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 

Doctor or Money Shortage in California?

An LA Times article titled “California doesn’t have enough doctors. To recruit them, the state is paying off medical school debt” describes a program where the State of California will pay off student debts using Proposition 56 tobacco tax revenue (1). California’s program is aimed at increasing the number of doctors who see Medi-Cal patients which has not kept pace with the rapid expansion of the state’s healthcare program for the poor, which now covers 1 in 3 residents in the state. The trends of decreasing doctors who accept Medi-Cal along with the increasing number of Medi-Cal patients led healthcare, education and business leaders to form the California Future Health Workforce Commission (CFHWC) in 2017 to study the state’s impending healthcare crisis (2). The CFHWC task force ultimately proposed a $3-billion plan over the next 10 years including $120 million for loan forgiveness incentives that’s meant to ensure physicians and dentists take on Medi-Cal patients. Another component of the program would allow nurse practitioners to practice independently from physicians.

The program is telling of both education and reimbursement in California. The CFHWC task force states that California is experiencing a shortage of doctors (3). This is not true. It is true that the graduation of doctors has not kept pace with the expanding California population. The national average of medical school students per 100,000 people is 30.3; California has 18.4 students per 100,000 (1,3). That’s the third-lowest rate among the 45 states that have at least one medical school. California has made relatively few investments in increasing enrollment at medical schools in the state. The only new public medical school to open in California in the last four decades is at UC Riverside and class size has only slightly expanded in the other schools (1,3). At the same time, more than one-third of the state’s doctors and nurse practitioners are reaching retirement age (1).

More than 60% of California’s students who attended medical school in 2017 left the state for their residency, according to the commission’s report. Most doctors settle near their residencies and California must expand the number of residency positions offered according to the CFHWC task force (1,3). They added that the state has historically underfunded those programs (1,3).

Despite these deficiencies, California does not have a shortage of doctors compared to other states (Table 1).

Table 1. Number of physicians per 100,000 population (Phys/10⁵ Pop) by state (2016 data, 4).

In 2016 California ranked nineteenth of the fifty states in numbers of physicians per 100,000 population (4). In addition, it ranked 22^nd in active primary care physicians (4).

What the CFHWC task force really means (and says intermittently) is that the number of doctors willing to accept Medi-Cal payment is low. The reason for this is pretty simple, Medi-Cal reimbursement is abysmally small. For a routine office call (CPT code 99213) Medi-Cal reimburses $24.00 (5). This office code is for about 15 minutes of patient contact and must include: 1. an expanded problem focused history, 2. an expanded problem focused examination, and 3. medical decision making of low complexity. This might be difficult to accomplish in 15 minutes. Documentation and billing would require at least 5 minutes more if the physician is a lightning fast typist. In contrast, Medicare pays $77.72 and Arizona Health Care Cost Containment System (AHCCCS) Administration (Arizona’s Medicaid) pays $51.42. Income generated from a busy practice seeing only Medi-Cal patients at $24.00 per office visit would mean $72/hour, about $500/day (7 hours/day), $2500 per week ($500/day X 5 days a week) or about $120,000/year (48 weeks). Although office overhead (payroll, rent, vendors, information technology, insurance, office equipment, etc.) varies widely, in 2002 the average general internist’s office overhead was about $250,000 (6). Expenses have not likely decreased in the last 16 years meaning that under the very best of circumstances, a physician seeing only Medi-Cal patients would lose $130,000/year serving California’s poor.

Medi-Cal has seemed to attempt to place the financial burden of caring for the poor on physicians and nurse practitioners rather than solving the problem of low reimbursement. Recent residency graduates who agree to have their debt relieved by California in exchange for seeing Medi-Cal patients may find their debt increasing under California’s proposal. Cuts could be made in other areas (hospital costs, drugs, etc.) but ultimately it seems that adequate reimbursement will be necessary to solve the impending “healthcare crisis”.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Gutierrez M. California doesn’t have enough doctors. To recruit them, the state is paying off medical school debt. LA Times. July 16, 2019. Available at: https://www.latimes.com/politics/la-pol-ca-california-doctor-shortage-medical-debt-20190716-story.html (accessed 7/19/19).
2. Gutierrez M. $3 billion is needed to address California’s doctor shortage, task force says. LA Times. February 5, 2019. Available at: https://www.latimes.com/politics/la-pol-ca-california-future-health-workforce-commission-doctor-shortage-20190205-story.html (accessed 7/19/19).
3. Mijic V. Meeting the demand for health: fact sheet on California’s looming workforce crisis. California Future Health Workforce Commission. February 4, 2019. Available at: https://futurehealthworkforce.org/2019/02/04/ca-looming-workforce-crisis/ (accessed 7/19/19).
4. American Association of Medical Colleges. 2017 State Physician Workforce Data Report. Available at: https://store.aamc.org/downloadable/download/sample/sample_id/30/ (accessed 7/19/19).
5. Department of Healthcare Services Medi-Cal. Medi-Cal rates as of 07/15/2019 (codes 94799 thru 99600). Available at: https://files.medi-cal.ca.gov/pubsdoco/rates/rates_information.asp?num=22&first=94799&last=99600 (accessed 7/19/19).
6. Weiss GG. Expense survey: what it costs to practice today. Med Econ. 2002 Dec 9;79(23):36-8, 41. [PubMed]

