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February 9, 2017

A journalist says CEO pay is 'costing' patients up to $56 a night. Here's why that's wrong.

Daily Briefing

By Josh Zeitlin, Editor

On Tuesday, Axios contributor Steven Brill published a ranking of the health system CEOs who are paid the most "for each day a patient spends in their hospital."

(You may remember Brill from his deeply reported, longform TIME Magazine pieces on hospital chargemaster prices and the launch of

In Axios, Brill writes that his newly created "earnings per patient day" metric—calculated using American Hospital Directory data on patient beds and days and IRS compensation data for not-for-profit health systems—"lets us see not just how much [CEOs are] making, but how much they're costing their patients." Hospital and health system CEOs named in the article earn from 75 cents to $56.40 per hospital patient day.

Reasonable people can disagree about whether health system CEOs are paid appropriately. But while Brill is an experienced journalist with deep connections in the industry, his ranking and metric don't shed much light on the compensation debate.

Here are three reasons why I think Brill's metric misses the mark.

1. Health systems don't just serve hospital patients

Brill writes that "no metric provides a perfect measure for comparing [health system] 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."

Yet health systems today aren't just collections of hospitals. Far from it.

Many health systems have tens or even hundreds of outpatient sites of care. Some have ACOs, nursing homes, insurance companies, home care and hospice services, pharmacies, and even technology companies.

In other words, patient days in the hospital doesn't come close to reflecting the responsibilities of health system CEOs.

Brill acknowledges that his metric "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" and that "to the extent that some systems do relatively more outpatient work than others, using patient days will yield a skewed result."

Still, he adds that he thinks his metric is "the best shorthand relative measure available." But given the wide range of health systems' offerings, I don't think it provides much, if any, insight. The results are far too skewed.

2. Many systems are trying to reduce inpatient stays

Under Brill's metric, if a health system's number of hospital patient days goes down while its CEO's pay remains constant, then its CEO would appear to be "costing patients" more.

However, today many health systems are trying to keep patients out of the hospital.

Some examples, among many to pick from: Mount Sinai Health System in 2015 ran an ad that declared, "If our beds are filled, it means we've failed." And Geisinger Health System President and CEO David Feinberg in 2015 told the Wall Street Journal that he thinks his "job ultimately is to close every one of our hospitals" and provide care for patients in other ways.

A metric that doesn't account for the outpatient shift fails to reflect today's health care environment.

3. Executive compensation may reward CEOs for cutting costs

Finally, as Modern Healthcare noted in its most recent Executive Compensation Survey findings, hospitals are increasingly using pay-for-performance compensation models for their CEOs, which can extend well beyond hospital admissions.

A CEO might receive higher pay, for example, for systematically reducing unnecessary hospital readmissions—a change that could greatly reduce the total cost of health care delivery. In such a case, it would be misleading to talk about how much the CEO's compensation "cost" patients without also accounting for the overall money saved due to the CEO's reforms.

Brill's metric doesn't account for whether a CEO's pay was the result of achieving key goals—and in fact doesn't account for outcomes at all.

The bottom line

So Brill's metric, if taken at face value, is deeply misleading—but perhaps it's a mistake to take Brill so literally.

His larger point seems to be that health care is really, really expensive. It's responsible for about a sixth of the U.S. economy, a share that keeps climbing every year. In Brill's words, the industry can seem to operate "in a kind of alternate universe compared to the rest of the American economy."

Of course, the benefits of the American health care system—in suffering averted, health restored, and lives saved—are also tremendous. But for as long as costs remain high, there's likely to be a continued debate about whether health system CEOs are paid appropriately.

That makes it all the more important that the metrics used to assess CEO compensation and performance are good ones.

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