Compensation for Hospital CEOs: Trends and Incentive Structures in Nonprofit vs. For-Profit Systems

• In Event: Organizational Dynamics in the U.S. Healthcare System: Incentives, Structures, and Access

Abstract

Compensation packages for CEOs of hospital systems have risen rapidly in recent years. Around the country, nonprofit hospital systems have faced scrutiny for not providing community benefits that exceed the value of their tax exemptions. To incentivize performance, boards of directors offer CEOs bonuses tied to financial, community, and care quality goals. This study compares CEO compensation increases from 2012 to 2022, using compensation data from nonprofit hospital form 990s and proxy statements from publicly traded for-profit heath systems. From 2012 to 2022, base salaries for the largest for-profit systems increased 2.6%, while base salaries for a matched sample of nonprofit systems grew by 15.1%. For both nonprofit and for-profit health system CEOs, more than half of total compensation is tied to performance-based bonuses. Bonus compensation for CEOs at publicly traded for-profit hospitals increased 48.7% during this period, while similar bonuses for nonprofit CEOs grew by 133%. Proxy statements from for-profit systems provide detailed criteria for earning bonuses, but nonprofit hospitals do not disclose this information. To estimate factors associated with higher bonuses for nonprofit CEOs, we analyze data from the Hospital Cost Tool (HCT) from the National Academy of State Health Policy (NASHP), which includes hospital characteristics like financial performance, size, and community benefits. By merging this data with IRS Form 990 compensation data and CMS quality measures, we estimate the relationships between compensation, financial performance, quality, and other factors. The incentive structure at for-profit hospitals primarily focuses on financial performance (e.g., profits and earnings per share). In comparison, nonprofit hospitals also reward CEOs for earning higher operating profits, with hospital star ratings also having a slight influence on nonprofit CEO bonuses.

Author

• Derek Jenkins, Rice University
  Presenting Author