Compensation and Retention Strategies for Healthcare Executives

To thrive today, healthcare organizations must provide competitive compensation and implement strategies to recruit and retain talented executives. Short- and long-term incentive plans – along with retention arrangements – are increasingly being tied to successfully vying for healthcare’s top talent.

Healthcare organizations compete for the best leadership talent by offering a unique and compelling value proposition that includes a balance of mission served, performance challenges, engagement of diverse stakeholders, and competitive compensation.

It’s essential that these organizations use total rewards strategies to successfully guide the design, administration and governance of their pay and benefit programs. The strategy should be developed and designed to support the organization’s strategy (i.e. incent growth and performance, utilize the financial resources of the organization, etc.) and culture. Top-performing health systems have written strategy statements that are board-approved and shared with existing and potential employees.

Compensation and Retention Strategies for Healthcare Executives

The value of benefits and perquisites make up a smaller percentage of executive total rewards. There are fewer executive benefits (i.e. executive medical insurance, supplemental disability plan, etc.) and many organizations are offering executives the same benefits offered to other employees. Limited executive perquisites are the new norm and any enhanced benefits and/or perks must be justified as having a legitimate business purpose.

Establish a Compensation Strategy for Executive Talent

Compensation is a key element of the total rewards strategy to attract and retain the best leadership, and healthcare systems should develop a compensation framework that includes:

  • Base salary
  • Short-term incentives
  • Long-term incentives
  • Retention incentives

Base Salary

Base salary is fixed compensation that typically does not vary according to performance or organizational results. It pays for experience, knowledge and individual performance. It is common practice to establish and maintain a salary administration program with two objectives: providing base compensation that is competitive with the market, and controlling fixed costs. In addition, the program should ensure that pay is internally equitable when compared to similar positions within the organization.

The majority of organizations target base salaries at the market median, which is the 50th percentile. Likewise, recent surveys and Findley’s industry experience indicates 65% of healthcare organizations target leadership base salaries at the market median. The next most popular target, used by 15% of organizations, is to set the range at the 60th or 65th percentile of market.

In practice, not all salaries will be equal to the target and there are a number of valid reasons why salaries may vary from the target. The salary administration program has pay ranges that allow management and the board flexibility to determine salaries by evaluating factors that include individual experience, market rates, length of service and business needs.

Short-Term Incentives

Top-performing organizations design short-term incentive plans, (also know as annual incentive plans), to award incentives using an objective and disciplined approach. The plan should reinforce the philosophy that executives are connected to organizational results; it should motivate and drive appropriate behaviors and deliver rewards that are in alignment with organizational success and growth.

“Recent research and Findley’s industry experience, indicate formal short-term incentive plans are used in more than 75% of healthcare organizations.”

Compensation and Retention Strategies for Healthcare Executives Guide

Long-Term Incentives

Long-term incentive plans are emerging as important components in compensation strategies for healthcare systems as the plans prove valuable in retaining and recruiting top talent. Based on market studies and Findley’s experience, offering long-term incentive plans varies by the size of the organization, with more than 40% of organizations with net revenue greater than $2 billion featuring long-term incentive plans in their compensation programs.

As organizations look for long-term performance-based compensation solutions, there are a variety of options to consider. One solution that is growing in popularity is a performance-based long-term incentive plan that awards cash at the end of a multi-year performance period based on the achievement of predetermined goals.

“Boards of directors in this pay-for-performance era are seeking alternatives to deliver long-term performance-based compensation.”

Compensation and Retention Strategies for Healthcare Executives Guide

Another approach that is becoming more common is the “performance-based” SERP. This combines the planning and techniques used for defined contribution SERPs, along with the performance measurements of an annual incentive pay plan. This option offers competitive long-term compensation, assuming adequate levels of sustained annual performance.

Long-term incentive plan options vary, too, between for-profit and non-profit healthcare organizations. For-profit healthcare systems are able to include some type of “equity” award in the total compensation package for executives. Executives in the non-profit, tax-exempt healthcare environment lack the opportunity of real “ownership.” Measuring long-term value is even more important with a tax-exempt organization because the “shareholders” are taxpayers and members of the community.

Historically, long-term plans have been merely an accumulation of short-term metrics over a multi-year period. The trend has shifted and long-term or value-focused metrics force a more strategic or visionary view of future guideposts for success. While financial results remain important, organizations are including more measures that focus on growth, market share, community impact, and employer brand.

