The Long Con - "Charitable" Hospitals Make Multimillionaires out of Their CEOs

The CEOs of ostensibly charitable hospitals founded to serve the poor continue to become rich.  

The latest reminders are in two articles from Maryland, from DelMarVaNow, and from the Baltimore Sun,.and one from the Boston Globe.

All this diligent reporting showed multimillion dollar executive compensation,  as usual not justified by evidence or logic, but also how executive compensation is becoming divorced from the ostensible charitable mission of non-profit hospitals.  

Most Hospital CEOs are Paid a Lot

So jin Maryland, we found via DelMarVaNow,

Peninsula Regional Medical Center paid its top executive and her immediate predecessor a total of $2.37 million in compensation in 2011 as the nonprofit hospital gained millions of dollars in profit.

In particular,

 The analysis shows that R. Alan Newberry was the third-highest paid hospital chief in Maryland, even though he has not run PRMC since 2009. In the year after formally stepping down from the hospital’s top job, Newberry received $1.57 million, about $600,000 more than he had while still working full time.

The Baltimore Sun summarized compensation given to multiple executives,

 Eleven executives earning seven-figure compensation packages including salary, bonus, retirement and other pay saw their total pay rise from as little as 0.13 percent to as much as 308 percent in the fiscal year that ended in 2012, according to tax filings. Another executive earning more than $1 million saw a pay cut.

In particular,

 The state's highest-compensated hospital executive that fiscal year was Kenneth A. Samet, the CEO of the 10-hospital MedStar Health system, who earned $6.3 million. More than half — $3.5 million — was money earned in a supplemental retirement plan during his 23 years of service. He won't get the money until he retires. His base pay was $1.2 million, and he received $1.5 million as a bonus and incentives.

The other top five highest-paid executives in Maryland are James Xinis, CEO at Calvert Memorial Hospital in Prince Frederick; Ronald A. Peterson, CEO of the Johns Hopkins Health Center Corp.; Robert A. Chrencik, CEO of the University of Maryland Medical System; and Thomas Mullen, CEO of Mercy Medical Center.

Xinis saw his compensation package jump 307.8 percent to $3.5 million, $2.8 million of which was a required distribution of vested retirement funds from a plan he begin contributing to in 2003, the hospital said in a statement. Xinis has served as CEO for 26 years and plans to retire in the next 18 months, the hospital said. His base salary in fiscal 2012 was $309,557.

Peterson, who oversees six hospitals, earned a $3.5 million compensation package. Peterson's 86.5 percent pay increase largely reflected pension benefits he'd earned during 40 years at Hopkins. His annual base salary increased about $49,500 to $1.1 million in fiscal 2012.

Chrencik, whose system has 12 hospitals, earned about $2.3 million. Chrencik's total pay grew 23.4 percent. Mercy's Mullen saw his pay rise 24 percent to $1.6 million for the fiscal year ending in 2012.

The one CEO earning more than $1 million who saw his compensation fall was Edward D. Miller, who retired in June 2012 as CEO of Johns Hopkins Medicine and dean of the university's medical school. His reported pay dropped to just over $1 million in fiscal 2012 from nearly $2.3 million the prior year, when he took a one-time retirement payout.

Also,

According to Saint Agnes tax filings, [CEO Bonnie] Phipps received $1.9 million in the 2012 fiscal year, 4.4 percent more compensation than a year earlier.

 Per the Boston Globe, local hospital executives also did really well

Chief executives at the Boston area’s largest nonprofit teaching hospitals drew pay packages of $1 million to $2.1 million in 2011, including salaries, bonuses, and compensation such as health and life insurance and retirement benefits.

Topping the list locally was Gary L. Gottlieb, chief executive of Partners HealthCare System, the state’s largest hospital and physicians organization, who received total compensation of $2.1 million in 2011, according to federal tax documents released Thursday by the nonprofits.

And,

The presidents of Partners-owned Massachusetts General and Brigham and Women’s hospitals also drew seven-figure packages in 2011, with Peter L. Slavin at Mass. General receiving a total of $1.7 million and Elizabeth G. Nabel at Brigham and Women’s a total of $1.9 million.

Also,

Tufts Medical Center reported that Ellen M. Zane, who served as chief executive through September 2011, had total pay of $1.6 million that year.

Eric J. Beyer, who took over from Zane in October, had total compensation of $744,722 that included pay for work as chief executive and at his previous job as president of the Tufts Medical Center Physicians Organization.

James Mandell, chief executive at Boston Children’s Hospital, was paid a total of $1.5 million in 2011. That was down from the $2 million he earned the prior year when he received two separate incentive awards, according to a hospital spokeswoman. Mandell plans to retire next month and will be succeeded by Sandra Fenwick, the hospital’s president and chief operating officer.

Total compensation for Boston Medical Center chief executive Kate Walsh was listed at nearly $1.4 million in 2011, an increase from $1.3 million in 2010.

At Dana-Farber Cancer Institute, chief executive Edward J. Benz Jr. received total compensation of nearly $1.3 million in 2011, up from $1.1 million in 2010.

Beth Israel Deaconess Medical Center paid three different top executives in 2011.

Eric Buehrens, who served as interim chief executive from February to October, drew total compensation of just over $1 million for that role and other executive jobs.

The Justification for this Pay is Stereotyped (and not Supported by Logic or Evidence)

The Usual Talking Points

The articles in combination provided the usual talking points as justification.  It seems nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same arguments, thus suggesting they are talking points, possibly crafted as a public relations ploy.   We first listed the talking points here, and then provided additional examples of their use here, here here, here, here, and here..   

They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant.

As we have noted before, there is little evidence in support of these talking points.  What evidence there is on the topic suggests there is no real free market in interchangeable CEOs, and that CEOs are not very mobile, especially not across different kinds of organizations (look here).  There is little evidence that hospital (or other health care) executives are particularly brilliant, or any more brilliant than multitudes of physicians, nurses, and other health care professionals who work hard to make their institutions run.

True to form, the reporting from Maryland and Boston found that defenders of executive pay cited the talking points, but without any further logic or evidence. 

Competition

Re PRMC (from DelMarVaNow),

 'We’ve looked at about 17 like institutions. Eight are smaller than we are; eight are larger. Every hospital is different, so you have to always take into account there’s some variation, but we’ve always stayed in the middle. Our goal has been to stay in that 60 percent level as far as compensation goes,' said Martin Neat, chairman of PRMC’s board of directors, which oversees executives’ salaries.­

Note that in this case, no justification was provided for constantly setting the CEOs pay above the median.


Re Maryland, via the Baltimore Sun

 Hospitals argue that they have to offer competitive compensation to attract talent to run a complicated business.

Re Maryland and particularly UMMS, via the Sun,

 The medical institutions say they hire independent consultants and look at the pay of executives at comparable health systems when making their decisions.

Also,

UMMS hospital executives are compensated in line with national benchmarks,' [UMMS spokeswoman Mary Lynn] Carver said.

Note that there was no justification for the comparability of these institutions, or why a national versus regional comparison was made.

Retention

Re PRMC

 Above all, PRMC’s board of directors seeks to ensure that the hospital attracts and retains the best leaders.

Note that there was no evidence given that current leaders might leave were their compensation reduced.

 Brilliance

Re PRMC,

[Board Chairman Neat]  added: 'These are high-paid positions, but these are very capable people who could go elsewhere.'

