Investing in the new healthcare CEO

Healthcare is undergoing sweeping change. The Patient Protection and Affordable Care Act (PPACA) has impacted expectations, accessibility, affordability, patient satisfaction and the bottom lines of all healthcare organizations, especially nonprofits. Now held more accountable than ever, organizations must increase revenue to provide efficient, quality care, and reimbursements may be cut further if pre-determined metrics are not met.

The new healthcare CEO’s role is multi-dimensional, managing organizations with many constituents and complex, often competing, responsibilities outside the traditional acute-care hospital, and compensation must reflect that.

Now, compensation may be correlated with the number of beds, patient satisfaction, the institution’s teaching component and technological capacity, but not with hospital margins, liquidity, occupancy rates, mortality or readmission rates, yet. Those will have a profound impact on the priorities and effectiveness of hospitals. They should be seen as a viable ROI by governing bodies and must factor into CEO pay.

Most CEO compensation is not based on quality related criteria, but instead on savings from cuts in staff and/or other first line cost control measures. Compensation increases averaged only 4 percent in 2013, and leaders of more than one hospital and/or additional outside entities only make up to twice as much as leaders of individual hospitals.

The median salary of an independent health system CEO was $750,000 in 2013, compared to $539,000 for a subsidiary health system CEO. For independent hospital CEOs it was $380,000; health system CEOs $645,700 to $873,800; individual hospital CEOs $368,700 to $402,500 – all depending on the hospital’s ownership status, i.e. for-profit vs. public.

Compensation should be based on the overall health of the organization as demonstrated in clear metrics that show improvement across the continuum of care, not solely on beds, scope of service and other out-of-date measures.

On average, executives on the provider/hospital side earn one-third of what their for-profit counterparts make. Healthcare organizations seeking the best leaders are competing with industries that pay more, whose leaders may only be responsible for a single, consumer product, while the healthcare organization’s “customer” depends on a leader who can assemble the pieces of a very large puzzle. As healthcare delivery increasingly values meaningful use and accountability, successful leaders must be compensated with a pay-for-performance base plus incentive model.

Today’s healthcare CEO must be knowledgeable about the day-to-day operations of those they manage and possess the same strong business acumen as their counterparts in other industries. Qualities needed to successfully manage health systems today include:

  • Identification of problems and improvements needed
  • Standardization of internal processes and practices that fully integrate medical staff
  • Stakeholders’ buy-in of an overall vision for the future
  • Sensitivity to the impact of change on all stakeholders and maintenance of clear communication
  • Engagement with internal and external communities served by the organization, as well as future payers
  • Robust financial and continuous quality improvement acuity
  • Original and creative strategic thinking
  • Confidence in new payment and care models, including starting their own insurance plans
  • Analytical and relational skills to create care-centric delivery systems
  • Recognition of the value of marketing directly to the consumer

Some organizations are looking outside of healthcare for talent, especially from industries that have faced large-scale change. Productivity, retail strategies, information technology, Lean Six Sigma and waste reduction are valued, and most hospital CEOs hired in 2013 had little or no healthcare experience. That number will rise.

Healthcare CEOs are now change agents, improving financial and clinical outcomes, defining and driving strategies and establishing cohesiveness within systems. Those charged with recruiting and hiring must invest fully in compensation packages that attract and retain top talent, and compensation must be competitive nationally and across industries.

Healthcare represents more than 17 percent of our nation’s GDP, and leaders with the complex skill sets required to deliver quality healthcare must be compensated competitively. Governing bodies must implement immediate development of compensation and incentive models that attract and retain these multi-talented and dynamic leaders.

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