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The healthcare industry is at a pivotal moment in the

transition from volume- to value-based care. Providers

have successfully shifted priorities to align with the new

environment, and continue to implement strategies that

focus on patient care across the entire spectrum of services.

The industry finds itself at the tipping point, where

operating under both care models is becoming increasingly

difficult. This year’s HealthLeaders Media Executive

Compensation Survey demonstrates that although progress is

slow, early adopters continue to push the industry forward.

Recruitment and retention continue to be an area of

emphasis for healthcare organizations, as an increasing

number of baby boomers retire or explore interim careers.

Forty-one percent of executives in this year’s survey said

identifying talent with the right skill set is one of the top

three challenges facing their organization. A growing

number of providers are now enhancing compensation

structures as a tool to attract, retain, and engage leaders.

The result is a slow but steady improvement in how

executives view their organization’s compensation structure

in regard to recruitment. In 2015, 31% of executives said

their organization’s compensation structure needed to

be significantly enhanced to attract leaders, a decrease of

two percentage points from 2014 and a decrease of seven

percentage points since 2012.

Providers are also making progress aligning compensation

strategy to both financial and patient care objectives, driving

increased engagement among healthcare executives. In

this year’s survey, 30% of respondents noted that change is

needed to align compensation strategy to financial objectives,

but that they had no plan in place, a decrease of five points

from 2014’s 35%. Additionally, 25% of survey respondents

said their organization made the right adjustments to

compensation strategy to meet new patient care needs.

The emphasis on succession planning indicates its

continued priority in the industry. Several organizations

have proven that building leaders from within can

overcome this challenge. These organizations partner

strong leadership development programs with competitive

PERSPECTIVE

What Is the Right Pace of Change?

Doug SmithPresident and CEOB. E. SmithLenexa, Kansas



executive compensation. But perhaps even more significant to a

program’s success is an organization’s ability to identify the skill sets

essential for future leaders. Survey respondents offered their insight

into the skills most important for CEO and other C-suite executives.

Physician alignment, cost containment, and operating care across

the continuum topped the list. All three skills are core elements of

value-based care and reflect how the new model is not only influencing

organizations, but leadership as well.

The healthcare industry is truly at the tipping point in the transition

away from fee-for-service. Aligning workforce strategies and executive

compensation reduces turnover by increasing retention and improving

recruitment. Many organizations are already taking steps to prepare

for this new environment, including establishing succession plans that

focus on developing new skill sets and aligning executive compensation

to new financial and clinical objectives.

Perspective (continued)



This is a summary of the Premium edition of the report. In the

Premium report, you’ll find a wealth of additional information.

You’ll read:

• A Foreword by David C. Pate, MD, JD, president and CEO of St.

Luke’s Health System in Boise, Idaho, and Lead Advisor for this

Intelligence Report

• A list of Recommendations drawing on the data, insights, and

analysis from this report

• A 10-point Meeting Guide to help you challenge your team to

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• Three Case Studies featuring insights from Conemaugh Health

System in Johnstown, Pennsylvania; Northeast Georgia Health

System in Gainesville, Georgia; and St. Luke’s Health System in

Boise, Idaho

In addition, you’ll get expanded survey data and insights about the

data. (See Figure 1 on Page 18 for an example.) For each question,

the Premium edition includes:

• A series of bullet-point Takeaways

• A concise What Does It Mean paragraph on the significance of

the survey responses

• A breakdown of responses by various factors: setting (i.e.,

hospital, health system, physician organization), number of

beds (for hospitals), number of sites (for health systems), net

patient revenue, and region

About the Premium Edition



Table of Contents

Perspective 3

Methodology 7

Respondent Profile 8

Analysis 9

Survey Results 18

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Fig: 1 Executive Compensation Strategy Addressing Financial Realities Now . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Fig: 2 Executive Compensation Strategy Addressing Patient Care Objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Fig: 3 Modifying Team Incentives for Shift to Value-Based Purchasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Fig: 3a Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Fig: 4 Total Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Fig: 5 Allocation of Total Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Fig: 6 Most Important Aspect of Executive Compensation Excluding Base Salary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Fig: 7 Basis for Individual Incentive Payments . . . . . . . . . . . . . . . . . . . . . 25

Fig: 8 Basis for Team Incentive Payments . . . . . . . . . . . . . . . . . . . . . . . . . 26

Fig: 9 Executive Compensation Alignment With Organization’s Strategies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Fig: 10 Change in C-Suite Composition to Address Value-Based Care. . 28

Fig: 11 Expected Changes in Executive Responsibilities . . . . . . . . . . . . . . 29

