Wednesday, March 7, 2007

Hospitals and Doctors - Hospital CEO Pay – Compared to What?

Paul Levy, CEO of Beth Israel Hospital in Boston, started his blog, “Running a Hospital” in August 2006. Levy’s blog is a free-wheeling, snappy, insightful commentary on hospitals, health care, and medicine.

His January 28 entry, “Do I Get Paid Too Much?” received 23 responses-- huge in the blogosphere. Levy’s annual $1 million pay incensed a few physician responders.

In an American Medical News interview, Levy defends his pay by saying the hospital board determines his annual salary, and besides, his pay is at the lower end of hospital CEO pay for non-profit hospitals in Massachusetts (Dolan, Pamela, “Do I Get Paid Too Much,? Hospital CEO Raises the Question. The Blogosphere Chimes in with Opinions,” American Medical News, page 18, March 5, 2007.)

Table 1 - Executive Pay for Massachusetts Hospital CEOs

1. James Mongan, MD, Partners Healthcare, $2.1 million
2. Elaine Ullian, Boston Medical Center, $1.4 million
3. John O’Brien, UMass Memorial Medical Center, $1.3 million
4. David Barrett, MD, Lahey Clinic, $1.3 million
5. Mark Tolosky, Baystate Health, $1.2 million
6. James Mandell, MD, Children’s Hospital, Boston, $1.1 million
7. Gary Gottlieb, Brigham and Women’s Hospital, $1 million
8. Peter Slavind, MD, Massachusetts General Hospital, $1 million

Source: “Hospital CEO’s Join the $1M Club,” Boston Globe, August 21, 2006. ). Please note that ½ of these CEOs are MDs. Some responders complaining the most were MDs. They may not be aware growing numbers of hospital CEOs are doctors.

Levy’s blog inspired the title for this blog “Hospital CEO Pay – Compared to What?” In America’s capitalistic culture, CEOs are generally paid for the size, scope, and revenues of enterprises they lead. They are also paid salaries comparable to other CEOs. Many of America’s 5000 hospitals have revenues exceeding $100 million, and some large hospital systems these revenues top $1 billion. What is the CEO worth who runs these hospitals, often the largest employers in any given community? Some people consider health care jobs as a sacred duty, immune from the laws of economy gravity, and protest that even highly trained professionals should work for a pittance. I am not one of these people.

In any event, I decided to have a stab at answering “ Hospital CEO Pay: Compared to What?

I started with the MGMA 2006 survey of physicians’ compensation. The survey is misleading in that it simply lists the compensation for “all physicians” in a given specialty. Undoubtedly, those at the top of the specialists’ compensation heap make considerably more, some $1 million or more.

Table 2 – Compensation for “All Physicians” in Selected Specialties, MGMA 2006 Compensation Survey

1. Orthopedic, spinal surgery, $554,000
2. Neurosurgery, $476,000
3. Heart surgeons, $470,000
4. Diagnostic radiology, Interventional, $424,000
5. Sports Medicine, surgery, $417,000
6. Orthopedic Surgery, $400,000
7. Radiology, non-interventional, $400,000
8. Cardiology, $363,000
9. Vascular surgery, $354,000
10. Urology, $349

Source: 2006 MGMA Physician Compensation Survey

Then I proceeded to find what Health Plan CEO executives are paid. Last year news came out that William McQuire, MD, CEO of United Healthcare Group, had fudged by post-dating $1.6 billion in deferred compensation. This billion dollar number created such a flap that McQuire was ousted from this job.

I found the following information in a AIS (Atlantic Information Service) newsletter. This is compiled from company proxy statements and may be the tip of the iceberg because it does not include delayed compensation.

Figure 3 --2005 Total Annual Compensation for Publicly Traded Managed Care CEOs, Total includes annual salary, bonuses, and other annual compensation, but not deferred compensation

1. United Health Care $8.3 million
2. Wellpoint, Inc, $5.2 million
3. CIGNA, $4.7 million
4. Sierra Health, $3.4 million
5. Aetna, Inc, $3.3 million
6. Assurant, Inc, $2.3 million
7. Humana, $1.9 million
8. Health Net, $1.7 million

Source: Atlantic Information Services, compiled from company proxy statements. Reprinted from the April 24, 2006, issue of Managed Care Week, a leading source of business, financial and regulatory news of health plans, PPOs, and POS plans.

From Forbes Magazine, here are the top ten compensations for American corporate CEOs, which makes health care compensations pale in comparison.

Figure 4 --Top Corporate CEO Compensation

1. Capital One Financial, $249 million
2. Yahoo, $231 million
3. Cedant, $140 million
4. KB Home, $135 million
5. Lehman Brothers Holdings, $123 million
6. Occidental Petroleum,, $81 million
7. Oracle, $75 million
8. Symantec, $72 million
9. Caremark Rx, $70 million
10. Countrywide Financial, $69 million

Source: Special Report, CEO Compensation, Forbes, May 20, 2006

Finally, here is Forbes 2006 list of the world’s top ten billionaires – not a U.S, hospital CEO or U.S, physician in the bunch I regret to say.

Figure 5- Forbes list of worlds top ten billionaires

1. William Gates III, Microsoft, $50 billion
2. Warren Buffett, Berkshire Hathaway, $42 billion
3. Carlus Slim Helu, Telecom, , $30 billion
4. Inguar Kasmpral, Ikea, $28 billion
5. Lakshoni Mittel, Steel, $23.5 billion
6. Paul Allen, Software, $22.0 billion
7. Bernard Arault, LVMH, $21.5 billion
8. Prince Alwaleed Bin Talal, $20.9 billion
9. Kenneth Thomson and Family Publishing, $19.5 billion
10. Li Ka-Shing, Self-Made, $18.8 billion

Source: Forbes Magazine, “The World’s Billionaires,” March 9, 2006

What’s “fair” about these high incomes in various economic sectors resides in the mind of the beholder. If you’re in health care, corporate CEO’s high pay may strike you as an abomination. If you’re a corporate CEO, you may say, “The board sets my salary. Anyway, that’s the way we pay the game in Corporate America.” If you’re a self-made billionaire, you may say,“ I did it my way.”

Hospital CEO and physician pay reflect American culture, our free-enterprise capitalistic system, and what it is willing to pay its corporate, health, and physician leaders. Government, or the health industry, could, of course, attempt to regulate pay of health care leaders and downgrade incomes, but that is unlikely to happen.

As far as the fairness of pay to health plans, hospitals, and physicians, and whether its leaders should be paid less because they are in sacrosanct health care fields, it may come down to that old saying, “When they say it’s the principle, and not the money, it’s the money.” When I look at the comparative numbers, I wonder if hospital CEOs and doctors are paid enough.

The purpose of this blog has not been to flog hospital CEO’s pay, but to put that pay in context.

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