CEO-Physician Pay Gap Widens Dramatically Over a Decade

Marcia Frellick

August 23, 2018

Average compensation for chief executive officers (CEOs) at major nonprofit medical centers shot up 93% in 10 years, according to a new analysis. In 2015, it was 5 times what some of the highest-paid physicians make, and more recent figures show CEO compensation continues to climb.

Jerry Du, a surgical resident from the Department of Orthopedics at University Hospitals Cleveland Medical Center/Case Western Reserve University, Cleveland, Ohio, and colleagues have found that between 2005 and 2015, the average compensation for a CEO at a major nonprofit medical center, adjusted for inflation, increased from $1.6 million to $3.1 million (R2 = 0.112; P = .009).

When compared with the pay for orthopaedic surgeons, the gap increased from a 3:1 ratio in 2005 to 5:1 in 2015. Compared with pediatricians, who are typically on the lower end of the physician pay scale, the ratio increased from 7:1 to 12:1. For registered nurses, the ratio rose from 23:1 to 44:1. The wage gap trend was similar for the centers' chief financial officers, the authors said.

Meanwhile, US healthcare expenditures increased from $2.5 trillion in 2005 to $3.2 trillion in 2015, and wages made up more than one-fourth of the growth.

At the same time, Du and colleagues found that healthcare use didn't change much during the same period. The number of inpatient stays decreased 5% (from 38 million to 36 million), physician office visits increased 3% (from 964 million to 991 million), and the number of emergency department visits increased 19% (from 115 million to 137 million).

The researchers also found that in those 10 years, average wages increased 10% for physicians, 8% for healthcare workers, 14% for management workers, and 7% for nonclinical workers.

The findings were published online August 10 in Clinical Orthopaedics and Related Research.

Du told Medscape Medical News that determining whether that pay is fair for top executives is difficult because there's no direct unit of measure to compare, such as relative value units for physicians.

In addition, this study was not able to look at the quality changes in the health systems in the time the CEOs have been at the helm or how large the systems are that the top executives are managing. Both of those comparison factors will be looked at in their future work, he said.

"We need to look more closely at the value every player in healthcare brings to the system," he said.

For now, Du and colleagues conclude that the wage gap "reflects the substantial, and growing, cost-burden of management and nonclinical worker wages on the US healthcare system."

They aren't the only ones looking at CEO compensation, however. Modern Healthcare recently compiled a chart ranking the top CEO pay for nonprofit health systems, using Internal Revenue Service forms from 2016, and found that total compensation topped $10 million for the four highest-paid CEOs at nonprofit health systems. The average total compensation was more than $5 million for CEOs at the top 25 non-profit health systems.

Table. Highest Paid CEOs at Nonprofit Health Systems in 2016

Health System CEO Total Compensation
Ascension Anthony Tersigni $13,627,686
Sutter Health Patrick Fry* $13,450,002
Dignity Health Lloyd Dean $10,260,615
Kaiser Permanente Bernard Tyson $10,039,235
* no longer CEO
Source: Modern Healthcare

Indirect Comparisons and Other Challenges

Du and colleagues analyzed compensation for CEOs and chief financial officers at 22 major US nonprofit medical centers, selected from the US News & World Report 2016-2017 Hospital Honor Roll, and four health systems with notable orthopedic departments, using Internal Revenue Service forms for 2005, 2010, and 2015.

Because other compensation data are not available by specific institution, researchers used national averages for orthopedic surgeons, pediatricians, and registered nurses.

The indirect comparisons are one of the limitations noted by the authors and by David Blumenthal, MD, MPP, president of the Commonwealth Fund.

A bigger limitation, Blumenthal told Medscape Medical News, is that this study did not compare the sizes of the health systems the CEOs were charged with running.

He said he was not surprised by the increase or the gap between physicians, and he emphasized that decreasing executive pay is not the answer to reining in healthcare costs.

High executive pay is only a symptom of a much deeper problem of the complexity and intensity of the health system, Blumenthal said.

He noted it's well-documented that hospital stays are going down, but hospital stays are also getting more technologically complicated.

"It's an interesting paradox that if you run a very tight assembly line, it may be a bigger challenge for management than if you let things flow and leave the doctors in charge of everything. Doctors will not necessarily look out for the systemic interests of a healthcare organization. They're not going to push their patients out faster because it's good for length of stay to go down, not in general."

He added that even though healthcare use may be going down nationally, it may not be going down in the top 22 organizations the research featured. "There's some reason to think those top [22] are gaining market share at the expense of smaller organizations in their markets."

The complexity of insurance plans and high prices for treatments and services and the complicated way care is billed and paid for also intensify the work demands on top executives, Blumenthal said.

Mergers and acquisitions have also added to CEOs' responsibilities, a kind of work that "didn't exist 40 or 50 years ago," Blumenthal said.

"Administrators are constantly thinking about where they can grow and about satellite clinics, thinking about who they can buy or fending off people who want to buy them," he said.

CEO Pay "Nowhere Near" Leveling Off

Travis Singleton, executive vice president of healthcare recruiting firm Merritt Hawkins, told Medscape Medical News that although the executive compensation numbers may be startling at first, they are small compared with the overall costs of running the health systems they serve, and of the $3 trillion US healthcare budget. The pay also reflects a new reality of what executives are being asked to do, he said.

He says the compensation packages are "nowhere near" leveling off yet, and said that no matter how high the package goes, it will still be a struggle to find the right CEO for these megasystems.

"These used to be three or four different jobs," he said. Now with mergers and acquisitions, one person is doing them. He noted that executive also have to be experts in dealing with a continually changing governmental regulatory environment and continually changing socioeconomic trends.

"That's why you see boards of directors that will approve these comp packages without a blink of an eye, because they'll tell you they're worth their weight in gold," Singleton said.

Du received, during the study period, internal institutional funding from the Dudley P. Allen Fellowship. A coauthor reports he is a board member of the Association of Bone and Joint Surgeons, is an editorial board member of Clinical Orthopaedics and Related Research, is on the medical advisory board for the Blue Cross Blue Shield Association, and has received or may receive payments or benefits, during the study period, in an amount of under $20,000. Blumenthal and Singleton report no relevant financial relationships outside employment with their companies.

Clin Orthop Relat Res. Published online August 10. Abstract

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