Fig: 12 Top Challenges in Executive Compensation . . . . . . . . . . . . . . . . . . 30

Fig: 13 Outlook for Executive Compensation Structure. . . . . . . . . . . . . . . 31

Fig: 14 Top Skills for CEO Success in Next Five Years . . . . . . . . . . . . . . . . 32

Fig: 15 Top Skills for C-Suite Executive (Non-CEO) in Next Five Years . 33

For case studies from CONEMAUGH HEALTH SYSTEM, NORTHEAST GEORGIA HEALTH SYSTEM, and ST. LUKE’S HEALTH SYSTEM, as well as an advisor foreword, interactive charts, meeting guide, and recommendations, click to download the Premium report.




Methodology

The 2015 Executive Compensation Survey was conducted by the HealthLeaders Media Intelligence Unit, powered by the HealthLeaders Media Council. It is part of a series of monthly Thought Leadership Studies. In August 2015, an online survey was sent to the HealthLeaders Media Council and select members of the HealthLeaders Media audience. A total of 366 completed surveys are included in the analysis. The bases for the individual questions range from 230 to 366 depending on whether respondents had the knowledge to provide an answer to a given question. The margin of error for a base of 366 is +/-5.1% at the 95% confidence interval.

ADVISORS FOR THIS INTELLIGENCE REPORTThe following healthcare leaders graciously provided guidance and insight in the creation of this report.

Carol BurrellPresident and CEONortheast Georgia Health System Gainesville, Georgia

David C. Pate, MD, JDPresident and CEOSt. Luke’s Health System Boise, Idaho

James F. HargreavesSenior Vice President and Financial AdvisorMorgan Stanley Wealth ManagementJohnstown, PennsylvaniaFormer Head of the Compensation CommitteeBoard of DirectorsConemaugh Health SystemJohnstown, Pennsylvania

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Respondent Profile

Respondents represent titles from across the various functions at at healthcare provider organizations.

Senior leaders | CEO, Administrator, Chief Operations Officer, Chief Medical Officer, Chief Financial Officer, Executive Dir., Partner, Board Member, Principal Owner, President, Chief of Staff, Chief Information Officer, Chief Nursing Officer, Chief Medical Information Officer

Clinical leaders | Chief of Cardiology, Chief of Neurology, Chief of Oncology, Chief of Orthopedics, Chief of Radiology, Dir. of Ambulatory Services, Dir. of Clinical Services, Dir. of Emergency Services, Dir. of Inpatient Services, Dir. of Intensive Care Services, Dir. of Nursing, Dir. of Rehabilitation Services, Service Line Director, Dir. of Surgical/Perioperative Services, Medical Director, VP Clinical Informatics, VP Clinical Quality, VP Clinical Services, VP Medical Affairs (Physician Mgmt/MD), VP Nursing

Operations leaders | Chief Compliance Officer, Chief Purchasing Officer, Asst. Administrator, Chief Counsel, Dir. of Patient Safety, Dir. of Purchasing, Dir. of Quality, Dir. of Safety, VP/Dir. Compliance, VP/Dir. Human Resources, VP/Dir. Operations/Administration, Other VP

Financial leaders | VP/Dir. Finance, HIM Director, Director of Case Management, Director of Patient Financial Services, Director of RAC, Director of Reimbursement, Director of Revenue Cycle

Marketing leaders | VP/Dir. Marketing/Sales, VP/Dir. Media Relations

Information leaders | Chief Technology Officer, VP/Dir. Technology/MIS/IT

Base = 132 (Hospitals)

Type of organization Number of beds

1–199 50%

200–499 29%

500+ 21%

Number of physicians

Base = 45 (Physician organizations)

1–9 16%

10–49 36%

50+ 49%

Region

WEST: Washington, Oregon, California,

Alaska, Hawaii, Arizona, Colorado, Idaho,

Montana, Nevada, New Mexico, Utah, Wyoming

MIDWEST: North Dakota, South Dakota,

Nebraska, Kansas, Missouri, Iowa, Minnesota,

Illinois, Indiana, Michigan, Ohio, Wisconsin

SOUTH: Texas, Oklahoma, Arkansas,

Louisiana, Mississippi, Alabama, Tennessee,

Kentucky, Florida, Georgia, South Carolina,

North Carolina, Virginia, West Virginia, D.C.,

Maryland, Delaware

NORTHEAST: Pennsylvania, New York,

New Jersey, Connecticut, Vermont, Rhode

Island, Massachusetts, New Hampshire, Maine

Title

Base = 366

54%Senior leaders

2% Information

leaders

0

10

20

30

40

50

60

17% Clinicalleaders

19% Operations

leaders

5% Financial leaders

37%

25%

17%

21%

Number of sites

Base = 112 (Health systems)

