By Michelle Crouch and Rose Hoban
As health care costs continue to rise, the executives of North Carolina’s nine largest nonprofit hospital systems have received double- and triple-digit percentage raises over the past decade, according to a report released last week by the State Treasurer’s Office.
The report found that the hospital systems paid their top executives more than $1.75 billion from 2010 to 2021, and the average CEO compensation was $3.4 million in 2020. Every system except WakeMed doubled the salary of a CEO in five years or less during that time frame, according to the study prepared by the treasurer’s office and experts at John Hopkins and Rice universities.
The report — the latest in Treasurer Dale Folwell’s ongoing battle against the state’s hospitals — reignites long-standing questions about how health care executives are compensated and the nonprofit nature of hospitals.
Folwell and the academic authors of the report said the compensation data raises questions about whether executives are incentivized to generate revenue in ways that threaten patient safety and drive up health care costs for patients. The hospitals, though, say they are large and complex businesses that need to offer leaders competitive compensation packages.
The report adds to a growing national debate about what constitutes fair prices charged by hospitals in an environment where patient prices are rising and there’s widespread inequity in who can access care. While the pay packages of CEOs might be eye-popping, some question whether those salaries are just a symptom of a larger problem in health care – a need for more regulation of profits with an eye towards enhanced patient benefit.
Treasurer: CEOs’ wage hikes dwarf workers’
The treasurer’s report includes data from Atrium Health, Mission Health, Novant Health, Vidant Health, Duke Health, Cone Health, WakeMed and Wake Forest Baptist Health, as well as UNC’s Rex hospital. (UNC Health did not submit its compensation report in time to be considered for the study.)
According to the report:
- Atrium Health CEO Gene Woods’ compensation grew by 473 percent over six years. He was paid $9.8 million in 2021.
- Former Mission Health CEO Ronald Paulus’ paycheck grew by 726 percent in less than a decade, to $4 million in 2019 before the system’s sale to HCA Healthcare.
- Duke Health doubled the paycheck of its CEO twice in one decade. CEO Eugene Washington made $2.7 million in 2020 — a 120 percent raise from 2016 — and former CEO Victor Dzau retired with an $8 million compensation package, 187 percent more than what he took home in 2011.
“We are seeing a massive transfer of wealth from workers to hospital executives,” Folwell said last week after releasing the report. “These nonprofit hospital executives have lost their mission. They are supposed to make people better, not make themselves richer.”
The report said the CEO pay raises dwarfed those given to nurses and other frontline workers during the same time frame. From 2010 to 2019, nurses nationwide received on average a 16 percent pay increase to $66,440, according to the report, while family medicine physicians’ wages rose 22.7 percent from 2010. (Many hospitals have implemented additional raises for employees since that time.)
The pandemic did not get in the way of pay raises for most executives, the report found. However, three systems — Duke Health, Novant Health and Cone Health — cut their CEO compensation in 2020.
Hospitals: Comp packages help them attract talent
The hospitals argue they have to pay competitively to attract and retain top talent.
A statement by the North Carolina Healthcare Association, which represents hospitals, said the treasurer’s report fails to provide context on the challenges facing hospital executives, “challenges that demand they act fast, think outside the box, make difficult and high-stakes decisions, and take on new community health-building roles in addition to dealing with the state’s ongoing and growing behavioral health care crisis.”
Atrium Health said in a statement that retaining business-savvy leaders requires a competitive compensation package: “As a nonprofit health system, we don’t have the luxury of providing stock options and other typical corporate perks.”
Compared with the private sector, hospital CEOs tend to be compensated less than counterparts who lead similarly sized companies, according to a North Carolina Health News/ Charlotte Ledger review of securities filings.
For example, Charlotte-based Atrium Health said it took in about $12.94 billion in revenue in 2021. That would have made it No. 287 on the Fortune 500 list, an annual ranking of publicly traded companies — slightly bigger than media giant Fox Corp.
Atrium Health’s Woods earned less than each of the leaders of the four Fortune 500 companies closest to Atrium in revenue. Electric infrastructure company Quanta Services paid its CEO $11 million, Fox paid its CEO $21.7 million, packaging supplier Crown Holdings paid its CEO $11.8 million and utility holding company Sempra paid its CEO $24.7 million.
North Carolina’s nonprofit CEO salaries also pale in comparison with the salaries of some for-profit hospital executives. Sam Hazen of HCA Healthcare, for example, collected $30.4 million in total compensation in 2020. That made him the highest paid CEO of a publicly traded hospital system that year, according to Fierce Healthcare. HCA is the $60 billion for-profit system that purchased Asheville’s Mission Health in 2019.
Hospitals pay execs more than other nonprofits
While they make less than their private sector counterparts, hospital executive pay tends to far exceed that of executives at other types of nonprofits.
The average annual CEO pay in most nonprofit industries for 2018 was between $100,000 and $200,000, according to a 2022 analysis published in Health Affairs. The two types of nonprofits that were out of line were university CEOs, who were paid an average of $350,000, and hospital CEOs, who were paid $600,000 on average, the researchers said.
“Today, hospital boards 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,” the Health Affairs authors wrote. “Since many boards set CEO salary by obtaining ‘comparable’ salary data, this becomes an ever-spiraling upward cycle.”
Bob Berenson, a researcher from the Urban Institute who studies hospital and health economics, said he doesn’t think CEOs at nonprofits “should make the kind of money they’re making, but they are complex organizations.”
