The health care system is in crisis, but compensation for top Maine hospital executives remains healthy.
Of the 10 highest-paid hospital administrators in Maine, all made at least $500,000 a year in 2011; the three highest-paid made $1 million or more. (These totals include not just base pay but also bonuses and other compensation.)
This is attention-grabbing news at a time when cost containment is a primary goal for health care. Maine hospitals are laying off employees and instituting hiring freezes. The state government has targeted public health programs for serious cutbacks. One of the most heated debates in Augusta this past legislative session centered on how and when to make several years’ worth of overdue MaineCare payments to hospitals.
In this atmosphere of austerity, the high executive salaries are jarring. But they’re also symptomatic of a larger problem. Our health care system fails to hold hospital administrators accountable for the quality of their institution’s services, even as it rewards them for driving up revenues and keeping beds full. This undercuts nonprofit hospitals’ public service mission, and the person who ultimately loses is the patient.
The health care industry defends high executive wages by citing the complex nature of administrators’ jobs and the need to pay competitive salaries. This assumes that a qualified nonprofit agency executive won’t work for less than a seven-figure salary. This isn’t necessarily true. In 2011, the head of the American Red Cross, a national organization with revenue of $3.3 billion, made about $561,000 (including base pay and bonuses).
Like their counterparts nationwide, Maine hospitals emphasize performance-based pay, which links a certain percentage of compensation to meeting goals in areas such as patient volume or revenue.
Performance-based pay gives an administrator a fiscal incentive to focus less on services to lower-income patients and more on adding features that appeal to private-pay patients, like laser-surgery and sports-and-spine centers.
Once this new technology or facility is in place, research shows that caregivers feel obligated to put it to use, whether or not it is more effective or less costly than older methods. This rush to embrace new devices and procedures adds to costs but doesn’t enhance quality of care. Given that 30 percent of what’s spent on U.S. health care is estimated to be unnecessary, the practice should raise eyebrows.
A nonprofit is a charity, and its executives’ compensation should be connected not to volume or revenue, but to how well it has fulfilled its charitable mission. A key part of a hospital’s mission is improving patient care and providing free care to the uninsured. It’s encouraging to learn that more hospitals are linking doctors’ and nurses’ pay to quality of care, but that should apply to administrators, too.
There are those who say that a nonprofit should be run like a business. Some standards do apply to both sectors. A nonprofit hospital, though, isn’t serving shareholders; it’s serving patients and the community. And if a hospital isn’t meeting these stakeholders’ needs, the people who oversee the operation of that institution haven’t earned their salaries.