Hospital CEO Pay Is Linked to Technology, Not Care

When it comes to judging and rewarding merit, we can’t think of a more important subject than hospital executives. But if by “merit” you mean, as we do, patient safety and quality of care, the people who run nonprofit hospitals are outliers; they’re paid not on the basis of those factors, but on how much fancy medical technology their facilities have. The satisfaction of their patients, which is a notoriously squishy concept to measure, also figures into the formula.

That’s the disturbing conclusion drawn by a study published this month in JAMA Internal Medicine. As summarized by KaiserHealthNews.org (KHN), execs at nonprofit institutions “that have a lot of fancy medical technology and high patient satisfaction are paid more than their peers. But running a hospital that scores well on keeping more patients alive or providing extensive charity care does not translate into a compensation bump.”

Dr. Ashish Jha of the Harvard School of Public Health and one of the study’s authors told KHN, “This paper suggests that maybe we need to pay a little more attention to other more important outcomes, such as whether your patients are dying at a high rate or not.”

CEOs of technology-laden nonprofit hospitals earned about $136,000 more than those with more modest machinery. CEOs at hospitals with high patient satisfaction scores earned about $52,000 more than those with poor reviews. But when measured by factors including mortality rates, readmissions rates and how consistently hospitals followed guidelines for recommended care, the study found no difference in CEO compensation.

This is at least the second such dismal report: A study last year focusing on New Hampshire hospitals, according to KHN, also found no relationship between CEO pay and quality of care.

So the subject of handsome salaries at nonprofit hospitals has been examined before, especially in the context of facilities’ contributions to the good of their communities. Because nonprofit hospitals don’t pay property taxes, the researchers wanted to see if hospital boards financially rewarded CEOs who provide more charity care, such as treating meaningful numbers of low-income patients and discounting or waiving bills for people who had trouble paying.

Uh, no.

The JAMA study examined federal tax returns for 2,581 hospitals; virtually all were private, nonprofit institutions. For-profit hospitals represent a minority of U.S. acute care facilities, so they weren’t included in the analysis. The pay of 1,877 executives, some of whom run more than one hospital, was examined.

After adjusting for factors such as size, location (some areas are more expensive to live in than others) and whether a facility was an academic medical center or community hospital, the researchers compared the highest and lowest performing hospitals. They also adjusted for CEOs in charge of more than one hospital.

In 2009, the most recent years for which tax returns were available, CEOs were paid an average of $595,781. Execs who ran bigger hospitals, of course, were paid an average of $550 more per bed. CEOs of academic medical centers were paid $425,000 more than CEOs running nonteaching hospitals.

The researchers identified the number of advanced tools, such as MRIs and positron-emission tomography (PET scans) each hospital had, and whether it performed complex operations such as transplants and open-heart surgery.

They split hospitals into four groups based on their index. The average CEO compensation at hospitals in the group with the most technology was $664,000; the average compensation for CEOs at hospitals in the group with least amount of sophisticated technology was $528,000, 26% lower.

The study has its critics. The CEO of the California Pacific Medical Center in San Francisco wrote in an accompanying commentary titled “Do Hospitals Really Reward Glitz But Not Equality?” that “Their conclusion that advanced technology drives CEO pay might be right, 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.”

He goes on to dispute that hospital boards don’t emphasize quality when setting compensation, but we can’t help but focus on the phrase “… that advanced technology drives CEO pay might be right….” As Jha said, “It’s hard to argue that death rates after a heart attack don’t matter.”

In terms of patient satisfaction, the group of hospitals with the highest scores paid their CEOs nearly $626,000, and leaders of hospitals with the lowest scores earned $574,000. As KHN noted, patient satisfaction is considered a marker of quality, but it’s difficult to interpret cleanly– how much are those scores influenced by factors such as the lavishness of the hospital facilities, and whether the nurses smile when you think they should?

To be a good, objective judge of hospital care, see our newsletters, “The Dicey Connection Between Patient Ratings and Superior Patient Care” and “Finding the Right Hospital for You.”