How a lot ought to hospital CEOs make?

By Michelle Crouch and Rose Hoban

As well being care prices proceed to rise, the executives of North Carolina’s 9 largest nonprofit hospital methods have acquired double- and triple-digit share raises over the previous decade, in accordance with a report launched final week by the State Treasurer’s Workplace.

The report discovered that the hospital methods paid their high executives greater than $1.75 billion from 2010 to 2021, and the common CEO compensation was $3.4 million in 2020. Each system besides WakeMed doubled the wage of a CEO in 5 years or much less throughout that timeframe, in accordance with the examine ready by the treasurer’s workplace and consultants at John Hopkins and Rice universities.

The report — the newest in Treasurer Dale Folwell’s ongoing battle in opposition to the state’s hospitals — reignites long-standing questions on how well being care executives are compensated and the nonprofit nature of hospitals.

Folwell and the tutorial authors of the report mentioned the compensation information raises questions on whether or not executives are incentivized to generate income in ways in which threaten affected person security and drive up well being care prices for sufferers. The hospitals, although, say they’re massive and complicated companies that want to supply leaders aggressive compensation packages.

The report provides to a rising nationwide debate about what constitutes truthful costs charged by hospitals in an surroundings the place affected person costs are rising and there’s widespread inequity in who can entry care. Whereas the pay packages of CEOs is likely to be eye-popping, some query whether or not these salaries are only a symptom of a bigger drawback in well being care – a necessity for extra regulation of earnings with an eye fixed in the direction of enhanced affected person profit.

Treasurer: CEOs’ wage hikes dwarf staff’

The treasurer’s report contains information from Atrium Well being, Mission Well being, Novant Well being, Vidant Well being, Duke Well being, Cone Well being, WakeMed and Wake Forest Baptist Well being, in addition to UNC’s Rex hospital. (UNC Well being didn’t submit its compensation report in time to be thought-about for the examine.)

In response to the report:

• Atrium Well being CEO Gene Woods’ compensation grew by 473 % over six years. He was paid $9.8 million in 2021.
• Former Mission Well being CEO Ronald Paulus’ paycheck grew by 726 % in lower than a decade, to $4 million in 2019 earlier than the system’s sale to HCA Healthcare.
• Duke Well being doubled the paycheck of its CEO twice in a single decade. CEO Eugene Washington made $2.7 million in 2020 — a 120 % elevate from 2016 — and former CEO Victor Dzau retired with an $8 million compensation package deal, 187 % greater than what he took residence in 2011.

“We’re seeing an enormous switch of wealth from staff to hospital executives,” Folwell mentioned final week after releasing the report. “These nonprofit hospital executives have misplaced their mission. They’re imagined to make individuals higher, not make themselves richer.” 

The report mentioned the CEO pay raises dwarfed these given to nurses and different frontline staff throughout the identical timeframe. From 2010 to 2019, nurses nationwide acquired on common a 16 % pay enhance to $66,440, in accordance with the report, whereas household drugs physicians’ wages rose 22.7 % from 2010. (Many hospitals have applied further raises for workers since that point.)

The pandemic didn’t get in the best way of pay raises for many executives, the report discovered. Nonetheless, three methods — Duke Well being, Novant Well being and Cone Well being — reduce their CEO compensation in 2020.

Hospitals: Comp packages assist them appeal to expertise

The hospitals argue they need to pay competitively to draw and retain high expertise.

An announcement by the North Carolina Healthcare Affiliation, which represents hospitals, mentioned the treasurer’s report fails to offer context on the challenges going through hospital executives, “challenges that demand they act quick, assume outdoors the field, make troublesome and high-stakes selections, and tackle new group health-building roles along with coping with the state’s ongoing and rising behavioral well being care disaster.”

Atrium Well being mentioned in a press release that retaining business-savvy leaders requires a aggressive compensation package deal: “As a nonprofit well being system, we don’t have the luxurious of offering inventory choices and different typical company perks.” 

In contrast with the personal sector, hospital CEOs are typically compensated lower than counterparts who lead equally sized firms, in accordance with a North Carolina Well being Information/ Charlotte Ledger evaluate of securities filings.

