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 methods now earn, on common, $1.3 million a 12 months.
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Practically 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, equivalent to vaccine clinics or most cancers screenings.
However regardless of their community-focused missions, the CEOs in control of these nonprofits command giant paychecks, that now prime $1 million, on common. And their salaries maintain rising.
Compensation for CEOs of nonprofit hospitals and medical methods grew by 30% between 2012 and 2019, in line with a brand new research from Rice College’s Baker Institute for Public Coverage.
Meaning the typical paycheck for a prime government went from slightly 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 methods constantly ship on their mission, which is to offer high quality, inexpensive care.
However Ho worries these huge salaries could also be incentivizing CEOs to make choices that don’t profit sufferers, citing a research she printed final 12 months displaying that bigger hospital revenue margins do not lead to extra charity care.
The researchers analyzed federal tax paperwork and knowledge and located that salaries elevated throughout the board.
Nevertheless, the CEOs with the most important paychecks labored at hospital methods with the biggest monetary returns.
The query is whether or not the nonprofit medical methods reaching these rosy revenue margins are doing so on the expense of their missions, subverting the supposed function 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 trying to gather on an excellent cost.
With regards to unpaid medical payments, a few of 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, Individuals 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 government compensation is set by the hospital’s board members.
Lots 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, in line with 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 assume the incentives are arrange accurately for them to consider the well-being of all the neighborhood and affordability.”
When reached for remark, the American Hospital Affiliation accused the Rice research of cherry-picking metrics and pointed to analysis displaying that affected person security has elevated in previous many years.
“The research additionally falls quick by failing to place hospital CEOs within the context of government 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,” mentioned Rick Pollack, the affiliation’s president in an electronic mail assertion.
Nonprofit hospitals and the competitors for managerial expertise
Government salaries are rising throughout all sectors, and meaning nonprofits are pressured to supply greater salaries to draw the most effective expertise, mentioned Lisa Bielamowicz, MD, a co-founder of the consulting agency Gist Healthcare.
“[Health care is] this very complicated product with plenty of know-how,” mentioned Bielamowicz. “It’s totally, 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 methods 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 steadiness treating insured sufferers with those that are underinsured or uninsured. If a nonprofit hospital loses cash or solely breaks even 12 months after 12 months, they gained’t survive.
With out constructive working margins, well being methods might need to shut a rural hospital or cease investing in wanted providers, equivalent to 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, mentioned 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 must be paid is a philosophical query, mentioned Ge Bai, a professor of well being coverage and administration at Johns Hopkins Bloomberg College of Public Well being.
For Bai, the wage research gives extra proof that the boundaries between nonprofit and for-profit well being methods within the U.S. has grow to be too blurry, with the nonprofits working an excessive amount of like for-profits.
Tax breaks afforded to those nonprofits have allowed them to grow to be hyper-competitive, Bai mentioned, 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, in line with knowledge 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 really like elected officers to do extra to power nonprofit well being care to ship on its promise to taxpayers and their native communities. By way of inaction, authorities regulators have allowed the system to grow to be dysfunctional and profit-driven, she defined. It’s elected officers who’ve the ability 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.
