How Much Should Healthcare CEO’s, Physicians and Nurses Be Paid?

In 2019 the Southwest Journal published an editorial that stated one cause for the rising costs in healthcare was chief executive officer (CEO) compensation (1). Based on 2017 salaries, Peter Fine from Banner Health was the highest paid healthcare CEO in the country with compensation of $25.5 million. In comparison, the CEO of Mayo Clinic Arizona was paid a paltry $1.8 million (2). We decided to do a follow-up, and found that after a dip during the first year of the COVID-19 pandemic, Mayo raises resumed in 2021. Mayo’s CEO, Dr. Gianrico Farrugia, was paid $3.48 million in 2021 up from $2.74 million in 2020 (3). Dr. Richard Gray, CEO of the Mayo Arizona campus, was paid $1.78 million in 2021, up 26% from the previous year. I shared these numbers with a couple of the Mayo Clinic faculty who were surprised by the amount of compensation their executives were receiving.

Mayo Clinic posted $1.2 billion in net operating income in 2021 (3). More recently, the system reported net operating income of $157 million for the third quarter of 2022 with an operating margin of 3.8 percent. Compensation for Mayo Clinic executives is set by the Mayo Clinic Salary & Benefits Committee and endorsed by the Mayo Clinic Board of Trustees Compensation Committee. Mayo claims not to be a profit-sharing institution and that pay is not linked to doing anything more or less for the patient than what is needed. It is unclear how CEO compensation in the millions fits with this patient care philosophy.

I did a preliminary survey of physicians in the Phoenix area of how much healthcare CEOs should be paid. Not surprisingly, most of these physicians thought that CEOs should be physicians like they are at the Mayo Clinic. Opinions on CEO compensation were all over the board. However, the best answer, in my opinion, came from a retired ID physician. He thought CEOs should be well compensated but should be paid less than senior physicians. His reasoning was that patients come to the Mayo Clinic or other healthcare organizations not because of the CEO, but because of Mayo’s physicians. Lawyers have this figured this out. One of my closest friends is an administrative partner for a large (over 100 lawyers) law firm in Phoenix. He said he is well compensated but paid less than his senior partners. The reasoning was much the same. Clients come not because of his administrative skills, but because of the lawyers. However, he was quick to point out that managing partners do deserve some compensation for their lost income in not practicing law. The compensation committee in these cases is the senior partners.

Some would argue that certain physicians are over-paid. I would agree. Current fee-for-service payment rates for physician visits trace back to the origins of Blue Cross Blue Shield (BC/BS) insurance in the 1930s. At that time, BC/BS rates were set to pay generously for hospitalizations and operations. Payments for so-called “cognitive services” were lower. In the 1960’s Medicare adopted the BC/BS payment model. This disparity has been perpetuated through “Relative Value Units”. Despite recognition by the Medicare Payment Advisory Commission (MedPAC) of the adverse effects of inadequate payment to some physicians, especially primary care, only limited progress has been made toward correction of the disparity (4). This may be due, at least in part, to treatment of total payment for physicians as a zero-sum game in which decision making is dominated by non–primary care physicians through mechanisms such as the Relative Value Scale Update Committee (RUC) (5). This translates to hospitals, procedure-oriented specialties, and especially some surgical subspecialties compensated in excess compared to more cognitive specialties.

When BC/BS was founded in 1929, one goal of the American healthcare Association (AHA) and the American College of Surgeons was to eliminate the “Doctor’s Hospitals”. These physician-run hospitals were sometimes substandard. However, little progress in eliminating them was made until establishment of Medicare and Medicaid in 1965. Many of the “Doctor’s Hospitals” did not meet criteria for Medicare certification. Lack of Medicare and Medicaid payments essentially closed their doors. However, the doctor run hospitals are now making a comeback through surgical centers. Although the AHA has questioned their quality, most have matched or exceeded the quality metrics used by the Joint Commission or other groups and often score better than hospitals in head-to-head comparisons (6). Doctors who run such centers deserve some payment for their administrative efforts.

Nurse practitioners (NPs) and physician assistants (PAs) serve a vital role in patient care. They deserve to be well paid. However, their education and responsibility are generally less than physicians. For example, 1000 clinical hours are required for nurse practitioner certification which represented about 10 weeks of my internship or about 13 weeks under the current 80-hour work week limit. Similarly, PAs are required to only complete 1600 hours of clinical training. In contrast, physicians complete family practice, internal medicine, or pediatric residencies which require a minimum of 3 years, with most subspecialities requiring an additional 3+ years. Surgical residencies are usually 5 years. Furthermore, there appears to me more risk assumed by a physician. In 2019 there were only 420 malpractice suits filed against nurse practitioners and PAs compared to over 20,000 total medical malpractice suits (7).

