Paying for population health
Quality measures are growing as part of execs' pay incentives
By Shelby Livingston
February 11, 2017 - Modern Healthcare
Trinity Health system executives take home heftier
paychecks when they keep patients healthy and out of the hospital. The annual
incentive pay for each executive, including the 93-hospital system's CEO, is
docked if Trinity's total patient population doesn't show reduced rates of
obesity, smoking, readmissions and hospital-acquired conditions. Hitting
financial targets, on the other hand, receives little weight in the incentive
plan.
Trinity's strategy is a sharp departure from the status quo of CEO
pay packages where financial incentives have long dominated. But it is a
surefire way to focus top leaders' attention on the health system's mission to
deliver better outcomes and lower costs to patients in the 22 states where it
operates. gIt's important to make sure you align incentives with desired
outcomes,h Trinity CEO Dr. Richard Gilfillan said.
Trinity's board of
directors sets performance goals each year. Ten percent or more of each eligible
executive's total pay is put at risk. Of that amount, 20% is tied to reducing
hospital-acquired infections and decreasing readmissions; 20% to smoking and
pediatric obesity rates; 20% to patient satisfaction; and 20% to workforce
engagement. The Livonia, Mich.-based system's operating performance accounts for
the final 20% of the at-risk pay.
Gilfillan, whose own
compensation is tied to these measures, took home more than $2 million in total
pay for the fiscal year ending mid-2015, including about $475,000 in incentives
and bonuses, the latest IRS records show.
The incentive structure puts
Trinity, the nation's fifth-largest not-for-profit-health system, among a small
but growing minority of health systems linking executive pay to population
health measures. A few others, including Cincinnati-based Mercy Health and
Detroit-based Henry Ford Health System, are also changing up their incentive
plans to include population health in the mix.
But the group is sure to
expand as more health systems gravitate toward emerging value-based models and
risk contracts that require hospitals to care for entire populations of people
long after they leave the hospital.Despite shifts in the political environment,
the volume-to-value push isn't going to slow, predicted Dr. David Nash, head of
the Jefferson College of Population Health. gOne of the ways it's going to be
implemented is through executive compensation,h he said.
A decade ago,
most hospital CEO bonuses were linked heavily to financial targets, said Bill
Dixon, co-leader of the healthcare executive pay and governance practice at
consultant firm Korn Ferry Hay Group. Net income, profit, operating margins and
cash flow—they were and are the easiest to track.
Quality measures are
far more difficult to follow, especially if patient data aren't integrated
throughout the health system. gPeople don't now know how to measure population
health in a detailed, reliable way,h Dixon said. And if systems can't measure
it, they can't incentivize it.
Back then there was also little reason to
give CEOs incentives based on quality. Most public and private insurers paid
hospitals on a fee-for-service basis (and still do). But methods are changing.
Thanks to widespread adoption of electronic health records, it's easier to
capture, track and share patient data across the continuum of care, thereby
giving providers the tools to drive improvements in population
health.
Since Medicare began reimbursing providers based on quality and
dinging them for poor performance in quality measures in programs like Medicare
shared savings and value-based purchasing, providers have had to shift their
focus to keeping people healthy long-term, rather than treating them only when
sick. There's ample empirical evidence that incentives drive behavior, so it
made sense for hospital boards to prod leadership toward quality by putting part
of their paychecks at risk.
Today, hospital executive compensation
incentives are a mix of financial, quality, patient satisfaction and,
increasingly, population health measures. Executive compensation experts say the
weight is shifting toward the quality portion. Nearly all large health systems
incentivize their executives based on cost, and 90% include quality measures,
like hospital-acquired infections and readmission rates, in their annual plans,
according to data from executive compensation firm Sullivan, Cotter and
Associates.
While estimates vary, anywhere from 20% to 35% of large health
systems say they tie incentives to population health measures. Though uptake is
on the lower side, interest is growing. gI would estimate that a third or half
are actively discussing this among their boards,h said Donald Gallo, consulting
director of healthcare executive compensation at Willis Towers Watson. He
estimates that less than 20% link C-suite pay to population health.
But
it's hard to measure. Health systems define population health in different ways,
so the incentives under that umbrella vary widely. Henry Ford Health System's
incentives, for example, differ vastly from Trinity Health's. But both say their
organizations are committed to advancing population health, and their executive
compensation schemes reflect that.
Executive pay at Henry Ford is linked
to measures including patient hypertension control, improvement in infection
rates, reduction in hospital-acquired conditions and the deployment of the
patient portal. The system's newly retired CEO, Nancy Schlichting, was paid $3.6
million in 2014, including $1.4 million in incentives and bonuses. Internal
Revenue Service records showing the compensation of Henry Ford's new CEO, Wright
Lassiter, are not yet available.
The incentives are meant to drive
positive outcomes, Henry Ford's senior vice president and chief human resources
officer, Kathy Oswald, said.
