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Reassessing Executive Compensation

 |  By Michael Zeis  
   November 13, 2013

As the healthcare industry shifts from volume to value, hospital and health system leaders need to consider new skill sets, new business models, and new incentives for the C-suite.

This article appears in the November issue of HealthLeaders magazine.

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At its most basic, population health involves improving the health status of a given population by ensuring that members of the population are receiving the healthcare they should be receiving. How? First, one has to define the population. Then one must know what care the population is receiving. Next, identify gaps by comparing the care the population is receiving with the care the population should be getting.

Finally, the care delivery system must be able to address care gaps. Although the tactical implications of these simple statements are considerable, the first order of business for many healthcare providers is to try to sort out financial issues.

The major structural shifts affecting the healthcare industry are manifested in executive compensation programs, which are starting to reflect the industry's new value-based direction. Survey results show that compensation programs emphasize collaboration, foster working with new financial models, and reward clinical performance.

Rewards based on financial performance still count, of course, but our report advisors expect that compensation based on clinical volume metrics will be on the wane. Because most industry evolution scenarios indicate organizations will collaborate a lot more, some organizations and individuals will require new skills for success in new directions. Collaboration skills are highly desired, as are physician alignment skills. And the new financial realities mean that some "old" skills, such as cost containment expertise, remain highly valued, as well.

Financial and clinical metrics

Compensation has not been static, but increases are modest for most. Half (51%) expect an increase in total compensation next year. For 60% of those who expect compensation to rise, increases will be 3% or less. But we should not interpret modest compensation growth as a sign of stability. The financial foundation of the healthcare industry is in flux, and compensation committees are redirecting the attention of healthcare leaders through changes in compensation programs, mostly with changes in incentive programs.

"We've always had a financial discussion," says Joseph Pepe, MD, president and CEO of CMC Healthcare System in Manchester, N.H., which includes Catholic Medical Center, a 330-licensed-bed not-for-profit hospital, "but in the past quality and patient satisfaction tended to be in the background with most boards and in most C-suites."


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Michael Zeis is a research analyst for HealthLeaders Media.

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