Not-for-profit hospitals that perform best on finances, patient quality and other objective performance measures tend to pay their CEOs more than their peers, according to a new study by Mercer and Truven Health Analytics (PDF).
The correlation was especially pronounced among the 10% of hospitals that scored highest on a balanced scorecard of clinical, financial, operational and patient performance indicators measured in the Truven Health 100 Top Hospitals national balanced scorecard study for the years 2010-2015.
Ironically, hospitals that scored just below the best-performing hospitals paid their CEOs just 1% more than peers of like size and complexity, the analysis showed.
The study's authors said regulators and legislatures have been pushing to tie executive compensation at not-for-profit hospitals to objective performance measures. Historically, hospital trustees have made the case that competition for top leaders requires competitive pay.
The study, however, alluded to efforts in California, New York and elsewhere to limit executive compensation at non-profit hospitals and link it to performance.
“Tax-exempt status of hospitals is under fire at all levels of government—federal, state and local," the authors wrote in the executive summary of the report, titled CEO Compensation at Nonprofit Hospitals: Associations with Performance Measures. “The Affordable Care Act requires that hospitals provide a balance between quality and cost to assure value to communities served.”
Study methodology included taking performance measures reported by hospitals and matching them with executive compensation reported on Form 990s collected by the Internal Revenue Service between 2011 and 2013, as well as other data. A total of 1,145 not-for-profit hospitals were studied.
Results showed that CEO compensation at national benchmark hospitals, as measured on Truven's national benchmark scorecard, was 17% higher than at other hospitals after adjusting for hospital class. Compensation for CEOs at hospitals above the 90th percentile on performance benchmarks was about 10% higher than at hospitals at or below the 90th percentile.
That said, hospital performance above the 80th percentile on the scorecard yielded just a 1% increase in CEO compensation over hospitals of like size and class.
Other findings included:
• CEO compensation at hospitals that set national benchmarks on quality, safety and other key measures was higher overall and within its class at teaching and medium-to-large community hospitals with 100 or more beds.
• Median CEO compensation increased with hospital class, as measured by bed size and teaching status. Major teaching hospitals provided the highest median CEO compensation and small community hospital had the lowest. There was wide variability in pay within each hospital class.
• CEO compensation improved with better hospital performance on such measures as 30-day mortality for heart attack, heart failure, pneumonia, as well as Hospital Consumer Assessment of Healthcare Providers and Systems surveys and core measures. Those measures are key because they are considered as part of the Medicare's Hospital Value-Based Purchasing Program.
• There was a negative association between the amount a CEO earned and how well his or her hospital performed on two performance measures—inpatient care complications and adjusted expense per inpatient discharge.
The authors said higher complication rates may reflect hospitals' efforts to improve documentation and coding, as well as inconsistent reporting of patient conditions upon admission.
Truven has been conducting its 100 Top Hospitals program since 1993.