Chapter 19, Problem 19.36P

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

1. a. Profitability performance. Add 0.75% of operating income.
2. b. Average patient waiting time. Add $40,000 if the average waiting time for a patient to see a doctor after the scheduled appointment time is less than 10 minutes. If average patient waiting time is more than 10 minutes, add nothing.
3. c. Patient satisfaction performance. Deduct $45,000 if patient satisfaction (measured using a survey asking patients about their satisfaction with their doctor and their overall satisfaction with Family First 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.

Semiannual data for 2017 for the Philadelphia and Baltimore groups are as follows:

	January–June	July–December
Philadelphia
Operating income	$10,250,000	$10,600,000
Average waiting time	8 minutes	12 minutes
Patient satisfaction	77	71
Baltimore
Operating income	$9,000,000	$7,500,000
Average waiting time	15 minutes	8 minutes
Patient satisfaction	64	73

1. 1. Compute the bonuses paid in each half year of 2017 to the Philadelphia and Baltimore medical group presidents.
2. 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. 3. Why do you think Family First 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.