Monday, March 7, 2011

P4P: Examining Physicians Pay for Performance paradigms

Pay-for-Performance among Healthcare Professionals: A Mathematical and Comparative Analysis
A statement is proposed in the form of a factual claim:
Pay for performance systems are effective tools for improving quality, morale, and organizational effectiveness.

Quick definitive rhetoric in supportive of or hostile to such a claim is a one way trip towards making waste with a hasty generalization. Dependent factors include the amount of artificial economics being infused into the field. The compensation of employees is often considered only in bottom line terms: Labor is purchased as any other commodity, and wages fluctuate according to Adam Smith-type free market forces, depending upon demand and supply economics. Compensation, to the detriment of many employers, is often considered only as a cost of doing business. For those administrators who have begun to see employee packages as an essential human relations tool, compensation is an important link in the chain of capitalism: Compensation promotes or dissuades production; the level of production promotes or dissuades capital; the amount of capital promotes or dissuades the corporate economy; the corporate economy promotes or dissuades the organizational ability to recompense; worker compensation promotes or dissuades production…and so on.
From a purely logical and mathematical perspective, these dependent factors would create a normal regression analysis equation in the form:

Where βx²+βx represents the dependent variables affecting pay structure as outlined above, and represents the average base pay (Y-intercept). This polynomial is recognized as a parabola, with beta amounts reaching a peak positive or negative Y value. In other words, the value for peak performance is not a straight line in which the greater the pay, the better the performance; yet rather is a parabolic curve for which at some point, increased performance is no longer enhanced by greater pay, but rather decreases in quality. This can be the result of many different variables, including a larger patient base, less time spent per patient, and abuse of tests and procedures for financial gain.
Issues surrounding pay structures of the healthcare profession are inherently complex, and becoming even more so as the healthcare crisis in America continues to deteriorate. According to the former editor of the Journal of the American Medical Association, George Lundberg, M.D., JAMA, the economics of the healthcare industry cannot be equally compared to manufacturing or even other service industries because of the amount of artificial economics infused into the US healthcare system. Although some healthcare industries are more vulnerable than others to artificial economic factors, most healthcare economies have been affected in some way by managed care, government intervention, technological growth, and a fluctuating labor market (Lundberg 2003). Imperative and life-saving services have been eliminated as government funds are relinquished for other political efforts, particularly the military-industrial complex.
While patriots may think of this as part of the sacrifice and duty of wartime, which appears as a perpetual condition of the 20th Century and into the 21st Century, especially in regards to the continuing post 9-11 Middle East conflicts, giving one’s life for their country should not involve a tortuous lack of medical care and slow death by illness for our own citizens. We blow life-sustaining breath and continue compressions on foreign lands as we watch our own people flat-line in the name of Caspian Sea hegemony theories, oil, and the fear of terrorism.

Healthcare systems as an endeavor into capitalism have been walking a fine line since the introduction of medical insurance in the early 20th century. To address the factual claim regarding the viability of pay for performance compensation systems, I turned to the classic sociological and communication literature of two 20th century philosophers and academics, Abraham Maslow and Max Weber. Both are icons in the field of motivation and the human condition. Consonance and dissonance of traditional and personal belief systems are weaved throughout both of their themes: For example, performance expectancies of professional knowledge, abilities and skills will create dissonance in an employee who is first concerned with the needs and safety of family; yet, a performance bonus would be consonant with the employee’s fourth-rung esteem needs. Max Weber’s wrote that the Protestant work ethics and penchant for thriftiness are in consonance with successful capitalism models; yet work for the purpose of earning riches is dissonant to these same Protestant ethics. Weber’s infamous work in the area of bureaucratic management bring consonance to the management theories between the traditional dissonance of public and private organizations. They are, claims Weber, one and the same.

Maslow’s Hierarchy of Needs

Four common reasons bring people to enter the healthcare profession. Among these include the noble motive of a genuine quest to take care of people; and, less commonly, to reap the financial rewards traditionally associated with the industry and expanded by the massive technological advances of the 20th century.

Maslow’s Hierarchy of Needs requires that human survival needs are necessary before any other human need can be fulfilled. The first level of Maslow’s pyramidal hierarchy is that of physiological needs. It is the base of the pyramid, the largest, most important human need and all others are built upon these physiological needs. Following closely are the “Safety Needs”. Both of these base and basic human needs are controlled to some extent by the employer. The employee’s first quest in securing employment will be to seek out an organization that can provide for the physiologic needs, and secondly, that will provide some semblance of security. Too, healthcare professionals realize that there is money to be made in this industry, as the technological advances of the 20th and 21st centuries have improved the odds of making a good living in the healthcare field have increased dimensionally. But Maslow is quick to point out that although money is essential to survival and safety needs, it is not a panacea to a fulfilling and successful career and in consequence, to the issue of motivation of workers through their compensation—more specifically, through their paycheck.