1–5 18%

6–20 35%

21+ 47%

Base = 366

Hospital 36%

Health system (IDN/IDS) 31%

Physician org 12%

Long-term care/SNF 7%

Ancillary, allied provider 6%

Health plan/insurer 5%

Government 3%

2% Marketing

leaders



Recasting organizational objectives to address shifts to value-based care

has two major effects on executive compensation. First, incentive programs

have to shift to reflect new directions. Second, attention to fundamental

changes in compensation through at-risk reimbursement and capitated

payments requires new executive skills, which in many cases will mean

additions to and departures from the team that leads the organization.

Such moves within the executive ranks often are accompanied by a degree

of disruption. And, in cases where new executives are sought to fill new

roles, organizations are finding that they must be able to clearly define a

set of responsibilities for which they may have little firsthand knowledge.

Further, they will be recruiting from a limited and in-demand set of

candidates, which can place upward pressure on executive compensation

across the board.

Incentives: Finance on top. The executive team is accustomed to focusing

on the numbers. Because financial stability of the organization will always

be a top concern, compensation programs tilt their variable components

toward financial performance. But financial performance is now

becoming linked to the shift to value-based performance, which increases

the use of executive performance parameters based on various aspects of

clinical performance.

ANALYSIS

Advancing Executive Compensation as the Healthcare Industry Advances MICHAEL ZEIS

Here are selected comments from leaders regarding how compensation packages and organization strategies are misaligned.

“We are very focused on volume, but that is how most of our contracts are

aligned.”

—Vice president of operations for a large health system

“Executive compensation packages are unrelated to medicine or actual

healthcare alignment needs and performance. Most executives answer to

leaders outside of healthcare who don’t necessarily value healthcare and its

leadership adequately until something goes wrong.”

—CEO for a large health system

“As a municipal facility, the introduction of bonus formulas is a politically

difficult task given misperceptions of value.”

—CEO for a small hospital

“Our compensation is based on market surveys, with no ties to corporate goals

or performance attained.”

—Chief financial officer for a small hospital

“The compensation package has not been aligned with the triple aim. Basically,

we have a base salary. If we have a good year, then there is a bonus. Nothing

is quantified. We are too early in pay-for-performance to really know how

to align.”

—CEO for a medium physician organization

WHAT HEALTHCARE LEADERS ARE SAYING



With operating margin/cash flow placing as the top-mentioned

incentive for both individual (76%, Figure 7) and group incentives

(71%, Figure 8), we can see the dominance of financial objectives in

executive compensation. The percentage including operating margin

or cash-flow targets among individual targets (Figure 7) varies little

by organization size. But this is not the case for patient engagement/

satisfaction and clinical performance, which are the individual goals

mentioned second and third most often. Higher percentages of

medium- (76%) and high-revenue (74%) organizations than low-revenue

organizations (58%) have patient engagement or satisfaction targets.

Likewise, higher percentages of medium-revenue (64%) and high-

revenue (60%) organizations than low-revenue organizations (49%)

have clinical performance targets.

James F. Hargreaves, senior vice president and financial advisor

for Morgan Stanley Wealth Management and former head of the

compensation committee for the board of directors of Johnstown,

Pennsylvania–based Conemaugh Health System, explains that attention

to finances is especially acute in low-revenue organizations, which helps

us understand why we see relatively low percentages in low-revenue

organizations offering incentives based on patient engagement and

clinical performance. He says, “Making money is number one. That keeps

them going. So while they might want to look at these other things, they

can’t get by the financial targets.”

Conemaugh serves more than

a half million patients each

year through the Conemaugh

Physician Group and Medical

Staff, a network of hospitals,

specialty clinics, and patient-

focused programs in west central

Pennsylvania. Hargreaves was

serving on the Conemaugh

board as the organization

gained strength financially, and

explains how emphasis changes

with financial success. “The more successful we became, the lower

the finance-based percentage became, and the higher other incentives

became. When you get your financial shop in order, when you get

your purchasing in order, when you get your insurance negotiations

in order, and so on, then you can move some of these other things

up to a higher priority. If those basic financial things don’t happen,

you always ask, ‘Are we going to make enough money to be able to

continue operating?’ ”

In medium- and high-revenue organizations, patient engagement or

satisfaction targets are included in individual incentives nearly as often

as operating margin/cash flow targets. For instance, 74% of high-revenue

organizations use patient engagement or satisfaction targets, nearly

“The more successful we became, the lower the finance-based percentage became, and the higher other incentives became.”

