Pressure to rein in healthcare costs hasn't reached hospital executive suites, where spending on CEO pay is rising sharply.
Top executives at six of the nine largest Chicago-area not-for-profit health systems pocketed substantial raises in 2017, recently released data shows. Their average pay hike was 37%, easily outpacing national trends.
Jim Skogsbergh of Advocate Aurora Health was the highest-paid local CEO for the fifth year in a row, taking home $11.7 million in 2017—up 42% from the year prior. He got more than twice as much as Dean Harrison of Northwestern Memorial HealthCare, the second-highest-paid CEO, who collected $5.2 million—up 22% from 2016.
In many cases, pay hikes were driven by bonuses based on performance targets that reflect the broader push for greater efficiency and better patient care. While financial performance still affects incentive compensation, quality measures—including patient satisfaction, safety and timeliness of care—are more heavily weighted by most organizations today than they were five years ago.
At Lurie Children's Hospital of Chicago, for example, executive compensation takes several factors into account, "including safe patient practices, positive patient outcomes, achievement of short- and long-term strategic, operational and financial goals," spokeswoman Julie Pesch said in an email.
Longtime Lurie CEO Patrick Magoon was the only one of the nine top execs to see a significant pay cut in 2017. His $2.2 million package declined 66% from $6.7 million in 2016, when he got a one-time payment of $4.9 million for 20 years of service as CEO. Still, his 2017 compensation was up 18% from 2015 and 27% from 2014.
Rising CEO pay reflects a nationwide "race for really, really good executive talent," as hospitals seek solutions to challenges ranging from lower reimbursement rates to consolidation, said Dan Mayfield, a managing director at Integrated Healthcare Strategies, a unit of Arthur J. Gallagher. The talent chase seems to be benefiting Chicago-area hospital bosses more than others. Base salaries for the nine local CEOs rose 24%, while average salaries for top hospital executives nationally increased just 3.5%, according to the National Health Care Leadership Compensation Survey by Integrated Healthcare Strategies.
The area's third-highest earner is Pam Davis, who retired as CEO of west suburban Edward-Elmhurst Health in 2017 after nearly three decades in the role. She earned a total of $3.4 million that year—a 75% increase over the year prior—primarily due to a $1.5 million payout from a supplemental executive retirement plan.
Rush University System for Health CEO Dr. Larry Goodman, who this year announced his impending retirement, earned $3.3 million, an increase of 18%. Dr. Kenneth Polonsky, who leads the University of Chicago Medicine system, in addition to serving as dean of the Pritzker School of Medicine and UChicago's division of biological sciences, also earned $3.3 million, an increase of 45%. Amita Health CEO Mark Frey earned $2.8 million, an increase of 22%, the year before the hospital network absorbed Presence Health. Mark Neaman, who stepped down as CEO after nearly 26 years at the helm of NorthShore University HealthSystem, earned $2.5 million in 2017 and the year prior.
NorthShore said CEO pay is "based on many factors, including our ability to consistently deliver high-quality care and excellent outcomes for our patients. Compensation also reflects the board's view of the outstanding results executives have delivered amidst a challenging health care environment, as well as a desire to retain talented individuals in a very competitive marketplace," spokesman Jim Anthony said in an email.
Bringing up the rear is former Loyola Medicine CEO Larry Goldberg, whose pay remained flat at $1.3 million in 2017. Goldberg led the Maywood-based system for seven years before leaving in 2018 to join Banner Health in Phoenix.
Soaring compensation for hospital executives comes amid growing scrutiny of pay disparities in healthcare. Advocate Aurora's Skogsbergh makes nearly 470 times more than employees currently earning minimum wage in Chicago. Advocate Aurora in November announced plans to increase minimum wage systemwide to $15 an hour in 2021, four years earlier than a new state law will boost Illinois' to that level.
Skogsbergh isn't the only executive pulling down top dollar at the nation's 10th-largest not-for-profit hospital chain, formed in the April 2018 merger of Downers Grove-based Advocate Health Care and Aurora Health Care of Milwaukee. Even as the 27-hospital network strives to generate savings and improve efficiency, it will bear the costs of two CEOs. Skogsbergh's co-CEO, Dr. Nick Turkal, former head of Aurora, got a whopping 187% raise to $11.4 million in 2017.
"Our ability to attract and retain top leaders in a complex industry undergoing sweeping change is critical to delivering on our purpose to help others live well and provide the best outcomes for our patients and communities," Chuck Harvey, chairman of the compensation committee of Advocate Aurora's board of directors, said in an email.
Executive compensation at the health system, which is reviewed against high-performing peers and guided by an independent consultant, "is performance-based with a significant portion linked to the achievement of both annual operating and long-term strategic goals including safety, quality, health outcomes and financial performance," Harvey said.
"Hospital CEOs get big raises despite pressure to control healthcare costs" originally appeared in Crain's Chicago Business.