October 22, 2013

Patient satisfaction, not quality, drives hospital CEO pay

A new study shows that CEOs at urban teaching hospitals get paid an average of nearly $1.7 million a year.

It’s no surprise that the CEOs of large non-profit hospitals are well paid. But why are they paid an average of $600,000 per year? Are the executives rewarded for good financial results or good health outcomes?

According to a new Harvard study, it’s mainly about patient satisfaction. And there’s no apparent link to quality of care or readmission rates, even though Medicare and insurers are increasingly using those metrics to determine compensation to providers.

The study, published in JAMA, the Journal of the American Medical Association, examined 1.877 CEOs at 2,861 hospital.

Some of the findings were not surprising: the bigger the hospital, the higher the pay.

Chief executive officers at large urban teaching institutions are paid the highest – an average of $1.66 million. Higher pay is associated with patient satisfaction and more advanced technology.

The study found no relationship between CEO pay and

quality of care, or readmission rates (a key indication of quality).

the hospitals profitability, which in the nonprofit world is defined as excess revenue over expenses.

the community benefits required of these non-profit institutions. In return for not paying income and property taxes, non-profit hospitals must help their community with charity care for the poor and health care.

The authors suggested that hospital boards to make the links between CEO pay and hospital quality more explicit.

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