As healthcare providers implement changes under healthcare reform legislation, strong leaders will be more important than ever. Hospital leaders' compensation should reflect this heightened need. However, hospitals are also facing reduced reimbursements and more pressure to reduce costs. Deedra Hartung, executive vice president and managing principal of Cejka Executive Search, offers insight into these opposing forces and other current trends in executive compensation.
Q: What are some of the current trends in healthcare executive compensation?
Deedra Hartung: Executive compensation is holding steady in terms of total compensation in most situations. But, we continue to see that more compensation is at risk, being paid out as a bonus only when performance goals are met in areas such as financial, operational and quality outcomes. Generally, the higher the total compensation, the greater the percentage of it is comprised by the bonus.
Q: What are the current challenges related to hospital compensation?
DH: We see two key challenges:
1. Margins. Hospital margins are getting tighter and that is expected to continue, especially as healthcare reform policies are implemented. Although it is yet to be determined what will happen with bundled payments, it is doubtful that both the hospital and doctors will receive the same or more than they have in the past. With this, it is difficult to continue to increase executive compensation.
2. Consolidation. There are a lot of mergers and acquisitions occurring. On one hand, that can displace executives out of the newly merged organizations. For those who remain to lead the larger organization it can actually increase their compensation, as they assume more responsibility for a bigger enterprise.
These challenges are at work in combination when we look at the trend toward physician integration. Hospitals are employing physicians and acquiring private physician practices in order to have an integrated health system. The short term effect is that the investment in acquisitions impacts hospitals' profitability, which in turn squeezes compensation, until the benefits of integration can be achieved.
Q: How can hospitals overcome these challenges?
DH: Most hospitals are getting leaner and reductions in force are occurring. With regard to the expense of physician acquisitions, it is critical that hospitals hire strong practice administrators with experience and skills in managing physician practices. Systems for effectively managing physician productivity standards, revenue cycle and physician charges must be in place to maximize revenues for the hospital or system.
Q: How has an increased focus on transparency affected the way hospitals compensate their leaders?
DH: Boards and executives are very sensitive to public awareness of executive compensation and the public perception of excess and extremes. Huge increases in either base or bonus compensation are too risky as are golden parachutes that are out of line with the market.
Q: With more and more healthcare organizations integrating to form larger networks, how do you think the distribution of compensation will change? Will fewer people have more money, or will the distribution be more even due to "shared savings"?
DH: This will be a difficult issue, especially where there are bundled payments. It remains to be seen which strategy hospitals will use to allocate the dollars.
Q: How do you predict compensation will continue to change?
DH: Performance-driven compensation will be dynamic because the key measures for outcomes and shared savings are yet to be fully defined — and are likely to keep changing. In any regard, executive compensation will continue to be tight in the near future and performance-driven over the long-term. Large systems will dominate the healthcare arena; smaller hospitals and independent physician practices will find it more and more difficult to compete for top leadership talent.
Learn more about Cejka Executive Search.
Related Articles on Healthcare Compensation:
Average Medical Records & Health Information Technician Salaries: 5 Statistics
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Invasive Cardiologists Have Highest Average Income Offers
Q: What are some of the current trends in healthcare executive compensation?
Deedra Hartung: Executive compensation is holding steady in terms of total compensation in most situations. But, we continue to see that more compensation is at risk, being paid out as a bonus only when performance goals are met in areas such as financial, operational and quality outcomes. Generally, the higher the total compensation, the greater the percentage of it is comprised by the bonus.
Q: What are the current challenges related to hospital compensation?
DH: We see two key challenges:
1. Margins. Hospital margins are getting tighter and that is expected to continue, especially as healthcare reform policies are implemented. Although it is yet to be determined what will happen with bundled payments, it is doubtful that both the hospital and doctors will receive the same or more than they have in the past. With this, it is difficult to continue to increase executive compensation.
2. Consolidation. There are a lot of mergers and acquisitions occurring. On one hand, that can displace executives out of the newly merged organizations. For those who remain to lead the larger organization it can actually increase their compensation, as they assume more responsibility for a bigger enterprise.
These challenges are at work in combination when we look at the trend toward physician integration. Hospitals are employing physicians and acquiring private physician practices in order to have an integrated health system. The short term effect is that the investment in acquisitions impacts hospitals' profitability, which in turn squeezes compensation, until the benefits of integration can be achieved.
Q: How can hospitals overcome these challenges?
DH: Most hospitals are getting leaner and reductions in force are occurring. With regard to the expense of physician acquisitions, it is critical that hospitals hire strong practice administrators with experience and skills in managing physician practices. Systems for effectively managing physician productivity standards, revenue cycle and physician charges must be in place to maximize revenues for the hospital or system.
Q: How has an increased focus on transparency affected the way hospitals compensate their leaders?
DH: Boards and executives are very sensitive to public awareness of executive compensation and the public perception of excess and extremes. Huge increases in either base or bonus compensation are too risky as are golden parachutes that are out of line with the market.
Q: With more and more healthcare organizations integrating to form larger networks, how do you think the distribution of compensation will change? Will fewer people have more money, or will the distribution be more even due to "shared savings"?
DH: This will be a difficult issue, especially where there are bundled payments. It remains to be seen which strategy hospitals will use to allocate the dollars.
Q: How do you predict compensation will continue to change?
DH: Performance-driven compensation will be dynamic because the key measures for outcomes and shared savings are yet to be fully defined — and are likely to keep changing. In any regard, executive compensation will continue to be tight in the near future and performance-driven over the long-term. Large systems will dominate the healthcare arena; smaller hospitals and independent physician practices will find it more and more difficult to compete for top leadership talent.
Learn more about Cejka Executive Search.
Related Articles on Healthcare Compensation:
Average Medical Records & Health Information Technician Salaries: 5 Statistics
Survey: 6% of Physicians Unsure of Continuing Practice Due to Dissatisfaction With Compensation
Invasive Cardiologists Have Highest Average Income Offers