The average chief executive officer (CEO) of a nonprofit US hospital makes more than half a million dollars, yet CEO pay is not linked to the quality of care the institution provides, suggests a study published today in JAMA Internal Medicine.
The financial behavior of nonprofit hospitals has received increased scrutiny in recent years, with investigations probing how much charity care they provide and whether they are fulfilling their obligations to the communities they are bound to serve. Among the controversies has been the fact that many CEOs at these institutions receive compensation packages that are comparable with those at for-profit corporate entities. But what hospitals are getting for the money isn’t necessarily clear.
To provide some insight, Ashish K. Jha, MD, MPH, professor of health policy and management at Harvard University, and his colleagues set out to examine the factors that influence the pay of nonprofit hospital CEOs. They examined the relationship between pay for 1877 CEOs at 2681 private, nonprofit hospitals and how well the hospital performed on various metrics, including financial status, technology, quality of care, and benefit to the surrounding community. There was wide variation in CEO pay from as little as about $100 000, at primarily small rural facilities, to $2 million, at some urban teaching hospitals. On average, these CEOs received $595 881 in compensation; their compensation was associated with the number of beds in the facility (with an average of a $550 bump in compensation per additional bed), whether the hospital was a teaching hospital (with $425 078 more for CEOs at teaching hospitals), the facility’s technological level (with $135 862 more at more technologically advanced hospitals), and the level of patient satisfaction (with $51 706 more at hospitals with high patient satisfaction). There was no association, however, between CEO pay and the hospital’s profit margins, liquidity, capitalization, occupancy rates, quality of care, mortality rates, readmission, or community benefit.
Jha discussed the findings with news@JAMA.
news@JAMA: Why did you decide to do the study?
Dr Jha: Everyone is paying more attention to quality of care; hospitals are, too. We wondered whether senior leaders at hospitals are seeing their compensation tied to quality, so we looked at what factors explain the variation in CEO pay.
news@JAMA: Were you surprised by what you found?
Dr Jha: We were not surprised that larger hospitals pay more or that CEOs who oversee more hospitals are paid more. But we were surprised to see CEOs of teaching hospitals paid more. Maybe this is because teaching hospitals are more complex to manage or these hospitals draw from a different talent pool.
We were more surprised by the link between pay and hospital technology. We were a little disappointed about the quality findings. I was hoping quality metrics would account for a small portion of CEO pay, but we found essentially no relationship with patient outcomes.
news@JAMA: Why do you think patient satisfaction factors into CEO compensation?
Dr Jha: The patient experience is what everyone understands the best. It may be easier for hospital boards to measure.
news@JAMA: What would you like to see hospitals do with the results?
Dr Jha: I hope most hospitals see this information as an opportunity. The way incentives are structured affects behavior. If part of the goal is to improve care, one approach would be to tie senior management salaries to patient outcomes. I think it has the potential to have a profound impact on how well patients do in those hospitals.
news@JAMA: Is there any way patients or clinicians might want to use this information?
Dr Jha: From the health care provider perspective, physicians are increasingly seeing their salaries tied to quality, so it is only fair if senior management’s salaries are tied to quality as well. For patients, everyone from the physician to the senior executives should have incentives to improve care. If organizations would do that, patients would be better off.
news@JAMA: Some have questioned nonprofit hospitals’ contributions to their communities in recent years. Did your study add anything to this debate?
Dr Jha: There was not much of a relationship between community benefit and CEO pay. With nonprofit hospital CEOs, you would like to see CEOs rewarded for providing community benefits. But providing more charity care can be financially challenging for these hospitals, so there can be a downside. Certainly, nonprofit organizations should be prioritizing community benefits. I personally would like to see senior management compensation tied to community benefits.