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Use of long-term incentives doubles

The shift to pay-for-performance spurs independent health systems to refocus their employee incentive programs

The use of long-term incentives at integrated health systems has doubled in the last two years, according to a compensation assessment of health systems and hospitals.

The Hay Group’s annual Healthcare Compensation Study, released Thursday, found that 42 percent of 128 integrated healthcare systems and subsystems have long-term incentives in place this year compare to 17 percent in 2012.

“As hospitals and systems shift their focus from fee-for-service to pay-for-performance, we’re seeing a major shift in what is incentivized and related time horizons,” said Jim Otto, senior principal at Hay Group, in a press release announcing the study results. “Providers are rewarding very specific goals, such as improved financial ratios, and evaluating new measures that align with value-based care. 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.”

Other findings of the study include:

  • Larger systems (over $1 billion in revenue) are more likely (53 percent) to have long-term incentives in place than smaller systems (21 percent).
  • Stand-alone hospitals are moving away from a short-term emphasis on profit. In 2014, 38 percent included profit in their executives’ and senior managers’ annual incentives compared to 56 percent last year.
  • 65 percent of hospitals use patient satisfaction as a factor in their short-term incentives for executives, compared to 35 percent for nurses and 25 percent for physicians.
  • Median base salaries for employees staying in the same position year to year decreased slightly at large, integrated health systems (2.5 percent in 2014, down from 2.8 percent last year) and remained level (2.6 percent) at independent hospitals. The largest increases were seen at the executive level. In 2014, for incumbent CEOs at non-for-profit health systems, the median base salary increase was 5 percent (up from 4 percent in 2013), and for senior executives, 3 percent (remained the same). For those at non-system hospitals, it was 4.3 percent (3 percent in 2013) for CEOs and 3 percent (remained the same) for senior executives.