CEO Compensation-One Reason Healthcare Costs So Much

The Southwestern states were well represented in the category of highest executive pay at non-profit healthcare organizations (1). Leading the way was Bernard Tyson, Chief Executive Officer (CEO) of Kaiser in California, who earned over $16 million in salary. Lloyd Dean, CEO of Dignity Health in San Francisco, and Peter Fine, CEO of Banner in Phoenix, also made the top ten at over $9 million and $8 million respectively. The top 10 are listed in Table 1 and the salaries of the top 50 were all over $4 million.

Table 1. Top 10 Healthcare Executives Salary (2017) (1).

However, the salary only tells part of the part of the story. Note that on the far right of Table 1 under the category of other compensation, are some exceedingly high percentages. Adding in other compensation generates the executive total compensation (Table 2).

Table 2. Top 10 Total Executive Compensation (2017) (1).

Please note that these are all not-for-profit corporations. Economists talk about the pay ratio between CEOs and employees. Comparing Peter Fine's $25+ million salary with the average primary care physician salary of $155,212, a group not generally considered to be undercompensated, which means Mr. Fine earns more in 2 days than a physician earns in a year (2). Fine earns about $164 for every $1 earned by a physician

The people responsible for Mr. Fine’s compensation at Banner and other healthcare organizations are the board of directors. At Banner this consists of 13 members and 2 physicians. The physicians are Ronald J. Creasman MD, a retired Gilbert, AZ pulmonologist, and John Koster MD, the retired CEO of Providence Health & Services in Renton, WA. The others are mostly current or retired corporate executives and many sit on multiple corporate boards.

Steffie Woolhandler, MD, cofounder of nonprofit Physicians for a National Health Program, describes CEO compensation as a misallocation of funds collected for medical services. Overly generous compensation for executives of healthcare organizations diverts resources that would be better spent on patients, Woolhandler told Medscape Medical News in an interview (3). "This is money that is being taken out of the healthcare system and handed over to CEOs. This is money that is not being spent on medications. It is not being spent on doctor visits," Woolhandler said. "It is not being spent on hospitalizations. It's just going in the pockets of these CEOs."

Modern Healthcare reported that the combined compensation for the 25 top paid executives of nonprofit health systems rose to $197.9 million in 2017 from $148.6 million in 2016 (1). That's a pay increase of 33% for top executives of nonprofits. In contrast, the average increase was just over 5% for physicians in 2016 and 2017 (3). The largest increase seen in 2017 for any specialty was 24% among plastic surgeons. On the other end of the spectrum, pediatricians reported an average salary decrease of 1% in 2017 (3). Annual gross income for registered nurses was essentially flat, with respondents reporting an average income of $81,000 in 2017 and $80,000 in 2016, according to the Medscape's 2018 RN/LPN Compensation Report (3).

Overly generous executive compensation can erode the public's trust in healthcare organizations, especially given the growing backlash against aggressive bill-collection tactics, said Martin Makary MD MPH of Johns Hopkins, an expert in healthcare finance (3). Makary questioned the argument that substantial pay packages and increases are needed to attract and keep the best executive talent. Hospitals would do well to consider higher pay for the people who care directly for patients, he said. "What about the talent on the frontline, nurses and doctors? What about the clinicians and the staff at the hospital? Don't we want the best bedside nurses?" Makary said. The compensation packages for executives leading large healthcare nonprofit organizations reflect the market power these systems possess, J. Michael McWilliams, MD, PhD, a professor of healthcare policy at Harvard Medical School, told Medscape Medical News in an email exchange (3).

The increase in healthcare costs has largely been fueled by administrative overhead which now consumes about 40% of the healthcare dollar (5). The excessive compensation packages for healthcare CEOs and the salaries of their underlings likely contribute to this rising administrative cost. These excessive costs also make accusations against physicians, nurses and other healthcare workers that their salaries are largely responsible for the increase in healthcare costs ring pretty hollow. In order to control costs, understanding where the money is spent is essential.

