The current average compensation of a nonprofit hospital CEO is about $600,000, and higher pay is usually associated with larger, urban teaching hospitals with more advanced technology.
A new study in JAMA Internal Medicine looked at the compensation data of 1,877 CEOs at 2,681 private, nonprofit U.S. hospitals. Data came from the hospitals' 2009 Form 990s.
Karen Joynt, MD, Ashish Jha, MD, and other researchers affiliated with the Harvard School of Public Health in Boston looked to see if CEO compensation had any relation to quality metrics — a growing emphasis in the healthcare industry as hospitals shift to a more quality-based reimbursement system. They also looked to see how a hospital's financial performance, technology and community benefits affected CEO pay in 2009.
The researchers found nonprofit hospital CEOs had a mean compensation of $595,781 and a median compensation of $404,938. CEOs in the lowest 10 percent had an average payday of $117,933, and they mostly led small, nonteaching hospitals in rural areas. CEOs in the highest 10 percent recorded $1.66 million in average annual compensation and mostly led larger, urban teaching hospitals or health systems. Higher pay was directly associated with managing more beds ($550 per additional bed) or hospitals ($32,609 per additional hospital).
In addition, the Harvard research team also found an association of higher hospital CEO compensation with higher levels of advanced technology. For example, if a hospital had more PET or MRI machines or had the ability to do more complex surgeries, CEOs generally were paid more. Those with the highest technology index received $135,862 more on average compared with those with the lowest technology index.
However, researchers found "no significant association" between CEO compensation and the hospital's financial performance or performance on quality, mortality or readmission rates. They also found no association between CEO pay and how much charity care the hospital provided. There was a correlation between CEO pay and patient satisfaction, the only quality metric that appeared to influence CEO pay.
"The [biggest] surprise was the correlation with having substantial amounts of technology," Dr. Jha says. "Hospitals with PET scanners, for instance, paid their CEOs a lot more, holding all else constant, than hospitals without. Of course, the disappointment was the lack of association with patient outcomes. We just don't prioritize this highly enough, and the fact that CEO compensation seems to be unlinked to his/her hospital's mortality rates, for instance, is a little bit disappointing. It also says that there is a real opportunity here if boards are willing to take it on."
The study noted some limitations. For example, they only assessed publicly available quality metrics, and hospital boards may compensate CEOs based on other internal quality metrics, such as infection rates or staff satisfaction. Dr. Jha adds that it is difficult for him to argue if hospital CEOs are paid too much or too little — it's simply "what the market has chosen," he says.
In an accompanying commentary in JAMA Internal Medicine, Warren Browner, MD, CEO of California Pacific Medical Center in San Francisco, wrote that CEOs should "bear some accountability for meeting" the triple aim of healthcare: better health, higher quality of care, lower costs. He said it's not surprising the researchers found the "bigger, glitzier, more prestigious hospitals — the Yankees and Dodgers of healthcare — pay their CEOs a lot more compared with other hospitals." However, he said the study should not be interpreted as representative of all CEOs and the entire industry. Compensation is determined on a case-by-case basis between boards and other hospital stakeholders, and many factors come into play, Dr. Browner wrote.
"If you happen to practice in a large, high-tech, urban, major teaching hospital in the South that has few Medicaid patients and excellent patient satisfaction, do not assume that your CEO is at the top of the financial ladder, even if that is what Joynt el al's regression model implies," Dr. Browner said. "Not only does correlation not equal causation, it also applies only to the general, not the specific, case."
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