—James F. Hargreaves

Analysis (continued)




equal to the 79% of high-revenue organizations using operating margin

or cash flow as individual targets (Figure 7).

Parameters that may be more closely associated with healthcare

reform are included far less frequently overall, but we still see more

emphasis in high-revenue organizations. For instance, population

health management is an individual incentive for 45% of high-revenue

organizations (Figure 7), nearly twice the rate of medium-revenue

(24%) and more than triple the rate of small-revenue organizations

(13%). Growth in lives under risk contracts is an individual incentive

at only 10% of organizations overall, but 16% of high-revenue

organizations.

David C. Pate, MD, JD—president and CEO of St. Luke’s Health System,

a nonprofit organization operating seven hospitals and a network

of clinics covering all of Idaho and eastern Oregon—explains how

emphasis on finances may add to the challenge not only of shifting to

reform-related goals as incentives but also actually adopting reform-

related strategies.

“Every hospital and health system has a finance committee,” Pate says.

“They’re looking at their numbers, and they know that those finances are

still driven by volume of services. So it’s pretty hard for them to tell their

management team that they want them to go full speed ahead, getting

ahead of the market in driving toward pay-for-value, when they know

that’s going to adversely affect

their financials and maybe their

bond ratings. You can see the spot

that they’re caught in.”

Over time, overall compensation

demonstrates modest increases.

In 2013, nearly half (48%)

of respondents reported

compensation of $200,000 per

year or more; this year, 54%

earn $200,000 or more (Figure

4). Pate, lead advisor to this

Intelligence Report, suggests that

industrywide transformation efforts may be pushing compensation

levels up. “Some executives choose to retire, or retire early because they

realize that, while they knew how to drive the ship under fee-for-service,

they’re less prepared to do so going forward.”

Sometimes, he observes, it is the board that recognizes how some current

executives “are not well-situated to drive the future, so boards are

changing out some teams.” Often, new executive hires, especially those

with skills that address healthcare’s new directions, are brought in at

higher compensation levels. Says Pate, “We’ve been creating new roles to

“Every hospital and health system has a finance committee. They’re looking at their numbers, and they know that those finances are still driven by volume of services.”

—David C. Pate, MD, JD




help drive the new world of healthcare, and people to fill those roles are

few and far between. So they may be commanding higher salaries.”

In the upper ranges, respondents reporting salaries of $400,000 or more

has increased to 21% this year, up seven points since 2013’s 14%.

The challenge of moving in new directions. Slightly more than one-third

(68%) say that their organization’s executive compensation packages are

pretty well aligned or perfectly aligned with their organization’s strategies

(Figure 9). Of course, that means that 32% say their compensation

packages are slightly or seriously misaligned with strategies.

Included in this somewhat troubling percentage are 36% of the CEOs

participating in the survey, individuals whose closeness to the board

presumably gives them a substantial role in contributing to both the

organization’s strategy and the organization’s compensation policy.

St. Luke’s Pate suggests that the pace of change causes compensation

practices to be out of sync with strategy. “Not all organizations develop

the sense of urgency that’s needed to address change, so they’re now

experiencing an increasing level of tension, seeing that they are out of

sync in terms of how they are compensating versus the direction they’re

saying they need to go.”

Generally, at-risk compensation—the incentive program—helps align

compensation with the organization’s strategy. Nearly one-third

(30%) say changes in incentives are needed to address financial aspects

of healthcare, but they see no plan in place to do so (Figure 1). The

perspective on incentives addressing the clinical aspects of healthcare is

only slightly better, with 23% saying that change is needed but no change

is planned (Figure 2). Hargreaves says, “These organizations may be

traveling down a road of being far more reactive than proactive. That can

create all kinds of problems in lots of areas.”

Resolution is more than a matter of recognizing the problem and fixing

it, partly because modifying compensation programs is a long-term

activity. Hargreaves notes, “It takes time to step away from doing it the

way you’ve always done it in the past and realize that, if we’re going to be

successful in the future, we’re going to have to do things differently.”

As with the misalignment noted earlier, a high percentage (26%) of CEOs

say change is needed in order to address financial objectives, but they see

no change coming within their organization (Figure 1). Although the

percentage of CEOs is slightly lower than the percentages from other

executives (31%), one expects CEOs to see the direction of the organization

and the industry, and to be actively driving plans to move the organization

in the right direction. Says Pate, “This reflects a little bit poorly on those

CEOs, because, together with their board, they are charged with driving

the executive compensation strategy. This is especially the case regarding

financial objectives, because those haven’t changed as much as many of the

other parameters affecting compensation have.”




