Healthcare Executives with Unique Skills Are Leading Total Rewards Trends

Three quarters of hospitals use quality, patient safety, and patient experience measures in annual incentive programs.

As healthcare organizations continue to operate in a complex and uncertain environment, the following trends are impacting executive and physician leadership talent requirements and total rewards:

• Consolidation activity as organizations expand geographically and increase their scale and service offerings
• Disrupters outside the healthcare sector, including private equity and technology organizations
• Changing payment models with more revenue at risk that often result in lower margins and capital.
• Care systems are streamlining operations and clinical activity to realize the promise of larger scope and scale.
• Value-based models focus on expanding access, providing a superior patient experience, and delivering high-quality and cost-effective care.

To recruit, retain, and engage highly effective leadership in today’s marketplace, organizations must implement competitive total rewards programs. It is important to design rewards strategies that align:

• Executive and physician leadership talent
• Total rewards with market trends and benchmarks
• Total rewards with performance

Talent Alignment

As organizations become larger and more complex, the administrative and clinical leadership talent needed to drive change and lead transformation is evolving.

New skills and competencies needed to lead “mega-systems.” As organizations focus on managing population health, improving quality and the patient experience, and reducing costs, they are innovating to integrate care delivery across the clinical enterprise. Executive and physician leaders are needed with skills related to care coordination, change management, information and advanced analytics, innovation, and population health management. Data from participating health systems in SullivanCotter’s Manager and Executive Compensation in Hospitals and Health Systems Survey from 2015-18 underscore the increasing demand for these leaders. Several non-traditional C-suite positions have shown significant growth, particularly in the areas of information security, innovation and population health as well as in strategy, clinical integration transformation and informatics.

Business model and work design changes. Health systems are reorganizing, allowing for more corporate and shared services roles that support integration, consistency across the system, and cost effectiveness. These system-level positions include leading quality, clinical integration, finance, human resources, and supply chain initiatives. In addition, operational integration and regional roles are increasingly common. In contrast, within hospitals and other business units, leaders are increasingly focused on execution, with overall strategy and direction occurring at the system level.

Average Growth in Organizations Reporting Emerging Healthcare Executive Positions

Physician leadership roles to support clinical integration. Organizations are moving away from traditional physician leadership roles, such as hospital chief medical officers (CMOs), to emerging positions designed to drive clinical integration, culture, and value. For example, the CMO role may be replaced with a chief clinical officer who is responsible for oversight of the entire clinical delivery enterprise—including service lines/institutes and medical groups.

Other physician leadership roles are focused on quality and patient safety, population health, network development, service line development, medical informatics, and physician engagement.

Leadership and internal talent development. Leadership is critical during times of change. Organizations are increasingly focused on developing and monitoring intentional strategies to retain the executive team and ensure future leadership talent pipelines. Building talent from within also supports cost efficiency because recruiting from outside comes at a premium. A focus on professional and career development and competitive compensation arrangements is more important than ever.

Contemporary Market Benchmarking

There is high demand and limited supply of leaders for these evolving roles, which is exacerbated by the aging executive workforce. A significant number of senior executives are expected to retire in the next three to five years. To support the changing labor market requirements, organizations must consider the following.

Higher pay increases for C-Suite and physician leader roles. Health system C-Suite roles and positions focused on developing strategy, overseeing integration, and leading clinical and operational transformation are receiving significant compensation increases. For example, SullivanCotter’s survey indicates that median salary increases between 2017 and 2018 were above typical 3 percent budgets for CEOs and CFOs as well as for top quality executives, top business development executives, top population health executives, chief medical officers, and top medical informatics executives. In contrast, increases for operationally focused roles are more modest. including system-owned hospital CEOs, COOs, and CFOs.

Median Base Salary for Key Healthcare Executives

Expand benchmarking to reflect new talent markets. For select positions, talent markets are expanding beyond traditional not-for-profit health care. For example, for-profit health care and adjacent industries such as managed care are new sources of talent for positions focused on managing financial risk or clinically integrated networks. Broader industry is also being tapped for some positions, such as digital strategy, finance, marketing, and human resources. Organizations should ensure they have the flexibility to expand their potential total rewards and recruitment strategies for these positions. Because the compensation within for-profits typically has more incentive and equity-based compensation, not-for-profit health systems must structure offers that are competitive and align with market trends. This may result in a shift to having more compensation at risk.