Retention Incentives

One component that has seen significant growth over the last several years is the implementation of retention compensation. The healthcare industry in particular has been on the forefront due to the recent and expected future consolidation of hospitals and healthcare systems.

Often, retention incentives occur in instances of an anticipated transaction which requires continuity in order to execute transition plans and maintain the ongoing value of the enterprise. It can be essential to ensure that key talent is retained, operating functions are held intact, and relationships are maintained during a significant transition (i.e. pending sale, reorganization or new leadership).

The structure of retention arrangements varies as some organizations may choose to incorporate retention benefits within individual employment agreements, while others create standard agreements or policies for groups of executives.

Learn more about our findings and the solutions to implementing effective and creative strategies to recruit and retain talented executives in the healthcare industry in this guide below:

Compensation and Retention Strategies for Healthcare Executives Guide

Design and Implement an Effective Compensation Strategy

The healthcare industry is going through significant transformation and it is imperative for organizations to have well-designed executive compensation programs with retention strategies to recruit and retain top talent. Designing and implementing effective plans requires:

  • Taking a total rewards and total compensation planning perspective;
  • Aligning the compensation plan design with the mission and strategies of the organization;
  • Creating and maintaining conditions that are favorable to delivering competitive compensation and;
  • Designing retention strategies that align the interests of the executives with the stakeholders.

Questions or need advice on implementing an effective compensation strategy or successful incentive programs at your organization. Please contact Jen Givens or Tom Hurley by filling out the contact form below.

Published May 15, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved.

Employer Sponsors of Health Benefits Part 2: More Gridlock Ahead

Regardless of what side of the political spectrum you find yourself, you would probably agree that to say Washington, DC is in gridlock is an understatement. We are not going to assign blame to any particular party for the impasse. Instead, we’ll focus on how employer-sponsored health benefits could be impacted in 2019-2020 and by the results of the next Presidential election in November 2020.

.We will look at how the Trump Administration’s executive actions between now and then could shape the direction of employer-sponsored health benefits. We will also speak to how the makeup of the U.S. Supreme Court (SCOTUS) could impact the outcome of any related legal challenges.

On February 27, Representatives Pramila Jayapal (D-WA) and Debbie Dingell (D-MI) introduced the Medicare for All Act of 2019. This bill goes far beyond the Affordable Care Act (ACA) by eliminating employer-sponsored health plans. In fact, Healthcare.gov (i.e. the ACA Marketplace or Exchange) would also be eliminated as everyone is moved to Medicare within two years. Given the Democrats have a 235-197 majority in the House of Representatives (there are 3 vacancies), it’s quite possible the Medicare for All bill will pass. However, the Republican majority in the U.S. Senate (53-47) likely means this bill would not pass the Senate—if it ever makes it to the floor for a vote. Other health care-related bills passed by the Democrat-controlled House will likely be opposed by the Trump Administration and the Senate Republicans too.

The Trump Administration will continue issuing healthcare-related Executive Orders (EO), such as the one which changed the maximum coverage period for short-term limited duration insurance plans from 12 to 36 months. Another example is the EO that would allow organizations (beyond churches and religious employers) to avoid the ACA’s contraceptive mandate based on religious or moral grounds. Predictably, this EO was challenged by Attorneys General from five states where the governor is a Democrat and/or the legislatures are primarily controlled by Democrats. As a result, two federal district courts have issued nationwide preliminary injunctions to block this order.

The Trump Administration is also likely to continue directing the DOL/HHS/Treasury Departments to issue regulations or guidance that are consistent with its objectives and policies to control healthcare costs and improve access to affordable coverage. One example is the proposed rules to expand the use of Health Reimbursement Arrangements (HRAs) by employers of any size to pay for individual health insurance premiums. Another example is the possibility the HHS Secretary could relax prescription drug importation rules to give Americans the ability to purchase their prescriptions from abroad at a fraction of US prices.

Although Democrats would probably not oppose prescription drug importation because it will help reduce costs for their constituents, they are likely to challenge the HRA measure. Democrats are concerned about their constituents losing comprehensive, ACA-compliant coverage through their employers (at least until they can get them moved on to Medicare) in exchange for a stipend that may not be sufficient to cover the premiums for an individual health insurance policy (probably with higher deductibles and a more narrow provider network). And speaking of challenges, you may recall that Attorneys General from eleven states and the District of Columbia filed suit to block the Administration’s endorsed DOL/HHS/Treasury regulations on Association Health Plans (AHPs), because they believe AHPs will undermine the ACA Marketplace and result in people being covered under non-ACA compliant plans.

