Healthcare traditionally lags behind other industries in the use of technology and business innovations. But the field has done some quick remedial work in one realm-compensation. This news is both happy and troubling. Two reports (pages 6 and 24) in this issue and the previously published Physician Compensation Survey (July 21, p. 29) show that top hospital executives are doing quite well and, despite reimbursement pressures, there will be no tag days soon for doctors. Healthcare, unlike many segments of the economy, is booming and lots of people are cashing in.
The surveys also will make it more difficult for executives to plead poverty during the many pilgrimages to Capitol Hill in search of more federal money. It's difficult to get people to believe your institutions are on the brink of collapse when the top guys are getting paid hundreds of thousands of dollars or, in the case of large for-profit firms, millions.
The story on executive pay at publicly traded healthcare companies by reporters Vince Galloro and Laura B. Benko highlights how some hospital corporations have played catch-up with other industries in compensation outrage. At Tenet Healthcare Corp., former Chairman and Chief Executive Officer Jeffrey Barbakow earned $116.7 million in total compensation, including stock options, for fiscal 2002 as he sailed his company toward a maelstrom. We use the term "earned" loosely because he obviously fell short of hands-on management, claiming he was shocked to learn Tenet may have been gaming the Medicare outlier system to rake in more bucks.
Former HealthSouth Corp. boss Richard Scrushy, through his lawyers, also has offered ignorance as an excuse. Scrushy's case shows that Enron's Ken Lay holds no franchise on implausible denial-or greed, for that matter. Scrushy gorged himself on $112.3 million in total compensation for 2002. His legal dream team argues that Scrushy was a victim of a plot to gussy up HealthSouth's balance sheet for Wall Street-a scheme he knew nothing about even though it was executed by nearly everyone around him for more than a decade. Clearly, healthcare has entered the big leagues of corporate avarice. Investors and directors now can ponder whether extending the gluttonous pay packages that have become standard in the rest of corporate America to healthcare executives was a good idea.
On a saner note, Modern Healthcare's Executive Compensation Survey shows that people closer to the trenches of healthcare are reaping some rewards. CEOs and presidents at freestanding hospitals posted a hefty 9.2% increase in total cash compensation for this year, but several lower executive positions garnered bigger percentage hikes. Employee relations department chiefs topped the list with a 17.8% increase, and nursing services executives came in second with a 12.5% increase. Staffing shortages and information technology demands are driving much of the compensation rise. By comparison, recent surveys of U.S. businesses show companies are budgeting increases averaging 3.3% to 3.5% for this year.
The Modern Healthcare survey also shows that more healthcare organizations are turning to bonuses and perks for top executives to boost performances. This is laudable but also carries dangers; recent corporate history shows that pay-for-performance schemes can lead to mischief as executives try to cook the books to get the goodies. Perhaps St. Louis-based SSM Healthcare, which told reporter Patrick Reilly that it avoids bonuses in favor of more traditional salary reviews, may have a good idea.
While freestanding hospital CEOs and presidents trailed behind other groups on percentage increases, it should be noted that total median compensation for these folks rose to $339,100. That's well below the absurdly stratospheric levels of some big company execs, but it still puts them in the top 1% or 2% of income earners in the U.S. They ought to think frequently about their good fortune and continue to see that their employees-the people who do the heavy lifting, usually without perks and performance bonuses-share in the fruits of higher revenue.