Study finds $20 billion in ineffective healthcare incentives

The 2012 Incentives for Health Professionals report released May 14 by sales and marketing consulting firm ZS Associates found that 75 percent of compensation incentives are so small or poorly communicated that they do not produce the work outcomes healthcare employers expect to get.

The analysis reveals that incentives as currently used are not an effective motivator for healthcare professionals and waste an estimated $20 billion in resources.

ZS Associates surveyed more than 4,500 healthcare providers and payers who use pay-for-performance incentives to evaluate how such incentives are being used in the healthcare industry and how effective they are at changing behaviors and meeting established goals.

“[W]e’re spending a lot of money on [incentives], but the way, so far, that we’ve implemented them is not leading to the results that we might expect,” said Torsten Bernewitz, the report’s co-author and ZS Associates’ managing principal for the healthcare insurers and payers practice.

While healthcare employers are offering their doctors and nurses compensation incentives, many of those health professionals were not aware of the rewards being offered or were not able to distinguish incentive pay from base pay, ZS Associates’ researchers found. And one-third of respondents who knew about the incentives did not find them motivating.

Bernewitz said that the report should be seen as a warning signal to the healthcare industry that course corrections are needed if the use of incentives is to be as effective in healthcare as they are in other industries.

“Incentives are really important because reforming the healthcare system is about changing behaviors and incentives can be a very powerful tool to change behaviors,” Bernewitz said. “It helps that along if we do it in the right way.”

The report suggests four ways to improve incentive efforts:

  1. Increase the “at-risk” component. Increase the amount of money that is truly at risk. If goals are not achieved, that will be reflected in the paycheck. That “at-risk” amount needs to be greater than it commonly is currently, said Bernewitz, to get people’s attention.
  2. Sustain the signal. Instead of an annual summary of incentive payouts, provide regular summaries to increase awareness.
  3. Get the metrics right. Some incentive programs are so focused on metrics that the effect is to dilute the incentives; therefore, employers should focus on a few critical outcomes and tie incentives to those, said Bernewitz.
  4. Communicate. Provide clear and frequent updates so employees can keep track of their goals and how they’re doing in achieving those goals through the year. Also give employees a chance to be a part of the incentive program design process.

Bernewitz commented, "It’s a learning curve, so we need to think about how we can use incentives in a slightly different way or implement them in a different way so that they really achieve the goals we have with them."


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