Revenue cycle management — a four-step approach to developing an effective compensation plan for hospitals and health systems

As healthcare reform continues to evolve, particularly around financial reimbursement, so do the jobs that support this critical function of healthcare entities.

The changing landscape has caused new and greater challenges with revenue cycle functions such as medical coding and therefore places increased pressure on compensation practices for these select jobs. Some of the more recent challenges have been the movement to electronic medical records, the required upgrade from ICD-9 to ICD-10 and the increased opportunity to work remotely. Moreover, the change in reimbursement models from a volume-based to a value-based fee system has caused tighter contribution margins in most hospitals, which also creates challenges with maintaining competitive pay practices.

Organizations have become increasingly concerned, given the increased competition from the virtual landscape, with their ability to retain talent; attract quality candidates; upgrade the required skill sets; and recognize, reward and keep employees engaged. As a result, the compensation practices for these positions have been evolving from what has historically been primarily fixed salaries, to a mix of fixed and variable compensation.

Over the last three years, published surveys have shown a steady incline of organizations introducing variable compensation plans for revenue cycle jobs as a means to keep pace with the competitive market while placing more accountability on employees and increasing bottom-line revenues. However, changing compensation practices requires an approach incorporating the following four steps to ensure successful design, implementation and outcomes:

1. Gather organization insight. Through conversations with leadership, our initial process is to gain an understanding and perspective of current compensation practices; strategic priorities; and attraction, retention and engagement issues.

2. Conduct a market competitive analysis. To gain insight on market competitiveness, the next step is to benchmark select revenue cycle jobs to the published compensation survey jobs and gather market base salary and total cash compensation data. Where available, data regarding variable pay practices by job and function/level would also be gathered. Market findings indicate the competitive market gap, which can influence the type of plan or plan design considered for a particular healthcare organization.

3. Develop goals and principles for the proposed compensation plan. Based on the organization’s strategic priorities and market best practices, the organization defines the goals and principles it believes will support achievement of the compensation plan. These goals and principles become the guidelines for developing the compensation plan.

For example, the organization may want to articulate what behaviors the plan should influence as a principle of the plan, such as, “The plan creates incentive to drive productivity, quality and ultimately increased revenue.” An example of a goal would be something like, “The plan is reasonably simple to administer.”

4. Develop a compensation framework that defines the compensation plan and governs the organization’s revenue cycle jobs. The compensation framework is customized to the organization and therefore could either be developed to govern the entire function or further segmented into sub-functions such as billing/collections, medical coding and the like. Within the function or sub-function, the framework defines base (or guaranteed) pay, at-risk (or variable) pay, performance metrics, timing of at-risk payout, and any additional compensation (e.g., on-call pay).

With the transformation of the healthcare landscape in areas like revenue cycle, sustaining the workforce becomes more challenging and requires organizations to be more nimble and innovative to acquire and motivate the right talent. Incorporating this approach into the compensation practices for revenue cycle will not only impact employee attraction, retention and performance, it can ultimately improve bottom-line results.

Ruth Ann Looney is a Senior Consultant in Willis Towers Watson’s Human Capital and Benefits practice. She has more than 20 years of combined experience in the not-for-profit sector and healthcare industry. Her consulting experience crosses executive, physician, and broad-based compensation, from establishing compensation strategies to designing rewards programs, such as salary structure, pay-for-performance and incentive compensation. Prior to working in professional services, Ruth Ann managed and administered compensation, group benefits and retirement programs in the hospital environment for over 12 years. Ruth Ann Looney can be reached at ruth.ann.looney@willistowerswatson.com.

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