As hospitals face greater scrutiny for the quality of care they provide, those monitoring the front lines in clinical outcomes are seeing their responsibilities grow and, in return, are getting rewarded accordingly when payday rolls around.
Many of the top jobs at hospitals and healthcare systems-with their 60-hour-plus workweeks and mounting pressures for quality and performance improvements-are continuing to draw sizable annual income raises, according to Modern Healthcare's 24th annual Executive Compensation Survey.
"There's pressure on the supply of those positions and that places pressure on salaries," says Jim Freundt, a principal at Sullivan, Cotter and Associates, a Chicago-based consulting firm that conducted the survey. "And there's always pressure for the most talented people."
Executives in the C-suite, along with managers in the trenches overseeing patient care, continued to receive generous pay raises and other wage benefits, with many hospital titles getting percentage increases of 5% or better and some system-level executives-those responsible for running more than one hospital-recording double-digit percentage raises.
At the same time, it's large pay increases such as these that have helped draw scrutiny of hospital executives and the community benefits their organizations provide (June 28, p. 6).
Sullivan, Cotter compiled compensation data from January to May from 731 organizations, comprising 150 healthcare systems and 581 hospitals.
Hospital executives in charge of patient-care departments-chief medical officers, patient-care services and nursing services overall-earned sizeable pay increases last year, with patient-care services topping the list among the three at an 8.2% increase to $165,700. Chief medical officers led the group in median total income at $263,500, up 7.5%.
Chief executive officers at free-standing hospitals saw median total cash compensation rise 4.9% to $358,000, while their counterparts who run system-owned hospitals saw a 2.1% increase to $336,900. Base pay for chief executives at standalone facilities ran 21.8% higher, at $352,000, than those running system-owned hospitals, with base pay of $289,100. Freundt says the gap can be attributed to greater responsibilities for free-standing CEOs who often report directly to their own boards and run their facilities without the support of corporate- or system-level human resources, purchasing and finance departments.
Executives at multihospital systems continued to see large boosts in pay, with CEOs taking home median total cash compensation packages of $746,600, up 19.5%, over 2003.
"CEOs are being remunerated and compensated for the difficulties and demands of the office," says Thomas Dolan, president and CEO of the American College of Healthcare Executives. "Especially in the top positions, the data reflect how difficult those jobs are. The best people are going to be paid well."
The much-higher increases for corporate-level executives reflect the challenges of overseeing often multibillion-dollar operations, Dolan says. Generally, investor-owned chains offer better pay packages because they include stock options in addition to base pay and performance-based bonuses.
Compensation outlays can vary according to hospital profitability, regional disparities and system or hospital size, industry observers say. For instance, CEOs at systems with less than $1 billion in annual revenue pocketed an average of $535,100 in median total compensation last year, up 9.9% compared with the previous year. That's about 58% of the $925,000 in median total cash compensation for CEOs at organizations with $1 billion or more in revenue. These executives saw increases of 17.6%.
At the hospital level, the pay gaps are smaller. CEOs at smaller system-owned hospitals-those with less than $200 million in annual revenue-received $324,900 in median total cash compensation, up 3.6%, compared with CEOs at larger system-owned hospitals who received $387,500, in median cash compensation, down 0.3%.
CEOs at larger free-standing hospitals, with $200 million or more in revenue, fared better than their smaller-hospital peers, earning a median total salary of $458,100, up 14.5% from 2003. CEOs at hospitals with less than $200 million in revenue, in contrast, earned $308,700, up 2%.
Dolan says there's a relationship between base pay and bonus pay: If a hospital's financial forecast is poor-and especially if missed targets are beyond an executive's control-hospital boards will compensate for the loss in bonus pay with bigger base pay raises. The reverse also holds true: If executives are getting large bonuses, they're less likely to get the big base salaries.
Dolan says year-to-year income growth is less reliable than three-year trends, because compensation changes occur in cycles. "If (hospital boards) overreach one year," Dolan says, "they'll reset their goals the next."
Market conditions also affect pay totals, with staff titles that are in highest demand commanding the biggest salaries. With staffing shortages in nursing fields, coupled with increasing emphasis on clinical outcomes, heads of those departments continue to reap the rewards of heavy demands in that profession, Dolan says. Nurse services executives at hospitals earned median base pay last year of $147,000, up 8.5%, and median total cash compensation of $165,000, up 7.3%. At the system level, nursing services executives took home $203,300 in median total cash compensation last year, up 21.2%.
Hospital boards also consider whether salaries are keeping up with the times. The growth in healthcare pay reflects the lag behind that of other industries, says Jordan Hadelman, president and CEO of Witt/Kieffer, an Oak Brook, Ill.-based executive search firm.
"Organizations are doing more to retain good talent and organizations are doing more to recruit talent" because of labor shortages, Hadelman says.