Healthcare reform legislation, including changes in requirements for tax-exempt hospitals and initiatives by the Centers for Medicare and Medicaid Services for coordinated care, may change how hospital leaders are compensated. While these changes do not directly affect hospital compensation, they may indirectly affect salaries through increased regulations and different models of care delivery. Gary Young, director of the Northeastern University Center for Health Policy and Healthcare Research, explains what changes for-profit and non-profit hospitals may expect as healthcare reform laws start to take effect.
Tax-exempt status
The Internal Revenue Service recently proposed community health needs assessment guidance for tax-exempt hospitals, including a provision that hospitals perform a community health needs assessment every three years. The proposed rules and changes under the Patient Protection and Affordable Care Act "do not speak directly to hospital executive compensation, but are important symbolically because they reflect a growing concern on the part of policy makers regarding the justification of providing federal income tax exemption to non-profit hospitals and what the differences are between non-profit and for-profit hospitals," Mr. Young says.
Mr. Young believes the new tax-exempt provisions for hospitals signal a shift to greater scrutiny of non-profit hospitals, which may include greater scrutiny of executives' compensation. "Collectively, the provisions reveal greater concerns about holding tax-exempt hospitals accountable for their performance relative to community benefit," he says.
Non-profit hospital leaders' compensation is expected to align with the local labor market. Non-profit hospitals need to provide evidence that the executives' pay is not excessive by comparing their compensation with that of leaders in similar organizations. "It's not so much whether salaries are high as whether they can be justified based on what is necessary to hire someone to do the job the hospital needs that individual to do," Mr. Young says.
Effect of ACOs
The introduction of the accountable care organization model may change hospital leaders' compensation through changing patient volumes and leadership structures. These factors may have opposite effects, making it difficult to predict exactly how hospital executive compensation might shift over the next couple years. For instance, Mr. Young says financial incentives for keeping people out of the hospital may result in hospitals reducing their capacity, which may decrease leaders' compensation. At the same time, if hospitals play a central role in ACOs' formation, they may receive increased compensation to reflect increased responsibility, Mr. Young says.
While both non-profit and for-profit hospitals can participate in ACOs, for-profit hospitals may have easier access to capital, through shareholders, needed to start this type of organization. Mr. Young says this financial pressure, in addition to greater regulations concerning the justification of non-profits' compensation, may trigger some non-profit hospitals to become for-profits. "Some hospitals may decide that they can't meet those [tax-exempt] standards or that the exemption that they're receiving isn't worth meeting those standards. It may in fact be a catalyst for them to convert [to for-profits]," Mr. Young says.
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Tax-exempt status
The Internal Revenue Service recently proposed community health needs assessment guidance for tax-exempt hospitals, including a provision that hospitals perform a community health needs assessment every three years. The proposed rules and changes under the Patient Protection and Affordable Care Act "do not speak directly to hospital executive compensation, but are important symbolically because they reflect a growing concern on the part of policy makers regarding the justification of providing federal income tax exemption to non-profit hospitals and what the differences are between non-profit and for-profit hospitals," Mr. Young says.
Mr. Young believes the new tax-exempt provisions for hospitals signal a shift to greater scrutiny of non-profit hospitals, which may include greater scrutiny of executives' compensation. "Collectively, the provisions reveal greater concerns about holding tax-exempt hospitals accountable for their performance relative to community benefit," he says.
Non-profit hospital leaders' compensation is expected to align with the local labor market. Non-profit hospitals need to provide evidence that the executives' pay is not excessive by comparing their compensation with that of leaders in similar organizations. "It's not so much whether salaries are high as whether they can be justified based on what is necessary to hire someone to do the job the hospital needs that individual to do," Mr. Young says.
Effect of ACOs
The introduction of the accountable care organization model may change hospital leaders' compensation through changing patient volumes and leadership structures. These factors may have opposite effects, making it difficult to predict exactly how hospital executive compensation might shift over the next couple years. For instance, Mr. Young says financial incentives for keeping people out of the hospital may result in hospitals reducing their capacity, which may decrease leaders' compensation. At the same time, if hospitals play a central role in ACOs' formation, they may receive increased compensation to reflect increased responsibility, Mr. Young says.
While both non-profit and for-profit hospitals can participate in ACOs, for-profit hospitals may have easier access to capital, through shareholders, needed to start this type of organization. Mr. Young says this financial pressure, in addition to greater regulations concerning the justification of non-profits' compensation, may trigger some non-profit hospitals to become for-profits. "Some hospitals may decide that they can't meet those [tax-exempt] standards or that the exemption that they're receiving isn't worth meeting those standards. It may in fact be a catalyst for them to convert [to for-profits]," Mr. Young says.
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