He added, “If they actually were able to provide good services to the uninsured and low income people and get by on lower prices, which they should be able to do, they deserve a lot of money.”
Folwell and other critics said if nonprofit hospitals are paying their executives millions of dollars, they need to be held more accountable to their charitable missions.
Berenson said that hospital CEOs are not getting paid for being mission-driven.
“What they’re getting paid for right now is to negotiate very high prices with commercial insurers and become monopolies,” he said. “If they actually did what is in the public’s interest, I’d be more than happy to pay them $15 million.”
Would cutting CEO pay make a difference?
“Many nonprofit hospitals are not living up to their charitable mission,” Folwell said in an email to NC Health News/Charlotte Ledger. “The majority of large systems failed to justify their tax breaks with charity care, and some even billed millions of dollars to poor patients. These studies show that there is something wrong in health care.”
He argued that it’s time to take another look at the tax exemptions given to nonprofit hospitals.
Berenson agrees with Folwell, but said that while the high salaries might be outrageous, the research shows it will take more than public awareness to bring those salaries — and health care costs — down.
The most effective mechanism for bringing down medical costs is to regulate prices, according to an analysis done by the nonpartisan Congressional Budget Office last fall.
“You need to do what Rhode Island has done and a couple other states are thinking of doing, like Massachusetts, which is basically putting a cap,” on the prices that hospitals negotiate with insurers, Berenson said. “It’s operationally not simple, but it’s absolutely doable.”
Folwell has pushed for more transparency in health care pricing, but the CBO report found that results in “very small” price relief for patients. Instead, the CBO found that government regulation was what actually resulted in “moderate to large” price reductions.
“We should be challenging the tax exempt status of these systems that make outrageous amounts of money, charge high prices that everybody pays for,” Berenson argued. “We should regulate their prices, and we should reconsider their tax exempt status. That’s what we should be taking on.”
“I know a number of previously pro-competition economists who have thrown in the towel and said that [lawmakers] have got to regulate prices,” Berenson added. “Because the markets are broken, and they’re not going to repair themselves.”
Entrenched system for compensation
Alexander Yaffe, a consultant at executive compensation advisory firm Pearl Meyer who focuses on health care, said there’s no question that salaries for hospital executives have accelerated in recent years.
That has partly been driven by high turnover among hospital executives, he said. One report found that 62 hospital CEOs left their roles in the first half of 2022, a 48 percent increase from the same period in 2021.
But the increasing consolidation of hospital systems is also an important factor, Yaffe said. The larger the system, the more executives expect to be paid.
“Even if a board is saying, we will pay you at the 50th percentile of the market, that number for a $2 billion system is very different than for a $5 billion one,” Yaffe said. “When you talk about someone like Gene Woods, whose compensation has increased 473 percent, the fact that Atrium has grown over that period is a significant factor.”
Woods may expect an even greater pay boost, Yaffe said.
“An executive looks at that and says, ‘I’m now running a $27 billion system, so you should pay me for the job I’m doing,’” Yaffe said. “The board is faced with: How quickly do we close a gap in compensation?”
Yaffe said the cost to replace an effective executive is much more expensive than boosting that person’s pay to make it competitive.
“If someone thinks they are going to be able to let Gene Woods go because he’s making too much and bring someone in and pay them a third as much, that’s just not reality,” he said.
- Since 2008, costs for patients with commercial insurance have risen by more than 50 percent. (Source: Kaiser Family Foundation, 2023)
- In the same period, out of pocket spending on health care has grown to be $1,315 per person in the U.S., in addition to health insurance premiums people pay. (Source: Kaiser Family Foundation, 2023)
- Rising prices have contributed to the medical debt held by more than 9 percent of Americans — some 23 million people. (Source: Kaiser Family Foundation, 2022)
- About 11 million people owe more than $1,000, and 3 million owe more than $10,000 in health care debt. (Source: Kaiser Family Foundation, 2022).
- More than 70 percent of people who declared bankruptcy cited medical debt as being a contributor to their financial woes. (Source: American Journal of Public Health, 2019)
Charlotte Ledger editor Tony Mecia contributed reporting to this story.
Republish this article
- You can copy and paste this html tracking code into articles of ours that you use, this little snippet of code allows us to track how many people read our story.
- Please do not reprint our stories without our bylines, and please include a live link to NC Health News under the byline, like this:By Jane DoeNorth Carolina Health News
- Finally, at the bottom of the story (whether web or print), please include the text:North Carolina Health News is an independent, non-partisan, not-for-profit, statewide news organization dedicated to covering all things health care in North Carolina. Visit NCHN at northcarolinahealthnews.org. (on the web, this can be hyperlinked)
This <a target=”_blank” href=”https://www.northcarolinahealthnews.org/2023/02/20/how-much-should-nonprofit-hospital-ceos-make-nc-treasurers-report-fuels-debate/”>article</a> first appeared on <a target=”_blank” href=”https://www.northcarolinahealthnews.org”>North Carolina Health News</a> and is republished here under a Creative Commons license.<img src=”https://i0.wp.com/www.northcarolinahealthnews.org/wp-content/uploads/2021/10/cropped-favicon02.jpg?fit=150%2C150&ssl=1″ style=”width:1em;height:1em;margin-left:10px;”><img id=”republication-tracker-tool-source” src=”https://www.northcarolinahealthnews.org/?republication-pixel=true&post=46197&ga=UA-28368570-1″ style=”width:1px;height:1px;”>