It's the latest edition of a long-running story: Healthcare providers are holding the line on salary increases. Very modest raises are the norm across the hospital industry-with certain exceptions at the top, of course.
Once again, hospital administrators and chief executive officers had a good year, according to MODERN HEALTHCARE's latest survey of executive compensation, compiled by Hewitt Associates. In 1999 the median total compensation for the CEO rose 7.4% to $210,000.
Hospital boards must like what their CEOs are doing, because the average raise for everybody else in the managerial ranks was just 3.5%.
However, this year marks the Gettysburg in the war of attrition between hospital medical directors and hospital administrators. In 1995, the medical director's average salary bested the CEO's by 10%. Last year, the docs made only 3% more than CEOs. This year, the medical director's average salary slid to just 97% of what the CEO received. The CEO was on average the highest-paid person in the hospital, according to the survey.
These results are derived from a survey compiled by Hewitt, a consulting firm based in Lincolnshire, Ill. Every year the firm asks its healthcare clients to supply the base salaries, bonuses and any other forms of compensation paid to its executives, directors and department managers from the CEO in the corner office to the nursing shift supervisor on Floor 7 South. The salaries measured were as of January 1999.
The data are derived from surveys returned by 219 healthcare organizations, which included results from 471 hospitals. Last year's sample size was 241, with 601 hospitals represented. In 1994, the first year of our survey, 287 organizations participated, and they included 347 hospitals. This reflects the consolidation in the hospital industry into larger and larger operating units.
Still the question of the declining participation in the survey is not something Hewitt takes lightly. Hewitt partner Jim Freundt thinks the cost sensitivities in the industry have reached such a point that hospital human resource directors are cutting back on research spending.
Those who participate in the survey can purchase the compensation data set for $450, at a discount. "In the grand scheme of things, that's not a terrific number," Freundt says, "but in the grand scheme of things, everybody cuts back."
Like service vendors everywhere, Hewitt is feeling the pinch. The pressure on hospital operating margins means, quite simply, that "a lot of people are not able to afford it."
Hewitt has added a handful of new positions to the survey in the past few years. Compliance officer is a position that few hospitals knew they needed until recently, Freundt says.
Many of the people who become compliance officers come from outside healthcare. The 37 compliance respondents reported median total compensation of $70,300.
Hand in hand with compliance goes the internal audit function, under the finance category. These auditors review reimbursements and unusual expenses. They made $70,000, up 4.3% from $67,100 in 1998.
Certain positions that showed very strong salary growth in the past year are tied to booming sectors of the economy or changes in healthcare delivery. Take the electronic data processing manager, for instance-a position that, at 13.1%, experienced the second-highest year-to-year growth of all jobs in the survey (See charts, pages 44, 45).
This job involves skills not exclusive to healthcare. Hospitals that want to retain these people in the face of explosive demand for competent computer help had better pay up. Likewise for information systems network managers, who saw a 10.3% increase to a median of $64,000.
The average salary for managed-care contracting manager, another new position in the survey, rose 11.1% in the past year, to $85,200. "That job is getting more and more valuable," Freundt says. "You know how sensitive the terms are in those contracts."
Two human resources positions, compensation and benefits manager and employee relations manager, enjoyed markedly strong compensation acceleration: 16.7% and 9.6%, respectively. "Good compensation and benefits directors are hard to find," Freundt says. "Some of these people are coming from outside healthcare and bringing better practices with them."
Also in the executive suite, the marketing manager saw a salary boost of 13.5% to $70,400. This may be a catch-up surge after two bad years. The job declined from an average of $64,800 in 1996 to $62,200 in 1997 to $62,000 in 1998. It's possible that sampling anomalies accentuated these shifts.
While in general, salary shifts can be attributed to changes in labor markets, there is also a natural ebb and flow that can't be explained logically. Some of the changes in this data set are because of alterations and distortions in the respondent sample from year to year, according to Hewitt.
In one instance-general counsel-the sample drew an unusually large portion of respondents from very small hospitals, which pulled the value down 14.6% to $106,700 this year.
Tracking market trends. Although the Hewitt survey tracks department heads and managers, it nonetheless reflects underlying trends in the labor market for staff employees. Just as scarcities of labor in certain categories can suddenly appear and muscle those salaries higher, the supply of labor can just as suddenly overwhelm the demand.
That's especially true if the federal reimbursement schedule changes.