Though hard to pin down, population health
management generally refers to improving the health outcomes of a defined group
of patients. Population health strategies attempt to reduce the cost of care by
improving quality and often include addressing the social determinants of health
like socioeconomic status, employment, housing and access to healthcare. There's
a growing recognition that social factors play a giant role in an individual's
health outcome.
The concept of population health is also at the heart of
new value-based reimbursement models like bundled payments and accountable care
organizations, which put providers financially at risk for patient care. Those
models are driving health systems to implement population health management
strategies so they avoid losing money in risk-based payment contracts. Some
providers even hold leadership financially accountable for excelling in those
models.
Cincinnati-based not-for-profit system Mercy
Health links its executives' pay to performance in Medicare's bundled payment
programs for joint replacements, including the mandatory joint-replacement
program and the voluntary Bundled Payments for Care Improvement initiative.
Under these programs, providers are paid a set amount per patient for a
single episode of care, such as a hip or knee replacement, rather than paying
for individual services provided as part of that care. Mercy Health leadership
receives a bigger bonus for keeping joint replacement patients healthy and
recovering at home instead of in an expensive skilled-nursing
facility.
Executives at Mercy Health, which operates 23 hospitals in Ohio
and Kentucky, also receive incentives based on how easy it is for patients to
see a primary-care doctor; preventing avoidable readmissions to the hospital;
combating the opioid epidemic by screening and referring patients to rehab
facilities; and keeping the population healthy through preventive measures like
screening for breast cancer or diabetes.
Hitting a revenue target is also
part of the incentive package. Executives can try for all six of these
incentives once they pass two threshold measures: meeting the operating margin
target and investing in programs that benefit the local community, which some
see as a population health measure in itself. Mercy's board determines the
weight of each incentive at the end of the year.
Incentive pay for all of
Mercy Health's hospital CEOs follows the same structure. Michael Connelly, the
recently retired president and CEO of the system, was paid $2.1 million in 2014,
including $556,000 in incentives.
It took Mercy Health several months to
whittle its focus down to these six incentives, and this is the first year this
particular set will be used. gA lot of organizations struggle because they
haven't identified what's important, and that's not easy,h said Dr. Anton
Decker, Mercy Health's chief clinical officer and president of Mercy Health
Physicians, the system's partner physician group.
That's one of the
reasons why there's still a minority of health systems doing this. Others don't
feel they have enough influence over patients to really affect populationwide
change, and fewer still have the wide range of capabilities needed to manage
populations or risk. Insurers might be more equipped to manage population health
in some respects, Gallo of Willis Towers Watson said.
Other providers are
simply reluctant to put so much emphasis on quality and population health when
most payers are still in fee-for-service mode.
But one of the biggest
obstacles is the lack of good data to measure progress in reaching population
health goals. gYou can't do population health without the data—that's clear,h
Jefferson College's Nash said. But it's expensive and time-consuming to
integrate patient data across an entire health system. That's why these
population health incentives typically show up only in the largest health
systems. Moreover, lack of interoperability between one provider's health
information technology system and another's makes it challenging for providers
to get a complete picture of a patient's health.
Trinity Health had to
build entirely new reporting systems to track the population health metrics tied
to executive compensation. gThis is a pretty large enterprise activity,h
Gilfillan said. gYou want to make sure you build an infrastructure that gives
accurate results and provides information to folks so they know how well they
are doing, and let them make adjustments.h
Most observers see the shift
from volume to value as a foregone conclusion. HHS has set a goal to tie half of
all traditional Medicare dollars to some type of value-based arrangement. While
the new federal administration led by President Donald Trump is poised to
disrupt nearly every corner of the healthcare industry, most experts don't
expect the steady progress toward value-based care to fizzle out.
gBoth
political parties believe this is the only way that they know of to manage the
rapidly rising healthcare costs in the U.S.,h said Joe Damore, vice president of
population health management at healthcare consulting company Premier.
Healthcare costs topped $3.2 trillion in 2015, growing at a rate nearly double
that of wages, federal data show. Damore also pointed out that the Medicare
Access and CHIP Reauthorization Act of 2015, or MACRA, a physician payment model
meant to shift physicians away from the fee-for-service model and onto a
value-based payment system, enjoyed wide bipartisan support when it was passed
in April 2015.
When more health systems commit to risk-based payment
arrangements, we'll start to see them get more aggressive with their population
health-related financial incentives, Damore said. The health systems already
tying their executives' compensation to population health measures are no
strangers to risk-based contracts. But organizations that haven't begun moving
down that path are unlikely to tweak executive pay until they have a few years'
worth of experience learning how to manage a population of patients.
gIf
only 5% of your business is tied to value-based payment, you aren't going to
change everybody's compensation,h Damore said. But when 30% of the business
funnels through value-based arrangements, health systems might start thinking
about it.