The problem of 8-figure hospital paychecks and near-poor patients

The biggest problem besetting the healthcare industry is money. The United States spends twice as much per capita as any other industrialized nation on healthcare, with middling results and huge coverage gaps to show for it. There is simply far too much cash thrown at some areas, and not nearly enough in others.

A couple of recent news items cast this issue in high relief. The first was the Census Bureau reporting on the tens of millions of Americans described as "near poor." Their incomes are officially above the poverty level, but not so much that they are guaranteed any sort of ongoing material comfort. Most own cars and some even homes, but they're one small misfortune from falling into the abyss. There are 51 million such inhabitants in this country. Only a quarter of them have health insurance.

Such data makes the mission of a community or nonprofit hospital pretty clear: Target this group with generous dollops of charity care and perhaps a public-private partnership to subsidize insurance coverage. But as the Internal Revenue Service and some state tax authorities have been reporting, few hospitals spend more than one or two percent of their revenue stream on direct charity care, and its actual value is blurred by the vast differences in what they agree to accept from public and private payers to render the same services. The "community benefits" they offer outside of direct care most often resemble gauzy window dressing than tangible aid.

The other news item involves Dean M. Harrison, the chief executive officer of Northwestern Memorial Healthcare System in Chicago. Northwestern has been such a charity care laggard that the Illinois Department of Revenue recently yanked part of its tax exemption. As a result, the system now claims to spend a munificent 3 percent a year on charity.

Meanwhile, Harrison was paid an astonishing $10.2 million in 2010, the result of a $7.5 supplemental retirement fund payout. There are hundreds of nonprofit hospital CEOs like Harrison, compensated with millions of dollars while their institutions throw a few bread crumbs to the poor living in their service areas. Many these institutions spend more on CEO pay than charity care.

Alan Sager, a professor of health policy and management at Boston University, recently told Crain's Chicago Business what a lot of healthcare pay and governance experts dare not say: "There's an enormous sense of self-entitlement among CEOs. It started in the for-profit corporate sector, but it has sloshed over into the non-profit hospital world."

I worked up some talking points for Northwestern Chief Financial Officer Peter J. McCanna that he can bring to the next board meeting, although I'm guessing he won't do so. For those CFOs actually willing to rock the boat, these bullet points work for practically any large urban hospital in the country:

• Dean Harrison's 2010 compensation was approximately 170 times that of a charge nurse on their feet 12 hours a day. Does Dean Harrison work 170 times harder?

• Dean Harrison's compensation was approximately 20 times that of a cardiac surgeon performing 300 to 400 high-revenue procedures a year. Does Dean Harrison provide 20 times the benefit?

• Dean Harrison's compensation could be used to cover the first 10,000 uninsured patients who come through the emergency room each year. Which would provide a greater benefit to the hospital and community?

• The purpose of a supplemental retirement plan is to ensure its recipient maintains a reasonable standard of living past their working years. Given the tens of millions of dollars Dean Harrison has already received during his career and the six-figure pension and high five-figure Social Security income he is guaranteed upon retirement, will the $7.5 million payout actually accomplish its goal? Or will it merely be gravy for his heirs?

One discussion I know will ensue from these points is whether I'm a Socialist or just a plain retrograde Communist. The arguments that C-suite staffs work awfully, awfully, awfully hard and deserve whatever they can get will be bandied about again.

But let's be perfectly frank: Much of the work of a hospital's C-suite could be performed by a consulting firm that possesses far greater collective management experience than a few individuals, and has to charge market rates because they're competing with other firms. And while I've met hundreds of hospital executives over the years and virtually all of them are terrific people, 95 percent have not been prodded toward original and creative thought since they left grad school. That's nothing to be ashamed of, as that's pretty much the state of every business sector.

Meanwhile, if your hospital has a single patient who works hard, will be bankrupted by the bill they receive, and no one on your staff has walked them through every step of a charity care claim, that is where some imagination and original thought is sorely needed.
Too much money in some places, and not enough in others. Someone needs to announce that the buck stops here. And start moving around all the other bucks. - Ron (@FierceHealth)