How can we pay employees to get the best performance in healthcare systems? Where should incentives be placed and what should they look like? How can we control costs by fine-tuning incentives?

A fundamental question for many organizations is how to remunerate staff for their work; how to pay employees in order to attract and retain the best top talent, incentivize high performance and gain a competitive edge. However, in some service industries, such as healthcare, pay is about much more than hitting a production number. Currently a hot-button issue – how clinicians are and should be paid for their work – is a topic of much academic and public debate in the healthcare management field [1].  As most organizations and management can recognize: having professionals incentivized to do more while the organization is being pressed to ‘do less’ (e.g. reduce production and cut costs) can create tensions and undermine performance goals.

To become more financially sustainable and achieve performance goals, health systems across Europe are calling for a move from activity-based payments towards performance-based pay. In some countries such as the Netherlands, this also involves first moving clinicians to salaried contracts. Instead of being paid based on number of patients seen, payment is based on hours worked (e.g. salaried contracts) and ideally, also connected on performance outcomes (quality of care).

Intrinsically, physicians have an interest in providing the best care for patients and in increasing care quality, yet in practice we see that payment systems drive behaviors that may undermine quality care and lead to unsustainable costs for the healthcare industry. One take on this is purely economic; we can view professionals as utility maximizers, working in their own self-interest to do as much as possible to increase their own income. Another view focuses attention on system failures, highlighting that the system itself is poorly designed, filled with perverse incentives and measuring performance at the wrong level by encouraging physicians to do more to get more, putting them in competition with one another for scarce resources.

But do we really know what the best system is? Evidence continues to show mixed results about the outcomes and effectiveness of different payment systems [2], meaning that we still don’t quite know exactly how to pay professionals to really get what we want. Importantly, we also cannot entirely predict what the potential negative effects may be on patient care and quality when physicians would be moved to alternative systems. In addition, seemingly missing from this ongoing conversation are the perceptions and feelings of professionals themselves about the systems they currently, or would ideally, operate in.

Our research

In our research, we explore how physicians perceive their current and potential payment systems to try to unpick the dynamic relationship between pay and behavior for intrinsically motivated professionals. Overall our findings show that pay is about much more than money, and comes to take on symbolic value that exceeds the monetary element. While money certainly matters, what it represents tends to matter more. For hospital-based physicians, payment is partly a protection, affording them the ability to direct resources and to exercise discretion based on their clinical expertise and knowledge, for example ordering diagnostic tests and using the materials they think are best for patient care.

We also find that switching physicians to salaried contracts entails a loss beyond compensation as professionals also lose the ability to ‘run their own shop’. For some professionals, such a shift is perceived to threaten core professional values and role identities. When we begin to incorporate this view, it is no surprise that many recent policy reforms (in the Netherlands) targeting physician payment have been met with resistance.

Based on our research, we suggest that policy makers and management should take a closer look at the links between payment and professional values when considering making a change. As external pressures grow and attempt to increase managerial control over professionals, management must also take into account the core values of the professionals they are working with and recognize that changes to compensation may constitute significant threats. For physicians, changing a payment scheme is more than losing a percentage of salary – it also means the fear of losing organizational, clinical, and professional autonomy. This may trigger change resistance and lead to increasing tensions and divides between professional staff and management, which can negatively impact performance, job satisfaction and organizational survival in the long-term.

Resistance to change cannot be resolved simply by the rote prescription of ‘including employees in change processes’. Only with taking a more nuanced view to issues of compensation, particularly when working with professional staff, we can begin to implement meaningful changes and improve performance without triggering change resistance. This also aligns with research that shows it takes ‘more than money or nudges’ to get clinicians to make better decisions [3].  Recent research hints at the need for more dynamic and nuanced views of healthcare improvement strategies, which requires thinking more vigorously about organizational dynamics and considering the views, feelings, and values of all stakeholders. Only then will we begin to develop and implement strategies and structures that get us where we need to go, and that help us avoid any unintended outcomes along the way.

Rachel Gifford (R.E.Gifford rug.nl) is a PhD candidate at the Department of Human Resource Management & Organizational Behavior, Faculty of Economics and Business, University of Groningen. Her research focuses on the impact of organizational models and payment systems on group dynamics and collaborative engagement within healthcare organizations. 

References

[1] Porter, M.E. Kaplan, R.S. (2016). How to pay for healthcare. Harvard Business Review. 94(7). 88-98.

[2] Eijkenaar, F. (2012). Pay for performance in health care: an international overview of initiatives. Medical Care Research and Review, 69(3), 251-276.

[3] Tsugawa, Y., Mafi, J.N. (2018). Getting Doctors to Make Better Decisions Will Take More than Money and Nudges. Harvard Business Review.