It’s Good to be a Non-Profit CEO

One of the worst aspects of our society, really of human nature, is the impulse for most people to go around counting each other’s money.  It reflects greed, insecurity, and is downright rude.  In fact the entire tax code is the embodiment of widespread covetousness, as is the ongoing fight over U.S. health care.  So before we get into the topic, please note my strongest disclaimers against class envy and jealousy over the neighbor’s pool.  Physicians suffer it every day, and we need to be careful and try to avoid any hypocrisy.

And some folks make it so very difficult.  I think the term “non-profit” is basically an elegant way of pronouncing “scam,” so protective has it been for so many seemingly very profitable organizations, flush with cash, whose CEO’s and various directors are very well paid.  The Modern Healthcare site tells us  “the 25 highest-paid not-for-profit health system executives received a combined 33.2% increase in total compensation in 2017, as their compensation rose to $197.9 million from $148.6 million in 2016…”  That’s an average CEO yearly salary increase from $5.9 million to $7.9 million.  In what way are these diligent executives $2 million better in 2017 than the year before?  Who can say?  The article is not an outrage piece, but tries to offer all views into the complexity of CEO compensation.  Kaiser makes the point that their top executives have to meet performance goals to get raises.  Some companies say that rising CEO salaries are driven by a marketplace that expects to see a lot of CEO’s retiring in the new future (which apparently, they are able to afford).  A lot of companies base their salary offers on third-party surveys, which makes sense, but also risks becoming circular logic.

“A Modern Healthcare analysis of more than 2,000 not-for-profit hospitals via their IRS Form 990s and financial statements found that top executives earned an average of 0.36% of total payroll expenses in fiscal 2017, which has remained relatively consistent since 2013.”  That does seem to demonstrate some consistency, and could explain salary growth commensurate with enlargement of the non-profit.  But have the underlings’ salaries grown apace?  “Only under extreme circumstances, typically dire financial straits, do top healthcare executives take pay cuts, executive compensation experts said. Executive pay is one of the last levers pulled as providers reduce costs, arguing that system wide strategies make a bigger dent.”  More simply, holding employee wages flat will save far more “non” profit, so some extra CEO pay won’t really ding the ledger much either way. 

Aren’t these bad optics?  “That upward trend in executive compensation clashes with executives’ push for more affordable care and their charitable missions.”  If my pay just jumped by a third, I’ll bet I could gin up some nobly charitable rhetoric for the press too.  There are lots of devices mentioned in the article, including loans against life-insurance premiums, favorable housing loans for relocation, and deferred payments (not included in this survey) to make the whole issue hard to untangle for the simple physician or nurse working an hourly wage. 

“There is a shift from higher base pay to more variable pay taking place. Dignity Health … bases a significant share of executive compensation on incentives related to clinical-quality and patient-satisfaction measures, as well as community health investments and financial performance.”  This is funny, and sad.  If multi-million salary CEO’s are paid based on quality, then their minion doctors better start clicking those little EHR boxes all the faster; if the head office is worried about patient satisfaction scores, that may set up some interesting conversations with the respective state medical boards and the DEA, while the poor little doc sits on the bench outside waiting to hear his punishment. 

This is concurrent with the ridiculous Affordable Care Act cash giveaway to Big Insurance.  Did any of that “non” profit go to these health systems that were able to pay their CEO’s so much more?  I wonder if anyone has graphed CEO pay increases vs. hospital charge increases?  I wonder if there is any way to objectively measure CEO productivity vs. night-shift floor nurse productivity, and see whose demands and efforts have changed in the last 4 years?

No, I don’t want to devolve into envious ad hominem here, but this feels a little like the neighbor’s pool, that you helped dig, yet never get invited over for a swim.

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Pat Conrad MD

Pat Conrad is a full-time rural ER doc on the Florida Gulf Coast. After serving as a carrier naval flight officer, he graduated from the University of Florida College of Medicine, and the Tallahassee Family Medicine residency program. His commentary has appeared in Medical Economics and at AuthenticMedicine.com . Conrad’s work stresses individual freedom and autonomy as the crucial foundation for medical excellence, is wary of all collective solutions, and recognizes that the vast majority of poisonous snakebites are concurrent with alcohol consumption. 

  1 comment for “It’s Good to be a Non-Profit CEO

  1. Ben Van Raalte
    June 29, 2019 at 12:17 pm

    NON PROFIT means all the leftover money get bonused out to the administrators. Thats all. And they have no capital invested or started up the business like an entrepreneur.
    The most important issue is current CEOs are darn lucky. Just like Football coaches, compensation has exploded since they started. That compensation was not necessary or essential to draw them into the field. Unlike other industries they do not have the skills to just to another industry can because of jargon, other industry CEO cannot not jump into healthcare.
    When most of them did not get into medical school in the 80s they then decided to become a medical administrator. Back then the salary for a hospital CEO was the same as a busy surgeon. The busy surgeon had more training, more stress, and more hours. Since then the busy surgeon may make even less than back then, but the CEO now makes TEN TIMES AS MUCH in inflation adjusted dollars. No wonder administration has gone from equals to considering doctors overpaid workers. The current administrators were just lucky. The top talent was not attracted by the current compensation because it did not exist when they went into the field. Nor do they have to worry about competition because no one can jump from another industry easily. They got the current compensation because it became boards stuffed with contractors trying to get construction contracts for the next glass palace who would not say no, promoting themselves to a new position where their only role was to supervise the person they hired for their job, and bonusing out profits since they were non profit, hiring consultants that looked for the other hospitals that had increased compensation and creating a circular raise structure. This was essentially a mockery of the capitalist system and not socialist either but a cronyism system protected by the non profit designation. These CEOs were very very lucky and not worth the compensation. In the future the top Stanford grads wont go to medical school but now will go into administration leading to a generation of smarter CEOs that could have been greater doctors.

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