Hospital Execs' Salaries Nearly Doubled as Physician Increases Lag Behind

Randall Marcus

There are few scenarios in which doctors would find themselves on the short end of the pay scale. However, a recent study from Du and colleagues in Clinical Orthopaedics and Related Research showed that executives in health care systems — CEO- and CFO-level administrators, mainly — enjoyed pay increases of more than 90% over a recent 10-year period, while raises for actual health care professionals ranged closer to 10% or 20%.

Randall Marcus, MD, professor of orthopedics at the Case Western Reserve University School of Medicine in Cleveland and senior author of the study, discussed this wage gap as a problem larger than just the salaries of a handful of executives. “There is currently a bloated bureaucracy disease in our health care system,” he said. “We need to look at the value of every cost in health care, every dollar we spend.”

That said, the numbers for those executives are sobering. The researchers assessed trends between 2005 and 2015. Results showed that CEO compensation increased from $1.6 million to $3.1 million, or 93% (P = 0.009), over that period. These findings were then put into the context of a wage gap between executives and various members of the clinical community. Results showed that this gap increased from 3:1 to 5:1 for orthopedic surgeons, from 7:1 to 12:1 for pediatricians, and from 23:1 to 44:1 for registered nurses. A similar phenomenon was reported for compensation for hospital CFOs.

 
Health care executives enjoyed pay increases of more than 90% over a recent 10-year period, while raises for actual health care professionals ranged closer to 10% or 20%, according to a study.
Source: Shutterstock

“I’m not here to tell you these CEOs and CFOs aren’t valuable,” Marcus said. “But the real question needs to be asked: Given that their salaries almost doubled, did these people provide twice the value to the health care system over that time?”

Sharad Lakhanpal, MD, past president of the American College of Rheumatology and clinical professor of internal medicine at UT Southwestern Medical Center Rheumatology Associates, was slightly less diplomatic in his assessment of the situation. “Clinicians like rheumatologists are trained to take care of patients,” he said. “CEOs and CFOs are business people who are trained to look at the bottom line, and I’m not sure they are as interested in the care of patients.”

Lakhanpal acknowledged that the bottom line is important, particularly in a health care system so rife with inflated costs. However, he stressed there are too many factors working in favor of executives and against clinicians. “My understanding is that, in corporate America, the executive salaries are set by these so-called compensation committees, which are frequently chosen by the executives themselves,” he said. “So you have this hand-picked person sometimes being paid six figures to be a board member, and this person is going to tell the CEO they are not going to get a raise? The whole system is rigged.”

A companion issue is that physician salaries are set by the federal government, while executive salaries are not, according to Lakhanpal. Moreover, he added that physicians are not allowed to form unions, or even discuss these issues of compensation in any way without the threat of being in violation of antitrust laws. “But pharma and insurance companies are able to discuss these issues and make these decisions often times with their health system executives involved,” he said.

Nonclinical Workers

Marcus said that apart from the wage gap issue, the group aimed to answer a number of key questions, including wage trends among nonclinical workers in the United States health care industry overall and the amount which these nonclinical workers contribute to the cost of health care wages. The group defined nonclinical workers as employees who never see or make contact with patients.

“It was particularly surprising to us the number of nonclinical workers in the health care industry,” he said, citing a reported increase of 27% for those personnel. “For every physician at these major medical centers, there are 10 nonclinical workers, and for every physician, there is one manager. When you think about these numbers, you can see why health care accounts for 17% of our gross national product, and why it increased 30% over the course of our study.”

Additional findings revealed that wages for health care workers increased by 8% over the 10-year period compared with a 14% increase for management workers, 7% for nonclinical workers and 10% for physicians. Compared with wage hikes, a 20% increase was reported overall for the number of health care workers: Management accounted for 3% of this growth, nonclinical workers accounted for 27%, yet physicians accounted for only 5%.

“If you look at the health care system in the U.S. from 2005 to 2015 one of the big takeaways is the number of mergers, acquisitions, and number of closures of hospitals,” Marcus said. In short, he suggested that the business of health care is both booming and problematic, and much of it has little to do with what doctors are doing. “My concern is that as health care costs continue to rise, the focus is going to be on physicians because we are the face of health care.”

A Call to Action

Lakhanpal offered some ways to combat these trends. “Physicians need to become more involved with decision-making by sitting on the boards of hospitals if invited,” he said. “Physicians are currently outnumbered by what we call ‘the suits,’ who are scratching each other’s backs like any other business. But it will be difficult, because we are battling with human nature.”

