slides: Central MA Non-Profit Hospital Chiefs Criticized For Big Paychecks

Friday, October 18, 2013

Steve Jones-D'Agostino, GoLocalWorcester Contributor

The total compensation of Central MA non-profit hospital CEOs ranges from $200,000 to more than $2 million.

The American health-care system may be quite deathly ill. But the paychecks CEOs of Central Massachusetts non-profit hospitals are quite healthy.

Because of the trend of for-profit chains buying non-profit hospitals, which has swept the nation over the last decade or so, only four non-profit hospital groups remain in Central Mass. They are: Harrington Memorial Hospital in Southbridge; Heywood Healthcare, with campuses in Athol and Gardner; Milford Regional Medical Center in Milford; and UMass Memorial Health Care, with campuses in Worcester, Clinton, Leominster, Marlboro and Palmer.

The total annual compensation of these CEOs ranges from a low of about $200,000 at Heywood Healthcare to a high of more than $2 million, at UMass Memorial. The UMass Memorial pay total is nearly four times the national average for CEOs of non-profit hospitals.

For the paychecks of all four CEOs, see the slides, below.

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.”

In response, Dr. Ronald Dunlap, MD, president of the Massachusetts Medical Society, calls the pay of CEOs at non-profit hospitals a matter of “subjective judgment.” However, Boston University’s Alan Sager, who is both professor of health policy and management and director of the Health Reform Program, disagrees strongly, calling high CEO pay at both non-profit and for-profit hospitals “a poison” 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.

Non-profit hospitals with higher patient-satisfaction scores tended to pay their CEOs more, and advanced technology at a hospital was also associated with substantially higher CEO pay. However, a hospital’s provision of charity care was not associated with CEO compensation, and there were no significant 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.”

Call for prudence, common sense and thoughtfulness

With health costs and spending continuing to rise, executive compensation is an important topic in all parts of the health-care industry, Dr. Dunlap of the Mass. Medical Society tells GoLocalWorcester.

“The pay of hospital executives can and should vary widely, depending on a number of factors, including the location and size of the hospital, number of staff, and the services and complexity of care that are offered,” Dunlap states. “While the [JAMA] study may not have directly linked compensation to quality of care, I believe quality care is a goal of every hospital executive, as the reputation of the individual and [the] institution are at stake and patient care has become a priority throughout the healthcare industry.”

In the end, Dunlap concludes, determining a salary is a subjective judgment made by compensation committees based on experience and qualifications and subsequently meeting goals and objectives. “While given levels of pay may remain open to debate,” he states, “we hope and expect that hospital boards of directors will exercise prudence, common sense, and thoughtfulness in judging and determining appropriate salaries and other forms of compensation.”

The poison has flowed over into health care

Sager, of BU’s Health Reform Program, says he’s not surprised by the findings published by JAMA. Major hospitals and teaching hospitals, such as UMass Memorial, 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 such as UMass Memorial treat patients who tend to be sicker than those at non-teaching hospitals. “They probably have more high-intensity, high-acuity patients,” he says.

The study cited by JAMA breaks out findings by regions of the county, but not by state. Sager says he doesn’t think there’s anything about either Mass. or Central Mass. that would cause them to be deviations from the Northeast regional norm. “In many parts of Massachusetts, including the central part of the state,” he observes, “large number of small and midsized community hospitals has joined up with, or been bought out or taken over by, major medical centers” such as UMass Memorial.

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, “that particular kind of poison has flowed over into health care.”

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.”

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 – 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 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.”

As for focusing on high hospital-CEO salaries, Sager points out that “they are very visible to everybody who works in health care,” such as the registered nurse who makes 20 times less than the CEO. “It also leads to this sense of CEO entitlement,” he adds, “when they think they’re actually worth 20 nurses.”

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.”

At least one key factor has changed in the growing compensation disparity at hospitals in Central Mass. – and across America. 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 Media and Radio Production. He also produces and hosts The Business Beat on 90.5 WICN, Jazz Plus for New England. Follow him on Twitter @SteveRDAgostino.