Re Maryland, from the Baltimore Sun

 Executives need to understand everything from the latest health technologies to regulatory changes, including health reform.

So do doctors and nurses, so why do they not not get similar pay?

Also,

 [Carmela Coyle, CEO of the Maryland Hospital Association, said,] 'Hospital executives are in charge of incredibly complex organizations,' she said. 'They are organizations that are open 24 hours a day and are highly regulated. These are really difficult, difficult jobs'.

Note again the lack of comparison with the doctors and nurses who must staff the hospitals 24 hours a day, and make difficult decisions while caring for patients with sometimes life-threatening conditions.  How often does a hospital CEO get a call in the middle of the night, and how often does it require a decision in a life-and-death situation?

Re Mercy Medical Center,

 'As a result of Mr. Mullen's leadership, vision and skillful stewardship, Mercy has been an economic engine for the city, infusing additional jobs into the local economy,' the hospital said in a statement.

When in doubt, use the v (for visionary) word.  Note that this begs the questions of how many other people were responsible for the economic benefits, and whether such benefits, rather than, say ability to provide good care to patients, should be the main consideration.

Should Brilliance be Measured by Revenue?

At best, some defenders of high CEO pay seem to argue that the main measure of CEO brilliance ought to be their hospitals' financial performance. For example, the DelMarvaNow article included,

Fiscal health is one of the most important considerations in determining [new CEO Peggy] Naleppa's pay, [board chairman] Neat said. 

Also, he was quoted,

'There's no question that the financial performance of the institution is going to affect what you're going to pay', Neat said.

While,

Nationwide, hospital boards subscribe to a similar philosophy.  Financial health was cited by 100 percent of multi-hospital organizations in a 2006 survey as a factor in determining bosses' incentive plans.

Similarly, the Baltimore Sun quoted Dr Stephen F Jencks, "who serves on the board of the cost review commission,"

executives should be judged by whether they are running cost-efficient organizations

However, CEO pay seems to increase even at financially challenged institutions,  as the Baltimore Sun noted,

The CEO pay question — always a hot-button issue — is generating debate again this year after a state panel spurned a push by hospitals for higher rates, instead approving smaller increases and calling on them to do more to curb expenses. Hospitals have sought rate increases in each of the past three years, and this year at least one Baltimore-area hospital responded with layoffs in an effort to trim labor costs.

So,

'If they are laying off staff and decreasing what they invest in the community and executive compensation is increasing, that is a real question,' said Jessica Curtis, project director of the hospital accountability project at Community Catalyst, a national advocacy group that promotes wider access to affordable health care.

Even if one accepts that the compensation of leaders of organizations that take care of sick and injured patients ought to mainly depend on the brilliance of their leadership as measured by how much money the organizations make, rather than the quality of that care, it is not clear that all these leaders are brilliant in that sense.

The Charitable Mission and CEO Compensation

Essentially all US non-profit hospitals and hospital systems have a history of a charitable mission to improve the health of their patients and communities, even if that means taking care of poor people who cannot pay for these services.  Nearly all justify their legal status as non-profit corporations by stating this mission. 

For example, Peninsula Regional Medical Center, the main subject of the DelMarVaNow article, describes its mission thus in its US tax filing,

Peninsula Regional Medical Center is a not-for-profit 501 (c) 3 non-stock corporation founded in 1897 to serve the health care needs of the community.  The Hospital's primary purpose is to provide the highest [sic] primary, secondary, and selected tertiary health care services to residents of and visitors to the Mid-Delmarva Peninsula in a competent, compassionate, and cost effective manner designed to elicit a high degree of consumer satisfaction.  The Hospital's mission is to improve the health of the communities we serve....

Yet it appears that this mission is honored mainly in the breach, at least when it comes to CEO compensation. 

The DelMarVaNow article emphasized that hospitals' charitable functions are not seen as relevant by hospital boards when setting CEO compensation,

Despite the nonprofit status of the organizations they oversee, hospital boards don't appear to put weight toward the amount of free medical services and community outreach activities, good deeds collectively known as charity care, [executive vice president of Integrated Healthcare Strategies Kevin] Talbot

Also,

The head of the consulting firm that helps PRMC's board establish [current CEO] Naleppa's pay said community benefit shouldn't be part of the equation.

'In my over 25 years of consulting on hospital compensation, I have never seen community benefit used as a factor in determining executive pay,' Rian Yaffe said.  'Community benefit has nothing to do with how difficult a hospital is to manage and lead.'

However, community benefit is the mission of the hospital, and is justification for most US hospitals' non-profit status, which allows them to escape certain kinds of taxation, and for donors to make charitable, tax-advantaged contributions to the hospitals.  

The Baltimore Sun listed financial but not charitable performance as a justification for the compensation of a particular executive, the CEO of Johns Hopkins Medical Center, who is

'held responsible for stringent qualitative measures,'  in such areas as financial performance, patient safety and service excellence, [Johns Hopkins] spokeswoman Kim Hoppe said in a statement.

When asked by the Sun to comment, the advocacy group Community Catalyst stated

One of the factors that should be considered, it says, is the role of non-profit hospitals in the community and in providing charity care. 

Meanwhile, while the hospitals gain advantages from ostensibly focused on the mission of providing community care and benefit, not only are there leaders not given incentives to uphold this mission, they are explicitly compared to leaders of for-profit organizations who have no such missions, and who are primarily tasked with increasing short term revenue in this era of "financialization." 

In the Baltimore Sun,

Hospitals note that they compete with private sector businesses where their executives could choose to work instead.

Again, as noted above, there is little evidence that top hired managers are really that mobile, and less that a manager from one sector, e.g., non-profit hospitals, would be in great demand in another, e.g., a for-profit corporation.

The Boston Globe noted an argument made that implied no one should complain about how much non-profit hospital executives make, since executives of for-profit corporations make even more.

 'In a big successful teaching hospital, it’s very rare to see anything less than $1 million in total compensation for the chief executive, and $1.5 million to $2 million is the norm,' [managing director of consulting firm Compensation Resources Paul R] Dorf said. 'Executives at publicly traded pharma or medical device companies can make 10 times as much.'

So if there is little evidence for the mobility of top hired managers, there is less for the desirability of managers of non-profit hospitals as heads of large pharmaceutical or medical device companies.  But furthermore, in trying to justify, albeit illogically, outsize CEO compensation, the defenders of this compensation have provided evidence that the leaders and stewards of non-profit hospitals may no longer care about the hospitals' fundamental mission.  This suggests that hospitals' overt declarations of their mission, especially when used to obtain more donations and tax benefits, may amount to the ethical equivalent of a "long con," that is, a long-term confidence scheme.


Summary

While F Scott Fitzgerald noted that the very rich are different from you and me, it may now be more appropriate to say that top hired managers are very different from you and me.  Again and again we see that they play by very different sets of rules than do other people who work in health care.  Notably, while they often emphasize cost cutting, and may be quick to lay off or outsource other employees, their compensation increases year by year no matter how well their organizations are doing.  While other employees, increasingly now including doctors as well as other health care professionals, have to answer to the hired managers, the hired managers only answer to boards of directors or trustees who often act like their cronies, perhaps because they are often also current or retired hired managers.

Hired managers are subject to incentives that seem designed not to improve patients' and the public's health, but at best to improve the short-term revenue of health care organizations, and at worst to increase the wealth of hired managers.  Such perverse incentives risk promoting ill-considered, mission-hostile, or even corrupt management.  The sorts of people who aspire to be hired managers in such conditions are likely not the sort of people one would expect to really advance the health of patients or of the population.

