Healthcare Business News

Seeking Medicare savings, OIG considers caps on hospital compensation

By Joe Carlson
Posted: February 11, 2014 - 5:15 pm ET

HHS' Office of the Inspector General is wading into one of the touchiest topics in healthcare: compensation.

The office's 2014 Work Plan shows that the agency has started work on a program to see how much Medicare could save if it imposed upper limits on hospital compensation. The work follows an analysis of highly paid executives at Medicare hospitals that several OIG field offices have conducted over the past five months, the results of which have not been published.

Advertisement | View Media Kit


Executive compensation is only one area of focus for the coming year. The OIG's annual work plan says the agency will devote energy to finding problems in fast-evolving areas such as electronic health records and the new health insurance exchanges, which have raised data-privacy concerns.

The agency will use its data-mining capabilities to focus on irregularities in billing for a rare type of malnutrition called kwashiorkor, and it will look to see how well hospitals and doctors are following the new rules for Medicare inpatient admission that are being implemented in 2014.

Auditors and investigators at the agency will also look to see how much the replacement of defective medical devices is costing Medicare, and the extent to which the Food and Drug Administration conducts inspections and enforcement at facilities where generic drugs are manufactured.

The OIG's office has been hit with budget cuts expected to cause a 20% staff reduction between 2012 and 2015, but the loss of workers was hardly evident in the agency's work plan, the table of contents of which runs to nine pages.

One probe that was already unsettling health system officials is the ongoing executive-compensation investigation.

Medicare rules say the agency only pays for executive and managerial salaries that are “reasonable,” but the agency has never imposed limits on how much federally funded hospitals can compensate their highest paid workers. The new study will look at how Medicare could save money by imposing such limits.

One attorney said the OIG has been examining the issue for months. Ralph DeJong, a partner with McDermott Will & Emery focusing on compensation at tax-exempt organizations like hospitals, said the office has conducted with it calls an “audit of excessive compensation” at Medicare hospitals that will be used to make recommendations for improving the program. DeJong said the 2014 audit appears related to the compensation audit already underway.

Executive compensation is a perennial target for analysis: a widely cited 2009 analysis by the Internal Revenue Service found that not-for-profit hospital CEOs earned an average of almost $500,000 in 2006.

Because most hospitals are not-for-profit, their executive salaries are set using well-defined comparative processes that take into account what other providers are paying, shielding them from IRS rules that could limit what tax-exempt providers can pay.

“It seems intuitive that, if the reported costs (for salaries) were reduced, the Medicare Trust Fund would save money,” DeJong said. “However, in our experience, the providers are able to show that their compensation practices for executive leadership are competitive with market practice and are the result of a very supportable practice of demonstrating fair-market value.”

Follow Joe Carlson on Twitter: @MHJCarlson

What do you think?

Share your opinion. Send a letter to the Editor or Post a comment below.

Post a comment

Loading Comments Loading comments...



Switch to the new Modern Healthcare Daily News app

For the best experience of on your iPad, switch to the new Modern Healthcare app — it's optimized for your device but there is no need to download.