EECUTIVE REWARDS PERFORMANCE EFFECTIVENESS PERSPECTIVE€¦ · EECUTIVE REWARDS PERFORMANCE...
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EXECUTIVE REWARDS & PERFORMANCE EFFECTIVENESS PERSPECTIVE HEALTH CARE REFORM REQUIRES NEW GOVERNANCE PARADIGM Health care reform is radically altering the economic model for most providers. The fee-for-service (FFS) model, which reimburses each doctor or hospital for each treatment that is provided to each patient, is being replaced. The new model is fee-for-value (FFV), where revenues come in the form of bundled or shared payments for the care of a population. It is radically different: a doctor may get paid as much for one test as for 50 — a 180-degree shift. Among the many implications of this shift are new business models for providers, need for more active involvement of boards of trustees, and compensation program redesign. Sustainable and successful providers must implement models that provide high-quality care while managing costs effectively. For boards of trustees, this means a renewed focus on strong governance practices, active participation in business strategy development, oversight of strategy implementation, and changing the way they approach financial rewards for executives and clinicians. IN THIS ISSUE, ANSWERS TO: What are the new business models for health care? What should trustees be considering? How is compensation changing in a FFV world? US • Special Issue MAY 2013
Transcript of EECUTIVE REWARDS PERFORMANCE EFFECTIVENESS PERSPECTIVE€¦ · EECUTIVE REWARDS PERFORMANCE...
EXECUTIVE REWARDS & PERFORMANCE EFFECTIVENESS PERSPECTIVE
HEALTH CARE REFORM REQUIRES NEW GOVERNANCE PARADIGMHealth care reform is radically altering the economic model for most providers. The fee-for-service (FFS) model, which reimburses each doctor or hospital for each treatment that is provided to each patient, is being replaced. The new model is fee-for-value (FFV), where revenues come in the form of bundled or shared payments for the care of a population. It is radically different: a doctor may get paid as much for one test as for 50 — a 180-degree shift.
Among the many implications of this shift are new business models for providers, need for more active involvement of boards of trustees, and compensation program redesign. Sustainable and successful providers must implement models that provide high-quality care while managing costs effectively.
For boards of trustees, this means a renewed focus on strong governance practices, active participation in business strategy development, oversight of strategy implementation, and changing the way they approach financial rewards for executives and clinicians.
IN THIS ISSUE, ANSWERS TO:
What are the new business models for
health care?
What should trustees be considering?
How is compensation changing in a
FFV world?
US • Special IssueMAY 2013
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“ DOCTORS ARE NOT GOING TO BE PAID BASED ON THEIR PRODUCTIVITY, BUT ON THE OUTCOMES THEY PROVIDE. THIS IS A RADICAL CHANGE.”
Mercer’s perspective as outlined in this article is that boards of trustees need to act quickly and nimbly in collaboration with their executive teams and their physicians. Boards that do so are more likely to see their organizations thrive in the new health care world.
MOVING TO FEE-FOR-VALUE CAREWe hear from our clients that they are looking for strategies that can achieve speed and simplicity with less than a year before broader health care coverage is available for more than 30 million Americans under the Affordable Care Act, which adds more outpatient services to Medicare, expands Medicaid, and provides subsidies for the uninsured and small businesses to buy coverage on online marketplaces known as exchanges.
Already, medical care providers are moving to value-based health care delivery being pushed by private employers and insurers, with government health programs like Medicare quickly moving in the same direction under the Affordable Care Act. As of January of this year, more than 250 Accountable Care Organizations (“ACOs”) formed by health systems across the country will put doctors and hospitals in charge of managing the medical care of populations of patients insured by Medicare. It puts more control in the hands of doctors and hospitals but also places upon them more financial risk. Doctors are not going to be paid based on their productivity, but on the outcomes they provide. This is a radical change.
ACOs are medical care providers that come together to contract with an insurer and are paid to care for a group, or population of patients. Rather than being paid per service provided, the ACO is paid to care for the group, emphasizing quality that keeps patients well and out of the hospital. If the ACO reduces the cost of caring while maintaining patients’ health, it shares in the savings.
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EXPERIMENTING WITH DIFFERENT BUSINESS MODELSBoards must recognize the changing business dynamic that will lead in many cases to building an integrated delivery system that includes home health, physician practices, and ambulatory care settings not historically part of the acute care flagship. We are already seeing many instances of providers looking at different business models and restructuring how they deliver care to various populations.
At Mercer, we hear from teaching hospitals where clinical chairs have historically been asked to produce for themselves and their departments. These same physician leaders are now being asked to develop more efficient and clinically integrated delivery methods within their departments that better utilize departmental resources. In other words, they need to find better ways of caring for more patients with fewer physicians, a trend contrary to the historical approach of highly specialized teams of doctors at teaching hospitals.
Hospice care, which might have been outsourced to a private company in the past, may now be incorporated within a hospital’s system so the continuum of a patient’s care can be controlled and tracked within the system, minimizing the risk of poor quality care or gaps in care.
Major teaching hospitals, perhaps best known for educating tomorrow’s physicians and conducting cutting-edge research, are moving into the community to keep patients out of their facilities and reduce the need to continually staff up with more and more doctors to take on more and more admissions.
