How much should CEOs of nonprofit hospitals be paid?

Issues of pay and equity are drawing more attention. There are significant differences in compensation among similar hospitals.

Pay equity issues have gained more attention inside and outside healthcare, and leaders of nonprofit hospitals are gaining more scrutiny for their compensation.

Leaders of nonprofit hospitals earn an average of about $600,000, though some earn millions. The median pay of the chief executives of nonprofit hospitals was $362,887, according to a 2021 report from the Economic Research Institute.

A recent study in Health Affairs examined the compensation of the CEOs of nonprofit hospitals, including comparisons to the pay of average workers. The analysis poses questions about how much CEOs of nonprofit hospitals should be paid, and how compensation should be determined.

In a Feb. 15 online discussion, the authors of the study said in some cases, nonprofit hospital CEO salaries are getting too high. They noted the responsibilities of hospital leaders, but also pointed out they earn far more than the chief executives of typical non-profit organizations. The median pay of CEOs of all nonprofit groups is around $100,000 annually.

“There’s been an increasing corporatization of the hospital sector,” said Shannon Brownlee, a co-author of the Health Affairs study and special adviser to the president of the Lown Institute, a non-partisan think tank.

The Lown Institute developed an index comparing CEO compensation to average workers at nearly 1,100 nonprofit hospitals and found enormous gaps at some organizations.

Vikas Saini, director of the Lown Institute and the lead author of the Health Affairs study, suggested it’s time to take a closer look at pay equity.

Citing the pay equity analysis during the online forum, Saini said, “If you look at the top and bottom performing hospitals, there's a pretty dramatic difference in CEO pay."

“The CEOs in the top 50 hospitals made $65 an hour, while the CEOs at the bottom, i.e., the ones who were highest paid, made more than $900 an hour," he said. "Meanwhile, worker pay was essentially the same between the two groups, so that just illustrates something right there.”

At the 50 best hospitals for pay equity, the CEOs earned roughly twice as much as the average worker: $65 per hour to $30 per hour. But among the bottom 50 hospitals in pay equity, the gap was 26-to-1, with CEOs getting an average of $923 per hour, while the average workers were paid $34 per hour.

Larger hospitals typically tend to pay more than smaller hospitals, but the equity gap widens among bigger institutions. In smaller hospitals (50-99 beds), CEOs make six times as much as the average workers. At hospitals with more than 400 beds, the typical chief executive earns 14 times the wages of average employees.

Hospitals offer wildly different pay for CEOs and those compensation packages aren’t always explained by the size and location of hospitals. Institutions of comparable size in the same market can have big gaps in CEO pay, the analysis found.

In a comparison of two teaching hospitals in Boston, one CEO was paid $924 per hour, while another received $326 per hour.

During the Feb. 15 panel, the participants suggested tying CEO compensation more closely to patient outcomes, the overall health of their communities, and progress in areas such as diversity, equity and inclusion in their organizations.

The panelists suggested healthcare organizations can and should do more to make sure the compensation of CEOs doesn’t completely dwarf the pay of the average workers.

The Health Affairs piece offered a number of suggestions on pay incentives for chief executives of nonprofit hospitals, such as improving cost efficiency and responsible management of public funds. Other incentives include closing disparities in outcomes among racial groups and bolstering patient safety, the authors wrote.

They wrote it is fair to consider the complexity of the job and the challenges of the institution, such as hospitals with a larger share of uninsured patients.

“Our opinion is that as institutions dedicated to the public good and the health of their local communities, nonprofit hospitals should be measured by the value they create — both business value and social value,” the authors wrote.

Alan Weil, editor in chief of Health Affairs, said during the panel he couldn’t define the limit on pay for CEOs of nonprofit hospitals. But he said it is appropriate to say there should be some type of ceiling on the compensation of chief executives of nonprofit hospitals, since they already get preferential tax status and the bulk of their revenue comes from public sources.

“We as a society have an interest in saying there should be limits to how much any one person can take out of the system,” Weil said.