Robert L. Masternak

One hospital in New Jersey shows how engaging staff in performance improvement efforts can yield meaningful cost savings.

At a Glance  

  • Team-based performance sharing (TPS) is a tool that hospitals can use to achieve higher levels of performance by tapping into innovative thinking within a unit's staff regarding opportunities to improve performance.
  • In a recent pilot implementation of TPS, employees were able to share in the financial gains from recommended and approved improvements, as long as patient satisfaction remained above a certain
    specified threshold.
  • Proposals for improvements were vetted by a dedicated crossfunctional team composed of unit staff, who had to be in full agreement regarding the merits of a proposal for it to be accepted.

As health systems transform to drive down cost and improve quality across the continuum, a great deal of the focus is on issues such as legislation, organizational structure, process redesign, and IT. However, this transformation also will require a focus on people-the healthcare professionals who will actually execute the changes.

To this end, healthcare organizations can adopt team-based performance sharing (TPS), an approach that has proved effective in a number of business sectors, particularly manufacturing, as well as in a handful of innovative hospitals. In industries other than health care, this approach is often called gainsharing. But the alternative term is used here to distinguish the approach from gainsharing in reference to arrangements between hospitals and physicians to share savings from performance improvement efforts-a type of arrangement that has been closely scrutinized by the U.S. Department of Health and Human Services and the Office of Inspector General. TPS is not about paying physicians incentive payments to increase referrals to the hospital or to alter their practices to assist the hospital in its cost-reduction efforts.

Simply put, TPS is an incentive plan for healthcare employees, in which the employees propose ideas for performance improvement, which are then vetted through a team-led process. Yet this description provides only part of the picture. To understand the approach fully, one first needs to understand the concept and underlining principles.

TPS Defined

TPS is perhaps best described as a system or philosophy of management in which an organization seeks higher levels of performance through the involvement and participation of its people. As performance improves, employees share financially in the gain or improvement. It is not so much an incentive to work harder as it is to work smarter. It involves a team approach, typically including all employees at a given site or unit within the hospital setting.

In concept, TPS is straightforward and logical: An organization measures its performance over a given period and compares it with baseline performance (often a historical standard) to ascertain whether improvement has occurred relative to the baseline measure, and if so, to what extent. The organization then uses a predetermined formula to share savings from the improvement with all employees. The following case example of an application of TPS in health care provides a good basis to illustrate this process.

Case Study: Hackensack UMC

Hackensack University Medical Center (Hackensack UMC), located in Hackensack, N.J., is a 775-bed not-for-profit, research and teaching hospital that has more than 8,000 employees and 1,600 physicians. In early 2011, Hackensack UMC embarked on a TPS initiative in its ambulatory surgery unit, which was to serve as a pilot for other units in the hospital. The unit has more than 160 employees handling more than 1,100 outpatient surgical cases per month.

The TPS plan, called the STAR Plan (Succeeding Together Achieves Rewards), was launched on Feb. 1, 2011, to advance the unit's cost-containment efforts. Stated objectives included using supplies more effectively, reducing waste, better controlling inventory levels, and improving efficiency. It was also deemed paramount that these activities enhance patient care and satisfaction.

The pilot plan, which encompassed all of the unit's employees, comprised three key elements: a group rewards/compensation element, a patient satisfaction gate, and a structured employee involvement system. The compensation element involved shared savings from Hackensack UMC's more than $8 million annual expense for surgical supplies, plus any savings obtained through improved staff productivity. To ensure that patient satisfaction would not be compromised, the savings had to pass through the patient satisfaction gate-i.e., an established threshold-before they could be shared.

Group rewards/compensation element. Hackensack UMC's pilot TPS plan employed a variety of measures revolving about two primary measures: staff productivity and selective spending.  

The two primary measures were used to calculate a direct financial gain and were self-funding. Staff productivity was defined as hours worked (input) divided by number of cases (output). Hours worked represented all hours worked by salaried and hourly employees assigned to the unit including the unit's administrative director. Cases were all the cases completed in the unit regardless of length of time or cost per case.

