Nonprofit Hospital CEOs Paid 8 Times More Than Hourly Workers

The Lown Institute finds a significant discrepancy between wages of nonprofit hospital CEOs and their staff without advanced degrees, raising questions on compensation for healthcare executives.

Nonprofit hospital CEOs are compensated, on average, eight times more than their hourly workers, according to a recent study of more than 1,000 hospitals.

Researchers from Lown Institute conducted the analysis on pay equity, publishing their results in Health Affairs, and found a large chasm between top-level executives and their staff, raising questions about how hospital CEOs should be paid.

The COVID-19 pandemic has, among other things, brough to light the compensation of frontline workers in the healthcare industry, and in particular, their wages relative to the top decision-makers at hospitals.

Lown Institute researchers examined the difference by comparing the average pay of CEOs with the wages of their employees without advanced degrees, such as janitorial workers. Physicians and nurses, along with other professional staff requiring specialized degrees, were excluded from the study. The researchers focused on the 2018 compensation data of 1,097 hospitals.

The gap in pay equity varied significantly, with some CEOs paid twice as much as the average worker, while on the extreme end the highest-paid executive made 60 times more.

Backing up previous research that higher compensation is correlated to hospital size (number of beds), the study found that the bigger the hospital, the more that CEOs were paid. While the average hourly worker wage also increased in larger hospitals, it didn't come close to the exponential nature of CEO compensation. In hospitals with 99 beds or fewer, CEOs earned six times as much, which shot up to 14 times as much in hospitals with more than 400 beds.

Along with hospital size, urban location and teaching status also dictate CEO wages, according to the study. CEOs made 14 times as much as their workers in major teaching hospitals, compared to nine times as much at minor teaching hospitals and seven times as much in non-teaching hospitals. CEOs in urban hospitals took home nine times the pay compared to six times the wage of workers in rural hospitals.

However, the researchers also found unexplained discrepancies in compensation by hospital size, location, and type. In some cities, CEOs received two to four times the hourly rate other hospitals do, despite their workers being paid similar or lower rates.

Ultimately, the researchers conclude that the rise in CEO compensation in the nonprofit healthcare industry mirrors the corporate world and big business. But with the pandemic providing an opportunity to rethink what constitutes the value of hospital executives, size and type should be secondary factors, not determiners.

"As a society, we need to develop a set of factors that gives CEOs incentives to fulfill the hospital’s social mission," the researchers wrote. "For example, CEOs could be rewarded for improving clinical outcomes, patient safety, and racial health disparities. They could be rewarded for being good stewards of public monies by improving cost efficiency. The complexity of the job should also be considered, not only based on the size of the hospital or system but also the hospital's patient mix and financial cushion.

"Currently, hospitals with a wealthier and well-insured patient mix tend to pay their executives the most, although arguably hospitals that care for more publicly insured or uninsured patients and have chronically thin margins require more skill to manage successfully."