There are greater than 4,600 hospitals within the U.S., and 49% of them are nonprofit and subsequently tax-exempt. The CEOs of those nonprofit well being techniques now earn, on common, $1.3 million a yr.
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Practically half of hospitals within the U.S. are nonprofits, which suggests 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 companies that promote group well being, corresponding to vaccine clinics or most cancers screenings.
However regardless of their community-focused missions, the CEOs answerable for these nonprofits command giant paychecks, that now high $1 million, on common. And their salaries maintain rising.
Compensation for CEOs of nonprofit hospitals and medical techniques grew by 30% between 2012 and 2019, in line with a brand new examine from Rice College’s Baker Institute for Public Coverage.
Which means the common paycheck for a high govt went from just below $1 million to $1.3 million, in line with 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 techniques constantly ship on their mission, which is to offer high quality, inexpensive care.
However Ho worries these massive salaries could also be incentivizing CEOs to make choices that don’t profit sufferers, citing a examine she revealed final yr exhibiting that bigger hospital revenue margins do not lead to extra charity care.
The researchers analyzed federal tax paperwork and information and located that salaries elevated throughout the board.
Nonetheless, the CEOs with the largest paychecks labored at hospital techniques with the most important monetary returns.
The query is whether or not the nonprofit medical techniques reaching these rosy revenue margins are doing so on the expense of their missions, subverting the supposed function of their tax-exempt standing.
One examine 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 impressive cost.
With regards to unpaid medical payments, among the most prestigious nonprofit hospitals within the U.S. garnish affected person wages, whereas others reduce individuals off from non-emergency care.
On the similar time, Individuals are much less wholesome than the residents of different high-income nations.
Hospital board members usually 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 determined by the hospital’s board members.
Lots of these board members work in for-profit sectors, that 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, in line with a 2023 examine. It additionally discovered simply 15% of hospital board members had medical coaching or labored within the well being companies sector.
“[Board members] will not be evil,” Ho instructed NPR. “However I do not suppose the incentives are arrange appropriately for them to consider the well-being of your entire group and affordability.”
When reached for remark, the American Hospital Affiliation accused the Rice examine of cherry-picking metrics and pointed to analysis exhibiting that affected person security has elevated in previous many years.
“The examine additionally falls brief 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
Govt salaries are growing throughout all sectors, and which means nonprofits are pressured to supply greater salaries to draw the most effective expertise, stated Lisa Bielamowicz, MD, a co-founder of the consulting agency Gist Healthcare.
“[Health care is] this very advanced product with a lot of know-how,” 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 occasions.”
Whereas Bielamowicz agrees with Ho that extra transparency is required on how hospital boards set priorities, she explains that even nonprofit well being techniques should generate a “constructive working margin.”
A constructive working margin is what permits nonprofits to maintain up with inflation, retain the most effective 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 gained’t survive.
With out constructive working margins, well being techniques may need to shut a rural hospital or cease investing in wanted companies, corresponding to habit therapy 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 once they ship on their organizations’ monetary targets.
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 examine supplies extra proof that the boundaries between nonprofit and for-profit well being techniques within the U.S. has change into too blurry, with the nonprofits working an excessive amount of like for-profits.
Tax breaks afforded to those nonprofits have allowed them to change 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 group hospitals belonged to a bigger well being system, in line with information analyzed by KFF. That jumped to 68% in 2022.
Until 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 love elected officers to do extra to drive nonprofit well being care to ship on its promise to taxpayers and their native communities. By means of inaction, authorities regulators have allowed the system to change into dysfunctional and profit-driven, she defined. It’s elected officers who’ve the facility to make sure these nonprofits really present a societal profit and don’t exploit their tax-exempt standing.
It’s why the pattern towards increased 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.
