Docs Get Tiny Raises While Nonprofit Healthcare CEOs Get > $10M

Kerry Dooley Young

August 02, 2019

Pay for many executives at nonprofit healthcare organizations in the United States has continued to soar even amid growing concern about medical costs and access to care — and largely flat salaries for physicians and frontline medical staff. 

In the case of Bernard Tyson, chief executive officer of nonprofit healthcare giant Kaiser Permanente, total compensation rose by more than 70% to almost $16.1 million in 2017, according to Internal Revenue Service (IRS) filings made available by ProPublica's Nonprofit Explorer site. This includes salary, bonus, retirement fund, and other forms of compensation. (Kaiser Permanente has recently faced the prospect of a strike, in part because of worker wage issues.)

And this wasn't his first big raise in recent years. Tyson's total pay also jumped notably in the previous year, climbing to $9.2 million in 2016 from $6 million in 2015 and $4.7 million in 2014.

In the same IRS filings, Kaiser states that its mission is to provide "affordable" healthcare services.

In response to a request for comment, Kaiser Permanente said that the organization needs to be able to compete for talent on a national level with both for-profit and nonprofit health plans and hospital organizations. "Kaiser Permanente sets senior management compensation levels that allow us to successfully attract and retain the leadership it needs to deliver affordable, high-quality health care to our members and improve the health of the communities we serve."

Tyson's pay packages are examples of what Steffie Woolhandler, MD, cofounder of nonprofit Physicians for a National Health Program, describes as a misallocation of funds collected for medical services. Overly generous compensation for executives of healthcare organizations diverts resources that would be better spent on patients, Woolhandler told Medscape Medical News in an interview.

Unlike for-profit companies, which can use stock options and money raised from investors to boost compensation packages, nonprofit organizations such as Kaiser have to use funds from their revenue to pay executives.

"This is money that is being taken out of the healthcare system and handed over to CEOs. This is money that is not being spent on medications. It is not being spent on doctor visits," Woolhandler said. "It is not being spent on hospitalizations. It's just going in the pockets of these CEOs."

In its statement, the company added that its goal is to provide "reasonable and competitive" compensation to all employees, noting that their executives "have unique leadership positions, in that they have two roles: overseeing a major health plan with more than 12 million members as well as managing a total of 736 hospitals, medical offices and other facilities and a total care delivery system in multiple states. This combination makes Kaiser Permanente the largest vertically integrated health plan in the country and the largest and most complex health care nonprofit organization."

The organization Tyson leads is a giant among US healthcare systems. Kaiser Permanente serves about 12 million people, with operations in the western and eastern regions of the United States. Kaiser took in $68 billion in gross receipts for 2017.

Second- and Third-Most-Paid

Nearly rivaling Tyson in 2017 compensation was J. Knox Singleton, who was then president of much smaller Inova Health System.

Singleton's compensation package rose to $14.2 million in 2017 from $5.7 million the previous year, excluding deferred compensation from previous years, according to IRS filings. Based in Falls Church, Virginia, Inova took in $791 million in 2017 in gross receipts, according to its tax filing. It serves about 2 million people each year.

Anthony Nader, chairman of Inova's board of trustees, told Medscape Medical News that the compensation increase for Singleton was the result, in part, of a mutual agreement regarding the departure of the longtime Inova chief "in order to facilitate the identification of the most qualified successor" and included "separation benefits, previously established retention payments, and accelerated salary payments."

The notable increases for Tyson and Singleton in 2017 made their pay packages bigger than that of longtime former Ascension Chief Executive Officer Anthony R. Tersigni, who has been in the news for several years because of the amount of his compensation. Tersigni stepped down as chief executive officer this year.

In the fiscal year ended in 2015, Tersigni's compensation package was $17.6 million, but slipped to $13.9 million for the fiscal year ended in 2016 and then dropped to $13.6 million for the fiscal year ended in 2017.

In its filings with the IRS, Ascension describes itself as the "nation's largest Catholic and nonprofit health system, serving the poor and vulnerable."

Last year, Tersigni's compensation drew criticism as Ascension moved to close a hospital that served a poor community in Washington, DC. Michael Sean Winters, a columnist for the National Catholic Reporter, accused the nonprofit of committing "structural sins of income inequality."

When asked about pay for Tersigni, Ascension referred Medscape Medical News to a 2017 statement on its website. The statement discusses Ascension's need to "compete for executive leaders," while also trying to have a compensation framework that "passes the test for reasonableness."

"And this framework is part of a continuum that starts with the industry-leading $11 an hour socially just minimum wage for our employees that we introduced in 2015," the statement said.

Winters doesn't appear to buy the nonprofit's logic, writing that "Ascension appears to have merely succumbed to 'industry standards' " in terms of Tersigni's pay.

Yet the health system is not alone in heavily rewarding their top executives. 

More Highly Paid Nonprofit Executives

Tyson, Singleton, and Tersigni topped a list of highly paid nonprofit healthcare executives published by Modern Healthcare in June.