Nurses are the backbone of any healthcare organization. Although they usually have less education than physicians, NPs, or PAs, nursing is intense and stressful with nurses assuming a large responsibility and delivering the most beside care. Because patients are close at hand, nurses often make independent care decisions. In Arizona, nurse compensation averaged about $78,330 in 2019 (8). Not surprisingly it is considerably higher in California where the cost of living is higher compensation and averages $113,240. Recently, more nurses are working as traveling nurses, or filling a staffing shortage at a hospital or healthcare facility on a temporary basis. Prior to COVID-19 many nurses were dissatisfied with healthcare working conditions (8). This suggests that nurses may be seeking other employment options that provide them with more control over where and when they work (9). Travel nursing provides these options at a higher pay.

The causes of the overcompensation of CEOs at the expense of historically undercompensating some nurses and physicians have been salary and benefits committees set up under a corporate structure. Under the present system of healthcare governance an executive board appointed or heavily influenced by a CEO appoints a board which appoints a salary and benefits committee. The later committee in turn sets salary and benefits for the organization including the executives. A compensation committee consisting of physician and nursing leaders could more realistically evaluate an individual’s value to a healthcare organization. However, it seems likely that such a change will require mandates from healthcare certifying organizations. Healthcare executives are unlikely to readily relinquish the present system which has rewarded them so generously. Therefore, physicians need to lobby various organizations such as the Joint Commission, the Relative Value Scale Update Committee (RUC), ACGME, etc. for a compensation system which examines administrative efficiency and addresses areas of administrative complexity that add costs to the health care system without improving accessibility or value. This is in contrast to the present system of rewarding those who serve a for-profit corporate structure rather than improving healthcare in a not-for-profit system.

Richard A. Robbins MD

Editor, SWJPCCS

References

1. Robbins RA. CEO compensation-one reason healthcare costs so much. Southwest J Pulm Crit Care. 2019;19(2):76-8. [CrossRef]
2. Innes S. This Arizona nonprofit health system CEO topped the salary list at $25.5 million in 2017. Arizona Republic, October 23, 2019. Available at: https://pnhp.org/news/this-arizona-nonprofit-health-system-ceo-topped-the-salary-list-at-25-5-million-in-2017/ (accessed 1/16/23).
3. Gamble M. Mayo Clinic defends executive raises. Becker’s healthcare Review. Dec. 8, 2022. Available at: https://www.beckers healthcarereview.com/compensation-issues/mayo-clinic-defends-executive-raises.html ((1/17/23).
4. MedPac. March 2022 Report to the Congress: Medicare Payment Policy. March 2022. Available at: https://www.medpac.gov/document/march-2022-report-to-the-congress-medicare-payment-policy/ (accessed 2/4/23).
5. Magill MK. Time to Do the Right Thing: End Fee-for-Service for Primary Care. Ann Fam Med. 2016 Sep;14(5):400-1. [CrossRef] [PubMed]
6. Pham N, Donovan M. The Economic and Social Benefits of Physician-Led Hospitals. ADP Analytics. September 2022. Available at: https://ndpanalytics.com/wp-content/uploads/PHA-Economic-Impact-Report-092022-Final-R1.pdf (accessed 2/3/23).
7. Chesney S. Do Nurse Practitioners Really Get Sued? Berxi. Aug 16, 2021. Available at: https://www.berxi.com/resources/articles/do-nurse-practitioners-get-sued/ (accessed 2/3/23).
8. 2U Inc. Nurse Salary. Available at: https://nursinglicensemap.com/resources/nurse-salary/ (accessed 2/3/23).
9. Yang YT, Mason DJ. COVID-19’s Impact On Nursing Shortages, The Rise Of Travel Nurses, And Price Gouging. Health Affairs Forefront. January 28, 2022. Available at: https://www.berxi.com/resources/articles/do-nurse-practitioners-get-sued/https://www.healthaffairs.org/do/10.1377/forefront.20220125.695159/ (accessed 2/3/23).