Prior to Maslow’s first publication of his “needs” theory greater than 50 years ago,, motivation theory focused on specific, sustaining basic factors such as biology, achievement, or power to explain what sustains human behavior . Abraham Maslow, a social scientist and academic, synthesized a large body of research regarding human motivation into twp groupings of 8 needs. The groups were titled “growth needs” and “deficiency needs”. Deficiency needs are at the base of the hierarchy, and each need must be met before advancing to the next (Huitt 2003)

The growth needs reveal characteristics such as being problem-focused; incorporating an ongoing freshness of appreciation of life, a concern about personal growth, and the ability to have peak experiences. These characteristics were differentiated into the following four needs to top the pyramidal structure

Over the past 50 years, scientist and academics to continue to cite Maslow’s Hierarchy of Needs as support for a number of social theories; so much so, that the Hierarchy of Needs can be inferred as generally accepted social theory. Maslow clearly shows us that the amount of pay a person receives is only motivating to a certain degree, and the affect that money will have on ones life continues to increase, but more slowly—the amount of change that more money will make in motivating an employee’s life is relevant to the employee’s physiologic needs. The amount of performance that the employer receives (dependent y factor) in return for his investment in larger pay (independent x factor) minimizes as the physiological needs of the employee are met, creating an asymptotic relationship correlating the amount of money an employer pays to the less the measurable increase in job performance.
Max Weber and the economics of capitalism
Max Weber earned his esteemed reputation when he published The Protestant Ethic and the Spirit of Capitalism, a volume that economics specialist David Landes describes as “the most influential and provocative essays ever written” on the social sciences. Weber’s thesis was based on the warrant that Protestantism promoted the rise of modern capitalism, not by encouraging prosperity or invention, but by defining and sanctioning the everyday behaviors ingrained in Protestantism that were conducive to successful business. Weber began by affirming the underlying Protestant doctrine of predestination. Although belief in predestination did not succeed two generations, this dogma was “converted into a secular code of behavior: hard work, honesty, seriousness, the thrifty use of money and time” …both lent us by God (Landes 1998). Weber’s widely read work influenced Protestant America that a true Calvinist Protestant’s aim was not one of riches as divine favor, but of a different kind of businessman: one who aimed to live and work in a certain way; a way that mattered, and riches were merely a by-product of intrinsic value in work. As Maslow identifies the extent attached to the importance of money, Weber’s theories define the other given reason for becoming a healthcare professional: a true calling to take care of others and satisfaction with the intrinsic value of that task.
Max Weber went on to write “Bureaucracy”, an expose of the motivational components of the government administrative human relations system. The compensation system used by the federal government is considered by many to be one of the most desirable compensation packages for American workers available. Many of these ideas are now found in current human relations and motivational literature (Stillman 1998).
“Modern Officialdom”, as Weber named it, consists of enumerated items that describe the employees place in the organizational mission. Weber lists the characteristics of administrative management, and notes that government administration is not so different than private organization administration. Some of the concepts Weber espouses are noted with their relationship to healthcare management.
1. The principle of fixed and official jurisdictional areas generally ordered by rules or laws: federal and state wide statutes on the practice of medicine, and separate required licenses for each state (jurisdiction).
2. The principles of office hierarchy and levels of graded authority: State Licensing and education delineating physicians from nurses, nurses from social workers, social workers from lab technicians…and so on.
3. Office management, official activity, and the following of general office rules or laws; (medical drugs and devices usage laws, certification, state Health department requirements, and accreditation).
4. The employ is a ‘vocation’, and is set for a career; (generally true for professionals that have invested a good deal of education into their healthcare career choice).
5. The ethical duty to avoid abusing the power of that vocation; (the Hippocratic Oath, the American Medical Association ethical guidelines)
6. Regular pecuniary compensation according to status rather than amount of work done. (Physician compensation is greater than in nursing, which is greater than in admissions or clerical work)
Finally, Weber did not exclude the economic aspect, identifying a monied economy as essential to the leveling and democratizing effects that is the reward of his complex ideology of administrative organizational management, as applicable to private corporations as it is to government
What type of system is fair?