Thinking more in terms of the big picture, Lakhanpal also called out the so-called “nonprofit” hospitals. “I think the ‘non-profit hospital’ designation may be misleading at times – they are making money,” he said. “But what is most interesting is that while hospital utilization is decreasing, the salaries of these executives have gone up more than 90%. How is this possible?”

Marcus understands that the problems facing the health care system overall are varied and comprehensive, and that one study is not going to fix all of it. “First and foremost, we are simply trying to raise awareness of these issues,” he said. “The next thing is to work toward some sort of equation in which the salary of the average person taking care of patients is tied into what the hospital is making, and what the high end of administration is making. If taxpayers and communities are subsidizing these nonprofit hospitals, it has to benefit them, and this comes in the form of improved outcomes.”

For rheumatologists, this means not only wage increases that compare with executives, but also better imaging equipment, and equipment involved with procedures, according to Marcus. “Every dollar that goes to the nonclinical people is one that is not going to the resources rheumatologists need to take care of patients,” he said.

Lakhanpal suggested that the trends in rheumatology care do not bode well for their representation in the salary equation. “There is already an acute problem of manpower and womanpower in the specialty,” he said. “The population is increasing, people are living longer, which increases the need for rheumatology care, but the number of people capable of treating these patients is decreasing. We are dealing with big issues of access to care, and rheumatologists are already stretched thin.”

The implication, then, is that rheumatologists may not have the time to sit in board meetings and decide on the fate of their pay. But this is exactly what Marcus suggests is necessary, and why the study needs to reach as many eyes and ears as possible. “If you are going to solve these problems, you have to have data to make decisions,” he said. “And we are not going to get solutions unless we have transparency in all aspects of our system.”

For Lakhanpal, the challenges are many, but not insurmountable. “It is possible to take steps to close this wage gap,” he said. “All it takes is a few committed, like-minded people who are willing to take the first steps.” – by Rob Volansky

For more information:

Randall E. Marcus, MD, can be reached at 11100 Euclid Ave, Cleveland, OH 44106; email: Randall.Marcus@UHhospitals.orgs.

Sharad Lakhanpal, MD, can be reached at 8144 Walnut Hill Lane, Suite 800, Dallas, TX 75231; email: Lakhanpal@dfwra.com.

References:

Du JY, et al. Clin Orthop Relat Res. 2018; doi:10.1097/CORR.0000000000000394.

Disclosures: Lakhanpal and Marcus report no relevant financial disclosures.

Randall Marcus

There are few scenarios in which doctors would find themselves on the short end of the pay scale. However, a recent study from Du and colleagues in Clinical Orthopaedics and Related Research showed that executives in health care systems — CEO- and CFO-level administrators, mainly — enjoyed pay increases of more than 90% over a recent 10-year period, while raises for actual health care professionals ranged closer to 10% or 20%.

Randall Marcus, MD, professor of orthopedics at the Case Western Reserve University School of Medicine in Cleveland and senior author of the study, discussed this wage gap as a problem larger than just the salaries of a handful of executives. “There is currently a bloated bureaucracy disease in our health care system,” he said. “We need to look at the value of every cost in health care, every dollar we spend.”

That said, the numbers for those executives are sobering. The researchers assessed trends between 2005 and 2015. Results showed that CEO compensation increased from $1.6 million to $3.1 million, or 93% (P = 0.009), over that period. These findings were then put into the context of a wage gap between executives and various members of the clinical community. Results showed that this gap increased from 3:1 to 5:1 for orthopedic surgeons, from 7:1 to 12:1 for pediatricians, and from 23:1 to 44:1 for registered nurses. A similar phenomenon was reported for compensation for hospital CFOs.

 
Health care executives enjoyed pay increases of more than 90% over a recent 10-year period, while raises for actual health care professionals ranged closer to 10% or 20%, according to a study.
Source: Shutterstock

“I’m not here to tell you these CEOs and CFOs aren’t valuable,” Marcus said. “But the real question needs to be asked: Given that their salaries almost doubled, did these people provide twice the value to the health care system over that time?”

Sharad Lakhanpal, MD, past president of the American College of Rheumatology and clinical professor of internal medicine at UT Southwestern Medical Center Rheumatology Associates, was slightly less diplomatic in his assessment of the situation. “Clinicians like rheumatologists are trained to take care of patients,” he said. “CEOs and CFOs are business people who are trained to look at the bottom line, and I’m not sure they are as interested in the care of patients.”

Lakhanpal acknowledged that the bottom line is important, particularly in a health care system so rife with inflated costs. However, he stressed there are too many factors working in favor of executives and against clinicians. “My understanding is that, in corporate America, the executive salaries are set by these so-called compensation committees, which are frequently chosen by the executives themselves,” he said. “So you have this hand-picked person sometimes being paid six figures to be a board member, and this person is going to tell the CEO they are not going to get a raise? The whole system is rigged.”

