Investing in the new healthcare CEO

February 3, 2015 | Becker's Hospital Review

Investment in the healthcare CEO is an investment in the future health of the community.

Healthcare is undergoing sweeping, ongoing change. The Patient Protection and Affordable Care Act has added complexities, raised expectations surrounding accessibility and affordability, and impacted the bottom lines and margins of all healthcare organizations.

These organizations, especially nonprofits, are held more accountable than almost any other under the PPACA, including increased scrutiny of patient satisfaction. Revenue must increase to provide efficient, quality care and reimbursements may be cut further if predetermined metrics are not met.

A CEO's role is increasingly multi-dimensional, requiring management of large organizations with many constituents and complex, often competing responsibilities including hospital operations, physician practices and services outside the traditional acute-care hospital.

National trends in CEO pay in nonprofit hospitals and health systems

Harvard University's JAMA Internal Medicine found that CEO compensation may be correlated with the number of beds, patient satisfaction surveys, the institution's teaching component and technological capacity. But no correlation, yet, between pay and hospital margins, liquidity, occupancy rates, mortality or readmission rates. And "when they do," says the study’s author, Ashish Jha, "they can have a profound impact on the priorities and effectiveness of U.S. hospitals."

The growing emphasis on patient satisfaction and other predetermined metrics will challenge even strong organizations in strong economic climates, should be seen as a viable ROI by governing bodies and must factor into CEO pay.

Most CEO compensation is not based on quality, market penetration and other quality related criteria. Importance is given to savings from cuts in staff and/or from other first line cost control measures. Increases to nonprofit health system CEO compensation averaged only 4 percent in 2013, and the 2013 National Healthcare Leadership Compensation Survey found that leaders of more than one hospital and/or additional outside entities only make between 1.5 to two times as much as leaders of individual hospitals.

The survey found that the median salary of an independent health system CEO was $750,000 in 2013, compared to $539,000 for a subsidiary health system CEO. Median salaries for independent hospital CEOs were $380,000; health system CEOs $645,700 to $873,800; individual hospital CEOs $368,700 to $402,500; all depending on the hospital's ownership status, i.e. for-profit vs. public.

Future CEO compensation should be based on the overall health of the organization at hand as demonstrated in clear metrics that show improvement across the continuum of care and not solely on bed size, scope of service provided and other out-of-date measures.

On average, healthcare executives on the provider/hospital side earn one-third of what their for-profit counterparts do. As healthcare organizations seek leaders with the best business minds and strong financial, strategic and marketing skills, they must realize that they are competing across industries that pay more. Putting the imbalance further in perspective, these leaders may only be responsible for a single, consumer product, while the healthcare organization’s "customer" will flourish or die, literally, depending on whether the leader can "get it right" and correctly bring all the pieces of a very large puzzle together. As healthcare delivery increasingly values meaningful use and accountability, institutions must trust that those leading their organizations to high-quality outcomes deserve to be paid in a manner that incentivizes the achievement of those goals in a pay-for-performance base plus incentive model.

The newly evolved skill set of the hospital CEO

Today's healthcare CEO must couple specialized knowledge about the day-to-day operations of the professionals they manage with the strong, general business acumen possessed by their counterparts in other industries. Qualities needed to successfully manage health systems today include:

  • Identification of problems and improvements needed
  • Standardization of internal processes and practices that fully integrate medical staff 
  • Stakeholders' buy-in of an overall vision for the future
  • Sensitivity to the impact of change on all stakeholders and maintenance of clear communication
  • Engagement with internal and external communities served by the organization, as well as future payers
  • Robust financial and continuous quality improvement acuity
  • Original and creative strategic thinking
  • Confidence in new payment and care models, including starting their own insurance plans
  • Analytical and relational skills to create care-centric delivery systems
  • Recognition of the value of marketing directly to the consumer

Some organizations are looking outside of healthcare for talent, especially from other industries that faced large-scale change. Value is now on productivity, retail strategies, information technology, Lean Six Sigma and the elimination of waste. More than two-thirds of hospital CEOs hired in 2013 had little or no healthcare experience, and that number is expected to rise.

Conclusions and recommendations

"Healthcare is undergoing a dramatic transformation," says Peter Betts, a consultant to healthcare boards and former hospital CEO. "To attract and retain top talent, compensation must be competitive nationally and across industries."

Formerly a financial administrator with hospital focused operational acumen, CEOs are now change agents charged with improving both financial and clinical outcomes. It is imperative that CEOs define and drive strategies and establish cohesiveness within systems, and those charged with recruiting and hiring must invest fully in competitive compensation packages to attract the talent needed.

Healthcare represents approximately 17 percent of our nation's GDP, and leaders in the provider space must be compensated at competitive levels. The changing landscape demands complex skill sets to deliver quality healthcare and governing bodies must implement immediate development of compensation and incentive models that attract and retain these multi-talented and dynamic leaders.

Robin Singleton serves as Executive Vice President and Practice Leader for DHR International's National Healthcare Practice. She is a well-recognized and respected consultant in both the nonprofit and for profit healthcare sectors. Based in the firm's Atlanta, Georgia office, Ms. Singleton has conducted hundreds of senior level executive searches over a career span of 30 years solely in the healthcare industry. Prior to joining DHR International, Ms. Singleton was a senior partner at a national retained executive search firm specializing in the healthcare industry. Ms. Singleton holds a BS in business administration from Jacksonville State University.

For 25 years, DHR International has been a leading, privately held provider of executive search solutions with more than 50 wholly owned offices spanning the globe. DHR's renowned consultants specialize in all industries and functions in order to provide unparalleled senior-level executive search, management assessment and succession planning services tailored to the unique qualities and specifications of our select client base. For more information on DHR International, visit www.dhrinternational.com.

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