In 2016 the Arizona Hospital Executive Compensation Act limiting CEO compensation to $450,000/year was proposed (6). Although the act was later dropped from the ballot, a survey of Southwest Journal of Pulmonary and Critical Care readers showed that 83% supported the measure and 35% though limiting CEO pay would improve patient care. It seems astonishing that so called not-for-profit organizations pay CEOs this amount of compensation. All of the money earned by or donated to a not-for-profit organization should be used in pursuing the organization's objectives and keeping it running. CEO compensation in the millions does not seem to fit these goals.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Kacik A. Highest-paid not-for-profit health system executives earn 33% raise in 2017. Modern Healthcare. June, 2019. Available at: https://www.modernhealthcare.com/executive-compensation/highest-paid-not-profit-health-system-executives-earn-33-raise-2017 (accessed 8/17/19).
2. Banner Health. Banner Health - physicians & surgeons salaries in the United States. Available at: https://www.indeed.com/cmp/Banner-Health/salaries?job_category=meddr (accessed 8/17/19).
3. Young KD. Docs get tiny raises while nonprofit healthcare CEOs get > $10M. Medscape. August 2, 2019. Available at: https://www.medscape.com/viewarticle/916423?src=WNL_trdalrt_190815_MSCPEDIT&uac=9273DT&impID=2060646&faf=1#vp_2 (accessed 8/17/19).
4. Robbins RA, Natt B. Medical image of the week: medical administrative growth. Southwest J Pulm Crit Care. 2018;17(1):35. [CrossRef]
5. Robbins RA. Survey shows support for the hospital executive compensation act. Southwest J Pulm Crit Care. 2016;13:90. [CrossRef]

Cite as: Robbins RA. CEO compensation-one reason healthcare costs so much. Southwest J Pulm Crit Care. 2019;19(2):76-8. doi: https://doi.org/10.13175/swjpcc055-19 PDF 

Banner Hacked-3.7 Million at Risk

A large-scale computer cyberattack at Banner Health compromised the records of up to 3.7 million patients, health-insurance-plan members, food and drink customers, and doctors according to the an Arizona Republic article by Ken Alltucker (1). Banner Health discovered unusual activity on its computer servers in late June and uncovered evidence of two attacks, with hackers accessing both patient records and payment-card records of food and beverage customers. The Phoenix-based health-care provider said it will mail letters to those affected notifying them about details of the cyberattack and steps they can take to protect themselves. Banner employees, many of whom are patients and covered by Banner Health insurance plans, also are believed to be victims of the attack.

The Banner Health attack is the largest among 32 known data breaches involving Arizona-based health and medical providers since 2010 according to an U.S. Department of Health and Human Service list. The breach exceeds all other breaches in Arizona combined by over 1,000,000 affected individuals. Banner also has the dubious distinction of the previous high in Arizona when records of 55,207 were compromised in 2014 (2).

Banner Health officials said they thus far have not received reports of hackers misusing the information, but the health-care provider will offer a free one-year membership in credit-monitoring services to patients, health-plan members and others affected by the cyberattack. The hackers apparently accessed Banner computer systems that process payment-card data at food and beverage outlets at some Banner Health locations. Potential victims can view a list of affected Banner locations in Arizona, Alaska, Colorado and Wyoming at http://bannersupports.com/customers/affected-locations/. On July 13, Banner Health discovered that hackers also may have accessed patient and health-insurance records, which may have included information about doctors and health-care providers. Those records may have included names, birth dates, addresses, doctors' names, dates of service, claims information, health-insurance information and Social Security numbers.

Bob Gregg, chief executive of Portland, Ore.-based ID Experts. said health-care providers are increasingly facing attacks from criminal organizations that resell the information for profit. According to Gregg. a record containing a name, address and Social Security number sells for $1 to $3 on the black market but detailed medical records with unique patient identifying numbers can fetch up to $100 per record.

Banner Health has established a website that details information about the data breach at http://bannersupports.com. Patients or other customers who have questions or concerns about the cyberattack can call 1-855-223-4412.

References

1. Ken Alltucker. Banner Health cyberattack breaches up to 3.7 million records. Arizona Republic. August 3, 2016. Available at: http://www.azcentral.com/story/money/business/health/2016/08/03/banner-health-cyberattack-breaches-up-3-7-million-records/88035474/ (accessed 8/6/16).
2. Robbins RA. Banner prints social security numbers. Southwest J Pulm Crit Care. 2014;8(2):140-1. [CrossRef]

Cite as: Robbins RA. Banner hacked-3.7 million at risk. Southwest J Pulm Crit Care. 2016;13(2):80-1. doi: http://dx.doi.org/10.13175/swjpcc075-16 PDF 

Banner Plans to Issue New Bonds to Cover University of Arizona Medical Center Purchase

Modern Healthcare is reporting that Banner Health is issuing new bonds this week to refinance older debt (1). Banner financed the $1 billion purchase of the University of Arizona Health Network (UAHN) including the University of Arizona Medical Center with a $700 million short-term loan from investment bank Mizuho in February. Banner is issuing $100 million in tax-exempt, fixed rate Series 2015A bonds. It is also planning to take on an additional $500 million in taxable and tax-exempt debt that will be used to replace the short-term loans associated with the purchase.

