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16 August, 2011 Posted by John G. Self Posted in Recruiting
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Annual Performance Reviews: The End of an Entitlement

Posted August 16th, 2011 | Author: John G. Self

Employees cherish a gross sense of entitlement in the form of their annual performance review and the almost certain yearly raise.  In many organizations, this “right” extends to  the very job itself, regardless of performance or economic conditions.

 The irony in the odd conceptual evolution of annual  performance reviews and obligatory raises, is that we are not talking about a unionized workforce. 

 In good economic times, this sense of entitlement in the workforce grows.  In bad times, it is the source of enormous friction and decline in employee morale, both of which create a distraction from the organization’s mission.

In many U.S. Hospitals, the system has been in place so long that employees cannot imagine any other alternative.  As long as hospitals are doing well — defined as having ample days of cash on hand — there is no sense of urgency to change.  In this misaligned employer-employee relationship, the business principle that cash covers a multitude of sins could not be more accurate. 

As healthcare providers we know, or should know, that we are on the verge of a tsunami of change that will, sooner than later, force an overhaul in our business model, a variation of which we have used since the arrival of Medicare in the mid-1960s, with a course correction in the mid-1980s with the implementation of DRGs.  Congress and regulators have tweaked the model so many times that we now operate business systems that are so complex that our patient bills are almost indecipherable.

The Patient Protection and Affordable Care Act, which in theory is designed to reduce healthcare spending, may or may not be fully implemented.  In the end, that will be up to the 12 wise men on the Supreme Court, but that is not the big game changer that will blow up the current system of how we deliver care and how much we are paid.  The bomb is the inevitable sharp and ongoing reductions in Medicare and Medicaid payments that will be necessary to control the annual deficit and long-term debt which are, previous Congressional cuts in spending notwithstanding, still very much out of control.

So the day of entitlements as evidenced by so many current dysfunctional performance review and annual merit pay programs, will require a shift in the traditional top-down, command-and-control relationship  that we “enjoy” with our employees today. 

When the next round of federal reimbursement reductions, that will be steady in their frequency and painful in their impact, begin, it will be too late to recover if you are not prepared. 

The smartest guys in the room, those CEOs who understand that this inevitable storm is building on the horizon, are already beginning to think about what the next generation of health system will look like, how it will be organized, and what all of this will mean to their employees, increasing numbers of whom will be physicians. 

On Friday I will outline an essential first-stage employee strategy.  Until then, I would like to hear what you think.  How do you see the deficit/debt crisis affecting our existing business model and what would you do to prepare for a challenging future?

© 2011 John Gregory Self

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