Quality Takes a Back Seat to Scale in Nonprofit Hospital CEO Pay

A study finds executive compensation is increasingly tied to hospital size and system growth rather than care quality, raising concerns about incentives in nonprofit leadership.

As nonprofit hospital CEO compensation continues to climb, new research suggests that quality performance is playing a shrinking role in determining how leaders are paid.

Conducted by Rice University's Baker Institute for Public Policy and published in the peer-review journal Medical Care, the study analyzed data from more than 1,800 nonprofit health systems and independent hospitals between 2012 and 2019. Researchers found that while CEO pay rose significantly during that period, it became increasingly tied to organizational size and system affiliation rather than care quality.

The analysis used IRS Form 990 filings and federal quality data to explore what drives executive compensation. In 2012, hospitals with better outcomes on 30-day pneumonia mortality and readmission rates saw CEOs earn roughly 11% to 12% more on average. By 2019, that premium had dropped to under 10%, suggesting that boards were placing less weight on quality outcomes when setting pay.

Instead, scale has become the dominant factor. CEO compensation was most strongly associated with the number of beds a hospital operated, as well as whether it belonged to a larger health system. Leaders of facilities with 500 or more beds earned 157% higher salaries relative to organizations with fewer than 100 beds in 2019, and the financial rewards for overseeing larger systems grew more pronounced over time.

Profitability also played a role, but not to the same degree. Charity care, which is a key component of nonprofit hospitals' community mission, had little to no relationship with executive pay, according to the study.

"Our results raise concerns that nonprofit hospital CEOs are incentivized more to grow their organizations and profits than to improve patient care quality," lead author Derek Jenkins, a postdoctoral scholar in health economics at the Baker Institute, said in a statement. "This compensation structure may contribute to ongoing health system consolidation and rising health care costs while doing little to recognize quality improvements or community benefit efforts."

The findings reflect a structural shift as hospital consolidation accelerates. With smaller hospitals continuing to merge into larger systems, more executives oversee growing networks, and those size metrics feed directly into higher compensation. The researchers noted that even after accounting for quality, profitability, and other variables, base pay for CEOs rose across the board, indicating a general upward trend in salary.

While many organizations publicly emphasize tying compensation to performance and patient outcomes, the evidence suggests those links are weakening. Instead, financial and operational growth appear to be more reliable predictors of CEO pay increases.

That misalignment could have consequences for how hospitals prioritize their goals, particularly in a climate where margins are tight and public scrutiny of nonprofit hospital behavior is high. If compensation frameworks reward expansion and revenue generation more than quality improvement or community benefit, executives may have fewer incentives to focus on patient outcomes.

The study's authors called for renewed attention to how hospital boards design compensation packages, urging leaders to integrate quality metrics in meaningful ways. For nonprofit hospitals, aligning pay with mission may be essential to restoring public trust.