As a first step to restoring health care leadership to some state of reasonable accountability and responsibility, we need to challenge the rules that only hired managers play by.  It would be nice to see articles in the media about health care CEO compensation that at least attempt to question the usual talking points.  All of us could think about how we could challenge our local million dollar plus hospital CEOs to justify why they should be treated so differently from all other hospital employees.

Since it seems that many hospitals no longer fit at least the spirit of the definition of not-for-profit organizations, even though they use this designation for financial advantage, we need policies to encourage them to uphold their mission, and that provide negative consequences if they do not. 

Should We Cry for Non-Profit Hospital System CEOs Paid Less than For-Profit CEOs?

Two recent articles (here and here) in Modern Healthcare providing an update on the compensation of CEOs of non-profit hospital systems raised new questions.

The CEOs' Compensation

The first article documented the rich compensation of the top paid CEOs of non-profit US hospital systems.  A summary of their total compensation:

-  Donald Faulk (now retired), Central Georgia Health System - $8 million
-  George Halvorson, Kaiser Permanente - $7.9 million
-  Jeffrey Romoff, UPMC - $6.1 million
 -  Pat Fry, Sutter Health - $5.2 million
-  Gregory Beier (retired), Novant Health  - $5.1 million
-  Dr Steve Safyer, Montefiore Medical Center - $5 million
-  David Bernd, Sentara - $4.6 million

The Usual Talking Points

The articles in combination provided the usual talking points as justification for this compensation.   We have noted that nearly every attempt made to defend the outsize compensation given hospital and health system executives involves the same talking points.   We first listed the talking points here, and then provided additional examples of their use here, here here, here and here.   They are:
- We have to pay competitive rates
- We have to pay enough to retain at least competent executives, given how hard it is to be an executive
- Our executives are not merely competitive, but brilliant.

So true to form, we found in the Modern Healthcare articles these justifications of the executives multimillion dollar pay.

Competition

In general,

In interviews, health system directors and executives at the systems where these top-paid executives work defended the compensation packages as necessary to remain competitive....

Re UPMC

UPMC spokeswoman Susan Manko described his [that is, Romoff's] pay as competitive for an institution of UPMC's size and complexity. 

Re Novant

Novant spokeswoman Kati Everett said Novant follows IRS rules that call for pay to be compared against the market....

Re Sutter

[Sutter Health board of trustees member and chair of the compensation committee Andy] Pansini said the Sutter board set the CEO's salary halfway between the lowest and the highest amount he could earn elsewhere.

Also,

He said Sutter's board relies heavily on consultants to compare Fry's compensation against the market.

Retention

 Re Sentara

'Mr Bernd's compensation takes into account his 40-year tenure of leadership at Sentara, with nearly 20 serving as the organization's top executives.

Brilliance

Re Novant

[Novant spokeswoman Kati Everett said] 'At Novant Health, we recognize (that) our responsibility to serve our community depends on the caliber of talent in our workforce, our leadership group....'

Re Sentara

[CEO Bernd's] 'pay reflects his experience, expertise....'

Re Sutter

[Pansini] defended [CEO] Fry's compensation as reasonable and necessary to meet Sutter's strategic goals by hiring a skilled executive team. 

Explicit Comparison to For-Profit Corporations

The articles also introduced one new element.  Some defenders of non-profit hospital CEO compensation explicitly argued that should take into account compensation of for-profit CEOs.

This argument was made by "Jill Horwitz, a law professor at the University of California at Los Angeles,' who had "defended paying not-for-profit healthcare executives market rates."

She also noted that not-for-profit systems have to compete with the for-profit sector for top talent. 'This idea that people should be donating their labor is a misunderstanding of charity.'

Defenders of CEO compensation at specific health systems also made similar points.  For example, a Kaiser Permanente spokesman explicitly compared his CEO's pay to that given to CEOs of for-profit health plans,

Kaiser spokesman Won Ha, in a written statement, said Halvorson's pay falls short of the average compensation of $14 million, not including option exercises, earned by CEOs of the 12 largest for-profit healthcare systems, which had average 2011 revenue of $37 billion.

'Compensation paid to senior management is substantially less than that of many for-profit health (plans),...'

Also, re Sutter,

[board committee chair Pansini noted that when comparing his CEO's pay against the market] That comparison includes other executives of similar not-for-profit health systems, and to a lesser degree, of for-profit systems.

 Summary: An Extension, but Still no Clear Justification for the Talking Points


The talking points to explain executive compensation in health care are used again and again.  They never seem to be publicly challenged.  However, they should raise some obvious questions.

The argument about competition raises several obvious questions.  Why should the top hired managers' pay be only compared to other top managers, and not explicitly to other employees?  Even if the comparison is restricted to other top managers, how can they be used for those at the top of the pay scale for non-profit hospital system CEOs?  How these CEOs' compensation could be dubbed merely competitive, much less "halfway between the lowest and highest amount he could earn elsewhere," is not clear.

The retention argument begs the questions of whether any of these managers is really likely to leave, whether they really would be attractive to other organizations at the same or even higher pay, and whether it would really be difficult to find replacements.

The brilliance argument raises the question of how brilliance is defined.  Given that it is almost unheard of for a fan of current compensation practices to dub any top manager anything less than brilliant, the obvious question is how can CEOs, like the children of Lake Woebegone, all be above average? 

 Furthermore, the talking points seem to be in the process of extension, which should raise even more questions.

Defenders of CEO pay, usually "spokespeople" or members of boards of trustees, often cite the need for "competitive" pay.  They usually are not clear about with whom they are competing.  Now it seems to be more popular to say that non-profit health care organizations are competing with for-profit corporations, despite the ostensible difference in their natures.  Non-profits are supposed to have a charitable nature and function, to have some sort of mission that serves the greater good.  To support that apparently benevolent purpose, in the US they are exempt from certain taxes, are are able to receive charitable contributions which in turn earn deductions for their givers.  For-profit corporations are in business ostensibly for their owners. 


In addition, by now asserting that the non-profit CEOs should be likened to the CEOs of for-profit corporations, the expanded talking points highlight questions that have been raised about how these hired managers are paid. We have previously discussed some pithy critiques of American practices of executive compensation (look here and here.)

CEO compensation as a multiple of the pay of the average worker has risen 10-fold since the 1960s (see this chart). As a consequence, the top 1% and 0.1% of the US income distribution is increasingly and disproportionately made up of executives, that is hired managers, (see the recent article by Bivens and Mishel[1] for a summary).  Per the article, the income of top corporate executives has grown even faster than that of other members of the top 0.1%.  It seems evident that these rates of growth cannot be explained by increases in the financial performance of their companies.  Furthermore, while it appears that compensation of US health care corporate executives has grown as fast as their brethren, there is no data that US health care has improved at anything like a similar rate.  It may have hardly improved at all.  A recent JAMA article is just the latest example of studies showing that US health is lagging that of other developed countries, although the US spends far more per capita on health care.(2)     

Furthermore, there is more and more criticism about how the compensation of top hired managers is set.  Steve Denning's blog  post in Forbes summarized a 2012 Harvard Business Review article(3) suggesting that "market-based" compensation schemes mistake top managers for innovative entrepreneurs, when they are mainly simply "bureaucrats"; reward managers for luck rather than skill; and is "inversely related to shareholder returns."

