Healthcare organizations working to create integrated delivery systems should design compensation packages for physicians and executives that support the incentives of prepaid medicine, suggests a newly released study obtained by MODERN HEALTHCARE.
Health systems surveyed for the report said they've recognized that, as managed care plays a more dominant role in healthcare delivery, they must continue to change the way they do business.
Health systems moving into the prepaid arena from fee-for-service medicine will need to do away with outmoded production-based compensation methods and embark on new "work effort and productivity standards," said Susan Edwards, executive director of the Leadership Institute, which conducted the survey.
Integrated systems are seeking to create compensation and incentive strategies that will withstand market changes and help align physician and organizational goals, she said.
The San Francisco-based Leadership Institute is composed of physicians and hospital executives who are part of integrated delivery systems. Its survey analyzed emerging trends in compensation and incentive programs established by physician-driven health systems and physician group practices that deal in prepaid healthcare.
The study is the second such analysis of trends in physician compensation by the institute and the first time they've examined executive compensation. Results are based on responses from 16 integrated healthcare organizations employing a total of 1,200 physicians and 47 executives. The Leadership Institute's 19 members-three weren't included in the survey results-provide care for 650,000 enrollees in various prepaid health plans and managed-care contracts.
Although only a few respondents said they're compensating physicians for qualitative performance factors such as patient satisfaction, outcomes and case management, the decisionmakers at many other systems understand the need to do so. Some 51% cited plans to change their compensation patterns soon, the study found. Also, few respondents compensate for peer review or encourage community and group activities, but many intend to enact such programs, the study found.
The study showed that many of the nation's large physician-driven systems offer one of three types of compensation systems:
Base salary with incentive. Base salary is determined by revenue or "encounters."
Production or guaranteed base salary, whichever is greater. Used increasingly for recruiting and as a transition from purely production-based compensation.
Total compensation earned by physicians in integrated systems varied significantly, largely reflecting regional cost-of-living differences, physician specialty, medical group mix, health system size and the degree of managed-care business performed.
For example, compensation for primary-care physicians in organizations with a majority of specialty physicians is higher than for those whose groups specialize predominantly in primary care. The institute found that trend reflective of a fee-for-service environment.
The survey also found that compensation is higher for physicians employed by hospitals, although the difference declined significantly when comparing gross compensation, based on bonuses distributed.
"As health systems become more profitable, compensation for physicians employed by healthcare organizations will surpass those employed by hospitals," Ms. Edwards predicted.
She pointed out that while physician compensation may decrease as the degree of capitation increases, this trend reverses itself as capitation continues to increase (See chart).
The institute also found that although compensation strategy for health system executives is undergoing a transformation as well, it continues to resemble compensation strategy used in traditional industries.
For example, 42% of respondents said they have employment contracts for some or all executives. Some 78% said they have preset objectives against which executive performance is rated, but only half of the respondents said they're pleased with the performance evaluation process. Benefits plans offered by the organizations were considered to be standard by all respondents.
Not surprisingly, executives said their organizations are seeking assistance in developing executive compensation plans from outside consultants.
Meanwhile, executives responding to job satisfaction questions said they were most satisfied if they worked in established healthcare organizations, independent from a hospital partner. Executives most frustrated in their work are those working in hospital systems where their compensation plans are similar to those extended to regular hospital personnel, the survey said.
Base salaries earned by executives in integrated systems were higher than the national average but varied significantly, largely because of geographic location, education, degree of integration and capitation, and organization size.
Survey respondents cited the following goals for 1994:
Increase executives' bonus potential.
Put a greater portion of compensation at risk in assuming capitated contracts.
Add profit or gain sharing as an incentive.
Add an evaluation component for managed care.
Increase executive representation on governing boards.