Earlier, we mentioned the makeup of SCOTUS will determine the fate of court challenges to the Trump Administration’s (and that of future Administrations) healthcare-related EOs and regulations. Today, the Administration enjoys an advantage with the recent appointments of Justices Gorsuch and Kavanaugh. However, with Chief Justice Roberts showing a tendency to be a more moderate voice, that advantage is narrow. What if President Trump has the opportunity to appoint another conservative Justice before the November 2020 election and that nomination is approved by the Republican majority in the Senate? If that happens, it’s more likely the Administration’s EOs and regulations will be upheld in the future.

Learn more on possible 2020 election scenarios by reading the third article in this series: Employer Sponsors of Health Benefits: Part 3: Possible 2020 Election Scenarios.

Questions? Contact the Findley consultant you normally work with, or Bruce Davis at 419.327.4133, Bruce.Davis@findley.com.

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Posted March 7, 2019

Employer Sponsors of Health Benefits Part 1: Possibilities to Sustain Healthcare Costs

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It’s little comfort to an employer sponsoring employee health benefits to be told annual healthcare trend rates are moderating. Even at a 4 – 5% trend, healthcare costs continue to grow faster than wages and salaries. Although employers have passed some of this increase on to their employees via higher contributions and out-of-pocket expenses, a tight labor market makes this more difficult to do. With the Affordable Care Act (ACA) Employer Responsibility requirements still in place, and the average employer’s share of healthcare costs now more than half the cost of an entry-level employee, some employers will continue to scrutinize work schedules to avoid full-time employee thresholds.

Employers know healthcare will be at the crux of the 2020 Presidential election. With uncertainty as a foundation, employers:

  • Are now hearing about proposals to eliminate employer-sponsored health plans in favor of a “Medicare for All” program.
  • Want to know if the “Medicare for All” proposal is economically feasible; would it, indeed, “level the playing field” in terms of attracting talent.
  • Question if the increase in their taxes needed to support this program would be more or less than what they spend now on healthcare benefits.

Between now and the 2020 election, employers are striving to sustain competitive, affordable health benefits. They have tried and exhausted many tactics to contain healthcare costs, and are looking for other alternatives—beyond putting their health plan out to bid to optimize network discounts and/or reduce fixed costs, such as Administrative Services Only (ASO) fees and stop loss premiums. The following diagram shows a range of possibilities an employer can consider for 1/1/2020. It presupposes the employer has:

  • Completed a claims analysis to identify cost trends and drivers.
  • Examined demographics for health status and special needs to address well-being.
  • Considered proposed regulations liberalizing the use of Health Reimbursement Arrangements (HRAs), by employers of any size, to pay individual health insurance premiums are finalized for 2020.

This diagram does not speak to interactive modeling tools, like Findley’s BenScan® modeler, to value the impact of these potential changes on their gross and net costs.

Possibilities to Sustain Healthcare Costs

However, many employer concerns involve questions about future legislative, regulatory, and litigation activity that could affect employee health benefits. As a result, we have developed a three-part series to delve into the current situation in Washington, DC and the results of the 2020 election and how it may impact the future direction of employer-sponsored health benefits.

Your thoughts are appreciated too. Share your input here or voice your opinion on what the future hold for employer-sponsored health benefits.

Read more about the current situation in Washington, DC in our next article in this series: Employer-Sponsors of Health Benefits: Part 2: More Gridlock Ahead.

Questions? Contact the Findley consultant you normally work with, or Bruce Davis at 419.327.4133, Bruce.Davis@findley.com.

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Posted March 4, 2019

Drug Price Transparency – Pitfalls for Consumers and Solutions for Employers

Recently, there has been a good amount of buzz about drug price transparency, and it’s not just private sector employers clamoring for better transparency. In October 2018, Centers for Medicare and Medicaid Services (CMS) posted proposed regulations for drug transparency on its website. These regulations would require specific drug manufacturer pricing disclosures as well as advertising guidelines. In addition, California has passed new regulations designed to hold pharmacy benefit managers (PBMs) accountable, and Health and Human Services (HHS) is pushing to require drug prices to be put into TV advertisements.

