Why quality doesn’t affect hospital CEO pay

In my previous blog, I made the argument that whatever strategy we use to improve care in hospitals will not be implemented and executed well without proper focus by hospital leadership.  So, it is in this context, that we recently published some pretty disappointing findings that are worth reflecting on.

We examined the pay of CEOs across U.S. hospitals and found that some CEOs got paid a lot more than others.  This was not surprising.  CEOs of larger, urban, teaching hospitals get paid a lot more than CEOs of small, rural, non-teaching institutions.  But the disappointment was around quality:  we found no relationship between a hospital’s quality performance and the pay of the CEO.

Holding size, teaching, and other factors constant, what was the pay of CEOs of hospitals with high mortality rates?  About the same as CEOs of hospitals with low mortality rates.  What about other quality measures?  Most of them didn’t really seem to matter, with the exception of patient experience, which correlated nicely with CEO compensation.  It seems that when setting CEO compensation, patient outcomes are not a big part of the discussion.  How could this be, and why does it matter?

How you set incentives for senior managers says a lot about your priorities.  Boards generally set the salary for their CEOs and they clearly reward patient satisfaction scores.  That’s good.  They also seem to reward the things that build hospital reputations: having the latest technology such as a PET scanner or academic status.  But are boards rewarding CEOs based on mortality rates or adherence to basic quality metrics?  Not so much.  Why not?  I’ve spoken to a lot of board chairpersons over the years and the answer is not that they don’t care.  Most boards want to reward quality and believe that they do.

The problem is that most board members lack sufficient expertise on quality metrics and can’t decipher, from the large number of quality metrics, which ones are important (like mortality rates) and which ones are not.  Hamstrung, they focus on satisfaction but also end up rewarding things that feel like proxies for quality, such as having the latest technology.  And here’s the part that’s frustrating — our national efforts on quality measurement and improvement are not helping.  We seem to have done very little to prioritize what’s really important, and shine a light on them.

So what do we do to move forward?  Some states have started requiring that boards undergo training in quality.  Medicare, as a condition of participation, could certainly require that boards (or at least some members thereof) show a degree of expertise with quality.  I like these ideas but worry that training programs would themselves be of variable quality, and for some boards it would become an onerous requirement without achieving real gains in expertise.

Of course, if we really want to help boards be more effective and engage healthcare leaders, the biggest thing that we could do is actually reward hospitals, in a meaningful way, based on quality.  Yes, we have the value-based purchasing program, and it is well-intentioned.  But, as I’ve written before, it has several big problems.

First and foremost:  the incentives are very weak and there is little reason to believe it will have a meaningful impact on patient outcomes.  Second, the measures are diffuse — we have too many of them, some of which matter (mortality) and many which don’t in the absence of the appropriate clinical context (checking the ejection fraction on a heart failure patient).  It’s hard for hospital boards to really get a clear signal on what matters if they aren’t seeing it clearly and consistently from national leaders on quality.

So how might we move forward?  I’d like to see, from CMS and other payers, strong incentives tied to patient safety, such as low hospital-acquired infection rates and patient outcomes (i.e. low mortality).  That would send clear signals to boards that their chief executives need to be focused on what matters to patients.  If the incentives are sizeable enough, and the metrics clear enough, boards will take notice and have clearer guidance for where to focus their efforts to hold management accountable.

The bottom line is that leadership matters enormously.  Leaders set priorities, create the culture, and define what constitutes success for the organization.  Currently, as I often hear Don Berwick say, we have a system that is perfectly designed to give us the results that it does.  We can do better.

Too often, we look to the Virginia Masons and the Intermountains of the world and say that if they can do it, anyone can.  That’s fundamentally not right — they do it despite the fact that the incentives are stacked against them.  We need to build a system for the ordinary, and not the extraordinary CEO — those leaders — who, despite commitment and the best of intentions, prioritize things that their incentive structure tells them to prioritize.

And remember, these organizations, run by ordinary CEOs, care for a vast majority of Americans.  And the job of boards and policy leaders should be simple: align the incentives so that hospitals and their leaders can really focus on doing what’s good for patients.

Ashish Jha is an associate professor of health policy and management, Harvard School of Public Health.  He blogs at An Ounce of Evidence and can be found on Twitter @ashishkjha.

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  • buzzkillerjsmith

    Google doctors run hospitals better and you’ll come upon a study on this.

    The boards watching the CEOs like hawks?! Come on. The blind and greedy leading the blind and greedy.

    Business types running things in health care is a gigantic scam. And it’s accelerating. I shake my head.

    • whoknows

      “Business types running things in health care is a gigantic scam. And it’s accelerating. I shake my head.”

      Sad but true. How did this happen? Forgive me for asking , but how did doctors lose control of their own field? They are doing all the hard work and meantime the CEO’s make all the money? This is crazy.

      • Dr. Drake Ramoray

        Because doctors are divided and leaderless. The AMA represents less than 20% of physicals. The hospitals and insurance companies have better lobbyists. Two words for you. Facility fees.

        • whoknows

          I appreciate your honest answer Dr. Drake. But then do you know why has the AMA deserted its physicians? Or another way to put it I suppose is why did 80 percent of the physicians leave it?

          The AMA certainly have the lobbyists.
          What is the AMA’s position on protecting physician private practice? I am afraid to ask.

          OMG looks like facility fees were an invention of the devil. If the hospitals are in need of subsidizing, well hell, why don’t we all just chip in and help these welfare recipients pay their rent.

          • Dr. Drake Ramoray

            Well the AMA makes it money because it owns the rights to CPT codes. These are the codes used for every procedure in medicine. As such, they aren’t really dependent on member dues.

