Healthcare CEO compensation skyrocketed under the ACA to the tune of $9.8B

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A new analysis from Axios finds that stock-heavy compensation drives the CEOs of the largest publicly traded healthcare companies in the U.S. to do the exact opposite of the goals that the industry aims to achieve: value-based care.

The Affordable Care Act certainly hasn’t hurt the pay of CEOs from some of the largest U.S. publicly traded healthcare companies. In fact, it was just the opposite.

A new analysis from Axios found that 70 heads of these organizations earned a total of $9.8 billion in the past seven years—11% more on average each year since the passage of the ACA. Eleven of the 20 highest earners were the top leaders of pharmaceutical and drug-related companies, and most of their earnings came in the form of vested stock.

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The report, which was based on corporate financial filings with the Securities and Exchange Commission, didn’t include the pay of not-for-profit hospital CEOs. Instead it focused on the total compensation of leaders of the largest publicly traded companies in the country. The compensation includes salary, bonuses, stock, perks and, when relevant, retirement and severance packages. It also factored in the actual realized gains of CEO stock options and awards—the money that they paid taxes on—and not the estimated fair value

The key finding of the report: The compensation packages for these executives don’t provide them with incentives to control healthcare spending, one of the biggest problems in healthcare today.

“The analysis shows that since the ACA was passed, healthcare executives routinely took measures to inflate stock prices—such as repurchasing shares or issuing dividends to shareholders—that led to higher take-home pay,” the report said. “Stock-heavy pay also drives CEOs to do the exact opposite of their buzzword-laden goals of creating a 'patient-centered' health system that focuses on 'value.'”

The biggest earner, according to the report, was John Martin, former CEO of the pharmaceutical company Gilead Sciences, who earned $863 million in the time period studied. Other top earners included John Hammergren of McKesson ($587 million) and Stephen Hemsley of UnitedHealth Group ($279 million). Only four of the 113 healthcare CEOs studied were women.

In an interview with NPR, Axios reporter Bob Herman said healthcare executives don’t have incentives to slow spending, rather their compensation is often tied to the stock in the company. And that means selling more drugs, price hikes and more procedures—instead of focusing on lower costs of care, eliminating unnecessary care and better care coordination, he said.

Unfortunately, he noted, none of the healthcare reform debate in the Senate this week addresses these issues. “Nothing is being addressed about drug prices, for example. Nothing's being addressed about the actual costs of the system,” Herman told the publication.” The debate right now is still bickering over how to finance the system—not around how much the system itself costs, which I think is a big issue.”

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