How Value-Based Care is Changing Executive Compensation

Executive benefits for healthcare managers continue to move toward more performance-based recompense, often combined with different flavors of nonqualified deferred compensation and retirement plans.

“We are seeing more and more hospitals with compensation based on value and quality,” says Barry Koslow, chairman of the board at New England Sinai, a for-profit hospital in Stoughton, Mass.

But, Koslow cautions, it’s too early to generalize about how retirement planning and executive compensation are changing in the context of value-based care. “I have not seen changes at the top that reflect value-based pay,” he says. “This is partly due to the fact that nearly every hospital is getting paid through varied means: fee-for-service, bundles, partial capitation, alternative quality contracts and full capitation, each with its own nuances.“

With value- based care changing both the regulatory and institutional landscapes, it’s important for hospitals executives to carefully consider what the right mix of benefits is for maximizing compensation, while minimizing risk.

Healthcare reform efforts by the federal government have resulted in more closely tracked patient care metrics, such as complications, hospital-acquired infections and readmissions. Those same performance indicators are often tied to management compensation. These days, better metrics can mean higher compensation.

Executive compensation metrics are a powerful reflection of an institution’s priorities and likely have the ability to shape an executive team’s focus. A 2014 Journal of the American Medical Association review found that CEO compensation at nonprofit U. S. hospitals varies widely, and is associated with greater use of technology and higher patient satisfaction, but not necessarily with the quality of care delivered, patient outcomes or community benefit.

The authors of the JAMA article also underscored that linking CEO compensation to performance can be a powerful way to influence outcomes. “Data suggest that metrics chosen for inclusion in CEO compensation packages can affect executives’ behavior,” they wrote. “These issues are particularly salient among nonprofit institutions, in which the metric of organizational success in many industries—the profitability of the organization—must be balanced against more mission-driven factors, such as the quality of care delivered and the degree of community benefit provided.”

Tying outcomes to executive compensation has its limits. “A portion of a CEO’s compensation can focus on specifics, but when it comes to outcomes, quality and patient satisfaction, the pay flex may be better focused at the line managers,” Koslow says.