Do Healthcare CEOs Deserve More Money Than Doctors?

Leigh Page


July 02, 2014

In This Article

Not a Bad Way to Make a Living

In the open marketplace, however, healthcare CEOs definitely have an advantage over clinical caregivers. Health insurance companies have been posting big profits lately, which is good news for their executives: At the 11 largest for-profit insurers, CEOs earned an average of $11.3 million in compensation in 2013.

Hospitals, by contrast, haven't done as well financially as insurers have, owing to stagnant reimbursements and lower volume of inpatient services. But CEOs at the largest hospital systems, especially the for-profits, nevertheless managed to make good money -- in some cases up to about $12 million.

Physicians, meanwhile, made only a tiny fraction of those income levels. Orthopedic surgeons, the most highly paid specialists, had a mean income of $413,000 in 2014, according to Medscape's 2014 Physician Compensation Report.[2]

Doctors seem to be suffering from the same issue that afflicts the rest of the country: the widening gap between the very rich and everyone else. According to the Economic Policy Institute,[3] the CEO-to-worker compensation ratio in 1965 was 20:1; in 2012, it was 273:1.

Bernd Wollschlaeger, MD, a solo family physician in North Miami Beach, Florida, who grew up in Germany, noted that the CEO/worker pay gap is still fairly narrow in Europe. "In Germany, the income of healthcare executives is regulated by the government," he said. "To be paid at the levels of the CEO of United Healthcare is not feasible."

Within the US healthcare sector, executives at leading biotech companies earn the most of any group, averaging $18.3 million a year on Forbes' 2012 list[4] of the highest-paid CEOs. Insurance executives trailed far behind, averaging $7.9 million, and among hospitals, the only CEOs on the list were heads of a couple of for-profit systems, such as Trevor Fetter at Tenet.

Executives of nonprofit hospitals weren't on the list. One reason for this is that nonprofits can't reward CEOs with stock, which is the chief source of income for CEOs at publicly traded companies. For example, Tenet recently promised Fetter a special award of stock over the next 6 years that's expected to boost his pay by $1.7 million per year, in addition to shares of stock he was already getting from the company.

As a group, CEOs at for-profit health insurers are doing even better than for-profit hospitals. According to the Center for Public Integrity,[5] CEOs of the 11 largest for-profit insurers made more than $125 million in total compensation in 2013, at a time when almost all of these companies realized higher revenue and profits.

That kind of compensation raises the ire of many physicians. "An insurance company is only interested in the bottom line," said Richard M. Dupee, MD, a primary care internist in Wellesley, Massachusetts. "When I'm not paid $30 for an electrocardiogram because it's supposedly not indicated, I think of the insurance company CEO who is making millions of dollars a year."

Some experts argue that although generous CEO pay may not set a good example, even very large payouts aren't going to affect the organization's bottom line. But William Lazonick, a professor at the University of Massachusetts Lowell, disagrees. In a paper[6] for the nonprofit Roosevelt Institute, Lazonick found that most CEO income at publicly traded companies comes from stocks, and the top US corporations have spent $3.6 trillion in stock buybacks to pay their executives.


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