As important as incentives can be in providing a focus for groups and

teams, 43% say their organization has not modified or is not expected to

modify such incentives in light of the shift from fee-for-service to pay-for-

value (Figure 3). Organizations that know change is pending but will not

or cannot make steps to modify their systems may face serious challenges.

“This is an indication that we’re going to have trouble getting

organizations to really focus on new models if they don’t change the

incentives, especially if incentives in place now are just reinforcing

the old fee-for-service objectives,” says Pate. He acknowledges the

requirement that incentives track revenue flow, and the difficulty

inherent in modifying incentive programs without a great deal of

information about new revenue streams. “You can’t expect people to act

against their own economic self-interest for prolonged periods of time.

People are willing to make sacrifices here and there. It’s a big issue—

given that we have these traditional models of compensation, what

should be the model of the future?”

Carol Burrell, president and CEO of Northeast Georgia Health System, a

nonprofit community organization serving northeast Georgia through

the 557-staffed-bed Northeast Georgia Medical Center in Gainesville

and an 80-staffed-bed hospital in Braselton, is specific about what may

happen if individual compensation elements are based on factors not

well understood and, as a result, executives have goals that eventually

prove to be unreachable. “I think you can get away with that for a year

or two, but if you’re a visible

organization such as we are, an

organization that’s nationally

recognized, you’re ripe for the

picking with recruiters,” she says.

Responding to a follow-up

open-ended question, a great

number of healthcare leaders

from organizations that have

modified or expect to modify

their incentives to reflect the shift

from fee-for-service to pay-for-

value indicate they are basing

their incentives on conventional metrics such as HCAHPS, patient

satisfaction, or core measures. Only a few make specific mention of using

objectives such as population health, risk, or covered lives as incentives.

Selections of those responses appear in Figure 3a.

The comments underscore how early steps are made using known

factors, and they reinforce how difficult it is to determine appropriate

metrics for new directions. For instance, in an open-ended response,

the CEO of a small hospital reports that early steps involve quality

metrics: “A higher percent of compensation is at risk for meeting our

quality standard. [We are] early on in a very difficult process.” In another

“If organizations aren’t shifting and putting their focus in those areas [value-based incentives], even if it’s just small steps, I think they’re going to have a wake-up.”

—Carol Burrell



comment, the CEO of a large health system is moving the organization’s

incentives toward pay-for-value by reducing the number of goals on its

balanced scorecard from 10 to three. None of the three goals—clinical,

patient experience, and financial—address pay-for-value directly.

Finding the right balance. Two-thirds of respondents (67%) include

the need to balance quality and financial goals among their top three

challenges related to executive compensation (Figure 12), an aspect

of compensation policy that affects organizations of all revenue levels

fairly evenly. This weighing of clinical and financial objectives places at

the top of the chart, providing an indication that although healthcare

leaders understand the industry is moving toward improving outcomes

while reducing cost, they struggle a bit when they attempt to modify

compensation programs to reflect that.

Of the four goal-related challenges respondents evaluated, 49% include

determining metrics for pay-for-value tasks among their top challenges.

Presumably, organizations are well versed in establishing financial

metrics, and executives may be more practiced at tracking financial

objectives. That helps us understand why a smaller percentage of for-

profit (41%) than nonprofit (51%) organizations find determining value-

based metrics troubling.

Burrell observes, “For-profits typically have been much more financial-

and metric-driven. Executives in the for-profit environment are looking

at numbers and details on a daily

basis because they have to drive to

those numbers.”

But it’s not merely a matter of

having comfort and experience

tracking the financial aspects of

running a business. Healthcare

reform asks us to look at clinical

performance in new ways. Says

Pate, “You start with the things

that you know, and what we

know is the sick-care business.

We look at readmission rates,

which assumes that the patient

was admitted to begin with. Length of stay implies they’re already in

the hospital. What should the measures of population health be for the

future? Is it looking at things like the average body mass index or the

range of BMIs for the population you’re serving? Is it looking at smoking

rates? What are future measures going to be? That’s the tough thing, and

I don’t know anyone that’s got those down yet.”

Seeing that 49% of respondents are challenged by determining metrics

for pay-for-value tasks, Pate says, “a lot of organizations are not sure what

to prioritize, what to set up as the key metrics.”


“It takes time to step away from doing it the way you’ve always done it in the past and realize that, if we’re going to be successful in the future, we’re going to have to do things differently.”

—James F. Hargreaves



New assignments, new team members. One-fifth (21%) have added new

C-level positions in response to the industry’s shift to value-based care,

including 33% of organizations with net patient revenue of $1 billion or

more (Figure 10). As one might expect, higher percentages of executives

hired for new positions will be in the population health and IT areas.

Figure 11 shows that 15% expect to add a population health executive,

and 10% expect to add a chief analytics officer. More than one-third

(39%) of low-revenue organizations have implemented little or no change

to their C-suite due to their attention to value-based care, compared

to 27% of medium-revenue organizations and 21% of high-revenue

organizations (Figure 10).

“The larger organizations have the cash flow to do it and are able to see

how it can benefit in either cost savings or better patient care down the

line,” Hargreaves explains. “Sometimes it’s a lot harder for the smaller

organizations to do that.” About those who plan little or no change,

Burrell says, “Those may be organizations that are less progressive and

maybe are not thinking as strategically as others.” She notes that even

small steps toward focusing the C-suite in a value-based direction are

important now. “Value-based care is coming whether we like it or not,

and it’s a difficult thing to change overnight.”

Pate questions the resolve of some of the 49% who are accommodating

change by asking current executives to take on new responsibilities

(Figure 10). “It’s a bit discouraging,” he says. “What may be happening

is that some organizations are

not making the investments that

they need for the future. If what

they’re trying to do is just get

their current people to do more,

and to ask them to try to live in

two worlds, I would question how

successful that can be.”

Today, NGHS would probably

be among the 49% whose current

executives are taking on value-

based assignments. Burrell says,

“I know that we’re going to have

to have a new leader. But now

everybody in their current role is basically involved in modifying how

we provide care. That touches a lot of different people.” She advises

that organizations pursuing an executive to guide the organization

toward delivering value-based care must be careful about defining the

new position.

“Part of the reason why we haven’t put that position in place yet is that

we want to define that as clearly as we possibly can. The new executive

may say they’ve got it figured out. But if it’s not clearly defined from the

organization’s perspective, the new individual will work from their own


“Some executives choose to retire, or retire early because they realize that, while they knew how to drive the ship under fee-for-service, they’re less prepared to do so going forward.”

—David C. Pate, MD, JD



vision, and that could create a lot of countercultural activities,”

Burrell says.

Although the nature of the skills needed is highly dependent on

circumstances, two-thirds say that physician alignment experience is

among the top three skills that will help a CEO succeed in the next five

years (Figure 14). Says Hargreaves, “The specter of bundled payments

hangs out there. The physician alignment situation is going to become

more and more critical the closer we get to the bundled payments.”

At the bottom of the chart of needed CEO skills, mentioned by only

13%, is risk management experience. While physician alignment

may make the operational (and to an extent, the financial) aspects of

bundled payments actually work, understanding risk is fundamental

to determining the merits of bundled payment contracts. “It’s so low,”

Hargreaves says, “because a lot of people haven’t done a serious strategic

analysis of who’s in control of the cash flow. The people that are really

making money are the ones who have done the best job negotiating with

the insurance company.”

Pate has witnessed an earlier trend of appointing CEOs with a great deal

of hospital operations experience. A subsequent trend (which included

him) placed physician leaders in the CEO spot. “Most recently,” Pate says,

“we see examples where boards are saying, ‘You know what? It’s neither

of those. We need some fresh

thinking. We need somebody to

come in here who actually isn’t

steeped in healthcare knowledge

that will take a fresh look with

fresh eyes.’ ”

Looking at the bottom of Figure

15, Hargreaves sees that only

19% include merger, acquisition,

and partnership experience

among the skills that non-CEO

C-suite executives will need

over the next five years, and

is concerned especially about

smaller organizations. He says,

“Especially because of physician

alignment and cost containment, most small hospitals need to be

thinking strategically about what their options are. In the next two to

four years, they’ll wish they had somebody in their C-suite who had a lot

of experience in that area.”

Take small steps, proceed with a deft hand. Burrell calls on leaders

to act now to adjust executive compensation to reflect value-based


“For-profits typically have been much more financial- and metric-driven. Executives in the for-profit environment are looking at numbers and details on a daily basis because they have to drive to those numbers.”

—Carol Burrell



incentives. “If organizations aren’t shifting and putting their focus in

those areas, even if it’s just small steps, I think they’re going to have a

wake-up.” Changes to compensation programs are less disruptive if the

shifts are slow and steady. Those who do not make at least the small steps

run the risk of being out of step, with compensation misaligned with

organization strategy, and, what’s worse, both compensation and the

organization’s strategy misaligned with the direction of the industry. A

deft hand is needed, though.

“You have to deal with the reality of it,” says Pate. “If you make these

changes faster than your business model changes, you’re creating real

problems for yourself.” That is why organizations have to look carefully

at the list of skills such as risk management that appear near the bottom

of Figures 14 and 15. Moving forward on healthcare reform requires a

keen eye on new financial factors.

With a board member’s perspective and with the insights of a finance

industry executive, Hargreaves says, “I see a lot of people paying lip

service to patient outcomes, then going back to figuring out how to

make money under the fee-for-service model.” Well, that seems to be

a financially prudent tactic today. It’s a timing issue, which is why

identifying the factors to monitor while positioning the organization

for eventual participation is so important. Asks Hargreaves, “When is

it going to happen? If you go too early, you leave a lot of money on the

table.”

Michael Zeis is senior research analyst for HealthLeaders Media. He may

be contacted at [email protected].




FIGURE 1 | Executive Compensation Strategy Addressing Financial Realities Now

Which of the following best describes how your organization’s executive compensation strategy is addressing the financial objectives of healthcare now?

Q |

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FIGURE 2 | Executive Compensation Strategy Addressing Patient Care Objectives

Which of the following best describes how your organization’s executive compensation strategy is addressing the patient care objectives of healthcare now?

Q |

23%

12%

23% 25%

2%

7% 8%

No change, none needed

Change needed, plan pending

Change needed, but no plan yet

Change made, in right direction

Change made, in wrong direction

Change made, too soon to tell direction

Don’t know

Base = 366

Total responses



FIGURE 3 | Modifying Team Incentives for Shift to Value-Based Purchasing

In consideration of the shift from fee-for-service to pay-for-value, has your organization modified its group or team incentives for executive compensation packages, or is it expected to do so?

Q |

37%

43%

20%

Yes No Don't know

Base = 339 Among Applicable

Total responses



FIGURE 3a | Comments

Here are selected comments, with organization type noted, from among the 125 organizations that answered Yes in Figure 3. They describe how their organization has modified (or expects to modify) group or team incentives for executive compensation that address the shift to pay-for-value.

SMALL (low revenue, $249.9 million or less) MEDIUM ($250 million to $999.9 million) LARGE (high revenue, $1 billion +)

ACO objectives, patient experience. (physician organization)

Outcome metrics, quality scores. (health system) Incentives based on patient satisfaction, HCAHPS, population health, others. (health system)

Value-based outcomes. (hospital) Value-based measures plus patient experience. (hospital)

Higher percents based on patient engagement, patient satisfaction, value-based purchasing, plus attaining certain strategic accomplishments. (health system)

Outcomes measures, readmissions. (long-term care/SNF)

Incentives based on health plan profitability, membership. Also, growth in Medicare Advantage plan, ACO. (hospital)

Pending: To be based on improvements in population health status, development of strategic provider partnerships, improving access. (health system)

Value-based purchasing metrics, others. (hospital) Goals based on population health preparedness. (health system)

Population health/risk now is one of five strategic goals. (health system)

Patient outcome goals. (hospital) Clinical outcomes. (government) Incentives tied to enterprise goals, with pay-for-value an enterprise goal. (health plan)

Population health and value-based components. (hospital)

Incentives on per-member per-month in self-insurance, and execs reaching “targets for change.” (health system)

Risk value management. (physician organization)

Patient satisfaction, collaborative initiatives. (hospital)

Track cost per case and aggregated cost. Incentives based on quality, patient experience. Incentive based on patient use of MyChart for engagement. (health system)

Incentives based on covered lives, narrow network participation. (health system)



FIGURE 4 | Total Compensation

Which range does your total compensation package fall into? Include cash compensation, non-cash compensation, and deferred compensation.

Q |

12%

36%

20%

13%

8% 7%

2% 4%

Less than $100K $100K–$199K $200K–$299K $300K–$399K $400K–$499K $500K–$749K $750K–$999K $1 million+

Base = 366

Total responses



FIGURE 5 | Allocation of Total Compensation

In the current fiscal year, how is your compensation divided among cash compensation, non-cash compensation, and retirement?Q |

Average

Base salary (cash) 79%

Incentives for short- and long-term goals (cash) 10%

Retirement 5%

Non-cash 3%

Deferred 2%

Base = 366

Total responses



FIGURE 6 | Most Important Aspect of Executive Compensation Excluding Base Salary

Other than base salary, which aspect of executive compensation is most important to you, personally?Q |

1%

2%

3%

5%

27%

29%

32%

Other

Performance review

Separation package

Performance metrics

Benefits package

Retirement package

Performance bonuses

Base = 366

Total responses



FIGURE 7 | Basis for Individual Incentive Payments

Which of the following general categories serve as a basis for your current individual executive incentive payments? Among those with incentives.

