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Should We Cap Hospital CEO Salaries?


Many are demanding that Congress cap CEO salaries, arguing chief executives' pay often outstrips their performance. Would such a model make sense in healthcare?

Practice Management, Hospital CEOs, Personal Finance

The dysfunctional US sick care system of systems and what to do to fix it has replaced sex and real estate as the main topic of conversation at parties. (Although it probably wasn’t top of mind yesterday during the Super Bowl. I mean, we do have our priorities.)

But, now that it’s Monday, we'll be back at it. One particularly irksome part of the dialogue will be the inequitable salaries of not just Fortune 500 CEOs, but hospital CEOs in particular. Every day we read about the multimillion dollar takes of healthcare CEOs, increasing faster than their companies' profits.

Many are demanding that Congress, or someone, anyone, cap CEO salaries, whether it is legal, constitutional, smart, or not. Before you sign the petition, though, think about:

1. The halo effect. When Shkreli smirks, patients and doctors want revenge and paint all healthcare executives with the same brush, labeling them as ruthless, immoral profiteers. Many include physician entrepreneurs in the cabal.

2. Income inequality. As we all know, this has become another hot-button issue, with the ratio of CEO pay in the United States being 380 times that of the average worker.

3. Resentment and distrust. Everyone wants strategic alignment and engagement. Nice try when Whatshername makes much, much, more than that top producing cardiologist makes working nights and weekends. There is also a double standard. Why don't CEOs get measured for the value they add and why aren’t they subjected to complying with all the reporting requirements and forms that doctors have to spend time doing? Are under-performing gastroenterologists expendable just like any other commodity?

4. The not-for-profit shuffle. Many think it's time to give the old heave-ho to not-for-profit hospital tax exemptions along with the executives and members of the medical-industrial complex who game the system.

5. The war for talent. The job of hospital CEO is getting harder and the stakes are getting bigger. CEO turnover is increasing. If you want talent, you have to pay for it.

6. Conflicts of interest. Salary determinations are not always transparent, particularly when two of your buddies are the ones on the board of directors’ compensation committee.

7. The Political Environment. We will continue to be barraged with political messages from both the left and the right, deriding how the middle class is getting killed and is the only group that is left holding the bag. The 1% runs everything and the poor get everything given to them. The poor shmucks in the middle are suffering. Why isn't someone doing something for those suckers paying more and more out of pocket sick care costs? Isn't one of the tenants of medical ethics fairness and equity? What we need is the modern version of the Robin Hood effect.

8. Hospital consolidations, mergers, and acquisitions. Fewer are getting bigger. Small community hospitals, particularly in rural communities are in trouble. “Bigger” means slower, less nimble, more anonymous and distant, making the highly paid CEO a bigger target. It's like your absentee landlord raising your rent.

9. The sick care world is a much more risky place. Managing that risk takes a lot of time and expertise and may be worth the price.

10. The pace of change and innovation is accelerating, possibly reaching the limits of organizations to keep up. Have you noticed how long it takes to get things done at your place? Cutting middle management and relying more on decentralized groups has had unintended consequences. Now, CEOs just have more, not fewer, cats to herd.

Most people compare their salaries to peers and maybe to that woman in the corner office. Things get dicey and very emotional when they go beyond that geography. In addition, compensation depends on whether you think sick care should be a right or a service that should be like any other service, bought and sold for a profit.

Sure. It's OK for Manning to make what he makes. But, my hospital CEO? How many rings is she wearing?

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