News: Hospital size plays pivotal role in determining CEO compensation, study indicates

At nonprofits and independent hospitals, quality performance plays a marginal role in determining chief executive officer (CEO) compensation, according to new research published by Rice University’s Baker Institute for Public Policy.

The study examined quality and financial data from approximately 1,800 nonprofit health systems and independent hospitals in 2012 and 2019, using data from IRS Form 990 filings and federal quality data on 30-day pneumonia mortality/readmission rates.

According to HealthLeaders, the 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.”

“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,” HealthLeaders noted.

According to Rice University’s research:

• Between 2012 and 2019, the mean compensation of CEOs grew by 34%, from roughly $1M (in 2019 dollars) to $1.3M.
• Increases in the reward for charity care spending or profits did not significantly contribute to the rise in CEO compensation from 2012 to 2019.
• In 2012, hospitals with 100–299 beds paid CEOs 85% more than the reference group of hospitals with fewer than 100 beds. Hospitals and systems with 300–499 beds paid CEOs 111% more than the reference group, and hospitals with 500 or more beds paid their CEOs 134% more.
• By 2019, CEOs were paid 157% more than the reference group for leading a hospital with 500 or more beds, 116% more for hospitals with 300–499 beds, and 94% more for hospitals with 100–299 beds.

“The additional rewards associated with leading larger, more profitable health care systems,” the researchers concluded, “likely incentivize CEOs to pursue these objectives, which may explain the considerable uptick in health care system consolidation in recent years.”

Editor’s note: To read the Rice University study, click here. To read the HealthLeaders coverage, click here.