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Hospital Executive Compensation

By July 23, 2012Commentary

Many of the nation’s hospitals are nominally “not-for-profit” but they pay their executives like they worked at for-profit companies, with many compensation packages exceeding a million dollars.  The hospitals attempt to justify this by saying that they need to be competitive with for-profits to ensure the best quality.  A report from the New Hampshire Center for Public Policy examines non-profit compensation practices in that state.   (NHCPP Report)   Base salary for CEOs ranged from $150,000 in a smaller rural hospital to over $1 million at one in Manchester.  Bonuses were as high as $160,000 and supplemental retirement plans often added tens of thousands of dollars in compensation.  Hospital CEO compensation increased much faster (18%  annually) than the average for private sector or  health care sector workers.  The trends seen in New Hampshire are consistent across the rest of New England.

The report found no evidence that higher compensation was linked with better hospital performance.  There was no correlation between higher compensation and better quality.  There was also no correlation between higher  compensation and lower prices.  So paying executives more didn’t make them do their jobs any better or create any public benefit.  Most damning, there is also almost no correlation between executive pay and delivery of charity care, a primary mission of non-profit hospitals and the main reason they are allowed to be tax-exempt.  While the report found that the compensation generally met IRS requirements that is partly an indictment of what it takes to be tax-exempt and is no justification for allowing a taxpayer subsidy of excessive compensation.  If you are going to be a non-profit and if you are an executive at a non-profit, the mission to keep costs and prices low should be the top priority.  It is inexcusable for any executive at a non-profit hospital to be earning more than low hundreds of thousands of dollars.  Reducing compensation at all of the nation’s non-profit hospitals would save tens of billions of dollars, which should roll through in prices and which would put pressure on for-profit hospitals to have to reduce costs as well.  It is disgraceful that nothing has been done about this when rising health spending puts a heavier and heavier burden on middle-class Americans.

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