Compensation for Medical Executives Puts Priority on Paper Pushing, Not Patient Care

Doctors are high wage earners, but would it surprise you to know that, compared with medical industry executives, their incomes look rather ordinary?

A news analysis last week in the New York Times questioned why physicians, the most highly trained members in the industry’s work force and the ones primarily responsible for actually making ill people better, aren’t paid as well as the people who oversee the business of medicine.

And the gap is considerable. The salaries of certain job descriptions, according to Compdata Surveys are, on average:

  • $584,000 for an insurance chief executive officer;
  • $386,000 for a hospital CEO;
  • $237,000 for a hospital administrator;
  • $306,000 for a surgeon;
  • $185,000 for a general doctor;.
  • $61,000 for a staff nurse;
  • $27,000 for an emergency medical technician.

But even those numbers understate the gap, because top executives often are compensated in ways other than salary. The chief executive of Aetna, The Times says, earned a salary of about $977,000 in 2012 but his total compensation package was more than $36 million, thanks to stocks vested and options he exercised that year. The former president of Barnabas Health, a midsize health system in New Jersey, earned a puny salary of $28,000 in 2012, but his total compensation was $21.7 million.

If these business arrangements aren’t compromising the quality of patient care, why should we be concerned?

Because it’s wasteful. “[S]tudies suggest that administrative costs make up 20 to 30 percent of the United States health-care bill, far higher than in any other country,” The Times says.
“The proliferation of high earners in the medical business and administration ranks adds to the United States’ $2.7 trillion health-care bill and stands in stark contrast with other developed countries, where top-ranked hospitals have only skeleton administrative staffs and where health-care workers are generally paid less. And many experts say it’s bad value for health-care dollars.”

A chart accompanying the story compares different nations’ per capita spending on health insurance administration in 2011:

  • U.S., $606;
  • France, $277;
  • Germany, $237;
  • Canada, $148;
  • Norway, $35.

Cathy Schoen, senior vice president for policy, research and evaluation at the Commonwealth Fund, a New York-based foundation that focuses on health care and provided the chart data, told The Times that these executive salaries “increased hugely in the ’90s” and that the trend has continued.

In addition to the president’s compensation package, Barnabas Health had more than 20 vice presidents who earned over $350,000 on its most recently available tax return, and Medicare data shows that Barnabas bills more than twice the national average for many procedures. (In 2006, it paid a huge fine to settle fraud charges brought by federal prosecutors.)

Like other industries whose compensation practices seem out of whack with their effect on the average Joe – we’re talking to you, investment banking – hospitals and insurers claim that large pay packages are necessary to attract the best talent to manage the complex structure of U.S. health care, where hospitals and insurers undertake hundreds of negotiations to set prices.

In October, we wrote about the outrageously high compensation some executives of nonprofit hospitals get, not necessarily for delivering superior care, but for using fancy, and expensive, technology. The Times story says that the health-care industry has the top earning executives in the nonprofit sector.

The complexity of the system creates jobs that simply don’t exist where health-care is delivered by a single payer, such as medical coders, claims adjusters, medical device brokers, drug purchasers and the “navigators” created by the Affordable Care Act that are supposed to help consumers choose insurance plans on the state and federal exchange.

Few people except the nest featherers and legislators who get lots of money from industry lobbyists seem to support this infrastructure, even doctors. The Times says they are increasingly frustrated with the burden of administrative costs, which are reflected in inflated charges for their services.

“Most doctors want to do well by their patients,” said one cardiothoracic surgeon quoted by the Times. “Other constituents, such as device manufacturers, pharmaceutical companies and even hospital administrators, may not necessarily have that perspective.”

In April, 75 doctors in Wisconsin took out an advertisement in The Wisconsin State Journal seeking health reforms to lower prices, including penalizing hospitals for overbuilding and requiring that 95% of insurance premiums be used on medical care. The impetus for the demand was a surgeon discovered that a brief, outpatient appendectomy he had performed for a fee of $1,700 generated more than $12,000 in hospital bills.

Our priorities are seriously, sadly out of line.

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