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Healthcare compensation targeted by public, government amid budget concerns

As patients, consumers, governments and the media are all following the money in healthcare, more scrutiny than ever is falling on executive pay.

As patients, consumers, governments and the media are all following the money in healthcare, more scrutiny than ever is falling on executive compensation in the industry.

In 2009, as layoffs continued at unemployment hit a 25 year record of 10 percent, the top executives at nonprofit hospitals earned an average of $600,000, with CEOs in the highest 10 percent getting an average of $1.66 million, according to a study by Harvard researchers. The JAMA Internal Medicine study found that the more the beds overseen, the higher the salary was, but otherwise there wasn't any correlation between CEO compensation and mortality rates, readmission rates or financial margins.

Since then, hospital CEO and general executive compensation has soared, particularly at health systems with retiring long-time leaders getting deferred payments.

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Joseph Trunfio, Atlantic Health System's CEO from 2000 to 2015, was paid a total of $5 million in 2005. The next year, he earned $1.5 million, and then in 2007 earned $5.9 million. In 2012, Trunfio earned more than $10 million, almost $8 million of it in deferred compensation. In 2013, Kaiser Permanente's departing CEO George Halvorson brought in $11.7 million, as one of 28 Kaiser executives who made more than $1 million.

Last year in Pittsburgh, not long after fending off the city-government's attempt to levy local taxes, the University of Pittsburgh Medical Center brought in an income of $170 million, with long-time CEO Jeffrey Romoff earning $6.4 million and another 27 employees pulling in more than $1 million.

Health insurance executive compensation has, of course, also been high. The outgoing CEO of UPMC's chief rival, Highmark, earned $4 million, and top Blue Cross executives around the country often earn well above $1 million. Compensation among the for-profit insurers Aetna, Anthem, Cigna and UnitedHealth has routinely exceeded $10 million.

The juxtaposition of high salaries at healthcare institutions, high healthcare costs and stagnant wages is not lost on the American public. Last year, 52 percent voters in Santa Clara, California voted for a ballot proposition to cap the pay of executives at the county-owned El Camino Hospital at no more than twice the salary of California's governor -- $128,735. A county court later determined that the rule was unconstitutional.

"High compensation for healthcare executives feeds social discontent over the widening disparity in wealth," wrote David Bjork, PhD, a senior advisor for the firm Integrated Healthcare Strategies, in his book Healthcare Executive Compensation: A Guide for Leaders and Trustees.

Nonprofit hospital executive compensation raises several natural questions among the media and public, according to ACHE. "Why should executives of organizations that are tax exempt and dependent on public funding for Medicare and Medicaid be paid as much as they are? Why should executives be paid so much more than other employees? Are executives paid more than they are worth?"

The question of worth is one that local communities may debate in the coming years, because another question can emerge: Couldn't some of that money being paid towards executives being going towards other things--physician residencies, health training programs, community clinics, home-care, or raises to the organization's minimum wage?

"There's a general case to be made asking whether health system executives are being compensated appropriately to do what they do," said Paul Levy, the former CEO of Beth Israel Deaconess Medical Center in Boston. "I have mixed feelings."

Before coming to Beth Israel in 2002, Levy was the executive director of the Massachusetts Water Resources Authority, leading a cleanup of the Charles River and Boston Harbor and the reform of a previously troubled and indebted public utility. In his eight years at Beth Israel, Levy has been credited with turning a nearly bankrupt organization into a progressive, transparency and quality-focused health system. In a blog, Levy chronicled all of BIDMC's quality and safety data (good and bad), including efforts led by then chief of medicine, Mark Zeidel, MD, to try to eliminate central line infections.

"In my case, the board wanted to keep giving me raises, because they felt that it was a measure of the status to be able to pay the CEO up in the same range as our competitors," said Levy. "I kept saying, I feel uncomfortable, I'm already earning 10 times as much as an experienced nurse. Maybe I'm too much of a 60s liberal. I turned down several raises, and donated hundreds of thousands back to the hospital, at least a half a million back."

In 2009, amid layoffs in the Great Recession, Levy became famous for deciding that he and his executive team should voluntarily take pay-cuts so that Beth Israel Deaconess could avoid cutting any jobs. Levy gave up 10 percent of his $800,000 salary, and 33 percent of his bonus, and he asked staff at the hospital for their ideas: What could be done to save some money without impacting patient care?

Nurses, physicians, and other staff rallied behind Levy, forgoing raises, vacation time, and retirement contribution and saving some 600 jobs and more than $16 million. Levy thinks that other health system leaders are also wary of the high compensations.  "It was just the moral thing to do," Levy said.

Whatever the trajectory of nonprofit executive compensation or the taxing of them, Levy believes that hospital systems do need to use incentive-based pay that is based on incentives that are actually tied to patient-centered outcomes like infection reductions. "Other places do that incentive pay, but they are few and far between," Levy said.

Many "incentive plans tend to reward institutional performance more than individual performance, so even average performers end up being paid above average," according to Bjork. Moreover, "The intent to pay above average in expectation of above-average performance drives up pay for all executives, whether or not they are performing at an above-average levels."

Twitter: @AnthonyBrino