Hospital exec bonuses reward volume over value

If money talks in the world of executive compensation, then nonprofit hospitals aren't putting their money where their mouth is when it comes to rewarding healthcare transformation over volume, according to a new report by Kaiser Health News and ABC News.

"Boards of trustees in healthcare are oriented around top-line, revenue goals," said Donald Berwick, M.D., former acting head of the Centers for Medicare & Medicaid Services. "They celebrate the CEO when the hospital is full instead of rewarding business models that improve patients' care."

The celebration comes in the form of six-figure bonuses--and beyond--for hospital executives who improve the bottom line, KHN reports. Although the executives' incentive goals include measures of performance such as clinical quality and patient satisfaction, the bonus package is much more heavily weighted toward "traditional financial goals" such as increasing volume and market share, the article contends.

Among the most dramatic examples of revenue-driven bonuses cited in the article: Michael Tarwater, CEO of Charlotte, N.C.-based Carolinas HealthCare system, who received a $2.8 million bonus last year, $1.6 million of which was based on meeting undisclosed financial goals; and Lloyd Dean, CEO of San Francisco-based Dignity Health, whose 2011 bonus of $2.1 million was based in part on financial performance.

Richard Umbdenstock, CEO of the American Hospital Association, said executive bonuses have to reflect financial realities, but told KHN incentive goals are evolving to include more emphasis on quality and safety, and patient and employee satisfaction along with finances.

Compensation specialists told KHN it will take years for hospital boards to reward quality over growth and the bottom line in designing CEO bonus plans.

Executive compensation for nonprofit hospital leaders has been drawing additional scrutiny as total compensation for many execs tops $1 million while hospital systems enjoy local, state and federal tax breaks and other public benefits.

Carolinas HealthCare System, for example, paid 10 executives more than $1 million each last year, according to local press reports. Tarwater's total compensation package topped out at $4.76 million.

In California, lawmakers sought earlier this year to cap retirement benefits for healthcare district CEOs, reacting to news that Salinas Valley Memorial Healthcare System was paying nearly $4 million in retirement compensation to its former CEO.

For more:
- here's the KHN article