Finally, Elson and Ferrere critiqued the mechanics of how compensation is set.  In particular, while boards of directors may attend to data on compensation of CEOs at other, supposedly comparable corporations, they almost always "choose a package that is in the 50th, 75th, or 90th percentile of their target peer group.  Targeting levels below the 50th percentile is rarely, if ever done."  Thus, boards nearly always act as if their CEO is above average, while by definition, most CEOs cannot be above average.  Why do boards commit this folly?  The authors postulated that suggesting the CEO is less than average "may raise concerns over the executive's position within the company...."  Perhaps boards also fear that labeling the CEO below average may be an admission of below average governance. 

Desai suggested that the perverse incentives created by current schemes to compensate managers were a major cause of the 2008 financial meltdown.  As Dennings wrote,

despite the constraints to change, the overcompensation of the C-suite and the financial sector is not sustainable. It causes serious misallocation of capital and talent, repeated governance crises, rising income inequality and an overall decline of the US economy. It obviously cannot continue, if only because, as Margaret Thatcher used to say in a different context, 'Sooner or later you run out of other people’s money'

Clearly, in the health care context, the results could be even worse.  Perverse executive compensation could not only lead to misallocation of capital and talent in health care, it could lead to bad health care decisions that could harm patients' and the public's health.  However, there seems to be almost no discussion of, much less research about, much less policy changes addressing perverse incentives for health care managers and their likely ruinously bad effects on people and patients.

Such discussion and research is a prerequisite to true health care reform, which would require such policy changes.

Meanwhile, I hope at least the next time huge compensation of some health care managers is announced, someone asks the next set of questions after the usual talking points are made.  

Roy M. Poses MD in Health Care Renewal

References
1.  Bivens J, Mishel L. The pay of corporate executives and financial professionals as evidence of rents in top 1 percent incomes.  J Econ Perspect 2013; 27: 57-78.
2. US Burden of Disease Collaborative.  The state of US health, 1990-2010 burden of diseases, injuries, and risk factors.  JAMA 2013; 310: 591-608.  Link here.
3. Desai M. The incentive bubble.  Harvard Business Review, March 2012. 

Tales of the Wayfaring Generic Manager - from Ritz Carlton Hotels to Henry Ford West Bloomfield Hospital to Cancer Treatment Centers of America

In 2006, we wondered what a former hotel manager, Mr Gerard van Grinsven, admittedly known for putting the "wow" back in the Detroit Ritz-Carlton, would be doing as a hospital CEO.  This seemed at the time like a real "wow" example of how generic managers were taking over health care.  Mr Grinsven had extensive experience in the hospitality field, but no known background in health care. 

Organic Local Produce, "Wellbeing Centers," Gourmet Dining, Wedding Receptions, and Corporate Functions

Over the next few years, Mr van Grinsven's Henry Ford West Bloomfield hospital did make a name for itself.  In 2009, Becker's Hospital Review reported on some of Mr Van Grinsven's innovations. 

First, he lead an apparent change in the hospital's mission from acute care to recreating:

the hospital experience into one focused on promoting wellbeing and healthy living. The hospital has already begun to realize its mission statement, which reads 'to take health and healing beyond the boundaries of imagination.'

The new hospital apparently was designed to look like a luxury hotel:

The hospital is located on 160 acres of woodlands and is designed to resemble a Northern Michigan lodge. The facility also features a retail 'main street' which looks like an actual main street in a Northern Michigan town and includes stores focused on sleep, pregnancy, organic food and healthy cooking as well as a pharmacy.

Apparently it is now a favored site for weddings:

The hospital also holds free concerts for the community and has already received nine wedding inquiries. 

It had a "wellness center"

Henry Ford West Bloomfield also features a unique, integrated wellness center called Vita. Vita offers acupuncture, therapeutic message, yoga and relaxation classes, an aqua therapy suite, a spa and health coaches who provide lifestyle and exercise consultations. In addition to offering one-time services, the hospital offers memberships to community members to encourage frequent use of the center.

What really stood out was its food service:

Henry Ford brought in top Michigan chef Matt Prentice to transform traditional hospital food service. The hospital features 24-hour room service for patients, all of which is served by the hospital's on-site gourmet, organic restaurant, Henry's. All food served in the hospital is organic, promotes sustainable agriculture and, in many cases, is procured from local farmers.

A 2011 article in Fortune noted that

the hospital is on track to generate millions of dollars a year hosting and catering functions for companies and community groups.

It all sounds great, if it were describing a luxury hotel.

The Fortune article ended with the gushing summation:

While it will be years before anyone can say whether this model works, there's no question that it captures a spirit of innovation that just might be a cure for what ails so many organizations. We are living today through the age of disruption. You can't do big things if you're content with just doing things a little better than everyone else or a little differently from how you've done them in the past. In an era of intense competition and non-stop reinvention, the only way to stand out from the crowd is to stand for something special. Originality has become the acid test of strategy.

Neither it nor the Becker's rather uncritical discussions dealt with what any of this had to do with the fundamental mission of a hospital, to care for the sick, what it has to particularly do with quality of care, especially care of severely acutely or chronically ill patients, traditionally those whom hospitals were meant to serve.  Would a patient desperately sick from a myocardial infarction (heart attack), stroke, sepsis (bacterial blood stream infection) or the other major ills that bring people to hospitals really care that if he or she were to survive without major sequelae, organic, locally grown food would be served in the hospital's fancy restaurant?  Is there any evidence that provision of any of these fancy hotel amenities would affect important clinical outcomes for such patients?  Could the funds needed for all these fancy hotel services be better spent to improve patients' the the population's health?

On to a More Ethically Challenged Environment

We may never know.  But what we do know is that Mr van Grinsven, having brought "wellness" centers and organic, locally grown, gourmet food to an acute care hospital, is now moving on.

Crain's Detroit Business just reported:

Henry Ford West Bloomfield Hospital President and CEO Gerard van Grinsven has resigned from the position effective June 1, according to an internal email sent Friday to employees from Henry Ford Health System President and COO Bob Riney.

Van Grinsven is leaving the hospital to become the president and CEO of Chicago-based Cancer Treatment Centers of America, Riney said in the email. He will oversee the CTCA's five hospitals and medical centers in Illinois, Pennsylvania, Oklahoma, Arizona and Georgia. The CTCA is expected to announce van Grinsven's new position later today.

Henry Ford Health System CEO Bob Riney saluted van Grinsven thus,

'Gerard's leadership talents and his tremendous global experience made the transformation of this innovation and distinctive vision a reality,' Riney told employees in the email.

He did not apparently mention anything about the quality of care for acutely and chronically ill patients.  The press release from CTCA proclaimed

'Gerard's arrival is an exciting and dramatic step in the evolution of our leadership that will herald new opportunities for all of our talented Stakeholders and the thousands of patients we serve,' said [executive chairman and former CEO Stephen B] Bonner. 'Our expertise in Patient Empowerment Medicine® and track record implementing change is unparalleled. Nothing we do today is the same as we did two years ago. Gerard is uniquely qualified to provide the leadership required to advance our commitment to patient-centered care in all we do,' concluded Bonner.

Of course, there was nothing about how van Grinsven's expertise in wellness centers and organic produce would be useful to an organization supposedly devoted to cancer patients, whose care may involve risky treatment choices and who may become desperately ill.

