Healthcare executive compensation changes to watch

Healthcare dollars are tight, and payments to physicians and hospitals are increasingly being linked to health outcomes and patient satisfaction scores. There’s even a call from some payers to tie pharmaceutical payments to medication efficacy.

It seems reasonable to assume that, at some point, this trend will reach payers, too.

Many companies already hold executives accountable for financial performance, but extending that accountability to the health of members may not be far away.

Humana Inc. announced in May 2016, in a filing with the Securities and Exchange Commission, that it would be instituting a new payment model for executives that is tied to both company fiscal performance as well as the health outcomes of members. The company will tie 20% of executive bonuses to member health metrics in fiscal 2016, and the remainder will be based on whether Humana hits its financial targets.

“Our board’s organization and compensation committee made certain changes to our cash incentive program to align all leaders to our shared enterprise vision, one of which was the inclusion of consumer health metrics as a performance target,” says Mark Mathis, director of corporate communications for Humana. “Rather than a performance target based on the attainment of a single pre-established earnings per share (EPS) objective, the committee set 2016 incentive targets based 80% upon EPS and 20% upon certain pre-established consumer health metrics, to incentivize our executives to take actions to improve the health of our members.”

Humana executives failed to earn bonuses in 2015, according to the filing, partly because Humana intentionally set the bar high in order to reward its leaders only for exceptional performance.

New measures

The addition of a member health outcomes metric to executive bonuses is a roundabout way of also improving the cost of care and therefore financial performance.

“The consumer health participation performance metric, or CHP, focuses on increasing the levels of participation by our members in various programs and services proven to improve health outcomes and lower the cost of care,” Mathis says. “The committee selected five leading indicators of health outcomes to measure CHP performance … These were selected on the basis of being applicable to the medical lines of our business and the company’s overall business outcomes. Furthermore, they are closely aligned to the company’s strategic vision of improving the health of the communities we serve 20% by 2020, and by making it easier for people to achieve their best health.”

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