CEOs of nonprofit hospitals are compensated, on average, more than eight times more than the hourly employees without advanced degrees working beneath them, according to a Lown Institute analysis of nearly 1,100 hospitals published Thursday in Health Affairs.
The differences varied widely across hospitals, with CEOs at the 50 nonprofits with the tightest pay gap earning about twice as much as their average worker and the 50 CEOs at the other end of the spectrum taking home about 26 times more than their average worker, according to the researchers. Among the latter group, the single highest-paid executive received more than 60 times the average pay of their hospitals’ hourly employees.
“While such glaring chasms in pay are not unique to hospitals, the pandemic has triggered the question of whether executive compensation should be part of the broader discussion about equity within our health care system, especially as minorities and women are often the employees at the lower end of the wage spectrum,” researchers affiliated with the Lown Institute wrote in Health Affairs.
“Moreover, the impact of hospital employee wages goes beyond the individual. Since hospitals are often the largest single employer in their region, the salaries they pay their workers may have a significant impact on the financial stability and income security of the entire community,” they wrote.
Hospital size, type and location were each found to broadly factor into a CEO’s compensation.
For instance, CEOs running hospitals with fewer than 50 beds as well as those with 50 to 99 beds received about six times more than their average hourly worker. The pay rose to a 10:1 ratio for those running hospitals with 200 to 399 beds and 14:1 for those running hospitals with 400 or more beds—findings the researchers said fall in line with prior data suggesting CEOs have an incentive to increase the volume of patients, and thereby the incoming revenue, their hospital sees.
The CEOs’ pay ratios were slightly smaller than the overall average for those at non-teaching hospitals, slightly above average at “minor” teaching hospitals and greatest among “major” teaching hospitals, the researchers found.
Urban hospitals also tended to have a higher pay discrepancy than rural hospitals, as did hospitals in certain aid-Atlantic and New England states over those in the Midwest or on the Great Plains.
Still, the researchers noted several cases where different hospitals paid their CEOs far different amounts despite being of similar size or type, being in the same city and paying their hourly workers roughly similar wages.
The researchers conducted their analysis among 1,097 nonprofit hospitals included in the Lown Institute Hospitals Index.
To review pay equity across workers and CEOs, they pulled 2018 data from the IRS' 990 forms, the Centers for Medicare & Medicaid Services and the Bureau of Labor Statistics. CEO salaries were calculated on a per-hour basis, while hospital employees with advanced degrees such as doctors or nurses were excluded from the comparison.
The researchers cast the pay discrepancies alongside a decadeslong trend of escalating revenues and the adoption of more administrative staff and corporatized boards that followed. Hospital boards today compare the compensation of their CEOs not to other community-based nonprofits but to their for-profit publicly traded hospital CEO peers, who themselves are compared to leaders in the largest industrial and financial companies trading on Wall Street, according to the researchers.
“As hospital policies and culture have become more aligned with big businesses, hospital executive compensation has swelled, mirroring the climb in CEO wages across all of corporate America that began in the late 1970s and continued despite the Great Recession that began in 2008,” they wrote.
With COVID-19 disparities front of mind, the researchers said the public, policymakers, regulators and, particularly, hospital boards should reconsider how these CEOs should be paid and what areas of their duties should be tied to payment incentives.
“For example, CEOs could be rewarded for improving clinical outcomes, patient safety and racial health disparities,” the researchers wrote. “They could be rewarded for being good stewards of public monies by improving cost efficiency. The complexity of the job should also be considered, not only based on the size of the hospital or system but also the hospital’s patient mix and financial cushion. Currently, hospitals with a wealthier and well-insured patient mix tend to pay their executives the most, although arguably hospitals that care for more publicly insured or uninsured patients and have chronically thin margins require more skill to manage successfully.”