Any response from PBMs?

Earlier this month, a major PBM announced a “guaranteed net cost” model. Although few details have been shared, it appears this is a response to criticism of the PBM industry by CMS and other federal entities. At least one PBM is positioning itself to be part of the solution, responding to the lack of transparency and rising drug prices, rather than perpetuating the problem. However, here are a few things to keep in mind as the push for drug transparency continues.

Manufacturers’ drug prices do not represent what consumers would actually pay

With our complex healthcare system, actual drug costs to a consumer can depend on the:

  • Plan sponsor (Employer, Medicare Part B, Medicare Advantage with Part D, etc.)
  • Retail pharmacy (e.g. CVS, Rite Aid, Walgreens, etc.)
  • Plan design and cost-sharing (fixed dollar copay, coinsurance, etc.)

Showing the raw drug costs on TV ads could help, but it could also produce a negative impact as consumers will be more confused when they show up at the pharmacy and their costs don’t match what they saw on TV.

Knowing drug prices upfront does not necessarily mean that consumers will choose cheaper drugs

It wasn’t long ago that medical cost transparency was a new and hot topic in healthcare.While there is still much work to be done to improve medical cost transparency, one lesson learned early on was that just having transparency doesn’t lead to better consumerism. Technology and tools were developed to answer the demand for transparency, but many consumers, who have access to these tools, aren’t using them. Why?

  • Patients trust their doctors and often will not question or push for lower cost options
  • Doctors don’t often know what is the lowest cost option, especially for you and your specific plan
  • Some believe a higher cost option must work better than a lower cost option

Can employers help find the right solution?

We don’t know what the best solution is, but we know more prescription drug market transparency is needed. Perhaps the right answer is a combination of:

  • Transparency tools that are integrated with consumers’ actual prescription drug plan and benefits, and
  • A patient advocacy program that can intervene and help consumers navigate the complicated prescription drug system.

The good news is several PBMs have transparency tools and patient advocacy programs already available or currently being developed. If you are an employer with a self-insured prescription drug benefit, you likely have some options and should consider discussing what you can do with your consultant or broker and your PBM.

Questions? Contact the Findley consultant you normally work with, or Dave Tighe at 419.327.4194, Dave.Tighe@findley.com.

Posted to December 18, 2018

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References/Sources:

CMS proposed regulations on transparency on Rx for Medicare/Medicaid

Drug prices in TV ads

California New Regulatory Scheme

Announcement of guaranteed net cost model

Building a Strategic Plan for Your Health Benefits Program

Attracting and retaining the right people drives the performance of your organization. In today’s economy, employees and candidates are making their job decisions based on the benefits and perks offered. Your health benefits program is the #1 benefit candidates seek over all other benefits and perks– by a wide margin.[1] At the same time, health benefits costs continue to rise at rates well above general inflation[2]. These competing factors make maintaining competitive but cost-effective health benefits a strategic business priority.

Given the changes occurring in the healthcare market, employers have a significant opportunity to redefine their benefits mission and build a multi-year healthcare strategy. Employers should continue to evaluate traditional approaches, such as plan design and cost-sharing. It’s also critical to take advantage of emerging new resources, such as: changes in health delivery by the providers and new networks; changes driven by payment reform; and provider shifts to value-based care.

To build a multi-year benefits strategy successfully, leadership support and effective change management are critical.

We recommend utilizing The Findley Process, as follows:

Phase 1 – Gather data for actuarial analytics and benchmarking and build a multi-year financial modeler.

Phase 2 – Develop a strategic plan using action-oriented Compression Planning to develop objectives, prioritize tasks, and define change management steps.

Phase 3 – Implement the multi-year strategy and new benefits philosophy statement.

Phase 1: Construct Background Data and Strategic Tools

Phase 1 of your process should focus on developing analysis to give stakeholders a baseline understanding of your health benefits program design, cost drivers, and competitiveness. Actuarial data analytics, projections, and benchmarking provide the critical data for stakeholders to weigh the benefits of maintaining the status quo vs. considering, prioritizing, and launching forward-thinking strategies.

Gather and analyze your plan’s cost in recent years then identify the key drivers of cost under your current plan design. Next, identify any immediate plan design opportunities to build into your multi-year plan. Finally, build an annual financial projection model to fit your strategic planning horizon (for example, five years). The model should take into account projected claims, contribution strategies, and reserve/risk monitoring. It should be used to set metrics and evaluate the effectiveness of your strategic plan going forward.

