1/n Should the COVID pandemic catalyze a fundamental re-evaluation of hospital executive compensation? Have we reached a point where what we pay CEOs, CMOs, CFOs is unmoored from any real value proposition? A tweetorial...
3/n NFP hospitals are obligated by federal and, in many cases, state statutes to provide "charity care". But these obligations are very loosely defined with various accounting techniques used to prove that the low statutory bar is met.
4/n The primary enforcement mechanism that the IRS has in place to protect against "excess compensation" is something called intermediate sanctions. This is where the IRS determines what was reasonable for the exec and asks for the excess back (with fine).
5/n In theory, this could work well, but how is excess determined? Essentially by looking at "comparables"...similar to a real estate transaction. What are other execs currently paid and is what your hospital's board proposing to pay the CEO reasonable in light of that?
6/n But we have an "executive market" where the "price for execs" has risen steadily year in and year out for decades with volunteer hospital boards often reflexively approving these compensation packages without an objective attempt to use hard metrics to evaluate performance.
7/n The IRS system is not designed to remedy this kind of incremental irrationalism in the market: hospital Board A proposes a 10% salary increase for CEO B from 2.0mill to 2.2 mill. The comps are 1.9 mill.
8/n The hospital board runs this by an attorney, approves it, and then documents its approval. This will almost certainly pass IRS muster. Now the comps are slightly higher; the process then repeats itself the next year with different hospitals with cont slight incr in salaries
9/n You can see why this enforcement mechanism affords little inflationary protection. The board (voluntary and frequently without primary experience in healthcare) acts as the principal bulwark, but their review is often superficial.
10/n Great article on this pubmed.ncbi.nlm.nih.gov/29517525/
11/n COVID, and to a certain extent, the BLM movement, has driven home the problem with this system: when the CEO can earn 30x the salary of a front-line ICU nurse; when their pay can represent upwards of 6-7% of an already tight hospital margin;
12/n when they can receive bonuses that are 5x the starting salary of young doctor or PCP, I think we all recognize there's a serious market inequity that has arisen and is in need of legislative remedy.
13/n Can Congress cap NFP executive compensation as a pre-condition for federal tax exemption? Can state legislatures? At this point, I think its certainly worthy of exploration.
14/n Ultimately, these executive expenses are passed onto the patient in terms of higher co-pays, increased premiums, etc. I don't think we should tolerate that for much longer. @aaronecarroll #MedTwitter #radonc @SarahEMcBride @C_Garthwaite @PattyMurray @FrankPallone
Adding this as evidence for why the process of NFP hosp CEO compensation determination is in need of reform; this is separate from my normative argument that it should be more thoroughly regulated because of NFP's charitable obligation.
jamanetwork.com/journals/jamai…
jamanetwork.com/journals/jamai…
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