A companion issue is that physician salaries are set by the federal government, while executive salaries are not, according to Lakhanpal. Moreover, he added that physicians are not allowed to form unions, or even discuss these issues of compensation in any way without the threat of being in violation of antitrust laws. “But pharma and insurance companies are able to discuss these issues and make these decisions often times with their health system executives involved,” he said.

Nonclinical Workers

Marcus said that apart from the wage gap issue, the group aimed to answer a number of key questions, including wage trends among nonclinical workers in the United States health care industry overall and the amount which these nonclinical workers contribute to the cost of health care wages. The group defined nonclinical workers as employees who never see or make contact with patients.

“It was particularly surprising to us the number of nonclinical workers in the health care industry,” he said, citing a reported increase of 27% for those personnel. “For every physician at these major medical centers, there are 10 nonclinical workers, and for every physician, there is one manager. When you think about these numbers, you can see why health care accounts for 17% of our gross national product, and why it increased 30% over the course of our study.”

Additional findings revealed that wages for health care workers increased by 8% over the 10-year period compared with a 14% increase for management workers, 7% for nonclinical workers and 10% for physicians. Compared with wage hikes, a 20% increase was reported overall for the number of health care workers: Management accounted for 3% of this growth, nonclinical workers accounted for 27%, yet physicians accounted for only 5%.

“If you look at the health care system in the U.S. from 2005 to 2015 one of the big takeaways is the number of mergers, acquisitions, and number of closures of hospitals,” Marcus said. In short, he suggested that the business of health care is both booming and problematic, and much of it has little to do with what doctors are doing. “My concern is that as health care costs continue to rise, the focus is going to be on physicians because we are the face of health care.”

A Call to Action

Lakhanpal offered some ways to combat these trends. “Physicians need to become more involved with decision-making by sitting on the boards of hospitals if invited,” he said. “Physicians are currently outnumbered by what we call ‘the suits,’ who are scratching each other’s backs like any other business. But it will be difficult, because we are battling with human nature.”

Thinking more in terms of the big picture, Lakhanpal also called out the so-called “nonprofit” hospitals. “I think the ‘non-profit hospital’ designation may be misleading at times – they are making money,” he said. “But what is most interesting is that while hospital utilization is decreasing, the salaries of these executives have gone up more than 90%. How is this possible?”

Marcus understands that the problems facing the health care system overall are varied and comprehensive, and that one study is not going to fix all of it. “First and foremost, we are simply trying to raise awareness of these issues,” he said. “The next thing is to work toward some sort of equation in which the salary of the average person taking care of patients is tied into what the hospital is making, and what the high end of administration is making. If taxpayers and communities are subsidizing these nonprofit hospitals, it has to benefit them, and this comes in the form of improved outcomes.”

For rheumatologists, this means not only wage increases that compare with executives, but also better imaging equipment, and equipment involved with procedures, according to Marcus. “Every dollar that goes to the nonclinical people is one that is not going to the resources rheumatologists need to take care of patients,” he said.

Lakhanpal suggested that the trends in rheumatology care do not bode well for their representation in the salary equation. “There is already an acute problem of manpower and womanpower in the specialty,” he said. “The population is increasing, people are living longer, which increases the need for rheumatology care, but the number of people capable of treating these patients is decreasing. We are dealing with big issues of access to care, and rheumatologists are already stretched thin.”

The implication, then, is that rheumatologists may not have the time to sit in board meetings and decide on the fate of their pay. But this is exactly what Marcus suggests is necessary, and why the study needs to reach as many eyes and ears as possible. “If you are going to solve these problems, you have to have data to make decisions,” he said. “And we are not going to get solutions unless we have transparency in all aspects of our system.”

For Lakhanpal, the challenges are many, but not insurmountable. “It is possible to take steps to close this wage gap,” he said. “All it takes is a few committed, like-minded people who are willing to take the first steps.” – by Rob Volansky

For more information:

Randall E. Marcus, MD, can be reached at 11100 Euclid Ave, Cleveland, OH 44106; email: Randall.Marcus@UHhospitals.orgs.

Sharad Lakhanpal, MD, can be reached at 8144 Walnut Hill Lane, Suite 800, Dallas, TX 75231; email: Lakhanpal@dfwra.com.

References:

Du JY, et al. Clin Orthop Relat Res. 2018; doi:10.1097/CORR.0000000000000394.

Disclosures: Lakhanpal and Marcus report no relevant financial disclosures.