For instance, Charlotte-based Atrium Well being mentioned it took in about $12.94 billion in income in 2021. That may have made it No. 287 on the Fortune 500 record, an annual rating of publicly traded firms — barely larger than media big Fox Corp. 

Atrium Well being’s Woods earned lower than every of the leaders of the 4 Fortune 500 firms closest to Atrium in income. Electrical infrastructure firm Quanta Companies paid its CEO $11 million, Fox paid its CEO $21.7 million, packaging provider Crown Holdings paid its CEO $11.8 million and utility holding firm Sempra paid its CEO $24.7 million.

North Carolina’s nonprofit CEO salaries additionally pale compared with the salaries of some for-profit hospital executives. Sam Hazen of HCA Healthcare, for instance, collected $30.4 million in complete compensation in 2020. That made him the best paid CEO of a publicly traded hospital system that 12 months, in accordance with Fierce Healthcare. HCA is the $60 billion for-profit system that bought Asheville’s Mission Well being in 2019.

Hospitals pay execs greater than different nonprofits

Whereas they make lower than their personal sector counterparts, hospital govt pay tends to far exceed that of executives at different kinds of nonprofits.

The typical annual CEO pay in most nonprofit industries for 2018 was between $100,000 and $200,000, in accordance with a 2022 evaluation printed in Well being Affairs. The 2 kinds of nonprofits that had been out of line had been college CEOs, who had been paid a mean of $350,000, and hospital CEOs, who had been paid $600,000 on common, the researchers mentioned.

“At the moment, hospital boards evaluate the compensation of their CEOs to not different community-based nonprofits however to their for-profit publicly traded hospital CEO friends, who themselves are in comparison with leaders within the largest industrial and monetary firms buying and selling on Wall Road,” the Well being Affairs authors wrote. “Since many boards set CEO wage by acquiring ‘comparable’ wage information, this turns into an ever-spiraling upward cycle.”

Bob Berenson, a researcher from the City Institute who research hospital and well being economics, mentioned he doesn’t assume CEOs at nonprofits “ought to make the form of cash they’re making, however they’re advanced organizations.”

He added, “If they really had been capable of present good providers to the uninsured and low earnings individuals and get by on decrease costs, which they need to be capable to do, they deserve some huge cash.” 

Folwell and different critics mentioned if nonprofit hospitals are paying their executives thousands and thousands of {dollars}, they must be held extra accountable to their charitable missions.

Berenson mentioned that hospital CEOs are usually not getting paid for being mission-driven. 

“What they’re getting paid for proper now’s to barter very excessive costs with industrial insurers and turn into monopolies,” he mentioned. “If they really did what’s within the public’s curiosity, I’d be more than pleased to pay them $15 million.”

Would slicing CEO pay make a distinction? 

“Many nonprofit hospitals are usually not dwelling as much as their charitable mission,” Folwell mentioned in an electronic mail to NC Well being Information/Charlotte Ledger. “Nearly all of massive methods did not justify their tax breaks with charity care, and a few even billed thousands and thousands of {dollars} to poor sufferers. These research present that there’s something mistaken in well being care.”

He argued that it’s time to take one other have a look at the tax exemptions given to nonprofit hospitals.

Berenson agrees with Folwell, however mentioned that whereas the excessive salaries is likely to be outrageous, the analysis exhibits it’s going to take greater than public consciousness to deliver these salaries — and well being care prices — down.

The best mechanism for bringing down medical prices is to control costs, in accordance with an evaluation performed by the nonpartisan Congressional Finances Workplace final fall. 

“That you must do what Rhode Island has performed and a pair different states are pondering of doing, like Massachusetts, which is mainly placing a cap,” on the costs that hospitals negotiate with insurers, Berenson mentioned. “It’s operationally not easy, however it’s completely doable.”

Folwell has pushed for extra transparency in well being care pricing, however the CBO report discovered that ends in “very small” value reduction for sufferers. As an alternative, the CBO discovered that authorities regulation was what truly resulted in “average to massive” value reductions.