There was also nothing about how van Grinsven's background would help CTCA to avoid new ethical misadventures.  Earlier this year, we posted about issues involving CTCA making unsubstantiated survival claims; promoting "integrative" treatments that are unsupported by evidence; and manipulating survival statistics, in part by turning away patients with poor prognoses.  Of course, it is not clear that given van Grinsven's background he would even understand why such behavior is unethical. 

Summary

As a physician, it is hard not to laugh at all this, at least to keep from crying.  As we have noted frequently, health care has been taken over by generic hired managers.  At best, while well meaning, many of them seem clueless about the nature and context of health care, and health care professionals' values.  At worst, the manager's coup d'etat has turned managers into manager-kings, queens and nobles, while driving up health care costs, and sacrificing the health of patients and the public.  The depth of this phenomenon is demonstrated by the absolute lack of skepticism about the worthiness of a former Ritz-Carlton executive to run either a community hospital or a system of cancer treatment centers.

I say once again that true health care reform would put in place leadership that understands the health care context, upholds health care professionals' values, and puts patients' and the public's health ahead of extraneous, particularly short-term financial concerns. We need health care governance that holds health care leaders accountable, and ensures their transparency, integrity and honesty.

Carolinas Healthcare System Pays Executives Even More

In May, 2012, we discussed the contrast between the outsize compensation given to top executives of Carolinas Healthcare System, a large tax-exempt public hospital authority, and the apparent failure of the system to fulfill it promise to provide community care.  Now we can update that story.

2012 Executive Compensation

The Charlotte Observer reported on the compensation given to top executives at the Carolinas Health Care System in 2012:

The top executive at Carolinas HealthCare System received $4.76 million in 2012 compensation, a 12 percent increase over 2011, as the system celebrated a profitable year and met all of its systemwide performance goals, the system announced.

CEO Michael Tarwater, 59, who has led the $7.5 billion nonprofit system for more than 10 years, received a salary of $1.1 million, two bonuses totaling $2.8 million, and other compensation, including retirement and health benefits, of $795,724.

The top 10 executives at Carolinas HealthCare each received more than $1 million in total compensation. Most received increases of more than 8 percent.

A more detailed list, which included the rate of increase since 2011::

Michael Tarwater, CEO: $4,760,026 – 12.36 percent increase
Joseph Piemont, president and chief operating officer: $2,880,926 – 13.57 percent increase
Greg Gombar, chief financial officer: $1,898,027 – 8.35 percent increase
Laurence Hinsdale, executive vice president: $1,844,413 – 8.92 percent increase
Paul Franz, executive vice president: $1,704,671 – 8.17 percent increase
Dennis Phillips, executive vice president: $1,420,521 – 5.14 percent increase
Dr. Roger Ray, chief medical officer: $1,315,148 – 21.76 percent increase
John Knox, chief administrative officer: $1,296,185 – 8.24 percent increase
Debra Plousha Moore, executive vice president: $1.145,357 – increase not available
Russell Guerin, executive vice president: $1,141,171 million – 7.56 percent increase

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Also here were the compensation figures for some leaders of individual hospitals within the system:

Others in Carolinas HealthCare System - 2012
• Spencer Lilly, president, Carolinas Medical Center: $633,326
• Robert Larrison, president, Carolinas Rehabilitation: $348,976
• Douglas Roush, president, CMC-Mercy: $262,745
• Christopher Hummer, president, CMC-Pineville: $549,616
• William Leonard, president, CMC-University: $378,369
• Phyllis Wingate-Jones, president, CMC-NorthEast: $761,160
• Peter Acker, president, CMC-Lincoln: $385,847
• Michael Lutes, president, CMC-Union: $488,427

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

The Context

The context is that Carolinas Healthcare is a large tax-exempt public hospital system that claims that it "works to improve and enhance the overall health and wellbeing of its communities" according to its web-site.  However, there have been accusations, for example here by "Jessica Curtis, director of the Hospital Accountability Project for Community Catalyst in Boston," that is has been

'...sending very low income patients to collections and suing them as well.'

The Observer and The News & Observer reported last year that during the five years ending in 2010, North Carolina hospitals filed more than 40,000 lawsuits. Most of the suits were filed by Carolinas HealthCare.

Note that we discussed the contrast between this hospital system's public nature and aspirational statements about serving the community on one had, and its oversize executive compensation on the other hand here.  Since then, executive compensation has only gone up.

The Usual Talking Points for Justification

Of course, when asked, defenders of the hospital system gave the stock justifications.  For example,

Carolinas HealthCare officials said executive compensation is 'performance based' and reflects the system’s growth. 

The Observer found a health care executive compensation consultant to make the usual arguments about the need to pay market rates to prevent supposedly talented executives from being recruited elsewhere:

 Consultants who assist hospitals in setting executive compensation say they compare peers at hospital systems of comparable size, complexity and performance.

'If , he’s going to get paid higher in the range. That individual is very vulnerable to being recruited away' said Bob Erra, president of Integrated Healthcare Strategies.

'The last thing a compensation committee wants to do is to lose a leader over pay,' said Erra, whose Minneapolis-based firm works with Novant Health but not Carolinas HealthCare.

 Just as we mentioned in our most recent post, whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, most other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points here, and then provided additional examples of their use here, here and here.   The talking points are:
-  we pay what everyone else pays
-  CEOs work hard and are brilliant, and so deserve high pay
-  high pay is needed to attract and retain competent, if not brilliant people.



Note that without specific evidence to back them up, the first two talking points at least are logical fallacies.  The first is an appeal to common practice.  The second is an appeal to authority.

None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees.

So it should be no surprise that the justifications for the largess to hospital executives at Carolinas follow the talking points yet again.

-  We Pay What Everyone Else Pays => "they compare peers at hospital systems of comparable size, complexity and performance."  Note further that it is hard to believe the comparisons were only to other public hospital systems, that is, hospital systems run by local government

- CEOs Work Hard and Are Brilliant => "(the CEO) is a high performer...."  Note further that as usual no evidence of the CEO's specific performance was offered.

- High Pay Needed for Retention => "That individual is very vulnerable to being recruited away."  Note that as we wrote recently, most CEOs are recruited from within the organization, and no specific evidence that this specific CEO was particularly likely to be recruited away was offered. 

So as is usual, underlying these talking points there was no evidence, nor arguments that would make them more logical.


Summary: the More Things Change

The more they stay the same.  Thus this seems to be yet another example of how top managers almost always now seem able to personally profit from their positions of trust.  In this particular example, however, these were managers of a public organization, so it may be possible that public pressure could make them more accountable and hold them to more reasonable pay.  

So to repeat my conclusions from 2012....  The governance of this organization, like that of many others we have discussed, needs to regain accountability, transparency, integrity, and ethics. It must insist that the leaders it hires uphold the mission ahead of other concerns, particularly personal enrichment. It must provide these leaders with realistic incentives based on how well they uphold this mission, not on revenue or operating margin.

Until such changes are accomplished, expect this hospital system, like many other health care organizations, to contribute only to our ever rising prices, declining access, and stagnating health care quality.

Non-Profit Hospital Executive Salaries Continue to Defy Gravity and Logic

The old saying is that nothing is certain except death and taxes.  In health care, the other near certainty seems to be that compensation for health care leaders is big and always getting bigger. 

Over the past few weeks several reports about the compensation of top executives of US non-profit hospitals and hospital systems have appeared.  So it is time to do our latest round-up of incessantly buoyant hospital executive compensation, and argumentative hot air that seems to fuel it.  I will first summarize the latest cases in alphabetical order by state, and then examine some common justifications for the seemingly anti gravitational nature of executive compensation in this part of health care.

