CEOs earn big bucks at nonprofit hospitals. Does that benefit patients? : Shots

Almost half of hospitals within the U.S. are nonprofits, which implies they don’t pay native, state or federal taxes. In return, the hospitals present medical care, a social profit, to their communities.

They’re additionally anticipated to offer some charity care to sufferers who can’t pay, and ship providers that promote neighborhood well being, resembling vaccine clinics or most cancers screenings.

However regardless of their community-focused missions, the CEOs accountable for these nonprofits command giant paychecks, that now prime $1 million, on common. And their salaries preserve rising.

Compensation for CEOs of nonprofit hospitals and medical programs grew by 30% between 2012 and 2019, based on a brand new research from Rice College’s Baker Institute for Public Coverage.

Meaning the common paycheck for a prime govt went from just below $1 million to $1.3 million, based on Vivian Ho, a well being economist at Rice College.

The beneficiant pay for well being CEOs isn’t essentially an issue, Ho says, if nonprofit well being programs constantly ship on their mission, which is to offer high quality, inexpensive care.

However Ho worries these large salaries could also be incentivizing CEOs to make selections that don’t profit sufferers, citing a research she printed final yr exhibiting that bigger hospital revenue margins do not end in extra charity care.

The researchers analyzed federal tax paperwork and information and located that salaries elevated throughout the board.

Nonetheless, the CEOs with the most important paychecks labored at hospital programs with the most important monetary returns.

The query is whether or not the nonprofit medical programs reaching these rosy revenue margins are doing so on the expense of their missions, subverting the supposed goal of their tax-exempt standing.

One research discovered that lower than half of nonprofit hospitals notify sufferers that they qualify for monetary help earlier than making an attempt to gather on an excellent fee.

Relating to unpaid medical payments, among the most prestigious nonprofit hospitals within the U.S. garnish affected person wages, whereas others minimize individuals off from non-emergency care.

On the similar time, People are much less wholesome than the residents of different high-income international locations.

Hospital board members typically do not work in well being care

Ho theorizes that a part of the rationale that ballooning CEO pay doesn’t translate to extra inexpensive well being care is as a result of govt compensation is set by the hospital’s board members.

A lot of these board members work in for-profit sectors, which means their skilled experiences and views are sometimes divorced from the supposed mission of nonprofit drugs.

Greater than half of the board members of 15 top-ranked hospitals surveyed work in finance or enterprise, based on a 2023 research. It additionally discovered simply 15% of hospital board members had scientific coaching or labored within the well being providers sector.

“[Board members] usually are not evil,” Ho instructed NPR. “However I do not suppose the incentives are arrange appropriately for them to consider the well-being of the complete neighborhood and affordability.”

When reached for remark, the American Hospital Affiliation accused the Rice research of cherry-picking metrics and pointed to analysis exhibiting that affected person security has elevated in previous a long time.

“The research additionally falls quick by failing to place hospital CEOs within the context of govt expertise, by, for instance, not evaluating hospital CEOs to these at comparably sized organizations in different fields who’re the expertise that hospitals are competing for,” stated Rick Pollack, the affiliation’s president in an e mail assertion.

Nonprofit hospitals and the competitors for managerial expertise

Government salaries are growing throughout all sectors, and which means nonprofits are pressured to supply larger salaries to draw the very best expertise, stated Lisa Bielamowicz, MD, a co-founder of the consulting agency Gist Healthcare.

“[Health care is] this very complicated product with numerous expertise,” stated Bielamowicz. “It is very, very staff- and labor-intensive. And the truth that a nonprofit is popping a revenue … permits them to reinvest over time, construct a cushion for tough instances.”

Whereas Bielamowicz agrees with Ho that extra transparency is required on how hospital boards set priorities, she explains that even nonprofit well being programs should generate a “constructive working margin.”

A constructive working margin is what permits nonprofits to maintain up with inflation, retain the very best medical expertise, and stability treating insured sufferers with those that are underinsured or uninsured. If a nonprofit hospital loses cash or solely breaks even yr after yr, they received’t survive.

With out constructive working margins, well being programs may need to shut a rural hospital or cease investing in wanted providers, resembling dependancy remedy or diabetes care. As hospital managers put it: “no margin, no mission.”

So monetary well being is essential, whether or not a hospital is for-profit, or a nonprofit, stated Bielamowicz.

It is sensible, she added, that CEOs get rewarded after they ship on their organizations’ monetary objectives.

What is the boundary between nonprofit and for-profit well being care?

In the end, how a lot a nonprofit hospital CEO needs to be paid is a philosophical query, stated Ge Bai, a professor of well being coverage and administration at Johns Hopkins Bloomberg College of Public Well being.

For Bai, the wage research offers extra proof that the boundaries between nonprofit and for-profit well being programs within the U.S. has turn into too blurry, with the nonprofits working an excessive amount of like for-profits.

Tax breaks afforded to those nonprofits have allowed them to turn into hyper-competitive, Bai stated, and this has led to a wave of mergers and acquisitions within the well being care sector. Again in 2005, 53% of neighborhood hospitals belonged to a bigger well being system, based on information analyzed by KFF. That jumped to 68% in 2022.

Except policymakers intervene, the consolidation will proceed, Bai predicts, driving down competitors and leaving sufferers with fewer selections and better costs.

Bai, for her half, would really like elected officers to do extra to drive nonprofit well being care to ship on its promise to taxpayers and their native communities. By inaction, authorities regulators have allowed the system to turn into dysfunctional and profit-driven, she defined. It’s elected officers who’ve the facility to make sure these nonprofits truly present a societal profit and don’t exploit their tax-exempt standing.

It’s why the pattern towards larger salaries is regarding, Ho argues, as a result of beneficiant compensation rewards nonprofit CEOs for sustaining the established order.

This story comes from NPR’s well being reporting partnership with KFF Well being Information.