Healthcare News & Insights

Pay incentives tied to performance: A new trend for hospital administrators

As if hospital execs needed another reason to worry about improving care quality, they may soon see their pay and annual bonuses tied to quality-of-care. 

461894791As Modern Healthcare reports, pay incentives based on quality-of-care are becoming the new standard for hospital administrators, though various hospital systems weigh care quality differently.

More pay for better performance

For years, the pay incentives for hospital CEOs were tied predominantly to how well their facilities’ did financially — evaluating expenditures, savings and other issues to determine the size of executive bonuses. And while hospitals’ finances are still a major factor in determining leaders’ pay incentives, there’s growing pressure for other care quality measures to be factored in.

The reason: More insurers and employers pushing for greater transparency and quality accountability in the healthcare industry.

So far, research has shown that tying pay and incentives to care quality may be an effective way to improve hospitals’ overall performance. What isn’t certain yet is how much emphasis different health systems will put on quality, as well as how those systems will measure performance.

Some systems, like Dallas-based Tenet, pay their hospital leaders up to 25% of their yearly cash incentives based on quality. Tenet tracks performance through measures used by the Centers for Medicare & Medicaid Services (CMS) to incentivize care-quality, such as analyzing their hospitals’ rates of avoidable infections.

Many hospitals and health systems have begun using CMS-based quality measures along with other factors to judge performance and determine the size of administrator incentives. In addition to looking at indicators, like rates of hospital-associated infections, many systems also emphasize measures like physician and patient satisfaction, patient-safety planning and employee turnover rates as part of their incentive criteria.

Other systems may look at finances to determine incentives but give directors the chance to dock leaders’ bonuses based on poor quality performance.

Not-for-profit hospitals are also seeing the rapid adoption of quality-based incentives. Currently, about two-thirds of not-for-profits use quality measures to determine executive compensation — a substantial jump over the past couple of years. Five years ago, only 45% of not-for-profits used quality incentives.

Committed to quality

The general hope behind tying hospital execs’ pay and bonuses to quality performance is that it’ll lead to overall hospital performance improvement.

There are other perks to tying pay to performance, though. For one, it shows the public how committed a hospital or systems is to providing quality care to patients. This can come in handy since more insurers have begun tying reimbursements to quality performance. Showing that your facility makes quality a serious concern for all its employees and leaders could be key in order to continue being fully paid and sent patient referrals.

Quality incentives are definitely becoming more common, so if you’re not sure if your health system or board of directors will begin tying your pay to your hospital’s performance, now might be a good time to keep your ear to the ground. It’s also worth finding out exactly how quality will be measured to determine incentives, that way you can make sure you’re addressing the areas of your hospital that most need improvement.

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