• Creating Alignment Across a Health System with Goals and Incentives

    Jun 15, 2010

    By Julie Yonek, Stephen Hines, and Maulik Joshi

    To improve health system performance, top-performing multihospital systems align the system's quality and safety goals with the goals of individual system hospitals and hospital leaders.

    Having highly aligned goals facilitates performance tracking and reporting across multiple hospitals and promotes standardization in performance measurement. Aligning performance incentives (financial or other) for system and hospital executives with the system's strategic goals (e.g., quality, patient satisfaction, financial) is a strategy that top-performing systems use to improve overall performance.

    Our research on multihospital systems shows that high-performing systems believed there was higher alignment between the system's quality goals and those of the system's hospitals and hospital leaders, compared to low-performing systems. High-performing systems linked financial incentives to quality goals for a higher percentage of their staff and had more hospital leaders with financial goals aligned with system performance.

    Operationalizing Alignment

    From our discussions with multiple health systems, it is clear that alignment is operationalized in different ways. For example, a highly centralized approach is to set goals, measures, and programs at the system level and then standardize these across hospitals. A more coordinated, decentralized approach is one in which the system sets the goals but allows individual hospitals to decide how they will achieve these goals.

    Furthermore, since individual hospitals within a system may be at different starting points with respect to performance, systems may choose to set hospital-specific targets instead of a standard systemwide target. This practice reinforces the point that each system's approach to alignment will differ based on their hospitals' performance levels, targets, and opportunities for improvement.

    Additionally, although striving for "perfection" as a goal may be the strategic target, financial incentives are often based on other targets that are representative of progress toward perfection. This practice is common among high performers and demonstrates their flexibility in executing system strategies effectively.

    Alignment Strategies

    To align goals and incentives, health systems can use the following strategies.

    Establish system-level quality steering/oversight committees to provide direction to system leaders in setting systemwide goals and aligning them with hospitals. Most organizations have system-level committees that include multiple clinical and operational leaders across the organization for the collaborative purposes of:

    • Setting goals
    • Identifying major initiatives for participation
    • Overseeing major project implementation
    • Reviewing performance measurement standardization
    • Providing overall support of the execution of the quality strategic plan

    As was specifically noted in many of our interviews with multihospital systems, nursing professionals play an integral role in the system-level oversight and support and linkage to the front-line care and improvement.

    Embed health system goals into individual hospital leaders' goals. For some organizations, there are systemwide goals for which all hospital leaders are held accountable. For example, at Mayo Clinic, there are seven systemwide goals that leaders must focus on.

    Link annual bonuses for system and hospital leaders to performance targets in the system's key strategic areas. Organizations connect financial incentives to system goals through a variety of mechanisms. At Baylor Healthcare System, 50 percent of performance-based compensation is based on achieving system goals that are derived from one of four pillars:

    • People (nursing retention)
    • Service (patient satisfaction)
    • Quality (includes hospital standardized mortality reduction and the Centers for Medicare & Medicaid Service/Joint Commission 16-item core measure composite)
    • Finance

    Compensation at risk related to performance ranges from 15 percent of base salary for hospital unit directors to approximately 50 percent of base salary for senior system leaders. (Herrin, J., et al. "The Effect of Health Care System Administrator Pay-for-Performance on Quality of Care," Joint Commission Journal on Quality and Patient Satisfaction, 2008, vol. 34, pp. 646-54).

    At Bon Secours Health System, 25 percent of incentive pay for system and hospital leaders is tied to goals within each of the following strategic pillars:

    • Liberating the potential of people (patient and employee satisfaction)
    • Extraordinary care (quality)
    • Partisan to the community (community service)
    • Financial operations

    By holding everyone in senior management accountable for reducing mortality from sepsis, they have reduced the mortality rate for patients presenting to the emergency department with sepsis by more than 50 percent in just 2.5 years.

    At Providence Health and Services, 60 percent of leaders' incentive pay is linked to overall system performance and 40 percent linked to regional, local, or personal goals. System targets are based upon mission, people, service, quality (clinical reliability index which is a composite of all core measures), financial, and expanding service.

    Align incentive pay and/or accountability for achieving system-level quality and patient safety targets into contracts with physicians. John Muir Health began incentivizing their physicians two years ago. They are held accountable for specialty-specific quality metrics that can be impacted by their performance. For example, surgeons are held accountable for surgical quality and safety indicators. Transparency rather than pay is the incentive, as physicians' performance is reported across the system each year by medical leadership.

    At Nebraska Methodist Health System, over 10 percent of hospitalists' pay is linked to system quality goals. At Memorial Hermann Health System, quality performance targets are included in contracts with physicians. In addition, including patient safety indicators in all employees' (including physicians') incentives plans has been a very effective approach to reducing the rate of safety events across the system.

    Align emphasis on culture with efforts to understand and improve it. While virtually all system leaders attest to the importance of a culture of safety, high-performing systems tend to go further in measuring their safety culture, communicating the importance of a safety culture to staff, and providing training designed to improve it.

    Tying Values to Metrics

    Health systems that fail to align their metrics with their core values are less likely to achieve outstanding results.

     Julie Yonek, is senior researcher at Health Research & Educational Trust (HRET), Chicago. Stephen C. Hines, PhD, is vice president of research, HRET. Maulik S. Joshi, DrPH, is president, HRET, and senior vice president of research, American Hospital Association (mjoshi@aha.org).

    This article is excerpted with permission from the following resource: Yonek, J., Hines S., and Joshi, M., A Guide to Achieving High Performance in Multi-Hospital Health Systems, HRET, Chicago, Ill., March 2010.