Perhaps the time has come for hospitals and providers to post the equivalent of a “Monroney sticker,” those automobile windshield stickers that list the manufacturer’s suggested retail price, the standard and optional equipment, and car warranty information. We can thank the late Senator from Oklahoma, Almer Stillwell Monroney, who spearheaded the passage of the Automobile Disclosure Act through Congress in 1958. Why not make shopping for a new knee as easy as buying a new Nissan?
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Explore This IssueApril 2013
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New Rule: Even Baseball Has Salary Caps, So Why Don’t Nonprofit Hospitals?
For those of us who toil in healthcare facilities that are considered to be nonprofit institutions, consider this fact: your compensation is likely constrained to some degree by the “not-for-profit” connotation. This explanation is often used to justify why physician salaries need to be kept in check, but oddly, it does not seem to apply to our hospitals’ top executives. Despite its charitable-sounding name, a nonprofit organization is not precluded from making a profit or engaging in profit-making activities. However, a nonprofit institution is prohibited from passing along any profits to those individuals who control them, such as founders, directors, officers, key employees, and members. Yet there is no rule preventing the institution from lavishly compensating its senior executives. A 2010 survey of the compensation given to the 10 highest-paid executives of nonprofit hospitals found their aggregate payroll exceeded $40 million.4 Though this amount may be dwarfed by the salaries of most professional sports teams and by Wall Street bankers, it’s still quite the tidy sum.
Exorbitant salaries are not restricted to executives of large, urban teaching hospitals. This pay scale is mimicked, albeit at a reduced scale, in small cities and towns across the nation. As the investigative reporter Steven Brill observed in his scathing assessment of the healthcare industry, “the American healthcare market has transformed tax-exempt ‘nonprofit’ hospitals into the towns’ most profitable businesses and largest employers, often presided over by the regions’ most richly compensated executives.”2
How do these executives’ salaries compare to the compensation of their peers working in other nonprofit sectors of healthcare and education? Surveys suggest that the deans of most U.S. medical schools and the majority of university presidents earn about 40% to 60% less income than hospital executives. I understand the need to recruit top-flight candidates to run complex hospital systems, but somehow, our wonderful medical schools and universities seem capable of filling leadership positions with excellent candidates, all at a fraction of the cost that their sister hospitals spend. Health executives, heal thyselves. Since most of you are medical doctors, you should be able to come up with a cure.