OIG to examine hospital executive pay caps

The U.S. Department of Health and Human Services' watchdog arm intends to study whether caps on the compensation of hospital executives could have an impact on future costs to the Medicare program.

The HHS' Office of the Inspector General 2014 work plan includes an examination of hospital compensation. "We will review data from Medicare cost reports and hospitals to identify salary amounts included in operating costs reported to and reimbursed by Medicare. We will determine the potential impact on the Medicare Trust Fund if the amount of employee compensation that could be submitted to Medicare for reimbursement on future cost reports had limits," the work plan stated.

The Medicare program allows hospitals to fold in employee compensation with allowable provider cost reimbursement "only to the extent that it represents reasonable remuneration for managerial, administrative, professional and other services related to the operations of the facility and is furnished in connection with patient care," according to the legal publication Lexology. There are currently no limits to allowable amounts.

Compensation for hospital executives has drawn scrutiny in recent years as reports indicate many high-level executives, even for non-profit and public facilities, has exceeded $1 million a year and in some instances even inched into the eight figures.

The high incomes have resulted in a backlash. At El Camino Hospital in Mountain View, Calif., voters approved an initiative in 2012 that would cap top salaries to twice what the governor of California earns, for a total of $348,000 a year. Another initiative that may appear on the statewide ballot in California later this year would cap non-profit hospital executive compensation to the U.S. President's salary, currently $450,000 a year. Healthcare unions led both the El Camino and statewide initiatives, actions they said will help them gain leverage in negotiations with providers.

To learn more:
- read the OIG's work plan (.pdf)
- here's the Lexology article