Big-Time Increase In Seven-Figure Pay
Editor's Note: This article has been updated since publication to include a response from Kaiser Permanente.
As healthcare costs continue to spiral upward, so do the salaries of California's most senior not-for-profit hospital managers, according to a Payers & Providers preliminary analysis of tax return data.
A total of 66 senior executives with the state's three largest not-for-profit hospital systems -- Sutter Health, Dignity Health and Kaiser Permanente -- received compensation of more than $1 million in 2013, the most recent year for which such data is available. That is up from 52 in 2011, the last year Payers & Providers conducted a compensation survey -- an increase of nearly 30%.
San Francisco-based Dignity Health, which operates 30 hospitals throughout California, had the biggest jump, with 19 executives earning over $1 million, up from 13 in 2011, according to its tax returns. CEO Lloyd Dean earned an $8.06 million pay package in 2013, including a $5.1 million incentive bonus, more than double his 2011 bonus. According to Dignity's 500 page-plus tax return, incentive pay is based on the “attainment of annual and long-term financial performance, certain healthcare quality standards, and Dignity Health's commitment to serving the poor and disenfranchised in the communities it serves.”
Alan Sager, a professor of health policy and management at Boston University, observed that incentive pay at hospitals and healthcare systems have been rising in recent years.
“This is what has become an American disease of skyrocketing pay packages,” said Sager, who added that not only should not-for-profit healthcare CEOs should not receive large bonuses, but many are likely doing so because they hold significant sway over their boards of directors.
Oakland-based Kaiser, the largest of the three systems with 32 hospitals in its two regional divisions statewide, also had a big jump. It has 24 seven-figure executives and one executive who earned more than $10 million in 2011, records show. It had 19 seven-figure pay packages in 2011.
According to Kaiser spokesperson John Nelson, "Kaiser Permanente’s compensation program makes a significant portion of executive compensation dependent upon the organization and individuals meeting goals and annual and strategic plan commitments, including improvements in care and service quality, and the organization’s contributions to the communities we serve."
Sutter, which is the smallest of the three systems, operating 21 hospitals in Northern California, had the smallest number of seven-figure executives – 22 in all, up from 20 in 2011.
Sutter spokesperson Bill Gleeson remarked in an email that the hospital system is even-handed in the way it awards pay.
“I can tell you that industry comparisons show our salaries are reasonable and competitive, given the size, scope and complexity of our organization,” Gleeson said in his response. “Salaries for executives are set the same way salaries are established for nurses, technicians or any other of our employees. We compare our positions with those in other healthcare organizations of similar size and scope.
However, Boston University’s Sager and other compensation experts have been critical of such practices, saying that it often leads to boards caving into outside pressures and ultimately inflating the salaries of the top management ranks.
The average compensation among these high earners was fairly consistent over the time periods examined. At Dignity, the average total compensation rose from $2.18 million in 2011 to $2.2 million in 2013. At Kaiser, it averaged $2 million for both time periods. At Sutter, it dropped slightly, from $1.93 million in 2011 to $1.78 million in 2013. For the most part, more executives were added to the pool of high earners.
Kaiser's Nelson observed that "our organization competes for talent not just with other nonprofit hospitals, but also with for-profit healthcare companies (health plans, hospitals, and others) of similar size and complexity – and on average we pay substantially less than those."
A spokesperson at Dignity Health did not immediately respond to a request seeking comment.
Payers & Providers found a substantial increase in the number of senior executives, particularly hospital chief executive officers, who received seven-figure paychecks at standalone hospitals throughout the state. The white paper on the topic and the accompanying data is available for pre-order here, and will be released on Nov. 30.
