Nonprofit hospital CEOs rewarded for size, profits

Inflation-adjusted CEO pay in nonprofit hospitals increased from roughly $1 million to $1.3 million between 2012 and 2019. 

The greatest pay increases went to CEOs who grew the profits and size of their healthcare organizations the most, according to new research from Rice University’s Baker Institute for Public Policy. The study “Nonprofit Hospital CEO Compensation: Does Quality Matter?” was published in the peer-reviewed journal Medical Care.

Researchers analyzed compensation trends for CEO leadership across more than 1,800 health systems and independent hospitals from 2012 to 2019. Nonprofit CEO compensation was obtained from IRS 990 and Schedule H tax filings. 

The aim was to test whether hospital quality measures play a role in determining CEO pay. The results suggest that nonprofit hospital CEOs are being rewarded more for leading large hospitals or systems, but not for providing higher quality care.

The results raise concerns that nonprofit hospital CEOs are more incentivized to grow profits than to improve patient quality, authors said. It’s a compensation structure that may be contributing to ongoing health system consolidation and rising healthcare costs, the authors said. 

WHAT’S THE IMPACT

CEOs received significantly higher pay for heading hospital systems with more beds and greater profits. For example, leading organizations with 500 or more beds resulted in a 157% higher CEO salary relative to organizations with fewer than 100 beds in 2019.

As the amount of pay CEOs received became increasingly linked to the size of the organizations, CEOs began increasing their organizations’ bed capacity, data showed. And incentives for providing quality care declined over this time. The reward for leading an organization with lower than average readmission rates and mortality rates for pneumonia became less strong as time went on.

The substantial increase in base salaries for these CEOs likely contributes to growing disparities between healthcare executive salaries and nurses’ pay, authors said. 

While lower mortality and readmission rates were modestly associated with higher CEO pay, these links weakened over time. By 2019, the rewards for being above average on these quality metrics had declined relative to 2012.

THE LARGER TREND

Despite challenges, healthcare executive pay increased 4.6% in 2024, on par with the 4.4% growth rate seen the year prior, though executives at the system level saw greater gains as compared to subsidiary hospital executives, according to a 2024 SullivanCotter survey. 

Due to the increasing complexity of operations, organization size and scope of responsibility, median increases for executives at the system level (5.2%) continue to outpace those for executives at subsidiary hospitals (3.5%), as has been the case for years now, authors said.

Health system positions with median base salary increases of 5% or greater tend to be those focusing on business strategy, information technology and security, integration, care delivery excellence and legal/regulatory compliance, the survey found.