Healthcare CEOs Often Rewarded for Profits over Quality

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CEO-thumbMany hospitals want to cut costs and maximize quality and efficiency. This, of course, has become a given. But Jay Hancock of Kaiser Health News notes that healthcare organizations will talk about making these changes, while paying their CEOs “tens of thousands of dollars in bonuses for driving the kind of profits and expansion many say are no longer affordable for patients, employers, and taxpayers.”

Using Valley Medical Center in Renton, Calif., as his example, Hancock writes, “Across the nation, boards at nonprofit hospitals such as Valley are often paying bosses much more for boosting volume rather than delivering value,” thus “undermining” key goals of healthcare reform.

Reform advocate and former Medicare and Medicaid chief Dr. Donald Berwick said, “Boards of trustees in healthcare are oriented around top-line, revenue goals. They celebrate the CEO when the hospital is full instead of rewarding business models that improve patients’ care.”

In other words, Hancock adds, “CEO incentives for traditional financial goals of boosting revenue and the bottom line still far outweigh those for rigorous quality and efficiency targets.”

Perhaps this is why the nation’s disturbing healthcare statistics persist, such as 30 percent in unnecessary expenditures and spending double on each discharged patient as compared to other developed countries.

However, he adds, the demands on the healthcare CEO are more complex than simply delivering bottom-line profits. “As many bosses noted, their incentives for growth and profits are often part of a package that also promotes clinical quality, patient satisfaction, or other goals.”

Dr. Sheldon Retchin, CEO of the Virginia Commonwealth University Health System, explained, “More than 60 percent of my performance incentives were either in academic missions or quality measures. To say that I’m only interested in profits misses the entire mission.”

Hancock further explains, “While reformers focus on changing the ‘pay per procedure’ incentives that induce physicians to perform excessive treatment, few seem to have noticed that incentives for the bosses…who run the hospitals and supervise the doctors point in the same direction. Because hospital officials feel obligated to put expensive equipment to use, many analysts believe the mere existence of new programs increases treatment and spending whether they are needed or not.”

To shift away from this model and mentality will take years, experts believe, but it will happen as “insurers and Medicare reward quality and efficiency more highly.”

James Otto, a healthcare pay consultant for the Hay Group, believes “we’re just starting down that road. Until there’s more of that transition from volume to value, you’ll see [incentive] plans that aren’t dramatically different on a year-over-year basis. But if you and I had this conversation in say, eight years, what plans are measuring will be significantly different.”

As healthcare executives who may be receiving incentives similar to those described above, what are your thoughts? Do you feel pressure to deliver bottom-line profits ahead of quality? If so, how can healthcare shift away from these demands into a more reform-oriented mindset?

-by Pete Fernbaugh

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