Arizona

On AZCentral.com was an article about the CEO of a single relatively small public hospital system:

The leaders of Maricopa County’s public health-care system agreed to raise chief executive Betsey Bayless’ pay by 33 percent, bringing her salary to $500,000.

That may not seem like a lot of money as executive compensation goes, but consider the context:

The Maricopa Integrated Health System is a public hospital system that provides care for the Valley’s poor and uninsured. It is funded by federal and state health-care dollars and a special county levy paid by all county property-tax payers.

MIHS budgeted $3.5 million for market adjustments and merit raises for its employees in fiscal 2013. Bayless’ salary increase alone will consume one-quarter of the $500,000 the board had allocated this fiscal year to bring all employees’ pay in line with similar positions elsewhere.

The health-care system’s rank-and-file employees have received annual merit-based salary increases of no more than 2.9 percent since fiscal 2008.

Nonetheless, the CEO did not exactly feel rich:

Bayless said she did not request the raise and was not expecting it. She said she believes MIHS employees will understand that her salary has been comparatively low and that her replacement likely will be brought in at an even higher salary.

She justified her pay by comparing it to what she thought the market would bear.

'Any salary information will show you that my salary is always the lowest of any (hospital) CEO currently in the entire state, even the little-bitty hospitals,' Bayless said. 'On any measure, 375 (thousand dollars) is below market. So, do I feel undercompensated? I don’t know. But on any measure, it always comes in below market.'

Members of the hospital system's board also justified the pay on the grounds that it was at the market rate:

[Board Members Mary] Harden and [Terence] McMahon said they voted for the pay raise because a national search firm hired to find Bayless’ replacement set $500,000 as a minimum competitive salary for qualified candidates.

Another board member also noted how hard CEO Bayless works:

'The lady works 70-plus hours a week. She’s on call 24/7. So, I think the job warrants it. She works very, very hard,'  Dewane said.

I am sure health care professionals who also work long hours, and are frequently on call, but unlike managers, have to make decisions with real life and death consequences would understand, or not.


California

In California a report focused in contrast on the bigger hospitals and hospital systems.  California Healthcare News reported on the best compensated hospital executives in the state.  In general,

More than one in five non-profit hospital chief executive officers in California received compensation totaling $1 million or more in 2010, according to a new pay survey by Payers & Providers.

Altogether, 32 CEOs of the 154 surveyed received pay packages that ventured into the seven figures. That compares to 19 CEOs who received seven-figure pay packages in the only prior survey Payers & Providers conducted. That survey was published in June 2010, and relied primarily on data from 2007 and 2008.  

Some specifics about the best paid executives:

Kaiser Permanente's George Halvorson is the most highly-compensated hospital system executive in California, receiving $7.74 million in 2010. That included more than $6 million in additional compensation. Halvorson is retiring as Kaiser's CEO in June.

Thomas Priselac, the chief executive officer of Cedars-Sinai Medical Center in Los Angeles, was the highest-paid standalone hospital CEO, earning $2.77 million in 2010. That included additional compensation of $1.6 million.

The article provided the justification for Priselac's seven-figure compensation:

According to an email response from Cedars-Sinai spokesperson Duke Helfand, Priselac's compensation 'reflects the top-tier clinical, research and educational performance the medical center consistently has delivered in his 19 years of leadership.'

He did not offer how this performance was measured, how it compared to that of any other hospital, or whether anyone other than the CEO might have been responsible for that performance.

The survey results included the best compensated CEO of a health-district

Michael Covert,  the CEO of the two hospital Palomar-Pomerado Health system in San Diego County, was the highest-paid district hospital CEO, earning $1.09 million in 2010. He was among two district hospital CEOs to earn seven-figure compensation.

The survey results also included the best compensated CEO for academic medical centers run by the (state supported) University of California:

David T. Feinberg, M.D., is by far the highest-paid CEO among those who oversee the five research hospitals operated by the University of California. Feinberg, who runs Ronald Reagan UCLA Medical Center, earned $1.33 million in 2010 – the only seven-figure pay package among that cohort of CEOs, and nearly $450,000 more than the second-highest earner in that group, Mark Laret of UC San Francisco Medical Center.

Connecticut

Becker's Hospital Review provided information on the highest paid Connecticut hospital CEOs:

Here are the nine CEOs who earned at least $1 million in 2011.

•    Clarence Silvia, The Hospital of Central Connecticut: $2.76 million
•    Marna Borgstrom, Yale-New Haven Hospital: $2.59 million
•    Brian Grissler, Stamford Hospital: $2.24 million
•    Elliot Joseph, Hartford Hospital: $1.74 million
(*CEO is now Jeff Flaks)
•    Frank Corvino, Greenwich Hospital: $1.71 million
•    Susan Davis, RN, Saint Vincent's Medical Center: $1.48 million
•    Chris Dadlez, Saint Francis Hospital and Medical Center: $1.42 million
•    John Murphy, MD, Danbury Hospital: $1.08 million
•    Christopher O'Connor, Hospital of Saint Raphael: $1.04 million

 The report did not provide any justification for the pay levels, and I could find no further news coverage that was relevant.

Massachusetts

The Fitchburg (MA) Sentinel and Enterprise seemed to be the only media outlet which  noted the compensation of hospital executives reported to the state attorney general.  It listed compensation of some regional hospital leaders,

Patrick Muldoon, president and CEO of HealthAlliance Hospital, a member of the UMass Memorial Health Care system, received a compensation package of $653,868 in 2010, the most recent year for which compensation data is publicly available.

The HealthAlliance system includes a 135-bed community hospital with services on two campuses in Leominster and Fitchburg.

Over that same period, Daniel P. Moen, former president and CEO of the 153-bed Heywood Hospital in Gardner, received a compensation package of $386,126.

Christine Schuster, CEO of Emerson Hospital in Concord, earned a total compensation package of $669,844. Emerson has 179 beds.

Lahey Clinic chief executive Howard Grant, who oversees a facility with 317 beds, was paid a total compensation package of $768,568 in 2010.

The article did not note the justification for the pay of any of these CEOs.  I was unable to find any other recent reporting that took advantage of the data supplied to the state Attorney General.

New York

SUNY - Downstate Medical Center

The New York Daily News reported on compensation given to executives at one state supported university medical center:

15 SUNY Downstate Medical Center bigs are raking in $200,000-plus salaries even as plans move forward to shut down its Long Island College Hospital campus.

Downstate president Dr. John Williams who’s leading the drive to close the Cobble Hill hospital gets the fattest pay of all.

He’s paid $650,000 a year salary and gets an annual housing allowance of up to $80,000 and the use of a car.

It listed the following compensation information for other executives:

Other big hospital administrators’ salaries, 2011
* $552,556.33 — Debra Carey, vice president
* $357,379.26 - Grace Wong, vice president
* $334,072.19 — Ivan Lisnitzer, vice president
* $312,182.24 — Paul Davis, assistant vice president
* $286,954.51 Renee Poncet, vice president

This should be viewed in the context of the medical center's current dire straits:

SUNY Downstate — which has a hospital and medical school in East Flatbush — is in such bad financial shape it could go broke by March, SUNY chairman Carl McCall has said.

Of course, despite these financial threats, a "spokesman" defended these payments again as market-based:

[Robert] Bellafioire defended the brigade of big salaries — though the controller’s audit suggested Downstate should consider cutting the number of high-paid administrators.

