ED The Cutting Edge

Fee-for-Service Nursing: An idea ready to be tested

By Thom Mayer, MD, FACEP, FAAP, Chairman of the department of emergency medicine at Inova Fairfax Hospital in Falls Church, VA; Robert Cates, MD, MS, Vice Chairman, and Rick Flinn, RN, MSN, Patient Care Director.

One of the most fundamental precepts taught in the nation’s leading business schools is that a successful business requires alignment of strategic incentives among the key stakeholders. Alignment of strategic incentives helps assure that these key stakeholders are focusing their best efforts and intentions toward a similar goal, preferably with similar incentives and reward systems. Without such alignment of incentives, different players are pulling in different directions and it is extremely difficult for the business entity to be successful. While we would like to think that most emergency department (ED) teams have aligned strategic incentives, in fact, in EDs across the country (and in healthcare systems overall), we often see a classic example of misalignment of incentives.

The majority of emergency physician groups are compensated in some form of either fee-for-service or discounted fee-for-service system, whereby the physician or the physician group is compensated directly or indirectly for increases in patient volume and profitability of the group. (While capitation is a popular strategy for reimbursement, it has not penetrated EDs as much as primary care [practices]). However, virtually all nurses in the country are compensated on some type of strict salary arrangement, usually based on a specific amount of compensation per hour. When an ambulance arrives at such an ED, the emergency physician sees not only a patient, but also a potential "revenue enhancement opportunity." For the nursing staff, it’s just more work. While this example may overstate both the physician’s desire for compensation from increased numbers of patients and the nurse’s focus on work as opposed to caring for ill and injured patients, the analogy is nonetheless useful. While highly motivated ED nurses always enjoy the challenge of a critically ill or injured patient, the vast majority of the patients seen, even those brought by ambulance, are not in that category. This is a classic instance where the physician’s incentive is geared toward direct or indirect increases in compensation and satisfaction from seeing larger volumes of patients, while the nursing staff is rarely, if ever, rewarded for increases in volume and acuity. Most business schools would agree that this is a classic case of misalignment of strategic incentives.

Compounding the problem further is the fact that many EDs across the country are facing unprecedented nursing shortages, particularly in securing critical care nurses with a year or more of experience. Indeed, many hospitals are experiencing nursing staff shortages in general, including in the operating suites, critical care units, and medical/surgical floors, as well as the ED. Experienced nurses now have attractive job opportunities with managed care organizations, demand management systems, research and education, and other careers—all of which have contributed to the drain of experienced nurses to non-clinical care settings. These shortages, combined with the misalignment of strategic incentives, actually create a substantial opportunity for healthcare institutions with a vision to be creative.

One creative solution to this problem is, in its most simplistic form, to simply realign the strategic incentives. Specifically, we propose the creation of "fee-for-service nursing." At Inova Fairfax Hospital, we have proposed that such a concept be created for one or more pilot units in the hospital to help address alignment of strategic incentives and current nursing shortages. It is a bold, but basic, concept intended to assure that nurses are appropriately rewarded for settings in which recognized increases in volume and acuity are experienced. It is intended to create both excitement in the care of the patient, as well as a culture in which nurses are preferentially drawn to a busy critical care setting in which their work is recognized and rewarded. It seeks to create a team-based compensation strategy similar to the manner in which our ED physicians are compensated.

Our physician group structure is one that is based strictly on a fee-for-service system. Physicians with the group are employees of the professional corporation, with a salary, specified benefit plan, and contracted number of hours for which they work. In this respect, they are similar to our nurses. However, our physicians are also compensated on a bonus basis, which combines issues of productivity, customer service, attainment of the group’s overall goals and objectives, and also recognizes seniority with the group. This bonus is paid on a quarterly basis, since this helps match the "immediate ego gratification needs" of our staff with appropriate compensation, which helps tie work and effort with more proximal rewards. Quite simply, at the end of each quarter, physicians receive a bonus based on productivity of the group, which is prorated according to their contribution to the overall billings of the group, as well as the customer service, team goals, quality goals, and seniority issues addressed above.