Banner is focusing on how to improve the return on its UAHN investment, which has dragged down its earnings. UAHN's financial performance has deteriorated with an operating margin declining to -4.3% in fiscal 2014, down from -1.2% the previous fiscal year. Before that, UAHN was profitable, according to Banner Chief Financial Officer Dennis Dahlen. Banner reported an operating surplus of $107.6 million on $3.4 billion in revenue for the first half of this year (2). In the prior-year period, its operating surplus was $186 million on $2.7 billion in revenue.

In an attempt to increase profitability, Banner has implemented a leadership incentive plan at UAHN and labor productivity tools. The executive compensation firm Sullivan Cotter has also been hired to design a new physician practice compensation structure. Dahlen noted that Banner believes that it will stabilize UAHN's finances by the end of next year, with profitability returning in 2017.

With the purchase of UAHN and the much smaller 44-bed Payson Regional Medical Center in July, Banner now reaches 82% of Arizona residents and is by far Arizona's largest health care system. Banner also plans to expand UAHN's health plans statewide to capture additional market share. The impact the debt from Banner's drive for market share will have on health care prices and Banner employees is unclear.

Richard A. Robbins, MD

Editor

Southwest Journal of Pulmonary and Critical Care

References

1. Kutscher B. Banner prepares to issue new debt amid UAHN turnaround efforts. Modern Healthcare. October 20, 2015. Available at: http://www.modernhealthcare.com/article/20151020/NEWS/151019914?utm_source=modernhealthcare&utm_medium=email&utm_content=20151020-NEWS-151019914&utm_campaign=am (accessed 10/21/15).
2. Kutscher B. Banner aims to cut costs from UAHN as earnings lag. Modern Healthcare. August 25, 2015. Available at: http://www.modernhealthcare.com/article/20150825/NEWS/150829923 (accessed 10/21/15).

Cite as: Robbins RA. Banner plans to issue new bonds to cover university of Arizona medical center purchase. Southwest J Pulm Crit Care. 2015;11(4):191. doi: http://dx.doi.org/10.13175/swjpcc136-15 PDF

2014's Top Southwest Medical Stories

The end of the year has traditionally been a time to reflect on the top stories of the year. Here's our list of the top local medical stories.

1. VA scandal

Phoenix was the epicenter of the VA scandal but Albuquerque and the Greeley, Colorado clinic also figured prominently in the falsification of patient wait lists. Investigations revealed that at least 70% of the VA hospitals falsified records leading to the resignation of VA secretary, Eric Shinseki, and his under secretary for health, Dr. Robert Petzel. Eventually the director of the Phoenix VA, Sharon Helman, was fired-not for the falsification of medical records but for taking inappropriate gifts. However, most of the directors of the VA hospitals that falsified data remain untouched, still receiving their bonuses. Similarly, the politicians, the inspector general and those in the VA central office whose job was to provide oversight remain unscathed. On the bright side, the scandal did result in a modest influx of monies which hopefully will be spent on patient care rather than administrative bonuses.

2. Ebola outbreak

This seems a bit odd for a local news story but the Ebola epidemic in Africa did impact locally. The outbreak was largely ignored by the American public until a patient and several healthcare workers became infected in the US. Politicians and healthcare administrators seized the opportunity to hype the hysteria and insist on training of healthcare workers. One Arizona Thoracic Society meeting was cancelled because a nursing service needed the room to do "Ebola training". As Peter Sagal said on "Wait, Wait, Don't Tell Me" there have been more Americans married to Larry King that infected with Ebola illustrating the hysteria and resultant overreaction. This year's true medical heroes are the thousands of physicians and nurses who worked on the frontlines of the Ebola crisis in Africa at tremendous personal risk and despite chaotic conditions, underequipped facilities, and overwhelmed local health systems. In contrast to the politicians and healthcare administrators, Anthony Fauci has consistently offered reasonable recommendations and insight based on science.

3. Banner Health, University of Arizona Health Network merger

In June, the Banner Health and University of Arizona Health Network (UAHN) began negotiations to merge with Banner absorbing UAHN's $146 million debt. Banner promised to spend at least $500 million toward capital projects in the next five years and pay $300 million to establish an academic endowment. The deal is to be completed about the end of January, 2015. Mergers between the private and public health sectors have been a mixed bag and this one warrants close watching.

4. Meaningful use

Many physicians suspected that the Centers for Medicare and Medicaid Services' (CMS) meaningful use was little more than a scheme to have physicians perform useless clerical tasks. When they were not done, payment would be denied. At the end of 2014 this appears to be true. There remains no data that the meaningful use is "using certified electronic health record (EHR) technology to: Improve quality, safety, efficiency, and reduce health disparities" as intended. About 257,000 physicians will receive a 1% reduction in reimbursement in 2015.

5. Reduction in CMS hospital payments

Despite the lack of data that CMS' value-based healthcare program is doing much to benefit patients and some data that performance of the measures has been associated with adverse outcomes, CMS continues to reduce hospital payments because of hospital-acquired conditions and high readmission rates. We initially reported on this in June, 2013. We are not advocating for hospital-acquired infections or readmissions, but are advocating for measures that improve patient outcomes. Despite a phone call assuring us that CMS would look into it, nothing has seemed to change. Furthermore, much of the data is self-reported by the hospitals. As the VA scandal illustrates, self-reported data is not always reliable especially when money is involved.

6. Congress again fails to pass SGR fix

Congress passed a budget but failed to fix the widely hated sustainable growth rate (SGR) formula for physician reimbursement under Medicare. Also missing was an extension of the current pay bump for primary care. SGR has been present since 1997 and the one of the few things the politicians seem to come together on is not paying physicians, especially primary care physicians, a decent living wage.

Richard A. Robbins, MD

Editor

Southwest Journal of Pulmonary and Critical Care

Reference as: Robbins RA. 2014's top southwest medical stories. Southwest J Pulm Crit Care. 2014;9(6):350-1. doi: http://dx.doi.org/10.13175/swjpcc167-14 PDF

Banner Health, University of Arizona Health Network to Merge

On Thursday, June 26, the Arizona Board of Regents and the University of Arizona Health Network (UAHN) Board unanimously gave the go ahead to formal negotiations with Banner Health. Under the proposed agreement Banner will acquire the University of Arizona Medical Center and its south campus, which have 624 beds between them, UAHN's faculty practice, University Physicians Healthcare and the system's three health plans. Initial terms of the agreement stipulate that Banner will spend at least $500 million toward capital projects in the next five years, and it will pay $300 million to establish an academic endowment (1). UAHN’s long-term debt, totaling about $146 million, will be absorbed by Banner. UAHN and Banner said plan on reaching a definitive agreement by September.

UA President Ann Weaver Hart was quoted by Tucson News Now as saying, "These 30 years which this agreement anticipates are going to be among the most transformational in health care in America experienced in the last century. And we're absolutely committed to be the leaders in that environment. This is extremely exciting. And I hope you can feel our commitment. We are going to make the future. We are not going to be recipients of the future made by others" (2). We have a solution to expand our capabilities to move care to a higher level, to advance research for our community and our state and to educate the future health care professionals for the state of Arizona," said UAHN President and CEO Dr. Michael Waldrum.

Under the agreement Banner will commit to the "employment of the employees of UAHN and its subsidiaries for at least six months after closing at their current base salaries and retention of their seniority for employee benefits purposes. " (1). The proposal also includes a severance package for any employees who are laid off after that six-month period.

Banner owns 25 hospitals in seven states. In total, the proposed transaction is expected to generate about $1 billion in new capital, academic investments and other consideration and value beneficial to UA and the community, a news release said. The resulting organization will employ more than 37,000 people, after adding 6,300 employees at UAHN's two hospitals, the health plan and the medical group.

The Arizona Cancer Center is excluded under the proposed agreement and will remain part of the University of Arizona. The proposal does not affect Banner's existing agreement with the Banner MD Anderson Cancer Center at Gateway Medical Center in Gilbert nor does it affect UAHN's agreement with St Joseph Medical Center in Phoenix.

This would be Banner's first acquisition on an academic medical center which reflects the growing relationship between academia and corporate America (3). Balancing the teaching and research goals of academia and the profit goals of corporations whether profit or not-for profit can be difficult. Some physicians have been troubled by Banner's non-compete clauses on physician contracts as well as Banner's aggressiveness in employing physicians that directly compete with private practice physicians at their hospitals. It is unclear how this agreement might conflict with the academic goals of UAHN as well as affecting the relationship with physicians currently practicing at Banner.

Richard A. Robbins, MD

Editor

References

1. Arizona Board of Regents agenda. Available at: http://azregents.asu.edu/boardbook/Board%20Agenda%20Books/2014-06-26%20Board%20book.pdf (accessed 6/27/14).
2. Ames J, Grijalva B. UA Health Network, UA move forward in negotiations with Banner. Tucson News Now. June 26, 2014. Available at: http://www.tucsonnewsnow.com/story/25880624/ua-health-network-ua-to-move-forward-in-negotiations-with-banner (accessed 6/27/14).
3. Reece EA, Chrencik RA, Miller ED. Fully aligned academic health centers: a model for 21st-century job creation and sustainable economic growth. Acad Med. 2012;87(7):982-7. [CrossRef] [PubMed] 

Reference as: Robbins RA. Banner health, University of Arizona health network to merge. Southwest J Pulm Crit Care. 2014;8(6):358-9. doi: http://dx.doi.org/10.13175/swjpcc085-14 PDF