Cite as: Robbins RA. Doctor of money shortage in California? Southwest J Pulm Crit Care. 2019;19(1):15-7. doi: https://doi.org/10.13175/swjpcc050-19 PDF

FDA Commissioner Gottlieb Resigns

Food and Drug Administration (FDA) Commissioner, Scott Gottlieb, has resigned after about 2 years (1). Gottlieb was a controversial appointee by the Trump administration due to his ties to the pharmaceutical industry. However, he stood out in the anti-regulatory Trump administration, where some officials such as Scott Pruitt, the former head of the Environmental Protection Agency, appeared intent on reducing the clout of the departments and agencies they headed. For nearly two years, Gottlieb has avidly promoted the FDA, inserting the agency into important health issues and sometimes taking on industries regulated by the agency.

Under Gottlieb’s leadership the FDA has made sweeping moves to lower smoking and vaping amongst minors. Gottlieb’s departure could throw into question other controversial tobacco initiatives he championed that have not yet emerged from the FDA, including proposals to ban menthol cigarettes and to reduce nicotine levels in cigarettes. In his resignation letter to Health and Human Services Secretary, Alex Azar, Gottlieb listed his accomplishments, including accelerating the approval of generic drugs and modernizing the process for handling novel gene and precision therapies to treat those with cancer.

The resignation took some senior FDA officials by surprise, and came as Gottlieb’s signature issue – youth vaping – is being reviewed by the White House Office of Management and Budget. The plan, detailed by Gottlieb last fall, would sharply restrict the sale of flavored e-cigarettes to curb a surge in underage vaping, which he argues could lead to a whole new generation addicted to nicotine.

Gottlieb, who has been commuting weekly to Washington from his home in Connecticut, said he wants to spend more time with his family. The resignation was apparently not sought by the White House. A senior White House official said Gottlieb had spoken to President Trump, and that the president liked the FDA chief and did not want him to leave. While Gottlieb had some policy disagreements with the White House, he is well respected, and could even be asked to take another post, said two officials. Gottlieb declined to comment on that possibility.

Most praised Gottlieb including his predecessor, Robert Califf, and Friends of Cancer Research and Tobacco Free Kids (1). However, he was not without his critics. Pieter Cohen, an associate professor at Harvard Medical School who conducts research into the safety of dietary supplements, faulted Gottlieb for not taking significant action on major safety problems involving dietary supplements. Raeford Brown, a professor of anesthesiology and pediatrics at the University of Kentucky, criticized Gottlieb’s opioid policy. “I am concerned, because he seems to have a tendency to spend most of his time talking and very little of his time implementing policy.” The advocacy group Public Citizen said that Gottlieb’s time as the agency's head "was marked by regulatory decision making regarding medications and medical devices that tilted further in favor of industry's financial interests rather than the interests of public health (2).” The group cited the controversial approval in April of an opioid called Dsuvia, which is 10 times more powerful than fentanyl.

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Laurie McGinley L, Bernstein L, Dawsey J.  FDA Commissioner Gottlieb, who raised alarms about teen vaping, resigns. Washington Post. March 5, 2019. Available at: https://www.washingtonpost.com/health/2019/03/05/fda-commissioner-gottlieb-who-raised-alarms-about-teen-vaping-resigns/?utm_term=.b50dd0bbb2ae (accessed 3-6-19).
2. Scutti S, Diamond J, Goldschmidt D. FDA Commissioner Dr. Scott Gottlieb to resign next month. CNN Politics. March 5, 2019. Available at: https://www.cnn.com/2019/03/05/politics/gottlieb-resigning-fda-health-bn/index.html (accessed 3-6-19).

Cite as: Robbins RA. FDA commissioner Gottlieb resigns. Southwest J Pulm Crit Care. 2019;18(3):65-6. doi: https://doi.org/10.13175/swjpcc012-19 PDF 

Physicians Generate an Average $2.4 Million a Year Per Hospital

Hospitals are more frequently employing physicians which has been associated with increasing costs (1). Physician generated revenue may be one explanation for the upsurge in hospital employed physicians. According to a survey from Merritt Hawkins, physicians generate an average $2,378,727 per year in net revenue on behalf of their affiliated hospitals (2). This includes both net inpatient and outpatient revenue derived from patient hospital admissions, tests, treatments, prescriptions, and procedures performed or ordered by physicians. Travis Singleton, Merritt Hawkins Executive Vice President commented, “Physicians continue to drive the financial health and viability of hospitals ...”.

