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Stay in a hospital, pay the CEO $56 a night

Norman Roth has a great job. He’s the CEO of the relatively small Greenwich Hospital in southern Connecticut, and for each night patients stayed at his hospital in 2015, he got paid $56.40.

That’s the most extreme case I’ve seen in my years of writing about the health care economy, where executives are paid far more than they are in just about any other industry. But it’s hardly the only case of sky-high hospital CEO salaries. And it’s a good reminder that the debate over the future of Obamacare has to do with insurance to cover the costs of an industry that operates in a kind of alternate universe compared to the rest of the American economy.

That’s why, to help Axios kick off its coverage of the health care economy, I’ve done the first research that allows us to see how much the CEOs of the biggest hospital systems got paid for each day a patient spends in their hospital. It’s a new benchmark that lets us see not just how much they’re making, but how much they’re costing their patients.

CEO Pay per Patient Day: 20 Largest Hospital Systems

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Data: Patient Days: American Hospital Directory; CEO Salaries: latest publicly available IRS form 990 filed by each hospital. Note: Adventist Health System (FL), Mercy, Intermountain, Sutter and UnityPoint, have different CEOs as of January 2017. (These numbers are for 2015.) Chart: Andrew Witherspoon, Alex Duner / Axios

Greenwich Hospital is part of the Yale New Haven Health System. Although it’s officially “non-profit,” it’s actually highly profitable.

Here’s what I found in the tax-exempt hospital’s latest filing with the IRS for the fiscal year ending September 2015:

  • Roth’s salary and bonus: $2,913,000
  • Number of beds he supervised: 184
  • Salary and bonus for his boss, Yale New Haven Health CEO Marna Borgstrom: $3,397,000
  • Number of beds she supervised: 2,042

(Roth actually was CEO only for the last nine months of the fiscal year 2015, which ended in September. We’re assuming his salary didn’t increase after that.)

Another way to look at Roth’s earnings: It was more than twice the $1,187,000 paid to Peter Salovey, the president of Yale University, which is affiliated with Yale New Haven Health. (Salovey’s salary reflects a fiscal year ending in June 2015.)

Salovey is responsible for an organization that has more than 12,000 students spread across its college, graduate schools, research centers and foreign study programs. The university had roughly 10 times the revenue of Greenwich Hospital — and 43% more than the entire Yale New Haven Health System.

Roth declined to be interviewed. Dana Marnane, the hospital’s vice president for public relations, said that Roth’s earnings in the report for 2015 fiscal year were “inflated” by a “big chunk” of longevity bonuses and deferred compensation. But many CEOs enjoy those same bonuses, which is why the IRS, and the SEC for publicly-held corporations, require disclosure of total annual compensation.

Marnane also declined to put the “big chunk” in perspective by revealing what Roth’s total earnings were for 2016, which does not yet have to be publicly reported. In the year before Roth took the job, his predecessor earned $1,421,000, or $27.51 for every night someone stayed in his hospital, which is still the highest per-patient-day payout I have ever seen other than Roth’s.

I first noticed Roth’s outsized pay when I started looking at the alternate universe that is the American health care economy, in which everyone from executives to equipment sales people to PR teams gets paid much more than those in other sectors for jobs of seemingly commensurate responsibility.

For example, as at Yale, most major university presidents, their chief fundraising officers, and other executives — who work in a non-profit sector also not known for reining in executive salaries to keep fees down — are paid substantially less than chief executives and other key executives at the hospital they are affiliated with.

The exceptions are those who actually provide the health care. In 2015, physician incomes increased just 3.1% at the same time that hospital CEO salaries increased an average of 8.2%, according to the trade publication Modern Healthcare.

How we did this study: So I’ve put together a chart that I’ve always wanted to see. I’ve merged data about hospital operations, including patient beds and total patient days, from the American Hospital Directory with information filed with the IRS on what non-profit hospitals pay their bosses. The result is a list of the reported annual payouts to the CEOs of the 20 largest hospital systems (ranked by number of hospitals in their systems) divided by the annual number of patient days recorded at each hospital.

In other words, we can see how much the CEOs of the biggest hospital systems got paid for each day a patient spent in their hospitals. It’s a good way to compare the relative scope of responsibilities of each CEO, because it’s basically a measure of the number of patients served in each hospital and the extent of that service.

