Remember Flower’s Laws of Behavioral Economics? The first two are:
- People do what you pay them to do.
- People do exactly what you pay them to do.
That is, it’s not general. It’s not “be a good doctor.” It’s more like, “Do lots of complex back fusion surgeries.” What’s more profitable gets done more.
I know that some people say that money has nothing to do with people’s motivation in healthcare, and that’s fine, I totally respect that opinion. You’re just in the wrong section. You want Aisle C, between Dr. Seuss and the Disney fairy tales.
But what about healthcare executives? What gets them more money? What constitutes hitting it into the cheap seats for them?
There are of course lots of compensation surveys. There’s a whole industry of people who do that. But they don’t tie compensation to anything specific. So when someone does a study that does look at correlations, that’s interesting information. One came out a few months ago in JAMA’s Internal Medicine .
Karen Joynt, MD, and her colleagues used 2009 data, so things might be beginning to change now. And they only looked at CEOs, so we will have to speculate whether the same things apply to other C-suite suits.
What did they find? They found great variation in the salaries, with a mean (average) salary of $595,781, a median (half are above and half below) of $404,938). The nearly $200,000 difference tells us that the sample is skewed by a smaller number of really large salaries at the top.
There is nothing surprising in the size of the salaries or their variation. That’s normal for any industry. No matter how much you might think that healthcare is special and different and sacred, it is nonetheless a very big business. In many or most towns, the hospitals and health systems are the biggest businesses in town. A typical suburban three-hospital system might have an annual budget in the $5 billion range.
What correlates with a higher salary? Size.
More beds means a higher salary ($550 for each extra bed, to be exact). Teaching status means $425,078 more — in other words, doubling the median. And most teaching hospitals are much bigger than average. Urban location gets you more, but this is likely also a marker for size, or the cliché phrase “big city hospital” wouldn’t roll off the tongue so easily. High tech gets you more, too. Hospitals with high technologic capabilities paid their CEOs $135,862 more than hospitals with low levels of technology — but this again is likely a marker (a co-variate) for size and teaching status.
The one apparent performance marker that varies with compensation: Patient satisfaction. “Hospitals with high performance on patient satisfaction compensated their CEOs $51,706 more than did those with low performance on patient satisfaction,” according to Dr. Joynt et al. Oddly, though, I think this is also often a marker for size. Patients tend to think you’re good if you’re large and well-known. Famously, one Massachusetts survey rated Massachusetts General’s OB-GYN and birthing program as the most highly-regarded in the state — at a time when it actually did not even have one.
So you get paid more if you run a big enterprise. No surprise. Perhaps more telling is what showed no correlation with compensation at all:
- occupancy rates
- process quality performance
- mortality rates
- readmission rates
- measures of community benefit
Every one of these, in one way or another, is a measure of real performance. In other words, if you pay more to hire and retain a better, more skilled, more experienced CEO, here’s where you would expect the return on your investment. And it’s not there.
We are moving into a time when healthcare has a wildly different and more complex economic base than it is used to, an economic situation in which most of the people now running healthcare enterprises are newbies, and most of the new conglomerations, concatenations and congeries of healthcare capabilities and financing structures being slapped together are prototypes. It’s prototypes all the way down.
How would you measure and pay for executive performance in such an environment? What is it that you really want? Is it the margin of the whole enterprise, including its insurance arm and any accountable-care joint ventures it has set up? What if you paid the CEO 0.2% of that margin (I’ll do the arithmetic: On a $5 billion enterprise with, say, a 5% margin, that would be $1 million). What behavior would that drive? No margin, you’re on food stamps, buddy.
How about 0.02% of margin ($100,000 in our example), plus large bonuses for outcome markers such as lower readmission rates and lower mortality rates, plus certain process performance markers? What behavior would that drive?
In what other ways could executive pay be tied to the performance that we really want to see?
We are increasingly talking about (and sometimes implementing) many different ways of paying physicians for performance, with many different types of incentives beyond those labeled “Pay For Performance.” Yet clearly the executive talent driving the strategies of these major organization needs to adapt and up their game for the new world of healthcare — and clearly across healthcare many if not most are hanging back, unclear on the best strategy, playing it as safe as possible by consolidating and sticking as much as possible to the old model.