It is not just physician specialists who generate high dollar volumes for hospitals, the survey indicates. Family physicians generate an average of $2.1 million in net revenue annually for their affiliated hospitals, while general internists generate an average of almost $2.7 million. The average net revenue generated by all physicians included in the survey ($2,378,727) is up 52% from 2016, the last year Merritt Hawkins conducted the survey. Average revenue generated by each of the 18 medical specialties included in the survey increased compared to 2016, in most cases significantly.

The survey also provides a cost/benefits analysis showing which physicians provide the best return on investment by comparing salaries in various medical specialties to revenue generated by physicians in those specialties. Family physicians showed the best return with an average starting salary of $241,000, according to Merritt Hawkins’ data, while generating nine times that much in hospital revenue. “Primary care physicians such as family physicians represent an excellent return on investment …” Singleton said.

While the number of hospital inpatient stays has decreased or remained flat in recent years, the cost per hospital stay has increased, said Singleton, one factor that may be driving the comparatively high revenue averages generated by physicians. In addition, the number of hospital outpatient visits has more than tripled since 1975 and the average cost of these visits has grown, a further reason for physician revenue increases, according to Singleton. An additional reason is that hospitals are reimbursed at a higher rate for the same services compared to physicians’ offices. According to Winn et al. (3), outpatient hospital costs are about double compared to independent physician offices for the same chemotherapy services (3).

Richard A. Robbins, MD

Editor, SWJPCC

References

1. Kacik A. Rapid rise in hospital-employed physicians increases costs. Modern Healthcare. March 16, 2018. Available at: https://www.modernhealthcare.com/article/20180316/TRANSFORMATION02/180319913/rapid-rise-in-hospital-employed-physicians-increases-costs (accessed 3-1-19).
2. Merritt Hawkins. Survey: Physicians Generate an Average $2.4 Million a Year Per Hospital. February 25, 2019. Available at: https://www.merritthawkins.com/uploadedFiles/MerrittHawkins_PressRelease_2019.pdf (accessed 3-1-19).
3. Winn AN, Keating NL, Trogdon JG, Basch EM, Dusetzina SB. Spending by commercial insurers on chemotherapy based on site of care, 2004-2014. JAMA Oncol. 2018 Apr 1;4(4):580-1. [CrossRef] [PubMed] 

Cite as: Robbins RA. Physicians generate an average $2.4 million a year per hospital. Southwest J Pulm Crit Care. 2019;18(3):61-2. doi: https://doi.org/10.13175/swjpcc010-19 PDF 

Drug Prices Continue to Rise

President Trump asserted in a Tweet that drug prices declined in 2018 for the first time in nearly 50 years. However, President Trump’s assertion does not agree with my personal experience or the facts.

I take dofetilide (Tikosyn®) for atrial fibrillation. However, when I recently ordered the medication, my co-pay for 3 months increased from $95 in October, 2018 to $140, an increase approaching 50%. The amount the drug manufacturer (Pfizer) raised the price is unclear but the amount charged by the on-line pharmacy (AllianceRxWalgreens) that my insurance company (Blue Cross/Blue Shield Arizona) mandates I use, likely reflects a price increase in the drug.

Trump’s claim that drug prices decreased in 2018 is wrong. A recent analysis of brand-name drugs by the Associated Press found 96 price increases for every price cut in the first seven months of 2018 (1). At the start of last year, drug makers hiked prices on 1,800 medicines by a median of 9.1 percent, and many continued to increase prices throughout the year.

Trump met with Ian Read, CEO of Pfizer, in July, 2018 following a scolding via Twitter where Trump condemned Pfizer’s increase in drug prices. Pfizer agreed to delay the increases until early 2019 and now those price increases are apparently occurring.

Trump’s tweet comes just days after the president summoned his top domestic policy advisers, including health secretary Alex Azar, to the White House to discuss the slate of drug price hikes that came Jan. 1. Last week, Trump blasted pharmaceutical companies for those increases, writing on Twitter “drug makers are not living up to their commitments.”

Azar, who has been vocally defending his agency’s work to lower drug prices in television appearances and on Twitter this month, retweeted Trump’s claim of an historic price drop in 2018, but tacked on a comment saying, “President Trump has done more to address high drug prices than any President in history. More to come!”

Clearly, both Trump and Azar are engaging in Washington spin. Just before the November 2018 election, Trump announced a price-reduction plan that ties what Medicare pays for certain drugs to much lower prices paid in other economically advanced countries (1). Congressional Democrats have also introduced legislation to tackle the issue. However, Trump and congressional Democrats are now locked in a stalemate that shutdown the government and it seems unlikely they could come together to take actions on drug prices this year.

Richard A. Robbins, MD

Editor, SWJPCC

Reference

1. Associated Press. Trump hails drug price decline not supported by the evidence. January 11, 2019. Available at: https://www.apnews.com/bce3a214039c4271b3f3337e0e522b2a (accessed 1/14/19).

Cite as: Robbins RA. Drug prices continue to rise. Southwest J Pulm Crit Care. 2019;18(1):20-1. doi: https://doi.org/10.13175/swjpcc002-19 PDF