Being measured is nothing new for top healthcare leaders, but for many, renewed board focus on the future means that leaders are being measured based on an increasingly complex conglomeration of performance targets.
Measures and metrics are starting to better define healthcare success, and that's a good thing. It's all part of being more accountable about costs and waste in an industry that's infamous for both. But that measurement isn't just for reforming wasteful processes or measuring patient compliance or satisfaction anymore: Now it's right in the middle of the C-suite.
That means more of your compensation is at risk, or as is said, 'dependent' on these measures. Where it gets interesting is the kinds of new measures that are being introduced by active boards around the country that determine more and more of compensation.
Being measured is nothing new for top leadership, but what they're being measured on is changing rapidly, according to Andrew Chastain, managing director of the southeast region and vice chairman of the board at Witt/Kieffer, a well-known healthcare executive search and consulting firm.
Those who would like to see healthcare emulate other industries in terms of rigor around performance targets are getting their wish.
"It used to be that incentive compensation was around the financials and it defined quality as patient satisfaction," he says. "Now it's literal outcomes."
As he and I spoke, Chastain reviewed actual executive compensation plans from a variety of his clients. Many of them are determining executive bonus compensation based on Surgical Care Improvement Project (SCIP) measures, whether the organization exceeded norms on evidence-based medicine follow-through, and other complex measures of quality.
"Right now, I'm looking at two or three pages of really complicated stuff about quality," he says. "It's the right stuff, the quality committees of these boards are getting with the compensation committees on a systematic approach to what they're going after on the quality side. This is much more granular than before. It's not just core measures and patient satisfaction."
Chastain says that around 40% of a health system CEO's, overall compensation can now be tied to these measures, which should be quite enough to align incentives and force executives to do some of the most difficult work in their health systems—improving quality, removing waste, and improving integration.
Breaking down that potential bonus, executives who achieve goals in areas such as their net operating income, patient satisfaction score, a strategic component or two, and safety and quality can receive the full bonus.
Chastain says the most difficult to measure historically, quality and safety, when they were part of the bonus structure in the past at all, were often difficult to measure, and depended on fairly simple metrics. Not anymore.
"It's getting easier to measure [quality and safety] because it's being defined for them by their payers," he says. "They can argue with docs about what quality really is, but they're being measured by these metrics."
Chastain says that looking at the past three years of measures pertaining to one client provides an illuminating view of how compensation is changing, and bonus compensation is getting more complex as boards start to implement long-term bonuses based on as much as three years' rolling average of the metrics that are being measured.
"So in this example, for years 2013-2016, the board is saying 'we want you to accomplish these things: Establishing a medical group, rolling out an IT plan'—these are multiyear things. There are other buckets of dollars associated with those three-year arcs," he says. "And next year, they will establish goals for another three-year arc."
The idea is that the three-year arcs create an incentive for the CEO and his or her team to stay in place, Chastain says.
Leadership stability is a good thing in an industry that's undergoing such massive changes that require hospitals and health systems to basically redo their business model. Instead of being measured on volume, boards are starting to measure their leaders on value creation. Sound familiar?
"This way of evaluating senior leaders allows boards to set long term goals so that if they execute them, they'll have a lot of dollars they don't want to leave [by moving on to a new job]," says Chastain.
With consolidation increasing, he says boards are becoming more and more savvy about evaluating their leadership. They don't just defer to the executive's judgment and perceived expertise anymore.
Chastain relates a story about a health system with about $3 billion in net annual revenue that engaged him in an executive search. The chair of the finance committee, who serves on several other boards, told him there's not a lot of difference in terms of board focus between the health system board and the ones he serves on in other industries.
"I used to be on a hospital board," says Chastain. "Historically, the discussions were around which surgeon was upset about his or her block time," he says. "Now they are having discussions around quality, and whether to buy, sell, build, or merge. This is corporate board stuff."
Philip Betbeze is the senior leadership editor at HealthLeaders.