Trump disruption may zing overly healthy health care profits
America’s for-profit health care industry is doing very well. Just ask the 64 CEOs who took home a combined $1.7 billion last year.
That’s an average of $26.5 million each. The average U.S. household makes $59,000 a year and spends $3,809 of that on health care, according to federal figures.
The new compensation calculation for CEOs comes from Axios, an independent journalism website, which analyzed the 2017 securities filings of S&P 500 companies. Rather than look solely at the value of stock options when they are issued, the reporters calculated the value of the stock the CEOs sold.
The compensation figures are 74 percent higher than official company documents, which rely on the estimated fair value of the stock when it is issued.
Former Cerner CEO Neal Patterson collected $148.6 million in 2017 for overseeing one
of the nation’s largest electronic health record companies. He co-founded the company in 1979, which helps explain the payout.
Second on the list is Leonard Schleifer, CEO and founder of pharmaceutical company Regeneron, who took home $95.3 million. UnitedHealth Group’s CEO, Dave Wichmann, made $83.2 million.
These big paydays reflect last year’s skyrocketing stock market and the decision by many of the CEOs to sell high. Boards of directors often pay executives most of their compensation in stock to align their interests with shareholders.
Unfortunately, that doesn’t always align with the interests of patients, who are more interested in affordable care. If you think nonprofits pay more reasonable salaries, you would be wrong.
Ascension, the world’s largest Catholic health care system, paid CEO Anthony Tersigni $17.5 million in 2017, according to tax filings.
In Texas, nonprofit health organizations paid 131 people more than $1 million a year, according to data from The Wall Street Journal.
More than 87 percent of health care companies in the S&P 500 reported higher-than-expected earnings in the second quarter of 2018, according to FactSet, a financial data analysis firm. Average earnings were up 13.8 percent, year over year. Properly managed, health care should be a guaranteed moneymaker. Everyone needs it, and patients are willing to empty their wallets to get it. Given this dynamic, what does society consider fair compensation for health care workers or a fair return for shareholders? What is a fair price for those who must pay the bills?
President Donald Trump is attempting to answer those questions in his own unique way.
This summer he railed against high drug prices, leading Pfizer, Novartis and Bayer to suspend seasonal price hikes. How long drugmakers will freeze prices remains unclear, but CEOs have expressed greater concerns about Trump’s suggestion to import drugs to drive down prices and pharmaceutical company profits.
The administration is also going after pharmacy benefit managers, the middlemen between drug makers and those who pay for them, such as insurers, governments and consumers. These companies, which include CVS Caremark and OptumRx, negotiate rebates from the official list prices and pocket a portion of them.
Health and Human Services Secretary Alex Azar has suggested changing the rebate system to allow federally funded Medicare to negotiate directly with drugmakers and pass the savings on to patients. Azar is also considering allowing generics, which by itself could save Medicare $3 billion a year by taking sales away from brandname drugmakers.
High drug prices make headlines, but retail pharmaceuticals only make up 10 percent of health care spending.
The Centers for Medicare & Medicaid Services, the largest purchaser of health care, has announced plans to decrease payments to both hospitals and doctors, which bill for half of total costs.
Medicare Administrator Seema Verma is ending the practice of paying a higher facility fee to hospitals than to a doctors’ offices for performing the same procedure, potentially saving $760 million a year and putting the hospital lobby to work.
Under the guise of reducing paperwork, Verma has proposed paying doctors a flat rate for office visits, no matter how chronically ill the patient. Doctors who see older, sicker patients will do less paperwork but also get paid less than doctors who see mostly healthy people. Medical societies are understandably upset.
Lastly, the Trump administration is working to cut subsidies for poor people’s health premiums, angering the insurance industry and driving up consumer costs.
The president promised to cut health care costs, but that means squeezing the profits out of an industry accustomed to rolling in money. Lobbyists will do everything it can to stop that.
The U.S. spends more per person, with worse health results, than any other wealthy country. There is plenty of room for cost-shaving if the administration can stand up to this enormously powerful industry.