Why long-term incentive use more than doubled in two years
By - Integrated health systems are taking greater advantage of the use of long-term incentives, according to a recent Hay Group study. Research showed that the percentage of long-term incentive use has more than doubled in the past two years, increasing from 17 percent in 2012 to 42 percent in 2014.
According to the 2014 Hay Group Healthcare Compensation Study, this is the highest level of use for long-term incentives since 2006 – when the Hay Group first started tracking the data.
There is a major shift happening in what is incentivized and related time horizons, Jim Otto, senior principal at Hay Group, said in a statement. This is especially true as hospitals and systems shift their focus from fee-for-service to pay-for-performance, he said.
“Providers are rewarding very specific goals, such as improved financial ratios, and evaluating new measures that align with value-based care,” Otto said. “They’re also increasing their emphasis on longer-term outcomes that are critical to the momentous change required of the industry. As providers become more sophisticated in their population health efforts, we expect these measurements, too, to increase in sophistication.”
Larger health systems – those with over $1 billion in annual revenue – are more likely than smaller systems to have incentivized both short- and long-term incentive plans, according to the report. Specifically, 53 percent of large organizations surveyed reported having long-term plans, while just 21 percent of small health systems reported doing so.
The report also found that the short-term emphasis on profit for stand-alone hospitals has dropped over the last three years. This year, 38 percent of independent organizations factored profit in their executives’ and senior managers’ annual incentives, a decrease from 56 percent in 2013 and approximately 67 percent in 2012.
In terms of compensation, the largest base salary increases were at the CEO and senior executive level. In 2014, CEOs’ median base salaries increased by 5 percent, while same-incumbent senior executives at not-for-profit IHS organizations saw their salaries increase by 3 percent.
“The CEO title can hide a lot of change within the organization itself,” Otto said. “For hospitals with an insurance plan, for example, there’s an acknowledgement that it’s a different business line that creates a more complex organization. CEOs are also being asked to work with current and former competitors as partners or affiliates. The role has become much more complicated.”
Patient satisfaction is also becoming more of an important factor in annual incentives for executives, according to the report. Sixty-five percent of hospitals’ have patient satisfaction as a short-term executive incentive, compared to 35 percent for nurses and 25 percent for physicians.
Earlier this year, Welltok Chief Incentive Officer Michael Dermer explained the methodology behind calculating incentives and how rewards can drive patient engagement while creating long-term change. Dermer also stated that financial patient incentives might be the best way to ensure that all parties are satisfied.
