achieve the desired outcomes.”

Additionally, AMGA reported that healthcare C-suite compensation benefits indicate that medical groups are employing retention strategies to keep leaders in their organization.

Healthcare executive turnover is starting to subside, but still remains steady at 18 percent among CEOs, according to a 2017 report by the American College of Healthcare Executives (ACHE). While the recent turnover rate dropped from the historic high of 20 percent in 2013, the rate is still among the highest in the last two decades.

Medical groups are responding to this trend by increasing the benefits offered to executives. The AMGA survey revealed an increase in the use of Supplemental Executive Retirement Plans (SERPs), which are a common tool to retain executives, AMGA stated.

Physician CEOs saw the prevalence increase from 41 percent in 2016 to 62 percent in 2017, while the prevalence increased from 31 percent to 50 percent among non-physician CEOs.

CFOs and COOs also experienced an increase in the use of SERPs. The prevalence grew from 39 percent in 2016 to 47 percent in 2017 for CFOs, and from 29 percent to 33 percent for COOs.

“[A]s SERPs tend to be more common in larger organizations, it may be that continued consolidation into larger systems is driving this benefit,” concluded Horton. “Either way, there is high demand for talented executives, and vacancies in senior positions can impact organizational momentum during a challenging time for the industry.”