VIDEO | Aligning Leadership Incentives in a Changing Health Care Landscape

Health systems today are facing rising costs, shifting regulations, and uneven post-pandemic recovery across regions.

Some are doubling down on financial discipline, while others are prioritizing transformation.

Against this backdrop, executive incentive plan design has become a critical lever for aligning strategy, accountability, and performance

In this video, Jeff Softcheck explores how health systems can balance immediate goals with long-term priorities, plan for the impact of recent tax legislation, and effective strategies for calibrating incentive performance goals.

Video Transcript

When reviewing incentive plan design, what are the most important elements for organizations to evaluate?

I think getting back to the fundamentals: Are the objectives of the incentive plan clear? For some larger organizations, there might be a need to see some regional and divisional, or local, executions at that level and cascading goals throughout the organization.

That’s not going to work for everybody. I think some organizations need to really look at what they’re trying to drive, how they’re trying to drive it, where the accountability lies – and then understanding that every market that they serve, for larger organizations, may not be the same. That’s a tricky thing to do.

I think our clients are very invested in success across the organization, but I think really we’re looking at ‘What’s the runway for improvement?’ and ‘How do we actually get there?’

The fundamentals are super important, right? The clarity of the objectives of the plan, as well as the communication with regards to the expectations and how we’re actually going to move from point A to point B….that’s where I think the devil’s in the details, and you really need to make sure that this is clear for all the plan participants.

How can health systems balance immediate performance goals with longer-term priorities for growth and transformation?

I think with the known headwinds that are coming for the industry, I think everybody is looking at a way to balance short-term objectives and long-term objectives. There’s still a big need in the industry to continue to grow in profitable service areas and profitable service lines – but that means you’re going to have to be extremely vigilant and rigorous around tightening the belt around every dollar that you’re spending on a year-to-year basis.

We’re looking at job architecture. We’re looking at alignment between physicians and the APP workforce to drive productivity. We’re looking at access measures to make sure that we’re meeting the needs of the community.

I think all of those things, if done right in the short term, are setting ourselves up for long-term success as an industry.  Each health system is dealing with those in their own unique markets – it’s not consistent across the nation. Everybody has a different financial outs, outlook and landscape.

I think every health system is in a different place. They’re looking at their geographic expansion. They’re looking at their real estate costs. They’re looking at their labor costs as well as management structure and compensation plan. All of those things, if executed on in the short-term are setting the health system up for long-term success.

Although every health system has a plethora of areas of opportunity that they could focus on for their incentive plans, I think choosing the four to six areas that you can’t miss and really need to focus on for the next couple years is going to be imperative and paramount for success.

I think there’s also a tie into how the physician incentive plans and APP incentive plans are also tied to the executive plans.  Making sure that everybody is rowing in the same direction is going to be critical for the next couple years as we look at recruiting and retaining providers as well as executing on the organizational strategies.

How should organizations consider setting financial goals as they plan for the impact of 2025’s tax legislation?

I think every health system right now is evaluating the impact of the legislation that has passed and the financial implications that it will have for their organizations. There’s no way to directly pinpoint what the impact is going to be precisely, but the range from high to low – it’s going to be somewhere in there.

I think everybody’s looking at their financial plans and their long-range strategic plans and understanding where they’re going to spend their money and how they’re going to save costs to offset the potential impacts.

What that means in this terms of uncertainty is that we’ve got health system goals that are actually being set a little bit wider than what is typical with that unknown, with the risk, especially for long-term strategic plans, and understanding where you can actually make improvements to offset some of that. So, specific service line growth – looking at revenue, looking at cost control and utilization, looking at expenses per dollar.

If you’re in the full risk business, I think a lot of those health systems are looking at how they can shore up their system of care and understand how to make that most efficient – both for patients and for the health system alike.

What are effective strategies for calibrating incentive performance goals?

As plan participants look at balancing achievability with aspirational goals and understanding that these are core components of compensation. This is a very important piece that I think sometimes doesn’t get enough time and effort dedicated to it.

I think looking at market rates of change, looking at internal rates of change, understanding of probability of achievement so that you can land the ship right where you want to each and every year.

With regards to the goal calibration, I think a formalized compensation philosophy is super important and can be useful across multiple performance pillars. When you’re talking about financial goals, quality goals, infection goals, patient experience goals – obviously those are vastly different areas of performance. But having that formalized compensation philosophy can really aid the entire organization to come at it from the same lens: Where are we currently? Where do we want to get to? What does that path look like?

And it’s not always equal across all those areas – you may be very well high performing in turnover, but you may be less high performing in financial goals. It’s okay to have somewhat different paths to where you want to get to. Some goals may be two years. Some goals may take you four or five years.

I think what you’re trying to do is build momentum within the organization, understand that these are core elements of compensation, and you really need leadership and staff to buy in for success.