Publicly-traded hospitals, along with other public companies, must publish the ratio of their CEOs' total compensation to the median annual employee pay under a new rule from the Securities and Exchange Commission (SEC).
The SEC's commissioners voted to adopt the rule this week nearly two years after formally proposing the rule, several revisions and five years after Congress passed the requirement as part of the 2010 Dodd-Frank Wall Street reform law, according to National Public Radio. The final version gives publicly-traded companies more flexibility in calculating median employee pay and allows them to leave out non-U.S. employees. Small and "emerging growth" companies, or those with annual gross revenue under $1 billion, are exempt.
While the rule will not affect all hospital execs, it would apply to several major players within the healthcare sector, including Tenet Healthcare Corp. and Hospital Corporation of America (HCA). Last year, Tenet disclosed that CEO Trevor Fetter received a base salary of $1.25 million in 2013, a 12 percent increase from the previous year, and $12.7 million in total compensation, as well as a stock award. Meanwhile, in 2012, HCA CEO Richard Bracken received $48 million in compensation, FierceHealthFinance previously reported. A 2014 report from the Roosevelt Institute, a progressive think tank, suggested such high compensation exacerbates economic inequality, which is itself one of the most pressing concerns across the healthcare industry, even in nations with universal coverage.
During the rule's public comment periods, NPR reported, much of the feedback focused on the importance of transparency amid unprecedented income inequality, a major driver of unnecessary hospital admissions. Healthcare CEOs lead all industries in average compensation, FierceHealthPayer previously reported, and these salaries can come at the expense of consumers when they include forms of compensation that incentivize higher prices.
However, experts say the increased transparency is unlikely to slow the rise of hospital CEO pay, according to Bloomberg News. "[T] he more disclosure you have about executive compensation, the more it tends to go up," said Bloomberg's David Gura, "because these boards want the best candidates."
To learn more:
- here's the rule (.pdf)
- read the NPR article
- watch the Bloomberg segment (autoplay)