While many hospitals have some form of a gainshare program for their employees, these programs have some recognized weaknesses. First, there is often a fairly low relative percentage of revenues available to the staff, the goals are perceived to be too distant from the individual staff’s efforts, it is paid on a once-a-year basis, which is too distant to motivate most staff members, and, quite frankly, many staff feel they have little or no ability to impact the broad financial, quality improvement, and patient satisfaction goals outlined in such plans. This is largely true because most such gainshare goals are not unit-based goals, and the majority of ED physicians and RNs think in terms of unit-based operations.

Fee-for-service nursing is, at this stage, a proposal that has been put forward, but not yet enacted. To our knowledge, it has not been put in place in any EDs. It starts with a simple concept of aligning strategic incentives and reward systems. Second, fee-for-service nursing has a basic format in which key units with strategic significance and RN shortages are targeted as pilot units in which the success or failure of fee-for-service nursing will be examined. Nurses continue to be paid on a base salary and/or hourly rate compensation, with benefit packages similar to those presented in the past, including any existing gainshare programs. However, senior management and ED management then identify key drivers, among which may be volume, acuity, charges, collections, quality indicators, and customer service indicators to which all staff are committed and upon which the fee-for-service component will be paid. All such drivers must share several factors. First, those factors must reasonably be within the control and/or modification of individual staff members. For example, we want our staff to say to the patient, "Thanks for coming to see us, come back again if you need us." Such statements may help affect both volume and customer service ratings in the ED, and may well improve both customer loyalty and profitability. Second, a data system must be in place which can collect and monitor the key drivers of the compensation program (and the success of the institution) without massive staff time. If the measurement system requires too much staff time, it can be at cross strategic purposes with the incentives as originally aligned. Third, to the best extent possible, the incentives should be measurable and attainable on a short-term vs. long-term basis, meaning that they should be monitored and paid quarterly, as opposed to annually. Fourth, because of the differences in physician professional billing and nursing charging structures, measurements will not be possible for individual RN profitability, satisfaction, etc. Instead, some form of team-based compensation should be used that coincides with the strategic significance of our team-based philosophy in the ED.

Finally, the concept of fee-for-service nursing is based on a simple reward and measurement system which, in effect, helps align strategic incentives, creates a highly desirable work unit, improves employee satisfaction, improves recruitment and retention, and by definition, improves the key drivers identified by senior and ED management as being critical to the success of the unit.

The major drawbacks to fee-for-service nursing are three in number. First, this does involve the creation of an additional bonus pool that would need to be paid to the nursing staff over and above the baseline compensation that is available. However, if shortages exist in the unit already, the finances can come from two potential sources. In such settings, the nursing staff often works with a shortage of nurses, which may have an impact on volume, quality of care, and the customer service rating. By investing in the staff at times of shortages and when the staff is working short staffed, the hospital takes a more long range view in realizing that an investment of capital can result in substantial return on a long-term basis. In addition, many units are so short staffed that they are paying combinations of overtime, traveling nurses, and other bonus dollars for recruitment of nurses. If these dollars are instead committed to a fee-for-service nursing system, it is our belief that the revenue can be generated for the bonus plan. Second, piloting specific units for this program may create the possibility of an "elitism mentality" among those units, which need to be examined carefully by senior management, and specifically by the chief nurse executive. However, if fee-for-service nursing programs are successful, it is entirely possible they may spread throughout the hospital, helping to eliminate the sense of elitism. Finally, and in many respects most important, to create such a system takes substantial personal courage on the part of the management of the hospital and the ED. This is a model that is substantially different from those that have been utilized in the past, and it requires the personal integrity of those involved to assure that such a revolutionary concept is given a fair chance of success.

We believe that fee-for-service nursing is an idea whose time has come. It certainly requires the imagination to think of new ways of structuring financial compensation, as well as the considerable personal courage to see it through, but we believe it may help address alignment of strategic incentives and the recruitment problems that many EDs face.