Physician leader benchmarking. Limited benchmark data is available for emerging physician leadership roles, requiring sophisticated understanding and data utilization. In particular, determining total rewards for broader roles not tied to clinical specialties is challenging. Compensation for these roles historically reflected the lower end of the specialty market, such as primary care. Therefore, physicians in higher-paid specialties, such as surgical specialties and proceduralists, were not attracted to these positions.

To attract physicians to these emerging leadership roles, organizations need to be flexible when considering the unique skills of each individual. There are multiple dimensions to consider. For example, a matrix approach for establishing physician leadership compensation takes into account the size and complexity of the role and the physician’s specialty area.

Web Extra: View a sample compensation matrix for a healthcare quality leader.

Performance Alignment

Optimizing clinical care and ensuring financial stability remain overarching priorities for healthcare organizations nationwide. Total rewards programs for executive and physician leadership are being designed to support organizational performance with these objectives in mind, and should consider the following trends:

Increasing emphasis on systemwide results. Rather than emphasizing individual facility success, the focus on performance is shifting to outcomes measured on a systemwide basis in the areas of population health, patient experience, quality, patient safety, and financial sustainability. For example, SullivanCotter’s survey indicates that quality/patient safety and patient experience measures are commonly included as enterprise metrics within annual incentive programs, with approximately three quarters of organizations using them. Incentive programs are placing more weight on shared, systemwide goal attainment in determining payouts, which supports collaboration and alignment across enterprises. At the same time, health systems are becoming increasingly sophisticated in how they track, measure, and reward for performance, focusing on the following new measures:

• Efficiency of care
• Provider and employee engagement
• Access to care
• Lives under risk contracts
• Community health interventions and outcomes
• Balance sheet measures
• Condition-specific processes/outcomes

For physician leaders included in the executive incentive plans who are also providing clinical services, it is important to closely review the measures used to ensure they do not capture anything related to the volume or value of referrals, which would be a violation of the Stark Law.

Increased use of long-term incentive programs (LTIPs) for system leaders. Annual incentives will continue to focus on operational success in the areas of quality and safety, patient experience, financial stability, growth, and employee and physician engagement. The use of separate LTIPs continues to grow, especially among large health systems. According to SullivanCotter’s 2018 Manager and Executive Compensation in Hospitals and Health Systems Survey Report, 30 percent of health systems with revenue greater than $1 billion have such plans in place. This increases to 46 percent for organizations with revenue of more than $3 billion. These programs focus on strategic objectives that support enterprise alignment and the longer term, mission-related goals of health systems—our survey data indicate that the most common measures are growth, financial sustainability, and clinical quality/patient safety. By paying for performance and continued service over multiple years, these programs can support retention.

Alignment of physician leader compensation with enterprise priorities. As organizations restructure to integrate clinical service delivery across the health system, it is increasingly important to align physician leader incentives with the enterprise program. These structures include a focus on service line, quality, and patient satisfaction metrics as well as operational improvements. For those providing any type of clinical work in addition to leadership duties, compensation must be of fair market value and commercially reasonable to comply with regulatory requirements.

Growth in retention compensation. Programmatic defined contribution supplemental retirement programs remain common for senior leaders. Additional retention arrangements are increasingly being used on a selective basis, particularly by larger healthcare systems. According to SullivanCotter’s 2018 Manager and Executive Compensation in Hospitals and Health Systems Survey Report, 24 percent of health systems with revenue of more than $1 billion are using such arrangements, while 42 percent of health systems with revenue of more than $5 billion employ them. These arrangements are targeted to key current and/or future leaders, with a duration of one to five years.

Flexibility in Compensation Plans

Consolidation, integration, and financial pressures will continue their impacts on executive and physician leadership needs and compensation. The market will remain highly competitive for executives and physicians with the skills to navigate change, ensure strategic success, and facilitate innovation. Combined with the use of good business judgment, organizations must be flexible when setting compensation to ensure alignment with talent management strategies, market trends and benchmarks, and new performance objectives.

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Bruce Greenblatt is managing principal, SullivanCotter.

Kim Mobley is managing principal, SullivanCotter.