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Study: High CEO Pay Doesn’t Boost Hospital Quality

Everybody agrees the health system needs to improve patient results even as it becomes more efficient. So shouldn’t we reward hospital managers who make progress in both areas? That doesn’t seem to be the case in New Hampshire, according to a new study from the New Hampshire Center for Public Policy Studies.

At a time when many contend that hospitals should focus on outcomes rather than the volume of care provided, in New Hampshire there is “virtually no correlation between hospital [CEO] pay and either quality or cost” at nonprofit health systems, the study said.

“Given these hospitals exist to provide quality health care and are required to provide community benefit and charitable care in light of their non-profit status, the lack of such a correlation is a significant concern,” New Hampshire Attorney General Michael A. Delaney said in a prepared statement this week. The New Hampshire Department of Justice regulates the state’s nonprofit sector.

Instead, the CEOs’ compensation packages correlated closely with the size of the institutions they ran, the study found. The bigger the system, the more the CEO generally made. The boss of Lebanon’s Mary Hitchcock Memorial Hospital ($1.1 billion in revenue) pulled down $785,000 in 2009, while the CEO of Colebrook’s Upper Connecticut Valley Hospital ($15 million in revenue) made $150,000.

Delaney hired the center to analyze how CEO pay has changed in the state’s 23 nonprofit hospital systems, how hospitals determine compensation and whether they follow federal guidelines in doing so.

One goal of the study was to “elevate the discussion” surrounding pay at tax-exempt hospitals, Daniel Barrick, the center’s deputy director, said in an interview.

“What are some of the variables that should be used in setting this?” is a question policymakers are asking, Barrick said. “That would help us understand the relationship between setting CEO pay and the value that the hospital provides to the community.”

The research went deeper than many analyses of nonprofit pay, which often rely only on publicly available IRS filings. The center gathered internal hospital records including CEO employment contracts, board minutes, executive memos and W-2 wage forms from 2005 to 2010.

Most hospitals met IRS standards for setting executive pay, “with some key caveats,” the study said. Three hospitals didn’t produce written records from board meetings in which CEO pay was discussed. Two smaller hospitals didn’t use pay at similar institutions as a benchmark for paying their executives.

Documenting pay deliberations and performing comparative pay studies are two ways nonprofits can show the IRS that they are compensating  executives  appropriately.

The study found “a weak relationship” between CEO compensation and the amount of charity care a hospital provided. In addition to salaries, most New Hampshire hospitals paid annual bonuses to CEOs, provided supplemental retirement plans and paid automobile expenses, it said.

The researchers also found that pay for the average New Hampshire hospital CEO has risen faster in recent years — up 18 percent from 2006 through 2009 — than compensation for the average private-sector worker or the average health care worker. However, pay for New Hampshire CEOs rose more slowly than packages for hospital bosses in New England as a whole, which rose by 29 percent in the same period, the study said.