This Question Needs to Be Answered

Why should taxpayers be subsidizing an 8 figure salary for a CEO at a nonprofit hospital?

Tax exempt status is a subsidy provided by the taxpayer to these organizations, and there is no excuse for executives to get 8 figures salary in remuneration.  (I would also argue that this is also inexcusable for the for-profit hospitals, but the underlying philosophical calculus is different)

It is an affront to basic human decency:

The COVID-19 pandemic exposed vast disparities in health care not only in access to care and patient outcomes, but also in the inequities of hospitals’ pay for different employees. While some hospital executives took modest pay cuts for a few months to make up for financial losses, more than 80 percent of hospitals continued to provide CEO bonuses, even as other hospital workers were furloughed or had their pay slashed. As is often the case, one story can tell a much larger and important story. Last year, a hospital technician whose take-home pay was $30,000 per year contracted COVID-19 on the job. Upon his return to work, he was named employee of the month and given a $6 gift voucher for the hospital cafeteria. The hospital system CEO—who was not on the frontlines of COVID-19—received a 13 percent boost in his total compensation, which was worth $30.4 million.

I should note here that the hospital chain in question is HCA, which is a for profit, but the issues are much the same for the not for profit chains.

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This story and the embedded facts raise two key questions: How big is the gap between the pay of the workforce and the CEO, and what are the implications? We explore these questions using new data and insights from a recent study conducted by the Lown Institute. 

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In the world of nonprofit pay scales for executives, hospitals are outliers. A 2021 report from the Economic Research Institute (ERI) found that the average annual CEO pay in most nonprofit industries was between $100,000 and $200,000 in 2018. The two exceptions were university CEOs, who were paid an average of $350,000, and hospital CEOs, who were paid on average $600,000. But the average belies the true dimensions of executive salaries in health care systems. In 2018, Bernard Tyson, then-CEO of nonprofit health care giant Kaiser Permanente, made nearly $18 million, making him the highest-paid nonprofit CEO in the nation. The previous year, the top 10 highest paid nonprofit health system executives each made $7 million or more. Even the bottom 25 percent of nonprofit hospital CEOs enjoyed annual compensation of about $185,000 according to ERI—more than the highest-paid quartile for CEOs in nonprofit arts and culture, environmental, human services, and religion-related organizations.

These differences hold even when comparing nonprofits with similar revenues in health care and in other arenas. The highest-paid executive of the American Red Cross, a national nonprofit with 600 chapters and revenue of $3.6 billion, received about $800,000 in total compensation in 2018. In comparison, the president and CEO of the Ochsner Clinic Foundation, a large academic health system hospital in New Orleans with revenue of $3.4 billion, made $5 million in compensation the same year—about the same amount as the 10 highest-paid executives from the American Red Cross combined.

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Within this set of more than 1,000 nonprofit hospitals, we found that hospital executives on average made eight times the wages of workers without advanced degrees in 2018. However, this ratio varied widely. Some hospital CEOs were paid at twice the rate of other workers, while the highest paid received 60 times the hourly pay of general workers (see exhibit 1).

Exhibit 1: Pay equity, top 50 and bottom 50 hospitals

This shocks the conscience, and it is a place where government intervention is not only justified, but demanded.