The American healthcare system hasn't made the entire leap from fee-for-service to pay-for-performance, but the concept has become a given. It's a building block of healthcare reform.
Conversations about reimbursing hospitals and physicians based on their outcomes rather than the volume of procedures are wildly prevalent. It's also tough to find critics of this pay model — people who work in healthcare for the right reasons generally support the idea of being paid to keep people healthy.
So, just when it seemed like pay-for-performance was as novel as E=mc2, a study released this week from researchers at the Harvard School of Public Health proved otherwise. The study found CEOs at nonprofit hospitals around the country had an average compensation of $595,781 in 2009 — but that wasn't the shocking part.
The surprise? There was no association between CEO pay and hospital quality. Publicly available measures of quality, including readmission rates, mortality rates and how closely hospitals' providers followed a number of publicly reported care guidelines, were not linked to nonprofit CEO pay.
Instead, CEOs at hospitals with advanced technology tended to have substantially higher pay, and the only quality-related metric linked to CEO compensation was patient satisfaction. On average, the group of hospitals with the highest patient satisfaction scores paid their CEOs nearly $626,000 while CEOs of hospitals in the group with the lowest scores earned $574,000, according to the study.
There will always be debates about nonprofit executives raking in hundreds of thousands, and sometimes millions, of dollars in pay. Most argue that a large salary is just what it takes to recruit top talent.
But a new argument is emerging, one centered less on the economics of CEO salaries and medians, and more on the basic principles of good leadership. The question isn't whether CEOs deserve their paychecks, whether in the hundreds of thousands or in the millions. It's this: How can we expect hospital CEOs to lead when they are playing by a different set of rules than the rest of their organizations?
Salary figures in the study are from 2009, so some people may naturally conclude that these findings simply reflect CEO pay in a pre-Patient Protection and Affordable Care Act era. It would be naive to accept this argument. The idea of pay-for-performance was hardly born overnight. If hospital boards or compensation committees were ignorant to the concept of paying for quality in 2009, it raises questions about the caliber of governance in our nonprofit hospitals.
Of all the quality metrics, it would be interesting to see whether readmission rates have become more closely associated with CEO pay since 2009. Readmission rates have a much more visible link to federal reimbursement due to CMS' Hospital Readmissions Reduction Program. In its first year, 2,211 hospitals were penalized a cumulative $280 million in Medicare funds, and 278 hospitals lost the maximum 1 percent of their Medicare reimbursement for their high readmission rates.
CMS will issue a total of $227 million in fines for hospitals with greater-than-expected readmission rates in 2014, the second year of its program. Some well-known nonprofit hospitals were among those to lose the most, such as Florida Hospital in Orlando, Barnes-Jewish Hospital in St. Louis and Beth Israel Deaconess Medical Center in Boston. Quite frankly, it is a slap in the face to all of a hospital's physicians and staff if the CEO does not yet have a portion of pay tied to his or her organization's readmission rates.
It's interesting patient satisfaction was associated with nonprofit CEO salaries, as there's also been a vibrant debate about whether patient satisfaction scores actually reflect clinical quality. To see satisfaction scores in the equation while quality metrics are MIA doesn't exactly reinforce their value. Patient satisfaction is like clinical quality's second-cousin twice removed. It's somewhat related but hardly synonymous. In fact, a recent study from the Annals of Family Medicine suggested clinical quality and patient experience be considered separately when evaluating an organization's overall quality due to the measures' weak correlation.
It's also worth noting that this week's study was led by physicians. The cultural divide between physicians and hospital administrators is no secret. I can't imagine it will narrow any when physicians, who have come to accept their paychecks hinging on their quality and outcomes, learn their CEOs are instead paid in part on the number of da Vinci robots installed within their tenure. CEOs love saying their job is to carry out an organization's mission, but I don't see many hospitals with a mission to become more saturated with robots, imaging equipment and other technology. Usually the goal is to provide high-quality care for patients.
Finally, it's also important to remember CEOs don't write their own paychecks. The board and compensation committee ultimately decide how many figures the chief brings home. And while the greater public often attacks the CEOs for their high pay, a greater portion of this frustration deserves to be steered to the boardroom. Board members may come from different disciplines, consequentially having less pronounced clinical knowledge, but they cannot neglect quality metrics or outcomes in compensation discussions. If they do, they are simply setting CEOs up for failure. They will not be able to lead by example or to "integrate" anything, far less a hospital's physician workforce.