For what it’s worth

Ex­ec­u­tives’ earn­ings vary, but not nec­es­sar­ily based on or­ga­ni­za­tions’ value

Modern Healthcare - - OPINIONS EDITORIALS - Ed­i­tor DAVID BURDA

From vol­ume to value is the in­dus­try’s cur­rent ral­ly­ing cry as it at­tempts to shift from a sys­tem of pay­ing per case to one that pays for re­sults. Al­though that slo­gan typ­i­cally is ap­plied to re­im­burse­ment for pa­tient-care ser­vices, it can be ap­plied equally to ex­ec­u­tive com­pen­sa­tion in health­care. In­creas­ingly, health­care ex­ec­u­tives in the pri­vate sec­tor—work­ing at both in­vestor-owned and not-for-profit com­pa­nies and or­ga­ni­za­tions—are be­ing asked what value they re­turn to their re­spec­tive con­stituen­cies in re­turn for the amount of money they’re be­ing paid. It’s a com­mon ques­tion in most other in­dus­tries that’s now be­ing asked in health­care, and rightly so. But it’s a dif­fi­cult ques­tion to an­swer as our ed­i­to­rial cov­er­age of the topic il­lus­trates.

This is­sue’s cover story, a group re­port­ing project by Paul Barr, Beth Kutscher and Jes­sica Zig­mond, ranks the high­est­paid ex­ec­u­tives at the 10 largest in­vestor-owned health­care com­pa­nies in three sec­tors: acute-care hos­pi­tals, in­sur­ers and spe­cialty-care providers. Go­ing be­yond sim­ply re­port­ing some of the eye-pop­ping com­pen­sa­tion fig­ures, the trio looked at how the ex­ec­u­tives’ re­spec­tive com­pa­nies did fi­nan­cially in the year the ex­ec­u­tives earned their pay­checks. Of the 26 ex­ec­u­tives we had com­pa­ra­ble data for:

Twelve saw their to­tal com­pen­sa­tion go up along with their com­pany’s stock price.

Seven saw their to­tal com­pen­sa­tion go down along with their com­pany’s stock price.

Five saw their to­tal com­pen­sa­tion go up even though their com­pany’s stock price went down.

And two saw their to­tal com­pen­sa­tion go down even though their com­pany’s stock price went up.

So what con­clu­sions can you draw from that, other than you may not want to work for a com­pany that pays you less as the com­pany’s for­tunes rise? In 19 of the 26 cases, the top ex­ec­u­tive’s pay fol­lowed the path of the com­pany’s stock price. But in seven cases, or more than a quar­ter of the time, com­pen­sa­tion and price per share took dif­fer­ent paths. This as­sumes, of course, that “value” for a pub­licly traded health­care com­pany is the value pro­vided to share­hold­ers rather than the value pro­vided to pay­ers, pa­tients or com­mu­ni­ties.

Mean­while, in this is­sue’s spe­cial fea­ture, re­porter Ashok Sel­vam an­a­lyzes the re­sults of our 32nd an­nual Ex­ec­u­tive Com­pen­sa­tion Sur­vey based on data pro­vided to us ex­clu­sively from Sul­li­van, Cot­ter and As­so­ci­ates. He crunched the num­bers from 41 ex­ec­u­tive po­si­tions at hospi­tal sys­tems and 26 ex­ec­u­tive po­si­tions at in­di­vid­ual hos­pi­tals. He found that the av­er­age base pay for sys­tem ex­ec­u­tives rose 3.6% this year while the av­er­age base pay for hospi­tal ex­ec­u­tives climbed 3.2%.

Both are run­ning at least one per­cent­age point above the Pro­ducer Price In­dex for hos­pi­tals pub­lished by the U.S. Bureau of La­bor Sta­tis­tics. The hospi­tal PPI mea­sures the change in net rev­enue for an episode of hospi­tal care. For the 12-month pe­riod ended in June, hos­pi­tals’ net rev­enue was up just 2.2%. Though both rev­enue and com­pen­sa­tion are up, com­pen­sa­tion is ris­ing at a faster clip. In this case, let’s pre­tend rev­enue is a proxy for value, as­sum­ing that payer and pa­tients are will­ing to pay more for good care. If that’s true, you could ar­gue that hospi­tal and hospi­tal sys­tems ex­ec­u­tives are be­ing over­paid for what they do for pay­ers and pa­tients—a po­si­tion with which many in­dus­try crit­ics would agree.

The bot­tom line is this: In most cases, it ap­pears that ex­ec­u­tive com­pen­sa­tion in health­care is tied to fi­nan­cial per­for­mance. If pro­vid­ing value to pay­ers, pa­tients and com­mu­ni­ties is part of that equa­tion, it needs to be more trans­par­ent to all stake­hold­ers. And if a value com­po­nent isn’t there, it should be. As it stands, com­pen­sa­tion is still a vol­ume game, whether it’s stock prices or pa­tient uti­liza­tion, and un­less that changes, value will continue to be more of a slo­gan rather than a so­lu­tion.

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