How much hospital CEO pay is too much? This city is considering a cap on executive compensation

When it comes to executive compensation, hospitals are an outlier among nonprofits. Most nonprofit CEOs make between $90,000 and $250,000 on average, but the average nonprofit hospital CEO gets paid nearly $700,000. Even presidents of universities, the next-highest paid in the nonprofit sector, make about $300,000 less on average than the leaders of nonprofit hospitals.

What do we get for paying hospital CEOs so much? The Lown Institute Hospitals Index, which evaluates hospital social responsibility, shows that CEOs don’t have to be paid excessively to garner good performance. Among the highest-performing hospitals on the Lown Index, most paid their CEO below average for hospitals of a similar size. On the other hand, some of the most prestigious hospitals with the highest CEO pay still fall short on equity metrics like inclusivity and community benefit spending.

“When we have too much of a compensation gap, when people around the country are saying ‘this seems outrageous,’ it subtracts from the moral energy of staff.”

Read Pearce, Chief Quality Officer, Denver Health at Lown Institute launch event

One union in Los Angeles is trying to address this issue by putting a ceiling on CEO pay for certain hospital executives. The ballot question, proposed by Service Employees International Union-United Healthcare Workers West, would cap Los Angeles hospital CEO pay at the level of the US President’s salary ($450,000).

Using Lown Institute data from fiscal year ending 2020, an analysis in KFF Health News shows how some Los Angeles hospital CEOs would be affected. The following are some of the highest-paid nonprofit hospital CEOs in Los Angeles from that year:

• Thomas Priselac, CEO of Cedars-Sinai Medical Center: $5.7 million
• Scott Reiner, former CEO of Adventist Health system: $2.4 million
• Rodney Hanners, CEO of USC’s Keck Medicine: $1.4 million
• John Raffoul, president of Adventist Health White Memorial: $867k
• Andrew Leeka, former CEO of PIH Health Good Samaritan: $735k

The ballot question has the potential to draw needed attention to the issue of nonprofit CEO salaries. These high salaries are a symptom of a bigger problem — the industrialization of healthcare. As nonprofit hospitals have become big businesses, their boards have taken on a corporate feel, there is more of an emphasis on revenue and growth, and executive pay packages have grown closer those in the for-profit hospital world.

The average nonprofit hospital CEO makes eight times what hospital workers without advanced medical degrees make, but some make as much as 60 times the rate of other workers. Putting the issue of pay equity in the hands of community members (who subsidize nonprofit hospitals with their taxes) is a worthy goal.

However, there are practical issues with the salary cap, as health policy experts pointed out in the KFF Health News article. There will likely be legal challenges from hospitals that have existing payment contracts with executives. There are also ambiguities around how benefits like healthcare factor into the cap. Only CEOs of privately-run hospitals would be subject to the rule, even though there are CEOs making more than $1 million at public hospitals. It’s unclear how the rule applies to hospitals of health systems, or CEOs that run more than one hospital.

There is also no guarantee that the money saved by paying executives less would go toward the salaries of other staff, so wages on the lower end would not necessarily improve –although the union is also pursuing an initiative to raise the minimum wage for healthcare workers to $25/hr, which would create a pay floor to complement the potential CEO pay ceiling.

“A lack of economic resources leads to stress and impacts health down the line. Workers need to be able to support their families, we need to lift them out of poverty.”

Veronica Flores, CEO of Rising Communities, at Lown Institute launch event

In a 2022 article in Health Affairs, we suggested that nonprofit hospital boards should take into account more than just hospital size or revenue when creating compensation packages. For example, CEOs could be rewarded for improving community benefit spending, staff diversity, or disparities in clinical outcomes. If it’s true that “you get what you pay for,” we should be rewarding hospital leaders for prioritizing equity, not just profits.

“As institutions dedicated to the public good and the health of their local communities, nonprofit hospitals should be measured by the value they create—both business value and social value.”

Vikas Saini, Judith Garber, and Shannon Brownlee, Health Affairs