            Then with the degree of specialization most physicians belong to their respective organizations such as AFP for family practice. In my case AACE (I’m an Endocrinologist) is pretty good but there are only 6000 of us in the whole country so we don’t have a large voice. AACE generally fights the good fight, but loses secondary to low representation of total physicians.

            As to why AFP is throwing family practice docs under the bus to corp med for patient centered medical homes and the like, I don’t have a good answer to that question.

          • whoknows

            The AMA owns the rights to billing codes? How can you make money off of CPT codes?
            Meaning what? that every time a doc sends in for payment with a code to an insurance company, the AMA gets paid somehow? Not sure I got that right. What a crooked business model. I don’t think they operate that way in any other developed country.

            I am sorry to hear that you don’t feel there is a voice representing you. Especially in your own field. If I am understanding you correctly, it sounds like the AMA has sold out and has become a business entity of their own with CPT codes.

          • Dr. Drake Ramoray
          • whoknows

            OK Dr Drake as I am picking myself off the floor. I don’t know how you found this article with your non existent free time but I am pretty shocked.

            The fact that Forbes questions the AMA and their business tactics is telling. How does the AMA make money from CPT codes? And why are they wanting to hide comparison charges for CPT codes? And furthermore, how do they even have the power to implement this? As far as I would know, am not sure how the AMA can stop anyone posting CPT charges on the internet.

            I guess I was not fully understanding the quote from the republican senator below.
            If I am asking too many questions I apologize. I don’t want to overload you anymore than I imagine you are. I am just shocked that they can get away with this. If any other doc like Doc Buzz wants to reply so I don’t overload Dr. D. feel free!

            “The AMA has been able to impose on the entire nation the AMA’s obviously self-interested policy against consumers comparison shopping for medical care based on price by suing Web sites and others to prohibit them from posting comparisons of doctor and other medical fees on the Internet using the CPT code. Comparison shopping and proper billing to avoid mistakes and fraud are two of the most potent weapons we have to combat the routine double-digit increases in health care costs that keep millions of Americans uninsured.”

          • buzzkillerjsmith

            What Dr. D. said. Divided, leaderless, and, in the case of family physicians, relatively interested in helping folks.

            Vicious business types spend all their time of being vicious business types, but we’re doing other stuff. Long ago they smelled money in HC and now they’re getting that cash. Little better that the financial industry.

            Olson”s Logic of Collective Action explained all this decades ago. Focused groups will roll over the majority most of the time. A somewhat dense but rewarding read which explains a significant percentage of newspaper headlines.

          • whoknows

            Thank you so much for the explanation. I read Dr. Drake’s article from Forbes and was shocked. I don’t want to repeat myself but how does the AMA control CPT codes? I know what they are, I just can’t conceive how they make money from it. Are they getting a cut every time a doc submits a CPT code to Medicare or insurance?

  • Mengles

    “we found no relationship between a hospital’s quality performance and the pay of the CEO.”
    This required a study? This isn’t surprising at all. See how much lobbying power the American Hospital Association has and all the goodies they got in the Obamacare bill.

  • whoknows

    OK pardon me while I barf. OK now that that is over with.

    After a surgery I had several years ago, the CEO came up in his pristine suit. I had tubes coming out of all kinds of fun places and was wearing this 3 day old hospital gown. He was very pleasant and polished and asked how I would rate my experience. This guy obviously made a good salary. The experience was very plastic.

  • azmd

    “Why quality doesn’t affect CEO pay.”

    Why should it? CEO pay in every other industry has no true relationship to company performance. Once you decide that you want a “CEO” running a hospital rather than a real doctor, you have the type of leader who expects munificent compensation as a matter of course.

  • ninguem

    CEOs of larger, urban, teaching hospitals get paid a lot more than CEOs of small, rural, non-teaching institutions.

    The CEO of a 150-bed hospital in our suburb is paid twice the salary of the 500 bed downtown trauma center. Pay pushes close to a million dollars a year for 150-bed suburban hospital CEO when you add in the deferred compensation and other perks.

    No relation to quality or the size of the place, or what kind of work they do. It’s what they can get the Board to allow. No more, no less.

    Oh, and doctors HAVE tried to get on that Board, and the hospital administration fought it tooth and nail. “Conflict of interest”. But when bankers go on the Board, and hospital finance money goes through their bank, it’s OK. A doctor that refers to that hospital, that’s “conflict of interest”.

  • Rachel Phillips

    Ah Dr. Ramoray (Friends, really?!)… I think you hit the nail on the head. Where are the strong physician leaders in politics? Although I must say, I’ve seen groups of physicians who buy hospitals and the conflict of interest that led that hospital into bankruptcy. Physicians make money with inpatient stays, hospital loses money with increased length of stays.
    I think physicians need to pro-actively create their own method of lowering costs and show that to the public/Washington. Take the lead.

  • Rachel Phillips

    I have to comment as well on how I’ve seen physicians who don’t know the ins and outs of successfully obtaining insurer authorizations for reimbursements. It’s really not rocket science. Although physician’s main priority is caring for patients, you can’t run any business well without knowing the business well. E.g. you have to submit clinical information that meets an insurer medical necessity policy. Did you know these insurer policies are available to the public on the internet? They are checklists of requirements that are very easy to understand. Yet, many physicians will either treat then submit for authorization (in non-emergent cases of course) and be denied or just not provide the qualifying clinical information that the medical policy dictates. Of course there are always cases where the medical policy does not fit the needs of the patient but I would say, from my experience, that 90% of patients do have the clinical requirements for authorization and their cases are denied simply because the physician did not include the qualifying clinical information.

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