Consider the market in physical therapists. For years, human resources directors were scratching to hold onto these valuable people. Now, as a consequence of a change in Medicare reimbursement schedules legislated through the Balanced Budget Act of 1997, physical therapists are being laid off left and right from long-term-care companies.
"Reimbursement is so much tougher now in home health, which is where they'd been going," Freundt comments. "Now these people are coming back into hospitals, and the supply is greater than it was before. Our clients are not having as much trouble finding these people anymore."
Their compensation, at least on the managerial level, took a corresponding hit, down three-tenths of a percent. Rehabilitation managers didn't fare much better, dragging in with a raise of 1.4%.
Pay and perks. In some organizations, the challenge facing the human resources staff is not keeping up with salaries in individual positions but rationalizing the whole barn of inherited pay and benefits programs at the various individual hospitals that are now joined in a system.
UPMC Health System, based in Pittsburgh, has approximately 25,000 employees, who were inherited through a four-year acquisition binge. The system now has 16 hospitals.
"We left the total compensation piece as-is at the various business units," says Chuck Donina, UPMC's director of compensation and human resources information systems. "We ended up with a lot of different programs and a lot of different plans. We're now trying to gain some consistency and overriding principles."
UPMC is considering variable pay and incentives, which increase compensation for employees if the entire system, a department or an individual meets their financial or quality targets. Three years ago it wouldn't have considered any such thing. "We're looking at tying compensation-salary ranges and base pay-into a total compensation perspective." That would include benefits, hourly differentials and paid time off.
The new systemwide program, 18 months in the making, is now being phased in at individual business units. Since the program isn't borrowed from any one unit, all employees have to adapt to the changes. Despite the upheaval, Donina reports, "when people got to understand what the plan is about, they have bought into it pretty nicely."
Attention to retention. Roger Campbell, system director of compensation at Samaritan Health System in Phoenix, says his company is having difficulty retaining clinical nurses, pharmacists, ultrasound technicians and medical records coders.
With pharmacists, Campbell says, there just aren't as many graduating as there used to be. And those who can be found are being swallowed up by chain drugstores. The trend toward putting pharmacies in mega-grocery stores is also tapping out the available talent.
Another job for which demand outstrips supply in Arizona is radiation oncology therapist. The schools just don't produce enough of those caregivers, who provide therapeutic care for cancer patients.
To meet these challenges, Samaritan is trying to become the employer of choice. Even if the system can't grant raises to the whole work force, it can continually remind employees how important and valued they are, Campbell says.
"Recognition items, in place of reward, are becoming increasingly hot," he notes. They include "finding unique and different ways to recognize employees for their efforts, whether it's a meal on me, to publishing names of employees who go above and beyond in customer service," he says. Right now Campbell is studying concierge services for employees, things like child care-possibly to be provided round the clock.
Hewitt's national salary results do not indicate an impending shortage of nurses. Their raises range from about 2% to about 4%, but the average falls to 1.8% if decreases in two of the seven nursing positions are included.
Yet managers at hospitals around the U.S. report hardships retaining and recruiting them, especially the experienced, more highly skilled ones who are qualified to work in critical-care or intensive-care units.
The Metropolitan Chicago Healthcare Council, in a survey of 77 of its members in January, found a modest increase in nursing salaries-3.2%-over the previous year. Yet that is only part of the story. The percent of vacant RN positions hit 7% in January, up from 5.1% in July 1998.
Two years ago, in January 1997, the nurse vacancy rate in Chicago was 1.9%.
"In '97 we had scholarship recipients graduating from schools of nursing who couldn't find a job," recalls Kevin Scanlan, vice president of the MCHC. "The nursing salaries have continued to rise" but not at a remarkable rate, he says. As a consequence of the difficulty of finding and retaining them, signing bonuses for full- and part-time positions are in the range of $1,500 to $3,000.
The University of Kansas Medical Center in Kansas City has recruited 45 new nurses since January, bringing its vacancy total down to 30 full-time positions. It was able to do that, reports Jon Jackson, the hospital's senior vice president, after completing a regional salary analysis and putting through a pay increase for nurses in April.
The medical center has also adjusted pay for technical positions such as radiology and sonography. Hospital information systems personnel are asking for more money to cope with the Y2K effort.
The Chicago hospital group conducts a separate survey of 66 management and professional positions. It found an average actual salary increase in January 1999 of 4.1%.
That's up a full percentage point from the year before, when the rate of increase was 3%.
At least the outlook is improving for some folks, somewhere.