Compensation linked with profitability, waiting time, and quality measures. Mid-Atlantic Healthcare operates two medical groups, one in Philadelphia and one in Baltimore. The semi-annual bonus plan for each medical group’s president has three components:

a. Profitability performance. Add 1% of operating income.

b. Average patient waiting time. Add $50,000 if the average waiting time for a patient to see a doctor after the scheduled appointment time is less than 15 minutes. If average patient waiting time is more than 15 minutes, add nothing.

c. Patient satisfaction performance. Deduct $50,000 if patient satisfaction (measured using a survey asking patients about their satisfaction with their doctor and their overall satisfaction with Mid- Atlantic Healthcare) falls below 70 on a scale from 0 (lowest) to 100 (highest). No additional bonus is awarded for satisfaction scores of 70 or more.

Semi-annual data for 2009 for the Philadelphia and Baltimore groups are as follows:

1. Compute the bonuses paid in each half year of 2009 to the Philadelphia and Baltimore medical group presidents.

2. Discuss the validity of the components of the bonus plan as measures of profitability, waiting time performance, and patient satisfaction. Suggest one shortcoming of each measure and how it might be overcome (by redesign of the plan or by another measure).

3. Why do you think Mid-Atlantic Healthcare includes measures of both operating income and waiting time in its bonus plan for group presidents? Give one example of what might happen if waiting time was dropped as a performance measure.

January-June July-December Philadelphia Operating income S10,650,000 S10,600,000 Average waiting time 14 minutes 16 minutes Patient satisfaction 79 82 Baltimore S 950,000 Operating income $9,000,000 17 minutes Average waiting time 14.5 minutes Patient satisfaction 66 70