Falling just below them on the list were Rod Hochman, MD, chief executive of Providence St. Joseph Health ($10.5 million, excluding deferred compensation) and Lloyd Dean of Dignity Health ($9.6 million, also excluding deferred compensation). 

 

The Modern Healthcare list found that the combined compensation for the 25 top paid executives of nonprofit health systems rose to $197.9 million in 2017 from $148.6 million in 2016.

That's a pay increase of 33% for top executives of nonprofits. It far outstrips the kind of gains reported for professions more directly involved with the care of patients in 2017.

The average annual salary for full-time physicians was $294,000 in 2017, according to the annual Medscape Physician Compensation Report. Although the survey shows that salaries are rising for physicians over time, the average increase was just over 5% among all medical specialties between 2016 and 2017. The largest increase seen in 2017 for any specialty was 24% among plastic surgeons. On the other end of the spectrum, pediatricians reported an average salary decrease of 1% in 2017.

Meanwhile, annual gross income for registered nurses was essentially flat, with respondents reporting an average income of $81,000 in 2017 and $80,000 in 2016, according to the Medscape's 2018 RN/LPN Compensation Report.

Money Well Spent?

Overly generous executive compensation can erode the public's trust in healthcare organizations, especially given the growing backlash against aggressive bill-collection tactics, said Martin Makary, MD, MPH, of Johns Hopkins. He researched the issue of executive pay at nonprofit children's hospitals for his 2012 book, Unaccountable: What Hospitals Won't Tell You and How Transparency Can Revolutionize Health Care.

In an interview with Medscape Medical News, Makary questioned the argument that substantial pay packages and increases are needed to attract and keep the best executive talent. Hospitals would do well to consider higher pay for the people who care directly for patients, he said.

"What about the talent on the frontline, nurses and doctors? What about the clinicians and the staff at the hospital? Don't we want the best bedside nurses?" Makary said. "Don't we want the best office staff picking up our phones and coordinating care for our practices?"

The compensation packages for executives leading large healthcare nonprofit organizations reflect the market power these systems possess, J. Michael McWilliams, MD, PhD, a professor of healthcare policy at Harvard Medical School, told Medscape Medical News in an email exchange.

Large healthcare systems can charge higher prices because of consolidation. But there have been questions about the extent to which leaders in these organizations pass the resulting surplus through to patients and physicians, McWilliams said.

The question is of particular importance for primary care physicians (PCPs), who have been "under siege," McWilliams said. They have been tasked with increasing clerical and care management responsibilities to support health systems' performance in value-based contracts, without getting commensurate increases in compensation to match the increase in workload, he said.

Yet consolidation has put them at a disadvantage in rate negotiations if they were to try to strike out on their own. "PCPs in many markets don't have a choice" in terms of employment, McWilliams said. "And it seems their health system employers know it."

Medscape's annual compensation reports show little gain for physicians in primary care. The average salary for family medicine was $209,000 in the 2017 report, up from $207,000 in the previous year. The average salary in internal medicine rose to $225,000 from $222,000.

"That salaries of health system executives have been rising to such levels while salaries for their PCPs have stagnated suggests that health systems are keeping the surplus rather than passing it through," McWilliams said.

Stock Options

In general, executive compensation has been on the rise in the United States. In 2017, the average compensation of chief executives of 350 of the nation's largest firms rose by almost 18% to $18.9 million, factoring in stock grants and options as well as salary and bonuses, according to a report from the nonprofit Economic Policy Institute.

These kinds of increases are seen in healthcare as well. Total compensation rose 24% to $21.4 million for R. Milton Johnson, then chief executive of HCA Healthcare, a leading for-profit operator of hospitals, in 2018, from almost $17.3 million in the previous year. (Johnson retired from this position in December 2018.)

Johnson's pay package included about $14 million in stock and option-related awards, according to an HCA filing with the Securities and Exchange Commission. Ron Rittenmeyer, chief executive officer of rival hospital operator Tenet Healthcare, had a 2018 compensation of $14.9 million, of which $8.7 million came through stock awards.

Stock awards are a way for firms to use investors' money to reward executives. For a publicly traded healthcare firm, providing equity awards to top executives thus taps a stream of funds outside of revenue paid by consumers and insurers for medical care.

Nonprofit healthcare organizations do not have the option of offering stock options and awards to their executives, said Rosanna Landis-Weaver, program manager for the Power of the Proxy initiative at As You Sow, a shareholder advocacy group.

Landis-Weaver said the question of generous pay for executives of nonprofit healthcare corporations put her in an odd position of almost defending the compensation of those at publicly traded firms.

"Most corporate CEOs are excessively overpaid, but a lot of that pay is in equity," Landis-Weaver told Medscape Medical News in an interview. "There are things that might mitigate some of the corporate CEO pay, but that's not the case for nonprofits. That's a really critical point."

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