'We have to offer competitive compensation, particularly when we’re up against any number of the country’s best hospitals and medical schools just across the bridge and in the metropolitan area,' Bellafiore said.

Rural Hospitals in Upstate New York

On the other hand, the Plattsburgh (NY) Press-Republican reported on the compensation given to hospital executives in rural northern New York state.  These included Alice Hyde Medical Center:

John Johnson, president and chief executive officer, was paid $339,539 in 2010. He retired in the fall of 2012.

He was replaced by Douglas DiVello, who is paid $246,682 in salary and benefits.

Then there was CVPH Medical Center in Plattsburgh

Hospital President Stephens Mundy has been at CVPH for 10 years and was paid $749,563 in salary, bonuses and other compensation in 2010.

His base salary for 2013 is $478,421,...

In addition, there was Elizabethtown Community:

Rodney Boula, president and chief executive officer at ECH, was paid $229,902 in 2010.

Note that later the article explained that this hospital has no more than 25 beds.

However, the reporter was unable to find out the compensation of the CEO of the Adirondack Medical Center in Saranac Lake:

Chandler Ralph, president and chief executive officer for 16 years, is not employed by the hospital or its umbrella organization, Adirondack Health.

She is paid through a contract with a management company, Health Tech Management Services, said Joe Riccio, AMC communications director.

Her salary is a confidential employment contract, 'just like any other vendor that does business' with the hospital, he said.

Because of that, her salary was not available through IRS records. The Press-Republican pressed Ralph to release her salary, noting that it was publishing the pay of all other area hospital CEOs, but she refused, citing confidentiality.

Parenthetically, this seems to be an unusual case of the actual outsourcing of top leadership.

This compensation information again should be considered in the context.  These are all relatively small hospitals in a rural area with low costs of living.  In addition, these hospitals were facing substantial financial challenges:

Numerous jobs were cut in 2012 at the area’s five hospitals, some the first substantial layoffs in decades. One hospital recorded an operating deficit, and at some, programs and services were reduced.

Adirondack Health, parent company of Adirondack Medical Center in Saranac Lake, and CVPH Medical Center in Plattsburgh, each laid off 17 employees last fall and eliminated vacant positions.

Alice Hyde Medical Center in Malone let 12 people go in September and had closed down more than a dozen vacancies.

Nonetheless, the justifications for these compensation levels included the usual suspects.In an introductory discussion not specific to any hospital, we find:

'The responsibilities of a CEO have exploded in the last four years,' said William Van Slyke of the Healthcare Association of New York State, an organization that represents hospitals and health-care systems across the state.

Similarly,

'Being a hospital CEO, you are ‘all in,’ all the time, every hour. It’s a tremendous responsibility.'

 
This is the familiar argument about how hard seemingly all hospital CEOs work.  As noted above, it is particularly incongruous in a health care setting in which numerous health professionals are also "all in," and these professionals bear the responsibility of making decisions and taking actions that can directly affect patients' health, safety, and even survival.

 Following this were the equally familiar arguments that the compensation of CEOs is determined by the market, and so to retain CEOs one must pay at this market rate:

'Being a hospital CEO, especially in the state of New York, is complex and demanding job. There is an extraordinarily limited pool of candidates, and that increases their value.'

'I can’t speak for the hospitals in your area,' he told the Press-Republican, 'but a qualified and successful CEO can go anywhere in the country and make equal or higher salaries.'

The Press Republican also elicited very similar articles justifying pay for individual hospital CEOs, for example, regarding the CEO of the Alice Hyde Medical Center, here is the "compensation is determined by the market" argument from "Dean Johnston, president of the Board of Trustees, and member of the hospital's Compensation Committee"

'It’s important that the salary is competitive with other institutions because it’s difficult to attract professional leaders who will improve the quality of care.'

And from the same person, here is the "CEOs work very hard" argument

 'It’s difficult being CEO,' Johnston continued, 'because you’re the head of a complex and multi-faceted institution.'

Very similar arguments were made to justify the compensation of the CEO of CVPH Medical Center. 

The Usual Talking Points and Logical Fallacies

So, to summarize, hospital executive compensation, at least such compensation that gets noted in the media, seemingly never has been better.  CEOs at even the smallest, most rural, non-profit community hospitals can make well into the six figures.  CEOs at public hospitals can make over half a million dollars.  CEOs at larger hospitals, even those that are state supported, can make even more, up to millions a year for CEOs of moderate to large non-profit hospital systems.  Even hospitals that are facing financial challenges, or that are laying off employees still pay substantial amounts.

In previous posts, we noted that whenever anyone bothers to try to justify extravagant executive compensation at hospitals, and for that matter, other health care organizations throughout the US, they seem to repeat the same set of talking points.    We first listed the talking points here, and then provided additional examples of their use here, here and here.   The talking points are:
-  we pay what everyone else pays
-  CEOs work hard and are brilliant, and so deserve high pay
-  high pay is needed to attract and retain competent, if not brilliant people.

None of the examples of these talking points we have seen so far explain why these apply to CEOs and other top hired managers, but not to other kinds of employees. 

So it should be no surprise that the justifications for the largesse to hospital executives found in the cases above follow the talking points yet again.

We Pay What Everyone Else Pays

 Another way to put this is that some market determines CEO pay.  We saw versions of this to support the compensation of the CEOs of Maricopa Integrated Health System in Arizona, and SUNY - Downstate Medical Center and Alice Hyde Medical Center in New York.

Note that almost never is this argument supported by data about whether comparisons were actually made to a representative peer group.  In any case, as we asserted before, this justification may be a logical fallacy, an appeal to common practice.

CEOs Work Hard and Are Brilliant

 This is an especially frequently used talking point.  I have yet to see an instance in which any hospital official would omit a CEO was anything other than supremely diligent and totally brilliant.  We saw versions of this to support the compensation of the CEOs of Maricopa (AZ), Cedars-Sinai Medical Center in California, the Alice Hyde Medical Center and CVPH Medical Center in New York, and generically to support all New York State hospital CEOs.

As we noted above, this justification is almost never accompanied by any evidence that CEOs work harder or are more brilliant than the numerous health care professionals who actually make it possible for the hospital to operate.  I would guess it would be very hard to show that CEOs work longer hours, are under more stress, make more consequential decisions, are smarter or better trained than typical doctors, nurses and other health care professionals.  This justification thus appears to be another kind of logical fallacy, an appeal to authority.

High Pay is Needed for Retention

 We saw versions of this to support the CEOs of Maricopa, SUNY - Downstate, Alice Hyde, CVPH, and generically again to support all NY hospital CEOs. 

 

Note that this justification is also almost never supported by any evidence.  As we noted here, while this argument, probably like the others, comes from the generic business management literature, there is little data in the larger business world to show that CEOs are very mobile, or likely to succeed when transplanted to a new environment.  In fact, a recent report looking at the mobility of CEOs worldwide called this a "self-serving myth."  (See this summary for a link to it.)

 

It is too bad that no one ever seems to get the opportunity to challenge these talking points when they are offered as justifications for outlandish executive compensation. 

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Read more here: http://www.charlotteobserver.com/2013/02/06/3835851/charlotte-hospital-pay.html#storylink=cpy

Summary

As we have shown again and again, the pay of top health care leaders seems to endlessly increase, without clear justification, regardless of the vicissitudes affecting the organizations they lead, their employees, their patients and society.  This suggests that health care organizations, like many other organizations, seem to be run primarily for the benefit of their executives and their cronies, regardless of what happens to anyone else.  

