The case against huge salaries
High CEO salaries are particularly offensive, say critics, because hospitals are nonprofit institutions.
Unfortunately, health-care is surrounded by a culture of profit, but it is really a public service, says Dr. Michael Fine, a family physician who is past chair of the state Health Department's primary care advisory committee. Those entering public service, he adds, should not expect a lot of money.
Health Department Director David Gifford and Health Insurance Commissioner Koller are well-respected, Fine notes, but they receive far less compensation than hospital CEOs. According to the House Fiscal Office, Gifford gets $150,026 in salary, and Koller $169,352, in addition to their $20,000 benefit packages.
Brooks, of United Nurses and Allied Professionals, says that hospitals are charitable assets largely funded by government money. "Hospitals should be held to a different standard than a private profit-making company," he insists.
Verrecchia rejects this idea. "Universities and hospitals are very different from the Elizabeth Buffum Chace House, the YMCA, and things like that," he says.
With 10,000 employees and $1 billion in revenue, Lifespan is more like a for-profit health-care institution, Verrecchia says, adding, "We wouldn't be paying any different if we were for-profit or not-for-profit."
Verrecchia also disputes the idea that high CEO salaries may discourage donations to the hospital. "We're not receiving funds to manage day-to-day operating procedures at the hospitals," he says. Fundraising pays for specific programs, he explains, like a new emergency or operating room.
"They may be able to persuade donors of that," counters Alan Sager, a Boston University professor of health policy and management, "but money is fungible. Money can be moved." Sager adds, "If the CEO gets $2.9 million, that's money the hospital can't use to underwrite care for uninsured or underinsured people."
Sager notes that 30 nurses could be hired with Vecchione's salary. "Does this person do as much good in the world as 30 nurses?" he asks. "I find that hard to believe."
As president and CEO at Pawtucket-based toymaker Hasbro, Verrecchia was paid $8.4 million in 2006, and $16.5 million in 2007, according to Security and Exchange Commission documents. This is another part of the problem, says Sager: The corporate lawyers and executives who sit on hospital boards form "a club" with the hospital executives, in which six- and seven-figure salaries are normal. The result, he says, is a "financially combustible combination" for nonprofit hospitals.
Meanwhile, Ocean State Action's Malcolm says the high CEO salaries "demonstrate the need for increased public oversight." As Lifespan and Care New England propose to merge, Malcolm wants regulators to require the new board of directors to include publicly appointed members, so that health-care spending will benefit the public, not hospital executives. In addition, she suggests, executive salaries should be capped at a percentage of revenues.
Sager agrees, suggesting capping CEO salaries at a multiple of an experienced nurses' or physical therapist's compensation package. If executives are paid too much, he says, they can lose touch with employees and patients.
American health-care CEOs have a more difficult job than their European counterparts, Sager observes. While European CEOs receive their budget from the ministry of health, American CEOs must juggle differing reimbursements from insurance companies, as well as Medicare and Medicaid. In that setting, "boosting hospital surplus depends more on marketing and politics than cost controls or efficiency," Sager observes. "Maybe they'd attract better people if they paid less," he muses, asking, "How do we know we have to pay this much?"