Selective spending was measured on a per-case basis. Only those spending accounts that staff could reasonably control were counted. Spending accounts included medical-surgical, sutures, endo-disposables, instruments, disposables, stationary, printing, general supplies, equipment repair, and dietary spending. All capital items were excluded. The quarterly gains/losses from the productivity and spending measures were combined to determine the net total quarterly gains or losses. Thirty-five percent of the gain was to be shared with employees, provided the patient satisfaction threshold was met. In each quarter in which a gain was earned, it was determined that one half of the employee share of the gain would be paid in the quarter and the second half would be placed into the year-end reserve account to offset negative quarters. If a loss were to occur in a quarter, the full employee share of the loss would be subtracted from the reserve account. If the reserve is positive at year-end, it is paid to all participants. If the reserve is negative, the company absorbs the loss and the plan year begins anew. The reserve was intended to promote long-term thinking and provide consequences for deteriorating performance.

Exhibit 1


Patient satisfaction gate. Hackensack UMC wanted to ensure that patient care would not be sacrificed in the efforts to generate financial gains. To this end, the hospital determined that the patient satisfaction threshold had to be surpassed before a payout could occur. In the pilot, this threshold was based on the overall patient satisfaction percentile ranking for ambulatory surgical units across the country.

If the patient satisfaction ranking for a quarter were to fall below the threshold, the total employee share for the quarter (including that quarter's reserve allocation) would be deferred to year-end. Only if the average ranking at the end of the plan year were equal to or above the threshold would the deferred gain be paid at year-end. Otherwise, it would be forfeited.

At the end of each month, a scorecard of the quarter-to-date results and a listing of the status of each spending account were prominently posted. The unit also charted each performance measure. More important, the unit's administrative director held monthly staff meetings to review the results, highlight accomplishments, and identify possible problem areas.

Structured staff-involvement system. A fundamental element of Hackensack UMC's TPS plan was a staff-involvement system for gathering employee ideas and suggestions on ways to improve the unit's performance. The system was much more than the traditional suggestion system, where employees put their ideas in a "box," which are then collected and managed by an HR administrator. Instead, Hackensack UMC's ambulatory surgery unit appointed a crossfunctional employee team to process the suggestions.

Employees presented their ideas directly to their team representative, at which time the details of the suggestions were discussed. In turn, the team-which met monthly-assumed responsibility for reviewing, investigating, and evaluating performance improvement ideas. The entire team had to agree for an idea to be implemented. Many of the ideas are quick fixes that do not require spending or new equipment. However, if an idea is approved and requires expenditure, it is discussed with the administrative director before implementation. (It should be noted that more mature plans provide limited spending authority to the team.)

The system permitted all employees to funnel suggestions to the team for processing. The team was then charged with providing timely employee feedback and with seeing an approved idea through its final implementation.

Hackensack UMC's pilot Star Plan produced impressive results, and the plan has been continued in the ambulatory surgical unit. As of January 2012, the plan generated savings/gains of just over $5,000 per employee (on an annualized basis), with a payout of about $1,700 per FTE employee. More specifically, selected spending for the ambulatory surgical unit improved by 10.8 percent over the historical benchmark (i.e., the prior year). All spending accounts showed declines relative to the number of cases, except in the areas of stationary/printing supplies and endo-disposables. In fact, as the exhibit below shows, the unit was able to generate a gain each month during the first plan year except for two. In October 2011, there was a significant spike in spending. The ambulatory surgery unit had to buy a new retinal machine. The machine didn't directly impact the spending measure, but the disposable packs did. They had to be purchased in bulk, and the account system charges cost to the respective department when the items are purchased and not when they are used.

Exhibit 2


More important, the unit's patient care advanced to the 92 percentile of patient satisfaction among ambulatory surgical units across the United States.

Beyond the Pilot

The plan has served as a model for two new TPS plans at Hackensack UMC. One is in the hospital's neonatal intensive care unit (NICU), and the second is in the pediatric emergency department (PEDS ED). These two units are using the same two primary measures of staff productivity and selective spending, as well as the patient satisfaction gate. Unlike the ambulatory surgery unit, however, the NICU and PEDS ED have physicians on staff who are directly employed by the hospital and who are therefore included in the plans. A unique element of these plans relates to the funding for the physicians. The physicians receive the same percentage-of-pay quarterly award as do other staff members. However, the physician payout does not come from the self-funded sharing pool. These moneys have been budgeted, so the dollars do not reduce the size of the award to other staff members.