Q |

3%

10%

24%

29%

36%

44%

54%

66%

76%

None

Growth in lives under risk contracts

Population health management targets

Physician engagement targets

Business expansion targets

Staff engagement or satisfaction targets

Clinical performance targets

Patient engagement or satisfaction targets

Operating margin or cash flow targets

Base = 230, Multi-Response

Total responses



FIGURE 8 | Basis for Team Incentive Payments

Which of the following general categories serve as a basis for your current team executive incentive payments? Among those with incentives.Q |

8%

13%

24%

33%

35%

47%

49%

57%

63%

71%

None

Growth in lives under risk contracts

Population health management targets

Physician engagement targets

Business expansion targets

Financial growth targets

Staff engagement or satisfaction targets

Clinical performance targets

Patient engagement or satisfaction targets

Operating margin or cash flow targets


Total responses



FIGURE 9 | Executive Compensation Alignment With Organization’s Strategies

How closely are your organization’s executive compensation packages aligned with your organization’s strategies?Q |

10%

58%

23%

9%

Perfectly aligned Pretty well aligned Slightly misaligned Seriously misaligned

Base = 348

Total responses



FIGURE 10 | Change in C-Suite Composition to Address Value-Based Care

How has your organization’s attention to value-based care led to a change in the composition of the organization’s C-suite?Q |

2%

16%

18%

21%

49%

Other

No change to C-suite team or responsibilities

Little change to C-suite team or responsibilities

Added new C-level positions

Current executives take on new responsibilities

Base = 366 , Multi-response

Total responses



FIGURE 11 | Expected Changes in Executive Responsibilities

What is your best appraisal of the changes in responsibility within the non-CEO executive ranks over the next three years, as your organization responds to changes in healthcare?

Q |

Position to be added

More responsibility

No change in responsibility

Reduced responsibility

Position to be eliminated

Don’t know/not applicable

Chief financial officer 1% 53% 34% 1% 1% 10%

Chief medical officer 5% 51% 21% 1% 1% 21%

Chief information officer 2% 47% 25% 0% 2% 24%

Chief operating officer 5% 47% 22% 2% 3% 20%

Chief nursing officer 2% 46% 29% 2% 0% 20%

Chief medical information officer 5% 27% 16% 1% 1% 51%

Chief strategy officer or similar title 5% 25% 13% 1% 1% 54%

Chief analytics officer 10% 19% 7% 1% 1% 63%

Population health executive 15% 19% 6% 0% 1% 59%

Chief integration officer 5% 13% 8% 0% 1% 73%

Other 6% 13% 13% 0% 1% 66%

Base = 366

Total responses



FIGURE 12 | Top Challenges in Executive Compensation

What are your organization’s top three challenges in executive compensation?Q |

6%

18%

30%

33%

36%

41%

49%

67%

Rebalancing after adding high-priced executive

Inadequacy of third-party benchmarks

Retaining executives with the right skill set

Accommodate long-term goals with comp program

Determining goals for pay-for-value tasks

Attracting executives with the right skill set

Determining metrics for pay-for-value tasks

Balancing quality and financial goals


Total responses



FIGURE 13 | Outlook for Executive Compensation Structure

To attract, retain, and engage leaders, what is the outlook for executive compensation structures at your organization?Q |

31%

55%

14%

Needs major enhancement Needs minor enhancement Needs no enhancement

Base = 366

Total responses



FIGURE 14 | Top Skills for CEO Success in Next Five Years

Considering your organization’s direction and the direction of the industry, which of the following are the top three skills or experience sets that will help a CEO succeed in the next five years?

Q |

13%

19%

20%

30%

34%

49%

60%

65%

Risk management experience

Clinical experience

IT/medical technology

Payer or insurance experience

Mergers, acquisitions, partnerships experience

Cost containment ability

Optimizing results along a continuum of care

Physician alignment experience


Total responses



FIGURE 15 | Top Skills for C-Suite Executive (Non-CEO) in Next Five Years

Considering your organization’s direction and the direction of the industry, which of the following are the top three skills or experience sets that will help a non-CEO C-suite executive—such as the CFO, CIO, CMO, or COO—succeed in the next five years?

Q |

19%

21%

28%

30%

30%

42%

55%

64%

Mergers, acquisitions, partnerships experience

Risk management experience

Clinical experience

Payer or insurance experience

IT/medical technology

Physician alignment experience

Optimizing results along a continuum of care

Cost containment ability


Total responses

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