When Pay Collides With Finances
Even before the passage of the Affordable Care Act, one of the biggest concerns in healthcare has been controlling the cost curve. Hospitals have been thrust directly into this equation, prodded by payers to cut down on readmissions, infections and other unfortunate events that can drive bills into the stratosphere.
Hospital CEOs have mostly embraced these initiatives. Unfortunately, many of their own compensation packages now interfere with these efforts.
I don't know when the seven-figure pay package became commonplace among hospital CEOs, but the results of the latest Payers & Providers compensation survey shows that it is becoming routine to pay the head of a hospital $1 million a year, and sometimes much more. Our survey for the Midwest edition has turned up dozens of CEOs in the seven-figure club, and one who even reached eight figures. The American Hospital Association has three executives who earn more than $1 million a year. In an environment where the spotlight has been glaring for some time on waste and inefficiency, this is simply too much.
Of course, the counter will be that these salaries are required to attract top talent, and that running a hospital is extraordinarily difficult. I completely agree with the latter. My counter to the former is that the now-widespread availability of compensation data and the gnawing worry of hospital boards that an uber-talented executive will be lost drives up pay out of proportion to talent. Perspective then suffers.
David Feinberg, M.D., who runs Ronald Reagan UCLA Medical Center, is very good at his job. However, he finagled in 2010 a 20% pay raise and a $250,000 annual bonus from the University of California Board of Regents to keep him from pursuing another post – at the same time the UC system had to make deep budget cuts and impose steep tuition hikes on students. Not only was that wholly inappropriate, it set a precedent for a publicly funded institution to dangle big pay hikes to every other hospital executive who sets their eyes on greener pastures.
Even those CEOs who are winding down their careers are still raking in millions. Samuel Downing, the recently retired CEO of Salinas Valley Memorial Healthcare System, left his job with nearly $4 million in lump sum retirement pay and a six-figure pension, even as the hospital was laying off dozens of employees. Should Downing collect his annual pension for the next 20 years, he will be paid $7 million by a hospital district in one of the poorest cities in California to not work for it. J. Kendall Anderson, the CEO of John Muir Health, was paid over $2 million in 2010, even though he received more than $6 million in a lump sum retirement payout in 2008. The sums those two men have and will receive are enough to launch effective cost-cutting and quality-boosting programs at a dozen hospitals.
I am not advocating poverty for the heads of hospitals. I think it is perfectly appropriate to pay some hospital CEOs $500,000 a year, or even $750,000. Even in expensive places like Los Angeles or San Francisco, that pay buys a multimillion dollar home, luxury cars, nice vacations and private school tuition.
If this is too unpalatable to contemplate, may I suggest that hospital boards begin tying some of the compensation of their CEOs into key hospital cost drivers, such as readmission rates, hospital-acquired infections, avoidable errors, or other factors, rather than just bottom-line numbers.
Otherwise, it has become obvious that many of the people in a sector where cost concerns have become all-consuming are becoming too costly themselves. And if the job is too demanding, too overwhelming to perform without being guaranteed material wealth for the remainder of one’s lifespan, may I suggest shifting some responsibilities to less expensive underlings. Delegation, after all, is what a good CEO does.
Ron Shinkman is the publisher of Payers & Providers.