As we have frequently said, current policies about paying hired health care managers leave the managers unaccountable for the effects of their actions on patients' and the public's health, and worse, fail to deter and may even encourage ignorance of the health care mission, frankly mission-hostile behavior, self-interest, conflicts of interest, and outright corruption.  Meanwhile, paying nearly all top managers as if they were brilliant, while setting much harsher standards for the employees who actually take care of patients, including health professionals, demoralizes those on whom patients actually depend for care.

As we have said endlessly,....   Health care organizations need leaders that uphold the core values of health care, and focus on and are accountable for the mission, not on secondary responsibilities that conflict with these values and their mission, and not on self-enrichment. Leaders ought to be rewarded reasonably, but not lavishly, for doing what ultimately improves patient care, or when applicable, good education and good research. On the other hand, those who authorize, direct and implement bad behavior ought to suffer negative consequences sufficient to deter future bad behavior.

If we do not fix the severe problems affecting the leadership and governance of health care, and do not increase accountability, integrity and transparency of health care leadership and governance, we will be as much to blame as the leaders when the system collapses.

Will the Circle be Unbroken? - Hospital Executive Compensation Continues to Defy Gravity and Logic

A report from Health Leaders Media, a prominent media site about health care management, shows how non-profit hospital executive compensation continues to levitate.  In general,

For not-for-profit CEOs nationwide the median total cash compensation (base plus incentives) increased 3% to 6.7% over last year, and these organizations' senior leadership teams gained similar pay increases,...

The specifics included

Health system CEOs' median base salaries increased to $717,500 (2012) from $650,000 (2011), while independent hospital CEOs' median base salaries rose to $506,100 from $472,000 during that period, according to IHS. Comparatively, Sullivan, Cotter and Associates shows the base pay for system CEOs nationwide increased while the TCC declined slightly—base pay increased to $334,700 from $325,000, while TCC decreased to $411,100 from $412,100 from 2012 to 2011, respectively. Unlike their health system counterparts, independent hospital CEOs' base pay and TCC climbed between 2011 and 2012—base pay went up to $530,000 from $504,000 (a 4.9% gain) and TCC jumped 4.3% to $600,000 from $574,000.

The report also showed that pay increased for some species of top executives.  CIOs (chief information officers) did the best,

Nationally, system CIOs received one of the largest TCC increases year over year, according to Sullivan, Cotter and Associates (5.8%). IHS reported a median base salary increase of (3.5%).

These increases ought to be compared to the base rate for the population.  In September, the Census Bureau reported that median family income dropped in 2011 (per the New York Times):

 Median household income after inflation fell to $50,054, a level that was 8 percent lower than in 2007, the year before the recession took hold.

The actual decline from 2010 to 2011 was 1.5% (look here).

So executive compensation in health care continues to defy gravity, even as the income of the typical family does the opposite. 

Will the Circle be Unbroken?

Conveniently, the day before, another well regarded site for hospital management information, Becker's Hospital Review, provided a rationale for current health care executive compensation, based on a blog post from Integrated Healthcare Strategies, which claims to be one of the largest US healthcare consulting firms.

The Review article first noted that "executive compensation is a delicate subject," without explaining why it was more delicate than the compensation given to other people.  It then answered the question its title posed, "are hospital executives paid too much?"  In summary,

compensation levels are currently appropriate, on the whole, because employers are generally keeping them on the job with such consistent pay levels.

The syntax is a little difficult, but I believe the translation is the circular cliche, "it is what it is."  More formally, this appears to be a version of begging the question, or circular reasoning.

The Integrated Healthcare Stragies blog post by David Bjork, "thought leader," Senior Vice President and Senior Advisor, who authored two books on executive compensation in health care, rotated this again.

ARE EXECUTIVES PAID TOO MUCH?  The short answer is no. Executives are not overpaid. If they were, employers would not willingly pay them as much as they do.

And again

the intrinsic value of a job can be quantified. Economists and most workers judge the value of a job by how much it pays. A job is worth what an employer is willing to pay an employee to do it, or what an employee is willing to accept as payment for the job. Virtually no one doubts that principle—except when it comes to executive jobs.

Have we got that?  Bjork argued that executive pay is self-justifying.  All executives are worth what they are paid because that is what they are paid.

Another way to understand the fallaciousness of this argument is to try to apply it to jobs other than executive positions.  Presumably, it would mean that everybody's pay is appropriate, and hence nobody's pay could ever be changed.  But one's head begins to hurt just trying to think about this.

Yet those were the main arguments that Mr Bjork made to justify his contention that

There is no rational basis for the view that executives should not be paid as much as they are paid, just a personal attitude, generally held by someone who is paid less.

A Side Trip to the Fallacy of Composition

Mr Bjork did make an attempt to supplement that argument.  For example, he wrote "labor market forces drive pay for executives," without explaining how much they do so, or the nature of the market for executive pay.  Later, he wrote,

Hospitals and health systems continually look for ways to reduce their costs. When they come across jobs that cost more than they are worth, they eliminate the jobs and either eliminate the work, redistribute it to other employees, or outsource it to cheaper labor. They view executive jobs the same way. When hospitals and health systems find an executive job that seems to cost more than it is worth, they eliminate it if they can and redistribute the work to other managers.

Let us unpack this a bit.  First, hospital and health systems are organizations composed of humans.  They do not look for anything, but the executives who run them may certainly look for ways to reduce costs and eliminate apparently unnecessary jobs.  Confusing hospital executives with the organizations they run appears to be a version of the fallacy of composition, which "arises when a person reasons from the characteristics of individual members of a class or group to a conclusion regarding the characteristics of the entire class or group (taken as a whole)."

Taken literally, this paragraph suggested that executives could decide their own jobs "cost more than they are worth," and then fire themselves and give their work to someone else.   

Nonetheless, were this targument to be true, it in fact contradicts the conclusion based on this argument that appeared two sentences later

Therefore, executives must be worth what they are paid, because employers keep them on the job and willingly continue to pay what¬ever they are paid.

Note that this conclusion is yet another restatement of the circular argument above.  . 

Summary

We have noted that logical fallacies are increasingly deployed to defend the status quo in health care, and particularly to defend the interests of those who are profiting the most from the current dysfunctional system.  In our latest example we find some particularly ripe repitition of a fundamentally fallacious argument to support ever rising compensation for health care executives.  It is distressing that the arguments were made by a prominent health care management consultant and published author on the subject of health care executive pay, and was picked up without question by a prominent health care management media site.  It suggests, like other posts we have written about the generous use of logical fallacies to protect the powers that be, that these eminences really may have not the slightest idea what they are doing, and have truly risen to their level of incompetence, if not ridiculousness; or else, they do know what they are doing, but have nothing but contempt for the reasoning powers of anyone outside their circle, and feel no need to justify their actions to such hoi polloi.

The sheer foolishness of arguments made to protect the status quo ought to lead the rest of us, particularly health care professionals, to question that status quo further. 

The ability of top executives of many, probably most health care organizations to collect bloated paychecks out of proportion to, if not despite their performance attracts the wrong people to lead these organizations, and provides incentives for even the right people to lead badly.

Until we make health care leaders accountable, and until their incentives reflect their ability to uphold the health care mission, expect more unaccountable leadership that subverts the health care mission, and hence continually rising costs, declining access, and deteriorating quality.