Phase 2: Define Your Objectives Using Action-Oriented Strategic Planning

Defining your multi-year strategy requires key leadership engagement and effective change management. As you know, your organization’s leaders understand the importance of strategic planning to drive business performance, but may not have the time required for the typical multi-day approach. Instead, consider using Compression Planning – a facilitation technique designed for busy business leaders to rapidly identify and build consensus around key goals and action items to form the basis of the strategic plan.

Before the Compression Planning session, your leaders should receive the actuarial data analytics, benchmarking results and analysis of your current plan, and your baseline for strategic planning and changes. In the Compression Planning session, a trained facilitator poses prepared questions to guide leaders through brainstorming and action planning. Typical questions may include:

  • Three years from now, what does a culture of health and well-being look like at your organization?
  • What do you want your health and welfare benefits environment to look like in 20XX?
  • What should employees be responsible for? What should the organization be responsible for?
  • What unique challenges exist in your environment (either within or external to the organization)?
  • What changes with healthcare providers can be leveraged?

The facilitator then leads a prioritizing activity to define and build consensus around the top goals and objectives that become part of your strategic plan. Action steps for your strategic plan are then developed in Phase 3.

Phase 3: Create, Implement, and Monitor Your Multi-Year Strategic Plan

In Phase 3, your project leaders define the multi-year milestones and metrics for the objectives and develop a high level change management strategy consisting of the major initiatives and timelines for implementation.  Once this strategic framework is in place, the interactive forecast modeling tool established in Phase 1 becomes the key tool for defining plan design changes and modeling annual budgets to achieve your financial goals.

Beyond the strategic plan, many organizations develop a healthcare benefits philosophy statement. This statement serves as the mission for health and well-being at your organization; defining the organization’s commitments and employee responsibilities that serve as the foundation for the strategic and tactical steps taken each year.

Once the strategic plan is set, a detailed change management project plan defines each year’s implementation steps and timing. Educating and empowering participants to understand benefits, use healthcare wisely, and take responsibility for their health and well-being are critical elements to achieving the strategic plan objectives.

Monitoring actual vs. forecast experience begins immediately and continues throughout the course of the multi-year strategic plan, measuring and evaluating your actual experience against the metrics and milestones set in the planning process.

In Perspective

Organizations that have a strategic plan and process for managing their benefits programs report better company performance and more success in attracting and retaining employees.[3] Employer-provided health benefits are an organization’s biggest benefits cost,[4] and the key employer-provided benefit that attracts new employees and retains your current talent. Your employer-provided health benefits are also likely your most complex benefits offering. That’s why a strategic approach and process is a must to maintain a health benefits program that helps your business keep its competitive edge.

Questions? For additional information about developing or enhancing your strategic plan, contact the Findley consultant you normally work with, or info@findley.com

Posted November 15, 2018

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[1] Which Benefits Drive Employee Satisfaction? GlassDoor Economic Research, June, 2016.

[2] Kaiser Family Foundation Employer Health Benefits Survey, 2018.

[3] 2017 Strategic Benefits Survey-Strategize with Benefits, Society for Human Resource Management

[4] Health benefits average 8.2% of total compensation nationally. Employer Costs for Employee Compensation, Bureau of Labor Statistics, June 2018.

IRS Issues Annual Increase to PCORI Fee

As part of the Affordable Care Act, the fee to fund the Patient-Centered Outcomes Research Institute (PCORI) has been in effect since 2012, and by now, plan sponsors and insurers are very familiar with it. The fee itself was imposed as part of Sections 4375 and 4376 of the Internal Revenue Code, and is scheduled to be in effect for plan years ending after September 30, 2012 and before October 1, 2019. The amount of the PCORI fee is equal to the average number of lives covered during the plan year multiplied by the applicable dollar amount for the year. Of note, the applicable dollar amount is indexed each year.

The IRS has recently released Notice 2018-85; stating that for plan years ending on or after October 1, 2018, and before October 1, 2019, the fee will be increased from $2.39 to $2.45 per covered member. This will be the used to calculate the amount payable in July 2019 using the IRS Form 720. View the IRS notice directly by clicking here. Please also note that for calendar year plans, the 2018 plan year is the last year for which PCORI fees will apply given the sunset of the fees.

Posted November 8, 2018

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