These two units also have incorporated a third measurement group: special focus pools-that is, areas of focus in which the organization has determined that it is important to achieve improvements. The term pools is used in reference to the pool of funds that are set aside to reward staff for achieving the goals. Staff receive a dollar award for attaining targets within each special focus, although calculating a direct financial benefit to Hackensack UMC from attaining such goals is difficult. The special focus pools used by the NICU are length of stay and central line infection rates. PEDS ED is using the time from door to physician and percentage pain rechecks within one hour as its special focus pools. PEDS ED also uses a more narrow measure of the "nursing" patient satisfaction as a special focus pool. Hackensack UMC is also moving forward with TPS plans in other units of the hospital.

Achieving Results by Engaging Staff

Almost everyone in today's healthcare environment agrees that primary focus for hospitals today should be on quality, patient satisfaction, and cost. However, many of the tools used to address these issues have centered on the structural, logistical, and technical aspects of healthcare delivery. At Hackensack UMC, an ambulatory surgical unit has demonstrated that a focus on engaging staff in identifying ways to improve service while reducing cost can also be effective, generating more than $3,000 in net savings per FTE while advancing patient satisfaction. If the same results were extrapolated over the nation's hospitals, the savings could amount to $36 billion. Although this amount represents a small fraction of the nation's total annual healthcare cost, it is not insignificant.

Efforts to improve quality and curb costs require innovative approaches. Hackensack UMC's savings were not a result of slashing headcount, reducing pay, installing new technology, or using state-of-the-art systems. Instead, they came from tapping into the collective insight and experience of the people who work the closest with patients-e.g., the nurses, technicians, coordinators, administrators, and team leaders. They were achieved by having a system that promotes teamwork and collaboration-one that encourages healthcare professionals to be more engaged in their work. The results were achieved with a system that helped people develop a more common focus and a sense of ownership and accountability, based on an old concept that has been given a new name: team-based performance sharing.

Robert L. Masternak is president, Masternak & Associates, Medina, Ohio (


Team-Based Performance Sharing (TPS) at a Glance  

Purpose. To drive performance of an organization by promoting awareness, alignment, teamwork, communication, and involvement.

Application. The plan commonly applies to a single facility, site, or stand-alone organization. However, some larger healthcare institutions may apply the plan regionally or systemwide.

Measurement. Payout is based on operational measures (productivity, quality, spending, service, and patient satisfaction)-measures that improve the "line of site" in terms of what employees do and how they are compensated.

Funding. Gains and resulting payouts are often self-funded based on savings generated by improved performance. Sometimes "special focus" pools are used that provide a financial reward when a measure does not necessarily generate a direct financial gain.

Payment target. Payouts are made only when performance has improved over a historical standard or target.

Employee eligibility. Typically, all employees at a site are eligible for plan payments.

Payout frequency. In health care, the payout may be annually or quarterly. However, some plans may be monthly. If the payout occurs more frequently than once a year, the organization may have a year-end reserve fund to account for deficit periods.

Form of payment. Payment is cash rather than deferred compensation. Many organizations pay via separate check to increase visibility.

Method of distribution. Typically, all employees receive the same percentage payout or cents-per-hour bonus.

Plan design and development. Employees often are involved with the design and implementation process.

Communication. A supporting employee involvement and communication system is an integral element of gainsharing and helps drive improvement initiatives.

Pay-for-performance plan versus entitlement. Gains are generated only by improved performance over a predetermined base level of performance. Therefore, TPS is viewed as a pay-for-performance initiative.

Impact on behaviors. TPS reinforces behaviors that promote improved performance and is a tool to drive cultural and organization change.

Impact on attitudes. Heightens the level of employee awareness, helps develop the feeling of self worth, and builds a sense of ownership and identity to the organization. 

Publication Date: Tuesday, May 01, 2012

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead