Incentives in health care broke onto the scene in the mid-1980's, when a few progressive hospitals and health care systems saw the need to adapt successful management principles from other industries. They weren't intimidated by critics who saw healthcare as somehow sacrosanct and immune from such humdrum business practices. At the time, it was common to hear CEOs and Board Chairmen pontificate on how healthcare executives were un-moved by money and how bonuses would impugn their motives and place them on a slippery slope of aberrant behavior that would inevitably lead to abandonment of quality care in the name of personal enrichment. Occasionally, you can still hear these arguments today.
Over time, however, hospital after hospital made the connection between pay and performance for their executives. And today you would be hard-pressed to find a healthcare leader whose pay is not in some way linked to the success of their organization. In this way, their compensation closely resembles that of their executive counterparts in other industries.
But, strangely, this is where the similarity ends. Unlike other industries where incentives are commonplace for lower-level managers as well, in healthcare they are mostly relegated to the executive level. Now, for the first time, this may be changing.
A few years ago, pay-for-performance was mostly a subject of academic papers--and a few pioneering experiments on the West Coast. But things have changed a lot since then. At this year's MGMA, not only are there cutting-edge sessions and doubtless, tons of hallway chatter and knowledge-swapping , there's even a two-day pre-show seminar focused specifically on pay-for-performance. This isn't much of a surprise given that Medicare is throwing its weight behind performance incentives, too. Still, things have changed pretty quickly.
The MGMA they are referencing is the annual conference of the Medical Group Management Association which is underway right now in San Diego. MGMA is the national organization for professionals involved in managing large physician group practices. So not only does it appear that incentives are moving out of the executive suite and into the patient care arena, but they are also finding their way into medical groups and doctors offices.
This is good news for health care. Hospitals are an ideal environment for incentives because virtually everything in hospitals is measured and quantified. They have statistics ranging from medication errors to patient satisfaction and everything in between. Any hospital worth its salt can answer nearly every imaginable question with a boat load of relevant data. Such data is mandated by Joint Commission on Accreditation of Healthcare Organizations(JCAHO) and informs nearly every major decision. But until recently, it was never connected to managers' pay. This glaring omission often prevented managers from fully committing to necessary changes and improvements.
On the leading edge of this powerful movement to make managers more accountable for results is Memorial Medical Center in Modesto, California. Memorial is a high-performing hospital within a leading healthcare system, Sutter Health. Both Sutter and Memorial are widely known in California as leaders when it comes to innovation. Recently, Memorial's CEO, David Benn, and their Vice President of Human Resources, Susan Donker, teamed up to bring incentives to every hospital Director and Manager.
They created individual, customized incentives for all 44 members of the management team. This includes the head of every clinical and non-clinical department in the organization ranging from laboratory, pharmacy, and radiology, to accounting, HR and facilities. Each incentive plan spells out in detail exactly what the manager is expected to contribute to the overall success of the organization. This includes Nurse Managers whose plans involve such complex and diverse measures as physician satisfaction, patient satisfaction, and core medical outcomes (such as Ventilator Associated Pneumonia (VAP) , Central Line Associated Blood Stream Infection (CLABSI), and ICU mortality). All measures are tied directly to the Sutter Health dashboard which measures the success of the overall hospital. In addition to the measures related to their own department's success, each manager is also linked to the success of the overall organization through broad measures of organizational success. This ensures that no one looses sight of the need to work together as a team.
I worked closely with the Memorial's leadership team to design and create this program. We made extensive use of Incentive Plan Builder to produce the final plan documents. Incentive Plan Builder is uniquely suited to this purpose as it contains numerous pre-loaded healthcare measures and goals.
I am proud of Memorial for taking this bold step, and I am confident it will lead directly to increased organizational performance. I am equally confident that other hospitals will follow suit when they recognize the enormous power associated with clarifying for employees exactly what they can do to contribute to their organization's success and what they stand to earn when they do it. Far from being a distraction or selling out to the demons of materialism, such incentives align the interests of the organization with that of its employees and ultimately with its patients.
Innovative organizations will heed the advice from Fierce Healthcare:
Smart folks ... will find some new ways to make pay-for-performance (P4P) accessible to more practices. In the meantime, take any chance you get to find out what the big boys are doing. There's lots of knowledge out there . . . so soak it up while you can.