You’ll see that the numbers for the big hospital systems vary widely, although none match Mr. Roth’s payout.

The sweepstakes winner among the CEOs of the 20 largest hospital stems is Patrick Fry, of giant Northern California-based Sutter Health. He was paid $6.88 per patient day.

That’s multiples less than Roth’s $56.40, which reflects the fact that Fry’s organization served so many more patients — it provided 18 times as many patient days. But it’s well above the average or median for the CEOs of the top 20.

Fry retired as CEO at the end of 2015. Sutter spokeswoman Kami Lloyd declined to tell me how he could be reached for comment, or to make the new CEO, Sarah Krevans, available.

Another spokesperson, Karen Garner, pointed out that some of Fry’s pay included “one-time payments associated with his retirement,” and added, “The use of patient days, alone, is not a solid basis for comparison….[W]e are working hard to reduce patient days.”

She’s right. No metric provides a perfect measure for comparing CEO responsibilities. But total patient days provided in a year seems to be a good way to compare the relative scope of responsibilities of each CEO because it’s basically a measure of the number of patients served in each hospital and the extent of that service.

Still, it doesn’t account for the fact that all of these hospital systems have vast and rapidly expanding outpatient services and other operations, including walk-in clinics, labs, and physician practices. To the extent that some systems do relatively more outpatient work than others, using patient days will yield a skewed result.

Indeed, a CEO at a hospital that is effective in economizing by substituting outpatient treatments for overnight admissions, or by getting patients released sooner, will be “penalized” by these measures.

Nonetheless, I think it’s the best shorthand relative measure available.

A second caveat: The years in this chart often do not match exactly because the American Hospital Directory patient day data is typically more current (for 2015) than the CEO salary filings. Because of lags in the hospitals’ public filings with the IRS, many of the salaries are for 2014 (or in the case of Dignity Health, 2013), or for a fiscal year that is midway through 2015.

But, if anything, that lag in salary data probably understates the chief executives’ pay for each patient day, because he or she would likely have gotten a raise the following year.

Sensitive subject: In many places, the CEO of these tax-exempt non-profits is the highest paid executive in town. And as hospital CEO salaries have continued to rise, they have become a touchy subject even for those whose relativeearnings are the least generous.

One example: Richard Gilfillan, who runs Livonia, Michigan-based Trinity Health, earns 75 cents per patient day – the lowest ranking in the Top 20 hospitals. Yet Trinity spokeswoman Eve Pidgeon said her boss would also decline comment – although she added that his reaction when she told him he was lowest on the totem pole was, “That’s great.”

The other hospitals: It’s also worth a look at a few of the hospitals that aren’t in the top 20 — including Greenwich, since Roth’s pay is so high, and some of the country’s most well-known medical centers.

CEO Pay per Patient Day: Other Notable Hospitals

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Data: Patient Days: American Hospital Directory; CEO Salaries: latest publicly available IRS form 990 filed by each hospital. Chart: Andrew Witherspoon, Alex Duner / Axios

Again, the payouts vary widely.

Despite these inconsistencies, the boards of major hospitals and hospital systems always offer the same explanation in their IRS filing of how they determine executive compensation. They say they examine a variety of financial and quality of care metrics, which are then used by one of the small network of compensation consulting firms that work for hospitals to recommend salaries by comparing the executive to his or her peer group. It’s always about the peer group.

Yet, as Berkshire Hathaway’s Warren Buffet has frequently complained, compensation consultants more often seem to be used to rationalize a pre-ordained result by cherry-picking the right peer group.

How else could these wide variations be explained?

Why would John Noseworthy, who runs the acclaimed Mayo Clinic Health System, be paid only $3.01 per patient day, while Steven Sayfer, who runs the Bronx-based Montefiore system gets $7.14? And why does Toby Cosgrove, the revered CEO of the Cleveland Clinic, get $4.26 while Thomas Priselac of Los Angeles-based Cedars Sinai earns $13.99?

Are Noseworthy and Cosgrove not Priselac’s peers?

Through a spokesperson, Priselac declined an interview request. Cedars’ only explanation for the huge variation in salaries: After being told about where her boss ranked compared to Noseworthy and Cosgrove, spokesperson Sally Stewart said the hospital board determines compensation based on “a rigorous review of each position’s responsibilities and comparisons with other organizations for positions with similar responsibilities” and that “this review goes well beyond a comparison of in-patient days.”