Rhode Island Non-Profit Hospital CEOs Criticized For Big Paychecks
Tuesday, October 22, 2013
Because of the trend of for-profit chains buying non-profit hospitals, which has swept the nation over the last decade or so, only eight non-profit hospital groups remain in the Ocean State. Together, they control a total of 11 hospitals.
The total annual compensation of these CEOS ranges from a low of about $340,000, at South County Hospital in Wakefield to a high of more than $1 million, at Miriam and Rhode Island hospitals, both of which are in Providence and under the same corporate umbrella. The Miriam/Rhode Island CEO’s pay is about 40 percent greater than the national average for CEOs of non-profit hospitals.
The compensation that the top executives of these non-profit hospitals receive – both here and elsewhere across America - has caused the highly respected Journal of the American Medical Association to publish the eye-opening results of a new study. While CEOs compensation varies around the country, the average is almost $600,000 a year, according to the study of top executives at nearly 2,700 hospitals.
The overall conclusion may cause you to take a couple of aspirin. “Compensation of CEOs at non-profit hospitals was highly variable across the country,” the study finds. “Compensation was associated with technology and patient satisfaction but not with processes of care, patient outcomes, or community benefit.”
The Hospital Association of Rhode Island has yet to respond to numerous GoLocalProv requests for an interview. At the Rhode Island Medical Society, though, spokesman Steven Detoy is quite willing to comment on the study’s findings, asserting, “They don’t provide any kind of valuable information.”
However, Boston University’s Alan Sager, who is both professor of health policy and management and director of the Health Reform Program, disagrees strongly. He calls high CEO pay at both non-profit and for-profit hospitals “a toxicity” afflicting America’s health-care system.
Only patient satisfaction associated with CEO pay
The researchers examined seven data sources, including publicly available tax forms that were filed by non-profit hospitals in 2009. Their study included 1,877 CEOs responsible for 2,681 hospitals.
The CEOs of non-profit hospitals had an average compensation of $595,781 in 2009. The CEOs who were paid the least (median compensation of $117,933) were mainly responsible for small, non-teaching hospitals in rural areas. The highest paid CEOs (median compensation of more than $1.6 million) oversaw larger, urban hospitals that were often teaching institutions – such as Rhode Island Hospital.
association between compensation and a hospital’s financial performance or performance on process quality, mortality or readmission rates.
“Among the quality metrics we examined, only patient satisfaction was consistently associated with CEO compensation,” the study concludes.
In a related commentary, Dr. Warren Browner, MD, MPH, of the California Pacific Medical Center, writes, “Not surprisingly, the authors found that bigger, glitzier, and more prestigious hospitals – the Yankees and Dodgers of health care – pay their CEOs a lot more money compared with other hospitals.”
The study’s conclusion that advanced technology drives CEO pay might be right, Browner adds, “but an observational design cannot rule out alternatives, such as CEOs at fancier hospitals earn more because they are worth more, or because the members of the board compensation committees at glitzy hospitals are more accustomed to higher incomes.”
On the surface, Browner states, the most disturbing finding is that CEO pay correlated with patient satisfaction, but not with quality. The researchers see this as a missed opportunity, he adds, and recommend that hospital boards provide incentives for CEOs to meet quality goals.
“That advice seems strange, since every hospital CEO I know who receives incentive compensation already has quality-related goals,” Browner notes. “By contrast, patient satisfaction correlated with CEO pay, likely because the subjective experience called patient satisfaction is easy to measure, even though what it actually means is unclear.”
Toxity Has Slopped Over Into Healthcare
Sager, of BU’s Health Reform Program, says he’s not surprised by the findings published by JAMA. Major hospitals and teaching hospitals typically pay their CEOs more, while smaller and midsized hospitals tend to pay less.
The CEOs of the large hospitals also receive financial incentives for patient volume and bottom-line performance. “Those seem to be the things that [hospital governing] boards pay the most attention to,” he says.
It’s probable, Sager says, that teaching hospitals treat patients who tend to be sicker than those at non-teaching hospitals. “They probably have more high-intensity, high-acuity patients,” he says.
Should the CEOs of the large non-profit hospitals be paid much less? “CEO pay is a mess,” Sager responds. “The average corporate CEO - outside of health care – in the United States makes far more than their counterpart in other rich democracies.” That happens, he adds, “even when the counterpart [corporations] elsewhere are more profitable.” And the gap between the CEO and the average worker in the U.S., he adds, is also much greater than in other rich democracies.
In America, Sager points out, “the for-profit, corporate, CEO-salary toxicity has slopped over into health care. It’s been a steady leakage for maybe 20 years. The idea of gain-sharing or pain-sharing doesn’t make a whole lot of sense when CEOs can garner extraordinary bonuses for which they often deserve
In recent years, the Bay State has adopted state-funded health insurance, often called Romneycare. Now, the rest of America is gearing up for the national version: Obamacare. This sweeping movement toward publicly funded health insurance, Sager indicates, may help to purge the U.S. health-care system of some of that poison.
“It may be that as more patients have insurance, trustees of hospitals will need to pay attention to things like how to cope with growing numbers of patients coming into the emergency room. They now have insurance, but they haven’t got a doctor in the community who’s willing to accept their insurance,” Sager explains. “So there may be more pressure on hospitals to service the backstops, to protect access to care, and boards may have to pay attention to that. The pressure to protect access may grow before the pressure to protect quality does.”
Sager gives considerable kudos to Rhode Island’s Office of the Public Health Commissioner, which he calls “unusual” because it is the only one of its kind in the country. He credits the Office with having “leveraged the private payers to channel 10 percent of their premium revenue to primary care – and that’s really positive.”
One key remedy for high levels of CEO compensation at both non-profit and for-profit, according to Sager, is to require all insurers to pay the same amount for the same care. “Just like we all pay the same price for a gallon of milk in the supermarket,” he says. “That would help make the job of running a hospital much simpler. If the job of running a hospital were simpler, there’d be no need to pay the CEOs the very high salaries that they get today.”
A sense of CEO entitlement
High CEO pay is only the tip of the hospital-waste iceberg, according to Sager. He points out that hospitals - both for-profit and non-profit - across America spend way too much on administrative costs. He calculates that waste to be about 20 percent of the country’s $2.5-trillion annual health-care price tag – or about $500 billion annually.
This would not be the case if U.S. hospitals “were paid in simpler ways,” Sager maintains, because they would need far fewer highly paid administrators below the CEO level. They would also require much fewer clerks and accountants, he adds, “who have to track the money.”
Sager once thought big hospital-CEO salaries were “a side show, and why pick on individuals? But now I think the high salaries are a symptom of so much that’s toxic inside health care.”
In response to Sager’s strong words about hospital CEO pay, Detoy, of the Rhode Island Medical Society, says, “Obviously, he’s been studying this for a long time, so I’m not going to argue with him.” As the various components of Obamacare take effect, he adds, “there’s a lot of people making a lot of money in health care, and they’re usually not the ones who are actually delivering the [hospital] care. [Instead, they are] those who are running insurance companies, running hospitals, and running durable-medical-
At least one key factor has changed in the growing compensation disparity at American hospitals. There was a time when the doctors believed they were worth 20 nurses. Now, that hubris lies squarely in the CEO suites.
Steven Jones-D'Agostino is chief pilot of Best Rate of Climb: Marketing, Public Relations, Social Mediaand Radio Production. He also produces and hosts The Business Beat on 90.5 WICN, Jazz Plus for New England. Follow him on Twitter @SteveRDAgostino.
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