Cite as: Robbins RA. How Much Should Healthcare CEO’s, Physicians and Nurses Be Paid? Southwest J Pulm Crit Care Sleep. 2023;26(2):24-27. doi: https://doi.org/10.13175/swjpccs007-23 PDF

The Most Influential People in Healthcare

Recently Modern Healthcare released their annual 2016 listing of the most influential people in Healthcare (1). Leading the list is President Barack Obama for his Affordable Care Act. The list consists of a monotonous list of bureaucrats, politicians, large healthcare chain CEOs, insurance company CEOs, health interest organizations (American Hospital Association, America's Health Insurance Plans Healthcare, etc.), professional organizations (American Medical Association, American Nurses Association, etc.), nongovernmental healthcare interest organizations (Joint Commission,  National Quality Forum, etc.) and vendors (Epic, McKesson, etc.). From the Southwest the list includes at least 11 hospital chain CEOs including 1 from Arizona, 3 from Colorado and 7 from California.

Striking is the lack of influential healthcare professionals who made the list. Only two are leading academicians-Atul Gawande, a surgeon and author at Harvard, and Robert Wachter, an internist and pioneer in the hosptialist movement at University of California San Francisco. John Noseworthy (Mayo Clinic) and Ronald DePinho (MD Anderson) were noteworthy academicians prior to becoming hospital CEOs. Underrepresented are deans at major medical colleges (e.g., Talmadge King, Skip Garcia), influential researchers and clinicians (e.g., Marvin Schwarz, Stuart Quan), influential training organizations (e.g., American College of Graduate Medical Education, American Board of Internal Medicine), and even editors of prominent medical journals (e.g., Jeff Drazen at the New England Journal, Howard Bauchner at JAMA).

Every year I am offended by the domination of this list by bureaucrats, politicians and businessmen and the lack of true healthcare professionals. However, the list reflects the reality that political and business interests direct medicine. Everything from my interaction with a patient, documentation through in an electronic healthcare record, and diagnostic testing and prescribing based on the which tests and drugs are least expensive for a particular insurance plan are influenced by these non-medical interests. Unfortunately, what is lost is the interests of the patient and the role of doctors and nurses as patient advocates.

Medicine has too often become a series of meaningless metrics leading to expensive but poorer care because of these political and business interests. Furthermore, the practice of medicine is becoming increasingly unpleasant and unrewarding for the doctors and nurses. The domination of these non-medical interests has led to an explosion in non-professional administrators who consume 40% of the healthcare dollar and to a large extent annoy providers leading to their dissatisfaction with their professions (2). For example, Deputy Secretary of Veterans Affairs, Sloan Gibson, recently touted improvements made by the Phoenix VA (3). According to Gibson the Phoenix VA had a net increase of 758 employees in the past 2 years with an additional 23 doctors and 48 nurses. That calculates out to 91% of their hires being something other than physicians and nurses. It is unclear what these people do but hopefully something more than demand that providers fill out forms which they shuffle leading to ever larger administrative bonuses. Otherwise, those new hires will quickly leave and the shortage of providers that created the VA scandal in the first place will not improve. Incidentally, Gibson's boss, Robert McDonald was number 36 on the list.

What can we do? Unfortunately, there would appear to be no quick fixes. Most of us are just trying to get by caring for our patients and doing the best we can. It will take education of the public to what is going on and how their healthcare dollar is spent. Ultimately, it will be patients that can demand the changes that are needed. Although the solutions may be difficult, one way we might be able to detect improvement is when fewer bureaucrats, politicians and businessmen make Modern Healthcare's most influential list.

Richard A. Robbins, MD*

Editor, SWJPCC

References

1. Modern Healthcare. 100 Most Influential People in Healthcare 2016. Available at: http://www.modernhealthcare.com/community/100-most-influential/2016/ (accessed 9/3/16).
2. Robbins RA. National health expenditures: the past, present, future and solutions. Southwest J Pulm Crit Care. 2015;11(4):176-85. [CrossRef]
3. Wagner D. Top VA brass says Phoenix hospital is off critical list, cites improvements. Arizona Republic. September 1, 2016. Available at: http://www.azcentral.com/story/news/local/arizona-investigations/2016/09/01/va-deputy-secretary-touts-phoenix-hospital-improvements/89666526/ (accessed 9/3/16).

*The opinions expressed are those of the author and do not necessarily reflect the views of the Arizona, New Mexico, Colorado or California Thoracic Societies or the Mayo Clinic.

Cite as: Robbins RA. The most influential people in healthcare. Southwest J Pulm Crit Care. 2016;13(3):123-4. doi: http://dx.doi.org/10.13175/swjpcc089-16 PDF