Align Incentives, Introduction:
It is remarkable how much of a ‘disconnect’ there is between an organization’s strategic plan and how physicians are compensated and incentivized. A typical 2015 strategic plan includes:
- Cut operating costs by at least 10%-15%
- Find new sources of operating revenue
- Build a culture of service
- Develop the infrastructure for population health
How do we typically compensate physicians? Salary guarantees, productivity incentives based upon wRVUs, and contracts that are either no risk or minimal risk (5%-15%). The potential impact of this compensation model on the organization’s strategic plan is as follows:
- Increase operating costs by incentivizing inpatient procedures, ancillary services, and elective procedures that may not meet medical necessity criteria
- Stifle new sources of revenue by rewarding existing physician structures that inherently discourage competition and maintain current vested interests
- Reward ‘volume’ and not ‘value’ or ‘service’
- Perpetuate a ‘fee for service’ model in which there is a negative incentive to drive down volume (e.g. unnecessary admissions, visits to the ED, ancillary revenues, or elective procedures)
Thus, we reward and incentivize physicians to defeat the organization’s strategic plan by driving up operating costs and driving down new sources of revenue.
There is a better approach and it means aligning the strategic efforts, compensation models, and incentives of both executive management and physicians as follows:
- Create the organization’s strategic plan together: Traditionally, the strategic plan was created by executive management and the board as the medical staff was expected to comply the overarching corporate strategy and direction. Physicians are achievement driven professionals who are happy to achieve even difficult to achieve goals and objectives IF they take personal ownership of those goals and objectives. Thus, physicians should play an active and proactive role in the development and creation of the organization’s strategic plan.
Develop a medical staff strategic plan that is informed by the organization’s plan: The medical staff should independently discuss and memorialize its specific role in carrying out