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Tying Health Care Executive Pay to Patient Health

Feb 13, 2017

A version of this essay appears in today's edition of the Fortune Brainstorm Health Daily. Get it delivered straight to your inbox.

Paying for performance is a growing trend across the health care industry. Insurers have been striking deals with pharma companies that will land them discounts on pricey drugs if those treatments don't demonstrably improve patients' health outcomes; hospitals are penalized if they have high rates of patient readmissions.

But this model is also making its way to the C-suite, Modern Healthcare reports. To cite just one example: Executives at Trinity Health, which operates 93 hospitals, have their pay tied to the system's overall effectiveness in keeping patients out of the hospital, lowering smoking and obesity rates, and other population health metrics.

"Ten percent or more of each eligible executive's total pay is put at risk," according to Modern Healthcare. "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." Even Trinity CEO Dr. Richard Gilfillan is affected by this incentive structure.

Talk about having a personal stake in your work. But the early trend should be taken with a grain of salt considering that just a small slice of firms are introducing population health incentives and that these metrics are so difficult to assess in the first place, according to some observers.

"[T]hough tying pay to healthcare outcomes is a big step in the right direction… It’s filled with enough mushy data that almost any good exec can come up with a formula that assures him/her their bonus, or incentive pay, or any pay at risk," one 40-year health care industry vet tells me. "They have to screw up pretty badly to miss it."

This same source (who preferred not to be named) points to hospital CEOs' skyrocketing salaries. "Tying pay to patient health was discussed long ago, but no one wanted to do it, and no one wanted to have that type of liability," the individual said. "Now they do. What changed? They make so much that 10% risk is not a big deal."

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