Since artificial forces control healthcare economics, compensation plans must be devised based on the organization’s culture, missions and goals. We have established that pay for performance is only effective to the point that the employee has reached the necessary material goals relevant to that employee’s culture and values. After that, intrinsic goals are better at motivating workers than the possibility of a merit raise at the employee’s annual review.
Still, that is not much help to corporate leaders, who must provide an attractive, fair and motivating compensation package for their employees, including the professionals. The US Federal government human resource systems modeled after Weber’s theories on bureaucracy are considered some of the best compensation plans, and comments to friends and family who secure a federal job seems to always includes the phrase “great benefits and security!”
The successful consonance of compensation for motivation in the private sector is so rare, that when a company does achieve a successful mix of pay and benefits, the story makes journal news. Meyners and Co., an 80-person, seven-partner, 45-CPA firm in Albuquerque New Mexico has successfully implemented a pay-for-performance system based on 360-degree feedback and win-win agreements. Using bonus pay for performance rather than a merit raise, Meyners and Co. also consults other firms in human resource issues.
A core competencies evaluation is essential to the plan. Core Competencies are defined as “specific skills and duties employees must be able to perform well to meet the firm’s profitability goals” (Brotherton 2003). The H-R executives at Meyners and Co. evaluate the core competencies as including 1) workplace behavior (core values) 2) business skills (core competencies); and 3) performance measures (meeting goals/win-win). . A 360-degree feedback performance analysis required the comprehensive creation of specific positional core competencies. (Refer to Rojas, K. “A Human Resource Management Plan”, for an example of a 360-degree feedback performance analysis for the RN Clinical Director position in the opiate-agonist addiction treatment field). While all three were included in the 360-degree-feedback, goal accomplishment assessment was the final analysis of a management by objectives plan, in which employees and supervisors established specific performance or educational goals and agreements that contributed to the organization’s mission (Brotherton 2003).
Perhaps the most innovative structure of this plan is in the method of payment for working hard to reach those goals: Rather than adding a percentage to salaries based on a pre-determined merit schedule, pay for good to excellent performance analysis is made through bonuses. Employees received annual salary raises by means of Annual Cost of Living Adjustments (COLAs).
Individualized evaluations are central to the pay for performance plan by Meyners and Co. This element is incongruent with pay for performance purist detractors’ positions, who claim that teams have become such an integral part of organizational structure that individual assessment is futile. Such across-the-board categorizing of industries—service, manufacturing, retail—is short-sighted one-way thinking that has no place in the creativity required to manage and motivate employees, whether the organization employs five or five thousand people.
Pay for performance is just one of the many issues facing healthcare today, but because of the chain relationship illustrated above, is the lynch-pin of the private autonomous healthcare care system that the United States is known for, be that good or bad. Although organizations and think tanks are busy rhetoricizing and analyzing the issue, only a handful of organizations have reached the balance that has proved effective in the Meyers and Co. example. We can infer from a comparative analysis between Max Weber’s governmental agency management theories and general tenets of capitalism that business management is universal regardless of the organization’s bottom-line. Accepting that governmental management of healthcare in the form of socialized medicine may indeed provide healthcare for all and a government compensation system that has proved itself to be effective; but must also ask if the consequences of socialized medicine are not too great a cost for the already frail democratic attempt. The recent healthcare crisis across the country has had serious deleterious effects on the rates of pay and methods of compensation for professionals, paraprofessionals, administrators, and support personnel in charitable hospitals, motivating entire medical units to close their doors to the infirm across the nation (Vaknin 2002). Imperative and life-saving services have been eliminated as government funds are relinquished for other political efforts, particularly the military-industrial complex.
Works Cited
Halsall, Paul (1998). Frederick W. Taylor: The Principles of Scientific Management, 1911. Modern History Sourcebook. Accessed on 10/31/03 at
Hunt, William G. (2003). Maslow’s heirarchy of needs. Education Psychology Interactive. Accessed on 10/31/03 at
Landes, David S. (1998). The Wealth and Poverty of Nations. New York: W.W. Norton. Pp 650.
Lundberg, George D. M.D. (2003) Severed Trust: Why American medicine hasn’t been fixed. New York: Basic Books.
Vaknin, Sam. (2002) The Sickly State of Public Hospitals. Accessed on 10/30/02 at
Weber, Max. (1947). Bureaucracy from Essays in Sociology. Translated by H.H. Gerth and C. Wright Mills in 1946, Oxford University Press. Accessed in Public Administration: Concepts and Cases 6th Edition written and edited by Richard J. Stillman, 1999. Boston: Houghton Mifflin. Pp 54-59
Health Data Management, Apr 2009. CPOEs; Editorial; Professional Journal.
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