In another example, a large Midwest academic medical center this year will double the number of urgent care centers it operates, starting urgent care centers in the suburbs and in city locations to compete with the later hours of several retail clinics. A large health insurance company purchased an urgent care provider last year in another trend-setting move. These are just two examples of a trend we are witnessing across the country.
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CHANGING COMPENSATION TO REFLECT THE NEW STRATEGIESCompensation follows business model changes. Although the new FFV compensation is far from the norm today for physicians and executives, it is rapidly gaining national attention, almost as much attention as Congressional battles over the debt ceiling. Just before President Obama’s second inauguration — which seemed to confirm the inevitability of the Affordable Care Act — The New York Times ran a page-one article headlined, “New York City Ties Doctors’ Income to Quality of Care.” The article reported that the New York public health system is proposing to tie physician pay to quality and performance measures linked to national benchmarks designed to lead to better patient outcomes. Meanwhile, some New York private hospitals are reportedly considering incorporating the federal benchmarks into their salary structures.
Regardless of geography, we believe that boards need to know what some hospitals have already experienced: leaders are hearing from consumers and taxpayers that they are either unwilling or unable to pay more for medical care. Therefore, those responsible for governing these organizations are being forced to innovate and take risks if they hope their organizations are to survive the industry transformation.
A GAME PLAN FOR TRUSTEESThe agenda for boards is rapidly changing, departing from the historical focus on compliance issues. Rather, the number one agenda item for well-advised boards is addressing the organization’s strategy for dealing with the coming changes and how to ensure that executives and physicians are aligned with the new strategy. This requires transitioning the strategic plan of the organization into actionable goals and redesigning short-term and long-term incentive programs to align with the new goals.
Based on our work, here are six things that Mercer thinks trustees need to do:
1 Act With Speed. Providers are taking steps to expand their footprints to generate FFV revenues by serving broad populations.
To stay relevant (or even stay in operation), boards need to take a critical look at their organization as it stands today and decide what they need to do to be sustainable over the long term. This means working closely with the executive team and with their physicians to undertake the required analysis, critically review options, make decisions, and monitor implementation.
“ ALTHOUGH THE NEW FFV COMPENSATION IS FAR FROM THE NORM TODAY FOR PHYSICIANS AND EXECUTIVES, IT IS RAPIDLY GAINING NATIONAL ATTENTION.”
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2 Recognize Risks. There are plenty of risks created when an industry undergoes substantial disruption. In the case of health
care, many of the biggest risks are unknown: regulations that haven’t been issued, macroeconomic challenges such as congressional action or inaction over the deficit, or changes in entitlement programs that may hurt a hospital’s revenue stream from either Medicare or Medicaid. Ironically, success in this type of transformation requires organizations to take risks. The examples of new business models that we discussed earlier in this article are all cases of risk-taking, necessary to long-term viability of the organizations.
3 Build Trust. Trustees and the executive team need to trust each other, or the organization will fail to respond effectively
to the new order. If a board, a committee, or an executive team is not functioning effectively, now is the time to get assistance in improving communication and decision-making processes or, if necessary, change players to ensure an effective governance model.
4 Prepare to Change Course. One thing that is for certain in health care today is that everything is changing. Organizations have to
be nimble, ready to adapt as the industry and its consumers become more familiar with operating under health care reform. For example, as we transition from FFS to FFV, different markets will make the shifts at different times. While some private health insurance companies, for example, have already begun contracting with ACOs in Chicago or New York, it does not mean that doctors in rural America are either familiar with these concepts or willing to take them on. Different markets will make the shifts at different times but when the shifts take place, providers must be prepared to adapt quickly. Boards should stay abreast of developments outside their own markets to ensure that they benefit from the experiences of others.
5 Partner With Doctors. Boards must partner with their physicians. They are key to the whole redesign of the clinically integrated
networks and will be critical to the management of care, including quality and costs. They are the ones who used to take the fees for service but are now being asked to share their fees not only with other doctors but perhaps with a pharmacist, a specialist, or even a nurse practitioner. This is a world-change for them. But without their support and collaboration, an organization’s strategy to be a financially strong provider into the future will certainly fail.
“ BOARDS SHOULD STAY ABREAST OF DEVELOPMENTS OUTSIDE THEIR OWN MARKETS TO ENSURE THAT THEY BENEFIT FROM THE EXPERIENCES OF OTHERS.”
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Additional resources
To learn more, we encourage you to visit our library of Perspective articles and visit our health care landing page.
6 Revamp Compensation. Executive and physician compensation — salary, incentives, and benefits — needs to be rethought. Provider
organizations should be moving away from compensation strategies that drive behavior, such as fee-for-service generating more services, to strategies that reinforce the organization’s mission and values, such as providing high-quality care. It is incumbent upon trustees to ensure that the organization can attract and retain the right executive and clinical talent to execute its mission, and to do so, all the elements of the compensation program must be realigned with the organization’s new strategy.
As health care providers shift from volume to value, executives and boards need to adapt their governance processes to align with new business structures and different models for care delivery. The pace of change will be fast and the most successful organizations will be those whose boards, executives, and physicians act quickly and in concert with each other.
